<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 27, 1996
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---------------------- -----------------------
COMMISSION FILE NUMBER 1-5517
SCIENTIFIC-ATLANTA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-0612397
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
ONE TECHNOLOGY PARKWAY, SOUTH
NORCROSS, GEORGIA 30092-2967
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
770-903-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
AS OF OCTOBER 25, 1996, SCIENTIFIC-ATLANTA, INC. HAD OUTSTANDING
77,304,775 SHARES OF COMMON STOCK.
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<PAGE> 2
PART I - FINANCIAL INFORMATION
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
September 27, September 29,
1996 1995
------------- -------------
<S> <C> <C>
SALES $261,664 $242,193
-------- --------
COSTS AND EXPENSES
Cost of sales 182,894 181,116
Sales and administrative 35,433 32,726
Research and development 28,033 22,767
Interest expense 134 147
Interest (income) (539) (751)
Other (income) expense, net (189) 179
-------- --------
Total costs and expenses 245,766 236,184
-------- --------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 15,898 6,009
PROVISION (BENEFIT) FOR INCOME TAXES
Current (10,215) 550
Deferred 15,302 1,373
-------- --------
NET EARNINGS FROM CONTINUING OPERATIONS 10,811 4,086
LOSS FROM DISCONTINUED OPERATIONS,
NET OF TAX -- (1,038)
GAIN (LOSS) ON SALE OF DISCONTINUED
OPERATIONS, NET OF TAX 3,400 (12,172)
-------- --------
NET EARNINGS (LOSS) $ 14,211 $ (9,124)
======== ========
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
PRIMARY
CONTINUING OPERATIONS $ 0.14 $ 0.05
DISCONTINUED OPERATIONS 0.04 (0.17)
-------- --------
NET EARNINGS (LOSS) $ 0.18 (0.12)
======== ========
FULLY DILUTED $ 0.18 $ (0.12)
======== ========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES AND COMMON
EQUIVALENT SHARES OUTSTANDING
PRIMARY 77,670 77,019
======== ========
FULLY DILUTED 77,837 77,019
======== ========
DIVIDENDS PER SHARE PAID $ 0.015 $ 0.015
======== ========
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE> 3
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
<TABLE>
<CAPTION>
In Thousands
----------------------------
September 27, June 28,
1996 1996
------------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 50,146 $ 20,930
Receivables, less allowance for doubtful
accounts of $3,884,000 at September 27
and $3,826,000 at June 28 230,356 252,882
Inventories 198,784 215,767
Deferred income taxes 34,011 50,979
Other current assets 9,674 22,413
--------- ---------
TOTAL CURRENT ASSETS 522,971 562,971
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and improvements 20,369 18,173
Buildings and improvements 37,772 38,628
Machinery and equipment 175,341 162,073
--------- ---------
233,482 218,874
Less-Accumulated depreciation and amortization 75,201 68,275
--------- ---------
158,281 150,599
--------- ---------
COST IN EXCESS OF NET ASSETS ACQUIRED 6,004 6,191
--------- ---------
OTHER ASSETS 46,007 43,561
--------- ---------
TOTAL ASSETS $ 733,263 $ 763,322
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current maturities of
long-term debt $ 1,565 $ 1,600
Accounts payable 85,540 106,542
Accrued liabilities 111,482 127,546
Income taxes currently payable 17,711 26,229
--------- ---------
TOTAL CURRENT LIABILITIES 216,298 261,917
--------- ---------
LONG-TERM DEBT, less current maturities 400 400
--------- ---------
OTHER LIABILITIES 40,941 37,353
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, authorized 50,000,000 shares;
no shares issued -- --
Common stock, $0.50 par value, authorized
350,000,000 shares; issued 77,372,128 shares at
September 27 and 77,255,528 shares at June 28 38,686 38,628
Additional paid-in capital 161,927 163,143
Retained earnings 277,259 264,206
Accumulated translation adjustments 746 740
--------- ---------
478,618 466,717
Less - Treasury stock, at cost
(237,298 shares at September 27 and
265,640 shares at June 28) 2,994 3,065
--------- ---------
475,624 463,652
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 733,263 $ 763,322
========= =========
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE> 4
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
September 27, September 29,
1996 1995
------------- -------------
<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: $26,823 $(15,616)
------- --------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (15,861) (14,020)
Proceeds from sale of discontinued operations 19,036 --
Other 1,359 190
------- --------
Net cash provided (used) by investing activities 4,534 (13,830)
------- --------
FINANCING ACTIVITIES:
Net short-term borrowings (35) (347)
Principal payments on long-term debt -- (16)
Dividends paid (1,158) (1,155)
Issuance of common stock 71 1,144
Treasury shares acquired (1,019) --
------- --------
Net cash used by financing activities (2,141) (374)
------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 29,216 (29,820)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,930 80,311
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $50,146 $ 50,491
======= ========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 106 $ 218
======= ========
Income taxes paid, net $ 124 $ 1,630
======= ========
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE> 5
NOTES:
(Amounts in thousands, except share data).
A. The accompanying consolidated financial statements include the
accounts of the company and all subsidiaries after elimination
of all material intercompany accounts and transactions.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and
Exchange Commission. These condensed financial statements
should be read in conjunction with the consolidated financial
statements and related notes contained in the 1996 Form 10-K.
The financial information presented in the accompanying
statements reflects all adjustments which are, in the opinion
of management, necessary for a fair presentation of the
periods indicated. All such adjustments are of a normal
recurring nature.
B. Earnings per share for the three months ended September 27,
1996 and September 29,1995 were computed based on the weighted
average number of shares of common stock outstanding and the
equivalent shares derived from dilutive stock options. See
Exhibit 11.
C. Inventories consist of the following:
<TABLE>
<CAPTION>
September 27, June 28,
1996 1996
------------- ---------
<S> <C> <C>
Raw materials and work-in-process $ 122,415 $ 131,762
Finished goods 76,369 84,005
--------- ---------
Total inventory $ 198,784 $ 215,767
========= =========
</TABLE>
D. During the quarter ended September 29, 1995, the company
decided to discontinue its defense-related businesses in San
Diego, California, because these businesses were not aligned
with the company's core business strategies. A one-time
charge of $12,172, net of a tax benefit of $5,728, for the
estimated loss on sale of discontinued operations was recorded
in the quarter ended September 29, 1995.
During the quarter ended September 27, 1996, the company
completed negotiations with a prime contractor, for whom the
defense-related businesses had performed work as a
subcontractor, to settle issues related to the pricing of
unexercised options for additional products. The company also
completed the sale of its defense-related businesses to Global
Associates, Ltd. (Global) for cash of $13,142 and secured and
unsecured notes aggregating approximately $4,700. The net
realizable value of the assets of the defense-related
businesses and the settlement with the prime contractor were
more favorable than the company had anticipated when it
decided to exit these businesses; accordingly, the company
recognized a pre-tax gain of $5,000 from these transactions in
the first quarter of fiscal 1997. After recording the
pre-tax gain of $5,000, the company had a reserve of
approximately $8,200 at September 27, 1996 for potential
sales price adjustments, indemnifications provided to Global,
legal, severance and other miscellaneous expenses related to
the sale and the settlement with the prime contractor.
Sales and losses from discontinued operations were as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Sales $ 1,920 $ 5,020
Losses from discontinued
operations, net of tax $ 817 $ 1,038
Tax benefit $ 385 $ 488
</TABLE>
E. In October 1995, the company announced that it had adopted a
stock buyback program for the purchase of up to five million
shares of its common stock. During the quarter ended September
27, 1996, the company purchased 80,000 shares at an aggregate
cost of $1,019. The company re-issues these shares under the
company's stock option plan, 401(k) plan, employee stock
purchase plan and other stock-based employee compensation.
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<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Scientific-Atlanta had stockholders' equity of $475.6 million and cash
on hand was $50.1 million at September 27, 1996. Cash increased $29.2 million
during the quarter as cash generated from earnings, accounts receivable
collections, reductions in inventory levels and the sale of discontinued
operations exceeded expenditures for equipment, expansion of manufacturing
capacity and reductions in payables. The current ratio of 2.4:1 at September
27, 1996, compared to 2.1:1 at June 28, 1996. At September 27, 1996, total
debt was $2.0 million or less than 1 percent of total capital invested.
Short-term debt consists primarily of borrowings by the company's international
operations to support their working capital requirements. The company believes
that funds generated from operations, existing cash balances and its available
senior credit facility will be sufficient to support growth and planned
expansion of manufacturing capacity.
RESULTS OF OPERATIONS
Sales for the quarter ended September 27, 1996, were $261.7 million,
up 8 percent over the prior year's sales of $242.2 million. Higher sales
volume of transmission products was the primary factor in the year-to-year
sales increase. Sales volume of addressable converter products and Sega game
adapters declined as compared to the prior year. Increased sales of satellite
systems, primarily PowerVu(TM) digital video systems and VSAT (Very Small
Aperture Terminal) data networks, also contributed to the year-to-year
increase. International sales accounted for 35 percent of total sales for the
quarter ended September 27, 1996, as compared to 34 percent of total sales in
the prior year.
Gross margins were 30.1 percent, up 4.9 percentage points over the
prior year, reflecting the impact of internal programs to improve quality and
cost structure, the ramp-up of the Juarez, Mexico manufacturing facility and
favorable product mix.
Certain material purchases are denominated in Japanese yen and,
accordingly, the purchase price in U.S. dollars is subject to change based on
exchange rate fluctuations. The company has forward exchange contracts to
purchase yen to hedge a portion of its exposure on purchase commitments for a
period of approximately twelve months.
Research and development costs were up $5.3 million, or 23 percent,
over the prior year reflecting the company's continued investment in research
and development programs to support new product initiatives. The company plans
to launch three major digital system categories during fiscal 1997: high speed
data including cable modems, cable telephony and digital video including
broadcast and interactive set-tops. The company expects to continue
significant research and development investments and anticipates start-up costs
as these new products are rolled out.
Selling and administrative expense increased $2.7 million, or 8
percent, from the prior year. Increased selling expenses reflect costs
associated with higher sales volumes, ongoing investments to support expansion
into international markets and to support the introduction of new products and
a build-up in the infrastructure to handle the growth the company is
experiencing. Administrative expenses declined as the company continued
efforts to improve internal processes and systems to enhance quality and the
overall cost structure.
Other (income) expense for the quarters ended September 27, 1996 and
September 29, 1995, included the results of foreign currency transactions and
partnership activities and net gains from rental income and other miscellaneous
items. There were no significant items in other (income) expense in the
quarters ended September 27, 1996 or September 29, 1995.
The company's effective income tax rate was 32 percent for the
quarter, unchanged from the prior year.
Net earnings from continuing operations for the quarter ended
September 27, 1996 were $10.8 million, up $6.7 million over the prior year.
Higher sales volume and improved gross margins were offset partially by
increased research and development expenses and selling expenses. Lower gross
margins more than offset earnings from higher sales volumes in the quarter
ended September 29, 1995.
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<PAGE> 7
In October 1995, the company announced its intent to sell its
defense-related businesses in San Diego, California and recorded a one-time,
after-tax charge of $13.2 million in the quarter ended September 29, 1995.
During the quarter ended September 27, 1996, the company completed
negotiations with a prime contractor, for whom the defense-related businesses
had performed work as a subcontractor, to settle issues related to the pricing
of unexercised options for additional products. The company also completed the
sale of its defense-related businesses to Global Associates, Ltd. for cash of
$13.1 million and secured and unsecured notes aggregating approximately
$4.7 million. The net realizable value of the assets of the defense-related
businesses and the settlement with the prime contractor were more favorable
than the company had anticipated when it decided to exit these businesses;
accordingly the company recognized a pre-tax gain of $5.0 million from these
transactions in the quarter ended September 27, 1996.
Net earnings for the quarter ended September 27, 1996 were $14.2
million, including an after-tax gain of $3.4 million related to the sale of
discontinued operations, compared to a net loss in the prior year of $9.1
million, which included an after-tax charge of $13.2 million related to
discontinued operations.
Any of the above statements that are not statements about historical
facts are forward-looking statements. Such forward-looking statements are
based upon current expectations but involve risks and uncertainties. Investors
are referred to the Cautionary Statements contained in Exhibit 99 to this Form
10-Q for a description of the various risks and uncertainties that could cause
the company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the company's
forward-looking statements. Such Exhibit 99 is hereby incorporated by
reference into Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PowerVu is a trademark of Scientific-Atlanta, Inc.
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<PAGE> 8
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits.
EXHIBIT NO. DESCRIPTION
11 Computation of Earnings Per Share
27 Financial Data Schedule (for SEC use only)
99 Cautionary Statements
(b) No reports on Form 8-K were filed during the quarter ended
September 27, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCIENTIFIC-ATLANTA, INC.
------------------------
(Registrant)
Date: November 8, 1996 /s/Harvey Wagner
-------------------------- ----------------------------------------
Harvey A. Wagner
Senior Vice President, Finance
Chief Financial Officer and Treasurer
(Principal Financial Officer and duly
authorized signatory of the Registrant)
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<PAGE> 1
EXHIBIT 11
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
September 27, September 29,
1996 1995
------------- -------------
<S> <C> <C>
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 77,127 77,019
Add - Additional shares of common stock assumed
issued upon exercise of options using the "treasury stock"
method as it applies to the computation of primary
earnings per share 543 1,625
-------- --------
NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 77,670 78,644
Add - Additional shares of common stock assumed
issued upon exercise of options using the "treasury
stock" method as it applies to the computation of
fully diluted earnings per share 167 --
-------- --------
NUMBER OF SHARES OUTSTANDING
ASSUMING FULL DILUTION 77,837 78,644
======== ========
NET EARNINGS (LOSS) FOR PRIMARY
AND FULLY DILUTED COMPUTATION
Continuing Operations $ 10,811 $ 4,086
Discontinued Operations 3,400 (13,210)
-------- --------
Net Earnings (Loss) $ 14,211 $ (9,124)
======== ========
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
PRIMARY
Continuing Operations $ 0.14 $ 0.05
Discontinued Operations 0.04 (0.17)
-------- --------
Net Earnings (Loss) $ 0.18 $ (0.12)
======== ========
FULLY DILUTED
Continuing Operations $ 0.14 $ 0.05
Discontinued Operations 0.04 (0.17)
-------- --------
Net Earnings (Loss) $ 0.18 $ (0.12)
======== ========
</TABLE>
Note: In the three months ended September 29, 1995 the dilutive effect of
equivalent shares derived from stock options was less than 3 percent
and therefore, the equivalent shares were not included in the
computation of earnings per share.
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 27, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1997
<PERIOD-START> JUN-29-1996
<PERIOD-END> SEP-27-1996
<CASH> 50,146
<SECURITIES> 0
<RECEIVABLES> 234,240
<ALLOWANCES> 3,884
<INVENTORY> 198,784
<CURRENT-ASSETS> 522,971
<PP&E> 233,482
<DEPRECIATION> 75,201
<TOTAL-ASSETS> 733,263
<CURRENT-LIABILITIES> 216,298
<BONDS> 400
0
0
<COMMON> 38,686
<OTHER-SE> 436,938
<TOTAL-LIABILITY-AND-EQUITY> 733,263
<SALES> 261,664
<TOTAL-REVENUES> 261,664
<CGS> 182,894
<TOTAL-COSTS> 182,894
<OTHER-EXPENSES> 28,033
<LOSS-PROVISION> 66
<INTEREST-EXPENSE> 134
<INCOME-PRETAX> 15,898
<INCOME-TAX> 5,087
<INCOME-CONTINUING> 10,811
<DISCONTINUED> 3,400
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,211
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
<PAGE> 1
EXHIBIT 99
CAUTIONARY STATEMENTS
From time to time, the company may publish, verbally or in written form,
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new products,
research and development activities and similar matters. In fact, this Form
10-Q (or any other periodic reporting documents required by the 1934 Act) may
contain forward-looking statements reflecting the current views of the company
concerning potential future events or developments. The Private Securities
Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for
forward-looking statements. These Cautionary Statements are being made
pursuant to the provisions of the Act and with the intention of obtaining the
benefits of the "safe harbor" provisions of the Act. In order to comply with
the terms of the "safe harbor," the company cautions investors that any
forward-looking statements made by the company are not guarantees of future
performance and that a variety of factors could cause the company's actual
results and experience to differ materially from the anticipated results or
other expectations expressed in the company's forward-looking statements. The
risks and uncertainties which may affect the operations, performance,
development and results of the company's business include, but are not limited
to, the following: uncertainties relating to economic conditions; uncertainties
relating to government and regulatory policies; uncertainties relating to
customer plans and commitments; the company's dependence on the cable
television industry and cable television spending; signal security; the pricing
and availability of equipment, materials and inventories; technological
developments; performance issues with key suppliers and subcontractors;
governmental export and import policies; global trade policies; worldwide
political stability and economic growth; regulatory uncertainties; delays in
testing of new products; rapid technology changes; the highly competitive
environment in which the company operates; the entry of new, well-capitalized
competitors into the company's markets; changes in the financial markets
relating to the company's capital structure and cost of capital; and
uncertainties inherent in international operations and foreign currency
fluctuations. The words "believe," "expect," "anticipate," "project," "plan"
and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date the statement was made.
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