<PAGE>
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 MARCH 28, 1997
--------------------------------
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 APRIL 25, 1997, SCIENTIFIC-ATLANTA, INC. HAD OUTSTANDING 77,537,687
SHARES OF COMMON STOCK.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
- ------ --------------------
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ----------------------------
March 28, March 29, March 28, March 29,
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
SALES $ 301,741 $ 271,883 $ 845,589 $ 775,176
COSTS AND EXPENSES
Cost of sales 207,449 196,673 587,190 571,172
Sales and administrative 41,545 35,045 114,602 101,434
Research and development 29,566 24,028 86,707 70,666
Interest expense 90 206 344 573
Interest (income) (1,161) (447) (2,812) (1,421)
Other (income) expense, net 45 (571) (770) 87
-------- ------- ------- -------
Total costs and expenses 277,534 254,934 785,261 742,511
EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 24,207 16,949 60,328 32,665
PROVISION (BENEFIT) FOR
INCOME TAXES
Current 11,547 5,448 10,813 20,777
Deferred (3,801) (24) 8,492 (10,324)
-------- ------- ------- -------
NET EARNINGS FROM CONTINUING
OPERATIONS 16,461 11,525 41,023 22,212
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 $ 16,461 $ 11,525 $ 44,423 $ 9,002
======== ======== ======= =======
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
PRIMARY
CONTINUING OPERATIONS $ 0.21 $ 0.15 $ 0.53 $ 0.29
DISCONTINUED OPERATIONS -- -- 0.04 (0.17)
-------- -------- ------- -------
NET EARNINGS $ 0.21 $ 0.15 $ 0.57 $ 0.12
======== ======== ======= =======
FULLY DILUTED $ 0.21 $ 0.15 $ 0.57 $ 0.12
======== ======== ======= =======
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES AND COMMON
EQUIVALENT SHARES OUTSTANDING
PRIMARY 78,259 76,464 77,945 76,621
======== ======== ======== ========
FULLY DILUTED 78,259 76,464 78,128 76,621
======== ======== ======== ========
DIVIDENDS PER SHARE PAID $ 0.015 $ 0.015 $ 0.045 $ 0.045
======== ======== ======= =======
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
<TABLE>
<CAPTION>
In Thousands
------------------------
March 28, June 28,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 81,222 $ 20,930
Receivables, less allowance for doubtful
accounts of $3,967,000 at March 28
and $3,826,000 at June 28 262,435 252,882
Inventories 194,611 215,767
Deferred income taxes 40,423 50,979
Other current assets 15,412 22,413
-------- --------
TOTAL CURRENT ASSETS 594,103 562,971
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and improvements 19,907 18,173
Buildings and improvements 31,400 38,628
Machinery and equipment 198,153 162,073
-------- --------
249,460 218,874
Less-Accumulated depreciation and amortization 87,007 68,275
-------- --------
162,453 150,599
-------- --------
COST IN EXCESS OF NET ASSETS ACQUIRED 11,339 6,191
-------- --------
OTHER ASSETS 50,585 43,561
-------- --------
TOTAL ASSETS $ 818,480 $ 763,322
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current maturities of long-term debt $ 2,100 $ 1,600
Accounts payable 124,802 106,542
Accrued liabilities 119,467 127,546
Income taxes currently payable 20,482 26,229
-------- --------
TOTAL CURRENT LIABILITIES 266,851 261,917
-------- --------
LONG-TERM DEBT, less current maturities 2,390 400
-------- --------
OTHER LIABILITIES 42,694 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 77,504,640 shares at
March 28 and 77,255,528 shares at June 28 38,752 38,628
Additional paid-in capital 163,939 163,143
Retained earnings 305,152 264,206
Accumulated translation adjustments 329 740
-------- --------
508,172 466,717
-------- --------
Less - Treasury stock, at cost (113,000 shares at March 28
and 265,640 shares at June 28) 1,627 3,065
-------- --------
506,545 463,652
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 818,480 $ 763,322
======= ========
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
March 28, March 29,
1997 1996
--------- ----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES: $ 87,761 $ 18,355
------ ------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (40,105) (53,080)
Acquisition of business, net of cash acquired (11,066) --
Proceeds from sale of discontinued operations 18,483 --
Proceeds from sale of property, plant and equipment 13,142 2,312
Other (2,375) (6,780)
------- ------
Net cash used by investing activities (21,921) (57,548)
------- ------
FINANCING ACTIVITIES:
Net short-term borrowings (repayments) (1,218) 789
Principal payments on long-term debt -- (123)
Dividends paid (3,477) (3,447)
Issuance of common stock 2,120 3,138
Treasury shares acquired (2,973) (12,411)
------ ------
Net cash used by financing activities (5,548) (12,054)
------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 60,292 (51,247)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,930 80,311
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 81,222 $ 29,064
====== ======
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 285 $ 567
====== =====
Income taxes paid, net $ 19,832 $ 5,057
====== =====
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
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 and nine months ended March 28, 1997 and
March 29, 1996, were computed based on the weighted average number of
shares outstanding and equivalent shares derived from dilutive stock
options. See Exhibit 11.
C. Inventories consist of the following:
<TABLE>
<CAPTION>
March 28, June 28,
1997 1996
--------- --------
<S> <C> <C>
Raw materials and work-in-process $140,476 $131,762
Finished goods 54,135 84,005
-------- --------
Total inventory $194,611 $215,767
======== ========
</TABLE>
D. On February 28, 1997, the Company acquired 100 percent of the outstanding
stock of Arcodan A/S (Arcodan) for $15,000 in cash. Arcodan is a Danish
manufacturer of advanced analog and digital headend systems, opto-
electronics and RF distribution equipment. The acquisition was accounted
for as a purchase and, accordingly, the acquired assets and liabilities
were recorded at their estimated fair value at the date of acquisition.
The purchase price has been allocated to the assets and liabilities
acquired, including $5,709 to goodwill.
E. 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.
During the same quarter, the company 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. At March 28, 1997, the
company had a reserve of approximately $7,500 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 earnings (loss) from the discontinued operations of the
defense-related businesses were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- ----------------------
March 28, March 29, March 28, March 29,
1997 1996 1997 1996
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ -- $6,012 $1,920 $18,457
Losses from discontinued
operations, net of tax $ -- $ (923) $ (817) $(1,702)
Tax benefit $ -- $ (434) $ (385) $ (801)
</TABLE>
<PAGE>
At June 28, 1996, the net assets of the discontinued operations included
inventory, accounts receivable, machinery and equipment, accounts
payable, and accrued expenses and were included in other current assets
in the Consolidated Statement of Financial Position.
F. During the quarter ended March 28, 1997, the company decided to dispose
of two business units, microwave and mobile, because these businesses
were not aligned with the company's core business strategies. The
company recorded a charge of $5,526 during the quarter ended March 28,
1997 to adjust the carrying amount of the net assets held for sale to net
realizable value and to provide for estimated indemnifications to the
purchaser, severance, closing costs and other miscellaneous expenses
related to the sale. During the ordinary course of business, the company
encounters certain risks and uncertainties related to the satisfactory
performance under contracts which it evaluates periodically and provides
reserves, if appropriate. The estimated loss on the sale of these
businesses was computed on the basis that the company would sell the
businesses at an amount that would allow the purchaser, with reasonable
assurance, to complete the contracts at a reasonable margin. The charge
was included in Other (income) expense. The company believes that it
will complete the sale of these two business units within twelve months.
Other (income) expense for the three and nine months ended March 28, 1997
also included a gain of $5,561 from the sale of land and a building in
San Diego County, California not required for current operations.
G. The company purchased 225,000 shares of its common stock at an aggregate
cost of $2,973 during the nine months ended March 28, 1997, and
1,010,000 shares at an aggregate cost of $12,411 during the nine months
ended March 29, 1996, under a stock buyback program for the purchase of
up to 5,000,000 shares of its common stock. 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 plans.
H. In February 1997, the Financial Accounting Standards Board issued
Statement 128 "Earnings Per Share" superseding Opinion 15. The company
believes the adoption of this standard will not have a material impact on
the company's computation of earnings per share. Earnings per share
computed under the provisions of Statement 128 were the same as those
computed under Opinion 15 for the three and nine months ended March 28,
1997 and March 29, 1996.
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------ -----------------------------------------------------------------------
OF OPERATIONS
-------------
FINANCIAL CONDITION
- -------------------
Scientific-Atlanta had stockholders' equity of $506.5 million and cash on
hand was $81.2 million at March 28, 1997. Cash increased $60.3 million during
the nine months ended March 28, 1997 as cash generated from earnings, reductions
in inventory levels and the sale of discontinued operations and land and
building not required for current operations exceeded expenditures for
equipment, expansion of manufacturing capacity and the acquisition of Arcodan
A/S. Arcodan is a Danish manufacturer of advanced analog and digital headend
systems, opto-electronics and RF distribution equipment. The current ratio was
2.2:1 at March 28, 1997, compared to 2.1:1 at June 28, 1996. At March 28, 1997,
total debt was $4.5 million or less than one percent of total capital invested.
Current debt at March 28, 1997 consisted of the current maturities of long-term
debt. Short-term debt at June 28, 1996 consisted primarily of borrowings by the
company's international operations to support their working capital
requirements. There was no short-term debt at March 28, 1997. 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 three and nine months ended March 28, 1997, were $301.7
million and $845.6 million, respectively, up 11 and 9 percent, respectively,
over the prior year. Higher domestic sales volume of subscriber products during
the third quarter of fiscal 1997 was the primary factor in the year-to-year
sales increase. Sales of satellite communications products, particularly
international, were down during the third quarter from last year due primarily
to temporary delays by customers in placing orders for standard network products
and delays in customer financing. Higher domestic sales volumes of subscriber
and transmission products during the first nine months of fiscal 1997 were the
primary factors in the increase over fiscal 1996. Increased sales of satellite
systems, primarily PowerVu/TM/ digital video systems, also contributed to the
year-to-year increase during first nine months of fiscal 1997 over the prior
year. Sales volume of Sega game adapters declined as compared to the prior
year. International sales for the quarter declined slightly from the prior year
and accounted for 34 percent of total sales. International sales for the nine
months ended March 28, 1997, accounted for 37 percent of total sales,
approximately the same as in the prior year.
Gross margins of 31.2 percent and 30.6 percent, for the three and nine
months ended March 28, 1997, improved 3.5 and 4.3 percentage points,
respectively, over the prior year, reflecting the impact of internal programs to
improve quality and reduce cost, the ramp-up of the Juarez, Mexico manufacturing
facility, and favorable exchange rates on Japanese yen compared to the prior
year. Favorable margin improvements were offset partially by increased volumes
of certain subscriber products which have a lower margin than some of the
company's other products.
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 increased $5.5 million and $16.0 million,
respectively, or 23 percent, for the three and nine months ended March 28, 1997,
over the comparable periods of the prior year reflecting the company's continued
investment in research and development programs to support existing products and
new product initiatives. New product initiatives include high speed cable data
modems, cable telephony products, digital video broadcast and interactive
settops and home automation products for the utility industry. The company
expects to begin shipment of digital video broadcast and interactive settops
during the first half of fiscal 1988. The company expects to continue
significant research and development investments. The company periodically
evaluates the strategic direction of the company including an assessment of the
markets the company serves and alternative methods of generating revenues from
its investments in research and development programs, such as licensing of
software and hardware technology.
Selling and administrative expense increased $6.5 million, or 19 percent,
and $13.2 million, or 13 percent, respectively, for the three and nine months
ended March 28, 1997, over the comparable periods of the prior year. Increased
selling expenses reflect costs associated with higher sales volumes, ongoing
investments to support expansion into international markets, particularly in the
Asia Pacific and Latin American regions, 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 increased as higher consulting fees,
administrative expenses of ATx Telecom Systems, Inc. acquired in June 1996 and
other miscellaneous items more than offset cost reductions from internal
processes and systems improvements.
<PAGE>
Other (income) expense for the three and nine months ended March 28, 1997
included a gain of $5.6 million from the sale of land and a building in San
Diego County, California not required for current operations, the results of
foreign currency transactions and partnership activities and net gains from
rental income and other miscellaneous items. During the quarter ended March 28,
1997, the company decided to dispose of two business units, microwave and
mobile, because these businesses were not aligned with the company's core
business strategies. The company recorded a charge of $5.5 million during the
quarter ended March 28, 1997 to adjust the carrying amount of the net assets
held for sale to net realizable value and to provide for estimated
indemnifications to the purchaser, severance, closing costs and other
miscellaneous expenses related to the sale. During the ordinary course of
business, the company encounters certain risks and uncertainties related to the
satisfactory performance under contracts which it evaluates periodically and
provides reserves, if appropriate. The estimated loss on the sale of these
businesses was computed on the basis that the company would sell the businesses
at an amount that would allow the purchaser, with reasonable assurance, to
complete the contracts at a reasonable margin. The company believes that it
will complete the sale of these two business units within twelve months.
Other (income) expense for the three and nine months ended March 29, 1996
included a loss of $3.0 million from the settlement of yen-denominated foreign
exchange contracts, a gain of $3.3 million from the sale of land and a building
in San Diego County, California not required for current operations, and other
miscellaneous items including other foreign currency transactions, partnership
activities and rental income.
The company's effective income tax rate was 32 percent, unchanged from the
prior year.
Net earnings from continuing operations were $16.5 million for the quarter
ended March 28, 1997, up 43 percent over the prior year. Net earnings from
continuing operations were $4l.0 million for the nine months ended March 28,
1997, up $18.8 million or 85 percent over the prior year. Higher sales volume
and improved gross margins were offset partially by increased research and
development expenses and increased selling and administrative expenses. Net
earnings from continuing operations were $11.5 million and $22.2 million,
respectively, for the three and nine months ended March 29, 1996. Net earnings
in the quarter and for the nine months ended March 29, 1996 were negatively
impacted by lower sales volume, unfavorable exchange rates for the yen and
higher spending for research and development.
The company periodically evaluates the contribution of its business units
and products to the company's overall strategic direction. 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 strategy of being a provider of satellite and
terrestrial based networks and applications. In October 1995, the company
announced its intent to sell its defense-related businesses 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 three months ended March 28, 1997 were $16.5 million,
up $4.9 million over the prior year. Net earnings for the nine months ended
March 28, 1997 were $44.4 million, including an after-tax gain of $3.4 million
related to the sale of discontinued operations, compared to $9.0 million in the
prior year, 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.
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------ ----------------------------------------------------------
This information is not yet required, per the Instructions to Item 305 of
Regulation S-K.
<PAGE>
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
- ------ -----------------
In April 1997, StarSight Telecast, Inc. and Scientific-Atlanta, Inc.
entered into a License and Settlement Agreement which resolved all
outstanding disputes previously pending between the parties (including
all pending litigation matters and arbitration matters) and established
a new marketing relationship. The Agreement also provided for cross-
licensing of technologies and called for an initial payment by
Scientific-Atlanta to StarSight Telecast.
Item 2 Changes in Securities
- ------ ---------------------
The information provided in the registrant's Form 8-K, filed on April 7,
1997, is incorporated by reference into this item.
Item 6 Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits.
Exhibit No. Description
----------- -----------
4 Rights Agreement, dated as of February 23, 1997,
between Scientific-Atlanta, Inc. and The Bank of New
York, as Rights Agent, which includes as Exhibit A
Preferences and Rights of Series A Junior Participating
Preferred Stock and as Exhibit B thereto the Form of
Rights Certificate, all incorporated by reference to
registrant's Form 8-A Registration Statement, filed on
April 7, 1997.
10.1 See Exhibit No. 4 above.
10.2 Non-Qualified Stock Option Agreement between
Scientific-Atlanta, Inc. and Larry L. Enterline,
incorporated by reference to the registrant's Form S-8
Registration Statement, filed on March 11, 1997.
10.3 Third Amendment, dated as of January 27, 1997, to the
Credit Agreement, which Credit Agreement was filed as
an exhibit to registrant's report on Form 10-K for the
fiscal year ended June 30, 1995.
11 Computation of Earnings Per Share
27 Financial Data Schedule
99 Cautionary Statements
(b) One report on Form 8-K was filed during the quarter ended March
28, 1997. Such Form 8-K was filed on April 7, 1997, to report the
company's Rights Agreement which is incorporated by reference into
Item 2 to this Part II.
Date: May 9, 1997 /s/ Harvey A. Wagner
----------- ----------------
Harvey A. Wagner
Senior Vice President, Finance
Chief Financial Officer and Treasurer
(Principal Financial Officer and duly
authorized signatory of the Registrant)
<PAGE>
EXHIBIT 10.3
EXECUTION COPY
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT dated as of January 27, 1997, by
and among SCIENTIFIC-ATLANTA, INC. (the "Borrower"), each of the financial
institutions party hereto (the "Lenders"), THE BANK OF NEW YORK and ABN AMRO
BANK N.V., acting through its Atlanta Agency, as Co-Agents (the "Co-Agents"),
and NATIONSBANK, N.A. (SOUTH), formerly known as NationsBank of Georgia,
National Association, as Agent (the "Agent").
WHEREAS, the Borrower, the Lenders, the Co-Agents and the Agent are parties
to that certain Credit Agreement dated as of May 11, 1995, as amended prior to
the date hereof (the "Credit Agreement"); and
WHEREAS, the parties hereto desire to amend certain provisions of the
Credit Agreement on the terms and conditions contained herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto hereby agree as follows:
Section 1. Specific Amendment to Credit Agreement.
--------------------------------------
(a) The definition of the term "Capital Expenditures" contained in Section
1.1 of the Credit Agreement is hereby amended by deleting the last sentence of
such definition.
(b) The definition of the term "Consolidated Net Income" contained in
Section 1.1 of the Credit Agreement is hereby amended by replacing the last
sentence of such definition with the following sentence:
Each of the following shall be disregarded when determining Consolidated
Net Income: (a) the amount of $9,916,000 representing in-progress research
and development costs expensed by the Borrower for the fourth fiscal
quarter of its 1996 Fiscal Year as a result of its acquisition of ATx
Telecom Systems, Inc. from Amoco Technology Company and (b) the amount of
$19,516,000 representing the charge to the Borrower's earnings resulting
from the arbitration award in favor of StarSight Telecast, Inc. granted by
a California arbitration panel on July 24, 1996.
(c) The Credit Agreement is amended by deleting Section 9.1(b) and
substituting in its place the following:
<PAGE>
(b) Minimum Fixed Charge Coverage Ratio. The ratio of (i) (A)
-----------------------------------
Consolidated EBITDA for the Four-Quarter Period ending on the date of
determination plus (B) Consolidated Operating Lease Expense for such Four-
----
Quarter Period to (ii) (A) Consolidated Interest Expense for such Four-
Quarter Period plus (B) dividends declared by the Borrower (whether or not
----
paid) during such Four-Quarter Period plus (C) Consolidated Operating Lease
----
Expense for such Four-Quarter Period plus (D) Consolidated Current
----
Maturities for the Four-Quarter Period beginning on the date of
determination, to be less than 3.0 to 1.0.
Section 2. Representations of Borrower. The Borrower represents and
---------------------------
warrants to the Agent and the Lenders that:
(a) Authorization. The Borrower has the right and power, and has taken all
-------------
necessary action to authorize it, to execute and deliver this Amendment and to
perform its obligations under the Credit Agreement as amended by this Amendment,
in accordance with its terms. This Amendment has been duly executed and
delivered by a duly authorized officer of the Borrower and the Credit Agreement
as amended by this Amendment, is a legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms.
(b) Compliance with Laws, etc. The execution and delivery by the Borrower
-------------------------
of this Amendment and the performance by the Borrower of the Credit Agreement as
amended by this Amendment, in accordance with its terms, do not and will not, by
the passage of time, the giving of notice or otherwise: (i) require any
Governmental Approval or violate any Applicable Law relating to the Borrower or
any other Loan Party; (ii) conflict with, result in a breach of or constitute a
default under the articles of incorporation or the bylaws of the Borrower or the
organizational documents of any other Loan Party; (iii) conflict with, result in
a breach of or constitute a default under any indenture, agreement or other
instrument to which the Borrower or any other Loan Party is a party or by which
it or any of its properties may be bound, which conflict, breach or default
would have a Material Adverse Effect; or (iv) result in or require the creation
or imposition of any Lien upon or with respect to any property now owned or
hereafter acquired by the Borrower or any other Loan Party other than in favor
of the Agent for the benefit of the Lenders.
Section 3. Certain References. Each reference to the Credit Agreement in
------------------
any of the Loan Documents shall be deemed to be a reference to the Credit
Agreement as amended by this Amendment.
Section 4. Benefits. This Amendment shall be binding upon and shall inure
--------
to the benefit of the parties hereto and their respective successors and
assigns.
-2-
<PAGE>
Section 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
Section 6. Effect. Except as expressly herein amended, the terms and
------
conditions of the Credit Agreement shall remain in full force and effect.
Section 7. Effectiveness of Amendment. This Amendment shall not be
--------------------------
effective until its execution and delivery by all of the parties hereto
whereupon its shall be deemed effective as of the date first written above.
Section 8. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and shall be
binding upon all parties, their successors and assigns.
Section 9. Definitions. All capitalized terms not otherwise defined
-----------
herein are used herein with the respective definitions given them in the Credit
Agreement.
[Signatures on Next Page]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
Credit Agreement to be executed as of the date first above written.
SCIENTIFIC-ATLANTA, INC.
By: /s/ H. A. Wagner
-------------------------------------
Name: H. A. wagner
--------------------------------
Title: Senior Vice President, Finance
-------------------------------
Chief Financial Officer and Treasurer
NATIONSBANK, N.A. (SOUTH), individually and
as Agent
By: /s/ David J. Rabbitt
-------------------------------------
Name: David J. Rabbitt
--------------------------------
Title: Vice President
-------------------------------
THE BANK OF NEW YORK, individually and as
Co-Agent
By: /s/ Gregory L. Batson
-------------------------------------
Name: Gregory L. Batson
--------------------------------
Title: Vice President
-------------------------------
ABN AMRO BANK N.V., acting through its Atlanta
Agency, individually and as Co-Agent
By: /s/ Steven B. Farley
-------------------------------------
Name: Steven B. Farley
--------------------------------
Title: Vice President
-------------------------------
By: /s/ Steven L. Hipsman
-------------------------------------
Name: Steven L. Hipsman
--------------------------------
Title: Vice President
-------------------------------
[Signature Continued on Next Page]
-4-
<PAGE>
[SIGNATURE PAGE TO THIRD AMENDMENT TO CREDIT AGREEMENT DATED AS OF
JANUARY 27, 1997 WITH SCIENTIFIC-ATLANTA, INC.]
AUSTRALIA AND NEW ZEALAND
BANKING GROUP LIMITED
By: /s/ Kyle Loughlin
-------------------------------------
Name: K. Loughlin
--------------------------------
Title: Vice President
-------------------------------
WACHOVIA BANK OF GEORGIA, N.A.
By: /s/ Karen H. McClain
-------------------------------------
Name: Karen H. McClain
--------------------------------
Title: Senior Vice President
-------------------------------
TORONTO DOMINION (TEXAS), INC.
By: /s/ Frederic Hawley
-------------------------------------
Name: Frederic Hawley
--------------------------------
Title: Vice President
-------------------------------
THE BANK OF TOKYO LIMITED,
ATLANTA AGENCY
By: /s/ G. England
-------------------------------------
Name: G. England
--------------------------------
Title: V.P. & Manager
-------------------------------
-5-
<PAGE>
Exhibit 11
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ----------------------
March 28, March 29, March 28, March 29,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 77,345 76,464 77,226 76,621
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 914 -- 719 --
------- ------ --------- ---------
NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 78,259 76,464 77,945 76,621
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 -- -- 183 --
------- ------ --------- ---------
NUMBER OF SHARES OUTSTANDING
ASSUMING FULL DILUTION 78,259 76,464 78,128 76,621
======= ====== ========= =========
NET EARNINGS (LOSS) FOR PRIMARY
AND FULLY DILUTED COMPUTATION
Continuing Operations $ 16,461 $ 11,525 $ 41,023 $ 22,212
Discontinued Operations -- -- 3,400 (13,210)
------- ------ --------- ---------
Net Earnings $ 16,461 $ 11,525 $ 44,423 $ 9,002
======= ====== ========= =========
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
PRIMARY
Continuing Operations $ 0.21 $ 0.15 $ 0.53 $ 0.29
Discontinued Operations -- $ -- $ 0.04 $ (0.17)
------- ------ --------- ---------
Net Earnings $ 0.21 $ 0.15 $ 0.57 $ 0.12
======= ====== ========= =========
FULLY DILUTED
Continuing Operations $ 0.21 $ 0.15 $ 0.53 $ 0.29
Discontinued Operations -- -- 0.04 (0.17)
------- ------ --------- ---------
Net Earnings $ 0.21 $ 0.15 $ 0.57 $ 0.12
======= ====== ========= =========
</TABLE>
Note: In the three and nine months ended March 29, 1996, 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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from form 10-Q
for the quarter ended March 28, 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-27-1997
<PERIOD-START> JUN-29-1996
<PERIOD-END> MAR-28-1997
<CASH> 81,222
<SECURITIES> 0
<RECEIVABLES> 266,402
<ALLOWANCES> 3,967
<INVENTORY> 194,611
<CURRENT-ASSETS> 594,103
<PP&E> 249,460
<DEPRECIATION> 87,007
<TOTAL-ASSETS> 818,480
<CURRENT-LIABILITIES> 266,851
<BONDS> 2,390
0
0
<COMMON> 38,752
<OTHER-SE> 467,793
<TOTAL-LIABILITY-AND-EQUITY> 818,480
<SALES> 845,589
<TOTAL-REVENUES> 845,589
<CGS> 587,190
<TOTAL-COSTS> 587,190
<OTHER-EXPENSES> 86,707
<LOSS-PROVISION> 352
<INTEREST-EXPENSE> 344
<INCOME-PRETAX> 60,328
<INCOME-TAX> 19,305
<INCOME-CONTINUING> 41,023
<DISCONTINUED> 3,400
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,423
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
<PAGE>
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 the development and ownership of intellectual property; uncertainties
relating to the ability of the company and other companies to enforce their
intellectual property rights; 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.
