<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(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 26, 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 OCTOBER 24, 1997, SCIENTIFIC-ATLANTA, INC. HAD OUTSTANDING 78,886,872
SHARES OF COMMON STOCK.
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PART I - FINANCIAL INFORMATION
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
-----------------------------
September 26, September 27,
1997 1996
------------- -------------
SALES $294,501 $261,664
-------- --------
COSTS AND EXPENSES
Cost of sales 204,273 182,894
Sales and administrative 41,099 35,433
Research and development 26,750 28,033
Interest expense 115 134
Interest (income) (1,101) (539)
Other (income) expense, net (185) (189)
-------- --------
Total costs and expenses 270,951 245,766
-------- --------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 23,550 15,898
PROVISION (BENEFIT) FOR INCOME TAXES
Current 6,971 (10,215)
Deferred 94 15,302
-------- --------
NET EARNINGS FROM CONTINUING OPERATIONS 16,485 10,811
GAIN ON SALE OF DISCONTINUED
OPERATIONS, NET OF TAX -- 3,400
-------- --------
NET EARNINGS $ 16,485 $ 14,211
======== ========
EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
PRIMARY
CONTINUING OPERATIONS $ 0.21 $ 0.14
DISCONTINUED OPERATIONS -- 0.04
-------- --------
NET EARNINGS $ 0.21 $ 0.18
======== ========
FULLY DILUTED $ 0.21 $ 0.18
======== ========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES AND COMMON
EQUIVALENT SHARES OUTSTANDING
PRIMARY 79,926 77,670
======== ========
FULLY DILUTED 80,015 77,837
======== ========
DIVIDENDS PER SHARE PAID $ 0.015 $ 0.015
======== ========
SEE ACCOMPANYING NOTES
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SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
In Thousands
-----------------------
September 26, June 27,
1997 1997
------------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 84,454 $107,143
Receivables, less allowance for doubtful
accounts of $4,266,000 at September 26
and $4,202,000 at June 27 241,207 238,179
Inventories 222,461 209,570
Deferred income taxes 29,940 31,323
Other current assets 12,569 10,886
-------- --------
TOTAL CURRENT ASSETS 590,631 597,101
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and improvements 19,854 19,854
Buildings and improvements 32,475 32,229
Machinery and equipment 216,450 206,760
-------- --------
268,779 258,843
Less-Accumulated depreciation and amortization 101,595 92,423
-------- --------
167,184 166,420
-------- --------
COST IN EXCESS OF NET ASSETS ACQUIRED 10,991 11,263
-------- --------
OTHER ASSETS 53,909 48,831
-------- --------
TOTAL ASSETS $822,715 $823,615
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 835 $ 842
Accounts payable 109,279 123,675
Accrued liabilities 94,910 111,737
Income taxes currently payable 10,839 13,507
-------- --------
TOTAL CURRENT LIABILITIES 215,863 249,761
-------- --------
LONG-TERM DEBT, less current maturities 1,570 1,810
-------- --------
OTHER LIABILITIES 42,666 39,394
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, authorized 50,000,000 shares;
no shares issued -- --
Common stock, $0.50 par value, authorized
350,000,000 shares; issued 78,909,852 shares at
September 26 and 77,995,475 shares at June 27 39,455 38,998
Additional paid-in capital 186,871 171,857
Retained earnings 338,917 323,608
Accumulated translation adjustments 279 (186)
-------- --------
565,522 534,277
Less - Treasury stock, at cost
(180,006 shares at September 26 and
113,000 shares at June 27) 2,906 1,627
-------- --------
562,616 532,650
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $822,715 $823,615
======== ========
SEE ACCOMPANYING NOTES
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SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
September 26, September 27,
1997 1996
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<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $(19,448) $ 26,823
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (10,518) (15,861)
Proceeds from sale of discontinued operations -- 19,036
Other (110) 1,359
-------- --------
Net cash provided (used) by investing activities (10,628) 4,534
-------- --------
FINANCING ACTIVITIES:
Net short-term borrowings -- (35)
Principal payments on long-term debt (240) --
Dividends paid (1,176) (1,158)
Issuance of common stock 8,803 71
Treasury shares acquired -- (1,019)
-------- --------
Net cash provided (used) by financing activities 7,387 (2,141)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (22,689) 29,216
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 107,143 20,930
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 84,454 $ 50,146
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 111 $ 106
======== ========
Income taxes paid, net $ 6,243 $ 124
======== ========
</TABLE>
SEE ACCOMPANYING NOTES
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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 company's 1997 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 26, 1997 and
September 27,1996 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.
In February 1997, the Financial Accounting Standards Board issued
Statement 128 "Earnings Per Share" superseding Accounting Principles
Board Opinion No. 15, "Earnings Per Share". The company plans to adopt
SFAS No. 128 in the second quarter of fiscal 1998. Earnings per share
computed under the provisions of SFAS No. 128 were the same as those
computed under Opinion No. 15 for the first quarters of fiscal 1998 and
1997.
C. Inventories consist of the following:
September 26, June 27,
1997 1997
------------- --------
Raw materials and work-in-process $132,555 $136,699
Finished goods 89,906 72,871
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Total inventory $222,461 $209,570
======== ========
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, and recorded a one-time charge of $12,172, net of a
tax benefit of $5,728, for the estimated loss on sale of discontinued
operations. 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. Sales and losses, net of tax, from
discontinued operations were $1,920 and $817, respectively, for the
quarter ended September 27, 1996. At September 26, 1997, the company had
a reserve of approximately $7,200 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.
Global is currently in default under its promissory notes to the company
and under promissory notes to Global's senior lenders. The company is
working with Global and its senior lenders in an attempt to resolve the
default situation. If a satisfactory resolution of the situation is not
reached, the company believes it has adequate reserves to cover any
potential losses related to Global's default on the promissory notes.
E. During the quarter ended September 27, 1996, the company purchased 80,000
shares of its common stock pursuant to a stock buyback program at an
aggregate cost of $1,019. During the quarter ended September 26, 1997,
the company obtained an additional 70,006 shares of its common stock,
primarily from the cancellation of unvested, restricted stock grants.
The company re-issues these shares under the company's stock option
plans, 401(k) plan, employee stock purchase plan and other stock-based
employee compensation arrangements.
F. Income taxes paid of $6,243 in the first quarter of fiscal 1998 included
approximately $4,900 of payments in connection with the filing of amended
federal income tax returns.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
Scientific-Atlanta had stockholders' equity of $562.6 million and cash on
hand was $84.5 million at September 26, 1997. Cash decreased $22.7 million
during the quarter as lower accounts receivable collections, increases in
inventory levels, reductions in payables and expenditures for equipment exceeded
cash generated from earnings and the issuance of common stock. The current ratio
of 2.7:1 at September 26, 1997, compared to 2.4:1 at June 27, 1997. At September
26, 1997, total debt was $2.4 million or less than one percent of total capital
invested. 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 of Subscriber Network Systems products increased 15 percent over the
prior year, primarily from higher sales volume of advanced analog settops, and
such sales accounted for 33 percent of the company's total sales in the first
quarter of fiscal 1998, approximately the same as the prior year. Sales of
Terrestrial Network Systems products increased 9 percent over the prior year as
a result of strong sales of opto-electronic equipment, and such sales accounted
for 38 percent of the company's total sales in the first quarter of fiscal 1998,
approximately the same as the prior year. Sales of RF products were down in the
quarter as compared to last year due to timing issues related to the
availability of product and a slowdown in orders from the Pacific-Rim.
Increased sales of Satellite Network Systems, primarily telephony networks, also
contributed to the year-to-year increase. International sales accounted for 40
percent of total sales for the quarter ended September 26, 1997, as compared to
35 percent of total sales in the prior year.
Orders booked in the first quarter of fiscal 1998 were $262.5 million,
compared to the prior year's $285.0 million, a decline of 8 percent. Lower
orders in the first quarter of fiscal 1998 reflected a decline in business in
the Pacific Rim resulting from currency issues in the region, which made the
company's products more expensive, and a slowdown of a cable system roll-out in
Australia and a softening of the market in the United Kingdom. These declines
were offset partially by strong growth in orders booked in North America and
Latin America.
Gross margins were 30.6 percent, up 0.5 percentage points over the prior
year, due primarily to favorable exchange rates on Japanese yen compared to the
prior year. Improved margins also reflect the continuing impact of internal
programs to improve quality and cost structure.
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 $26.7 million, or 9 percent of sales,
reflecting the company's continued investment in research and development
programs to support new product initiatives. Research and development costs in
the first quarter of fiscal 1998 were lower than the prior year due primarily to
decreased research and development efforts related to cable telephony products.
In addition, the company capitalized $1.0 million of software development costs
and $3.0 million of non-recurring engineering costs during the quarter ended
September 26, 1997. There were no material software development costs or non-
recurring engineering costs incurred, and accordingly, none were capitalized
during the quarter ended September 27, 1996.
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Selling and administrative expense increased $5.7 million, or 16 percent,
over the prior year. Increased selling expenses reflect costs associated with
higher sales volumes, ongoing investments to support expansion into
international markets, particularly in the Latin American region, and to support
the introduction of new products and a build-up in the infrastructure to handle
the growth the company has experienced. Administrative expenses increased as
higher consulting fees, the addition of administrative expenses of Arcodan A/S
which was acquired in February 1997, and other miscellaneous items more than
offset cost reduction from internal processes and systems improvements.
Other (income) expense for the quarters ended September 26, 1997 and
September 27, 1996, 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 26, 1997 or September 27, 1996.
The company's effective income tax rate was 30 percent for the quarter, two
percentage points lower than the rate in the prior year. The lower effective
income tax rate in fiscal 1998, as compared to fiscal 1997, is due to increased
benefits from the company's foreign sales corporation (FSC) and a decrease in
foreign earnings taxed at different rates.
Earnings from continuing operations for the quarter ended September 26,
1997 were $23.6 million, up $7.7 million over the prior year. Higher sales
volume and improved gross margins were offset partially by increased selling and
administrative expenses.
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. (Global) 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. Global is currently in default under its promissory
notes to the company and under promissory notes to Global's senior lenders. The
company is working with Global and its senior lenders in an attempt to resolve
the default situation. If a satisfactory resolution of the situation is not
reached, the company believes it has adequate reserves to cover any potential
losses related to Global's default on the promissory notes.
Net earnings for the quarter ended September 26, 1997 were $16.5 million
compared to $14.2 million, in the prior year, which included an after-tax gain
of $3.4 million related to the sale of 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/A 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.
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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
99 Cautionary Statements
(b) No reports on Form 8-K were filed during the quarter ended September
26, 1997.
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 11, 1997 /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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Exhibit 11
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
----------------------------
September 26, September 27,
1997 1996
------------- -------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 78,248 77,127
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 1,678 543
------- -------
NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 79,926 77,670
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 89 167
------- -------
NUMBER OF SHARES OUTSTANDING
ASSUMING FULL DILUTION 80,015 77,837
======= =======
NET EARNINGS FOR PRIMARY
AND FULLY DILUTED COMPUTATION
Continuing Operations $16,485 $10,811
Discontinued Operations -- 3,400
------- -------
Net Earnings $16,485 $14,211
======= =======
EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
PRIMARY
Continuing Operations $ 0.21 $ 0.14
Discontinued Operations -- 0.04
------- -------
Net Earnings $ 0.21 $ 0.18
======= =======
FULLY DILUTED
Continuing Operations $ 0.21 $ 0.14
Discontinued Operations -- 0.04
------- -------
Net Earnings $ 0.21 $ 0.18
======= =======
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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/A (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; 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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<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q/A
for the quarter ended September 26, 1997, 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-26-1998
<PERIOD-START> JUN-28-1997
<PERIOD-END> SEP-27-1997
<CASH> 84,454
<SECURITIES> 0
<RECEIVABLES> 245,473
<ALLOWANCES> 4,266
<INVENTORY> 222,461
<CURRENT-ASSETS> 590,631
<PP&E> 268,779
<DEPRECIATION> 101,595
<TOTAL-ASSETS> 822,715
<CURRENT-LIABILITIES> 215,863
<BONDS> 1,810
0
0
<COMMON> 39,455
<OTHER-SE> 523,161
<TOTAL-LIABILITY-AND-EQUITY> 822,715
<SALES> 294,501
<TOTAL-REVENUES> 294,501
<CGS> 204,273
<TOTAL-COSTS> 204,273
<OTHER-EXPENSES> 26,750
<LOSS-PROVISION> 109
<INTEREST-EXPENSE> 115
<INCOME-PRETAX> 23,550
<INCOME-TAX> 7,065
<INCOME-CONTINUING> 16,485
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,485
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
