UNITED STATES
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 October 1, 2004
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 incorporation or organization) |
(I.R.S. Employer Identification Number) |
| 5030 Sugarloaf Parkway Lawrenceville, Georgia |
30042-5447 | |
| (Address of principal executive offices) | (Zip Code) |
770-236-5000
(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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes x No ¨
As of October 29, 2004, Scientific-Atlanta, Inc. had outstanding 153,313,670 shares of common stock.
PART I - FINANCIAL INFORMATION
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
| Three Months Ended |
||||||||
| October 1, 2004 |
October 3, 2003 |
|||||||
| SALES |
$ | 452,674 | $ | 395,636 | ||||
| COSTS AND EXPENSES |
||||||||
| Cost of sales |
286,875 | 248,378 | ||||||
| Sales and administrative |
48,761 | 48,037 | ||||||
| Research and development |
38,341 | 35,323 | ||||||
| Restructuring |
(4 | ) | 715 | |||||
| Interest expense |
157 | 235 | ||||||
| Interest income |
(5,774 | ) | (3,852 | ) | ||||
| Other (income) expense, net |
(165 | ) | 901 | |||||
| Total costs and expenses |
368,191 | 329,737 | ||||||
| EARNINGS BEFORE INCOME TAXES |
84,483 | 65,899 | ||||||
| PROVISION FOR (BENEFIT FROM) INCOME TAXES |
||||||||
| Current |
32,707 | 18,373 | ||||||
| Deferred |
(4,102 | ) | 4,856 | |||||
| NET EARNINGS |
$ | 55,878 | $ | 42,670 | ||||
| EARNINGS PER COMMON SHARE |
||||||||
| BASIC |
$ | 0.36 | $ | 0.28 | ||||
| DILUTED |
$ | 0.36 | $ | 0.28 | ||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |
||||||||
| BASIC |
153,431 | 150,961 | ||||||
| DILUTED |
155,436 | 153,797 | ||||||
| DIVIDENDS PER SHARE PAID |
$ | 0.01 | $ | 0.01 | ||||
SEE ACCOMPANYING NOTES
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SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
| October 1, 2004 |
July 2, 2004 | |||||
| ASSETS |
||||||
| CURRENT ASSETS |
||||||
| Cash and cash equivalents |
$ | 268,289 | $ | 442,182 | ||
| Short-term investments |
1,021,878 | 855,434 | ||||
| Receivables, less allowance for doubtful accounts of $2,880 at October 1 and $3,102 at July 2 |
248,307 | 219,172 | ||||
| Inventories |
145,154 | 129,930 | ||||
| Income tax receivables |
692 | 18,903 | ||||
| Deferred income taxes |
24,730 | 23,657 | ||||
| Other current assets |
18,169 | 18,434 | ||||
| TOTAL CURRENT ASSETS |
1,727,219 | 1,707,712 | ||||
| PROPERTY, PLANT AND EQUIPMENT, at cost |
||||||
| Land and improvements |
23,817 | 21,223 | ||||
| Buildings and improvements |
117,715 | 83,713 | ||||
| Machinery and equipment |
221,653 | 212,392 | ||||
| 363,185 | 317,328 | |||||
| Less - Accumulated depreciation and amortization |
143,950 | 132,744 | ||||
| 219,235 | 184,584 | |||||
| GOODWILL |
233,696 | 235,209 | ||||
| INTANGIBLE ASSETS |
34,304 | 37,636 | ||||
| DEFERRED INCOME TAXES |
35,552 | 30,867 | ||||
| OTHER ASSETS |
78,640 | 73,619 | ||||
| TOTAL ASSETS |
$ | 2,328,646 | $ | 2,269,627 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||
| CURRENT LIABILITIES |
||||||
| Current maturities of long-term debt |
$ | 1,274 | $ | 1,265 | ||
| Accounts payable |
169,413 | 171,589 | ||||
| Accrued liabilities |
76,168 | 101,132 | ||||
| Deferred revenue |
15,520 | 18,053 | ||||
| Income taxes currently payable |
33,121 | 13,663 | ||||
| TOTAL CURRENT LIABILITIES |
295,496 | 305,702 | ||||
| LONG-TERM DEBT, LESS CURRENT MATURITIES |
7,427 | 7,698 | ||||
| NON-CURRENT DEFERRED REVENUE |
8,425 | 7,885 | ||||
| OTHER LIABILITIES |
154,128 | 144,985 | ||||
| STOCKHOLDERS’ EQUITY |
||||||
| Preferred stock, authorized 50,000,000 shares; no shares issued |
— | — | ||||
| Common stock, $0.50 par value, authorized 350,000,000 shares; issued 164,992,376 shares at October 1 and July 2 |
82,496 | 82,496 | ||||
| Additional paid-in capital |
562,064 | 561,636 | ||||
| Retained earnings |
1,354,572 | 1,300,691 | ||||
| Accumulated other comprehensive income, net of taxes of $20,305 at October 1 and $19,506 at July 2 |
40,983 | 39,516 | ||||
| 2,040,115 | 1,984,339 | |||||
| Less - Treasury stock, at cost (11,447,962 shares at October 1 and 11,614,954 shares at July 2) |
176,945 | 180,982 | ||||
| 1,863,170 | 1,803,357 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 2,328,646 | $ | 2,269,627 | ||
SEE ACCOMPANYING NOTES
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SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
| Three Months Ended |
||||||||
| October 1, 2004 |
October 3, 2003 |
|||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES |
$ | 40,220 | $ | 42,310 | ||||
| INVESTING ACTIVITIES: |
||||||||
| Purchases of short-term investments |
(804,368 | ) | (544,469 | ) | ||||
| Proceeds from sales of short-term investments |
636,126 | 501,184 | ||||||
| Purchases of property, plant, and equipment |
(45,751 | ) | (5,147 | ) | ||||
| Proceeds from the sale of an investment in a marketable security |
— | 6,239 | ||||||
| Other |
81 | 288 | ||||||
| Net cash used in investing activities |
(213,912 | ) | (41,905 | ) | ||||
| FINANCING ACTIVITIES: |
||||||||
| Issuance of common stock from treasury |
1,635 | 38,863 | ||||||
| Dividends paid |
(1,534 | ) | (1,513 | ) | ||||
| Principal payments on debt |
(302 | ) | (280 | ) | ||||
| Net cash provided by (used in) financing activities |
(201 | ) | 37,070 | |||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
(173,893 | ) | 37,475 | |||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
442,182 | 332,266 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 268,289 | $ | 369,741 | ||||
| SUPPLEMENTAL CASH FLOW DISCLOSURES |
||||||||
| Cash paid during the period: |
||||||||
| Interest |
$ | 143 | $ | 220 | ||||
| Income taxes paid (refunded), net |
$ | (5,602 | ) | $ | 11,023 | |||
SEE ACCOMPANYING NOTES
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SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
| Three Months Ended |
|||||||
| October 1, 2004 |
October 3, 2003 |
||||||
| NET EARNINGS |
$ | 55,878 | $ | 42,670 | |||
| OTHER COMPREHENSIVE INCOME, NET OF TAX (1) |
|||||||
| Net foreign currency translation adjustments |
991 | 3,882 | |||||
| Net unrealized holding gains on short-term investments |
204 | 561 | |||||
| Net unrealized holding gains (losses) on available-for-sale marketable securities, net of reclassification adjustments of $0 and $876 in fiscal years 2005 and 2004, respectively |
4 | (300 | ) | ||||
| Net change in fair value of derivatives |
268 | (111 | ) | ||||
| COMPREHENSIVE INCOME |
$ | 57,345 | $ | 46,702 | |||
| (1) | Assumed 35 and 38 percent tax rate in fiscal years 2005 and 2004, respectively. |
SEE ACCOMPANYING NOTES
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NOTES:
(Amounts in thousands, except share and per share data)
| A. | The accompanying condensed consolidated financial statements include the accounts of Scientific-Atlanta, Inc. (Scientific-Atlanta) 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 accounting principles generally accepted in the United States 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 our fiscal year 2004 Annual Report on 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. |
During fiscal year 2004, we identified certain cash equivalents and short-term investments which were misclassified. We have reclassified $8,111 from Short-term investments to Cash and cash equivalents at October 3, 2003 and $27,514 from Cash and cash equivalents to Short-term investments at June 27, 2003. The Consolidated Statements of Cash Flows for the three months ended October 3, 2003 has been restated to reflect these adjustments.
Scientific-Atlanta’s fiscal year ends on the Friday closest to June 30 of each year. Fiscal year 2005, which ends on July 1, 2005, will include fifty-two weeks. The first quarter of fiscal year 2005 included thirteen weeks while the first quarter of fiscal year 2004 included fourteen weeks.
| B. | Basic earnings per share were computed based on the weighted average number of shares of common stock outstanding. Diluted earnings per share were computed based on the weighted average number of outstanding common shares and potentially dilutive shares. |
Basic and diluted earnings per share are computed as follows:
| In Thousands |
||||||||
| Three Months Ended October 1, 2004 |
Net Earnings |
Shares |
Per Share Amount | |||||
| Basic earnings per common share |
$ | 55,878 | 153,431 | $ | 0.36 | |||
| Effect of dilutive stock options |
— | 2,005 | — | |||||
| Diluted earnings per common share |
$ | 55,878 | 155,436 | $ | 0.36 | |||
| In Thousands |
||||||||
| Three Months Ended October 3, 2003 |
Net Earnings |
Shares |
Per Share Amount | |||||
| Basic earnings per common share |
$ | 42,670 | 150,961 | $ | 0.28 | |||
| Effect of dilutive stock options |
— | 2,836 | — | |||||
| Diluted earnings per common share |
$ | 42,670 | 153,797 | $ | 0.28 | |||
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The following information pertains to options to purchase shares of common stock which were not included in the computation of diluted earnings per common share because the option’s exercise price was greater than the average market price of the common shares:
| October 1, 2004 |
October 3, 2003 | |||||
| Number of options outstanding |
11,944,228 | 8,838,318 | ||||
| Weighted average exercise price |
$ | 47.26 | $ | 53.08 | ||
| C. | We have elected to account for option plans under Accounting Principles Board (APB) Opinion No. 25 “Accounting for Stock Issued to Employees”, which generally requires compensation costs for fixed awards to be recognized only when the option price differs from the market price at the grant date. Statement of Financial Accounting Standards (SFAS) No. 123 “Accounting for Stock-Based Compensation” and No. 148 “Accounting for Stock-Based Compensation-Transition and Disclosure” allow a company to follow APB Opinion No. 25 with the following additional disclosure that shows what our net earnings and earnings per share would have been using the fair value compensation model under SFAS No. 123: |
| Three Months Ended | ||||||
| October 1, 2004 |
October 3, 2003 | |||||
| Net earnings as reported |
$ | 55,878 | $ | 42,670 | ||
| Deduct: Pro forma compensation expense, net of tax |
7,827 | 11,477 | ||||
| Pro forma net earnings |
$ | 48,051 | $ | 31,193 | ||
| Earnings per share: |
||||||
| Basic |
||||||
| As reported |
$ | 0.36 | $ | 0.28 | ||
| Pro forma |
$ | 0.31 | $ | 0.21 | ||
| Diluted |
||||||
| As reported |
$ | 0.36 | $ | 0.28 | ||
| Pro forma |
$ | 0.31 | $ | |||