-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, hIPF46+sStDsLKHq5qq+whUQYuM+cE1iM4c0bmUBzhQdMu79BeFcEPSNtVEAZCSI F6TMBWY5V6YwBE42w+3UFg== 0000950134-94-001002.txt : 19940817 0000950134-94-001002.hdr.sgml : 19940817 ACCESSION NUMBER: 0000950134-94-001002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DSC COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000316004 STANDARD INDUSTRIAL CLASSIFICATION: 3661 IRS NUMBER: 541025763 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10018 FILM NUMBER: 94543974 BUSINESS ADDRESS: STREET 1: 1000 COIT RD CITY: PLANO STATE: TX ZIP: 75075 BUSINESS PHONE: 2145193000 MAIL ADDRESS: STREET 1: 1000 COIT ROAD CITY: PLANO STATE: TX ZIP: 75075-5813 FORMER COMPANY: FORMER CONFORMED NAME: DIGITAL SWITCH CORP DATE OF NAME CHANGE: 19850425 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1994 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1994 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: 0-10018 DSC COMMUNICATIONS CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 54-1025763 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1000 Coit Road, Plano, Texas 75075 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) (214) 519-3000 ---------------------------------------------------- (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 ----- ----- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Number of Shares Outstanding Title of Each Class as of July 31, 1994 ---------------------------- ---------------------------- Common Stock, $.01 Par Value 112,508,457 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands)
June 30, December 31, 1994 1993 -------------- ------------- (Unaudited) Assets ------ CURRENT ASSETS Cash and cash equivalents................................. $ 124,616 $ 154,888 Marketable securities..................................... 216,337 158,920 Receivables............................................... 120,939 139,962 Inventories............................................... 155,193 122,869 Contract development costs................................ 9,576 5,978 Other current assets...................................... 28,617 19,414 -------------- ------------- Total current assets................................. 655,278 602,031 -------------- ------------- PROPERTY AND EQUIPMENT, at cost............................. 442,635 380,480 Less accumulated depreciation and amortization......................................... (221,583) (200,697) -------------- ------------- 221,052 179,783 -------------- ------------- LONG-TERM RECEIVABLES....................................... 14,294 16,515 CAPITALIZED SOFTWARE DEVELOPMENT COSTS...................... 35,102 33,485 COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED, NET.................................. 48,755 50,317 OTHER....................................................... 30,983 18,286 -------------- ------------- Total assets..................................... $ 1,005,464 $ 900,417 ============== ============= Liabilities and Shareholders' Equity ------------------------------------ CURRENT LIABILITIES Accounts payable.......................................... $ 56,192 $ 48,450 Accrued liabilities....................................... 127,387 112,993 Customer advances......................................... 18,192 15,712 Income taxes payable...................................... 8,864 4,460 Current portion of long-term debt......................... 13,160 13,664 -------------- ------------- Total current liabilities............................ 223,795 195,279 -------------- ------------- LONG-TERM DEBT, net of current portion...................... 13,147 56,748 NONCURRENT INCOME TAXES AND OTHER LIABILITIES...................................... 47,992 30,590 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock, $.01 par value, issued - 117,146 in 1994 and 60,047 in 1993; outstanding - 112,117 in 1994 and 55,018 in 1993.......................................... 1,171 600 Additional capital........................................ 597,005 558,222 Unrealized losses on securities, net of income taxes..................................... (2,509) -- Retained earnings ........................................ 168,320 102,435 -------------- ------------- 763,987 661,257 Treasury stock, at cost, 5,029 shares....................... (43,457) (43,457) -------------- ------------- Total shareholders' equity............................. 720,530 617,800 -------------- ------------- Total liabilities and shareholders' equity........................... $ 1,005,464 $ 900,417 ============== =============
See the accompanying Notes to Condensed Consolidated Financial Statements. 3 DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (In thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, -------------------------- --------------------------- 1994 1993 1994 1993 ------------ ------------ ------------ ------------- Revenue.......................................... $ 229,574 $ 168,676 $ 430,448 $ 324,869 Cost of revenue.................................. 116,707 95,557 220,566 184,509 ------------ ------------ ------------ ------------- Gross profit................................... 112,867 73,119 209,882 140,360 ------------ ------------ ------------ ------------- Operating costs and expenses: Research and product development............... 28,913 19,885 53,616 41,138 Selling, general and administrative............ 33,910 26,679 64,508 52,634 Other operating costs.......................... 2,400 1,935 4,878 3,706 ------------ ------------ ------------ ------------- Total operating costs and expenses........... 65,223 48,499 123,002 97,478 ------------ ------------ ------------ ------------- Operating income .............................. 47,644 24,620 86,880 42,882 Interest expense................................. 454 1,449 684 3,260 Interest income.................................. (4,078) (1,394) (7,564) (2,577) Other expense, net............................... 918 571 2,297 1,232 ------------ ------------ ------------ ------------- Income before income taxes................... 50,350 23,994 91,463 40,967 Income taxes..................................... 14,066 5,758 25,578 11,359 ------------ ------------ ------------ ------------- Net income .................................. $ 36,284 $ 18,236 $ 65,885 $ 29,608 ============ ============ ============ ============= Income per share (1)............................. $ 0.31 $ 0.17 $ 0.57 $ 0.29 ============ ============ ============ ============= Average shares used in computation (1)........... 116,604 106,426 116,420 101,848
(1) On April 27, 1994, the Board of Directors declared a two-for-one stock split, effected in the form of a 100% stock dividend, to shareholders of record on May 11, 1994. All average shares and income per share data presented for 1993 have been restated to retroactively reflect the stock split. See the accompanying Notes to Condensed Consolidated Financial Statements. 4 DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Six Months Ended June 30, ------------------------------- 1994 1993 -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income......................................... $ 65,885 $ 29,608 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................. 25,271 21,371 Amortization of capitalized software development costs........................... 10,597 8,742 Income tax benefit related to stock options............................ -- 3,000 (Increase) decrease in current and long-term receivables............................ 20,244 (23,489) Increase in inventory.............................. (32,324) (13,793) Increase (decrease) in customer advances........... 2,480 (26,686) Other, including changes in current payables and other assets........................ 17,082 18,889 Increase in noncurrent income taxes and other liabilities............................ 17,402 7,534 -------------- --------------- NET CASH PROVIDED BY OPERATING ACTIVITIES....................... 126,637 25,176 -------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of marketable securities................. (263,251) -- Proceeds from sales and maturities of marketable securities....................................... 201,666 -- Purchases of property and equipment................ (63,861) (35,471) Additions to capitalized software development costs................................ (12,214) (8,819) Purchase of long-term investment security.......... (12,500) -- Other.............................................. (1,189) (377) -------------- --------------- NET CASH USED FOR INVESTING ACTIVITIES....................... (151,349) (44,667) -------------- ---------------
(Continued) 5 DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Continued) (In thousands) (Unaudited)
Six Months Ended June 30, ------------------------------- 1994 1993 -------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Long-term borrowings............................... -- 20,070 Payments of long-term borrowings................... (8,781) (11,446) Proceeds from the sale of common stock from employee stock programs..................... 3,847 9,336 Redemptions of 8% subordinated convertible debentures........................... (1,696) -- Other.............................................. 1,070 (755) -------------- --------------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES....................... (5,560) 17,205 -------------- --------------- NET DECREASE IN CASH AND CASH EQUIVALENTS ........... (30,272) (2,286) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 154,888 69,839 -------------- --------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $ 124,616 $ 67,553 ============== =============== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid...................................... $ 1,285 $ 5,422 ============== =============== Income taxes paid.................................. $ 7,008 $ 3,131 ============== ===============
See the accompanying Notes to Condensed Consolidated Financial Statements. 6 DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 1994 and 1993 and December 31, 1993 (Unaudited) BASIS OF PRESENTATION The accompanying unaudited Condensed Consolidated Financial Statements reflect, in the opinion of management, all adjustments necessary to present fairly the Company's financial position and results of operations and cash flows. Such adjustments are of a recurring nature unless otherwise disclosed herein. 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 rules and regulations promulgated by the Securities and Exchange Commission. However, the Company believes that the disclosures contained herein are adequate to make the information presented not misleading. Quarterly consolidated financial results may not be indicative of annual consolidated financial results. The Company has not paid or declared a cash dividend on its common stock since its organization. Certain prior years' financial statement information has been reclassified to conform with the current year financial statement presentation. These unaudited financial statements should be read in conjunction with the audited financial statements and accompanying notes included in the Company's 1993 Annual Report to Shareholders for the year ended December 31, 1993. INVENTORIES Inventories consisted of the following (in thousands):
June 30, December 31, 1994 1993 ----------- ------------ Raw Materials . . . . . . . . . . . $ 53,098 $ 47,845 Work in Process . . . . . . . . . . 11,557 12,471 Finished Goods . . . . . . . . . . 90,538 62,553 -------- -------- $155,193 $122,869 ======== ========
7 CREDIT AGREEMENT On February 24, 1994, the Company entered into an uncollateralized revolving credit facility, which expires on February 24, 1997, with two banks providing for borrowings up to $50,000,000. The maximum borrowings available are reduced by the value of outstanding letters of credit issued by the banks on behalf of the Company up to $25,000,000. Borrowings under the facility bear interest at the prime rate or at 0.75% to 1.50% above the LIBOR rate. A commitment fee of 0.35% on the daily average unused portion of the facility is also assessed. The agreement contains various financial covenants. There have been no borrowings under the credit facility during the six months ended June 30, 1994. Letters of credit issued by the banks under this agreement on behalf of the Company were approximately $6,708,000 at June 30, 1994. DEBT On January 14, 1994, the Company called for the redemption of all of the outstanding 8% subordinated convertible debentures. The debentures were convertible, at the option of the holder, into shares of the Company's common stock at $54.50 per share. In February 1994, $34,720,000 of debentures were converted into approximately 637,000 shares of common stock, and $1,696,000 of debentures were redeemed for cash. INCOME TAX EXPENSE The Company's income tax expense includes foreign, state (primarily related to Puerto Rico) and federal income taxes. The estimated effective income tax rate is based upon estimates for the full year for a number of variables including, among other things, forecasted income, a deduction for gains by employees from exercises of stock options and the degree to which net operating losses may be utilized. The effective tax rate could change as estimates of these variables change throughout the year. COMMON STOCK On April 27, 1994, the shareholders approved an increase in the number of authorized shares of common stock from 100 million to 250 million shares. In addition, on April 27, 1994 the Board of Directors authorized a two-for-one stock split, effected in the form of a 100% stock dividend, to shareholders of record on May 11, 1994. The par-value of common stock was not changed from $0.01. The stock split resulted in the issuance of 56,004,000 new shares of common stock and the transfer of $560,040 from Additional Capital to Common Stock, representing the par value of the shares issued. All 1993 average 8 shares and per share data have been restated to retroactively reflect the stock split. COMMITMENTS AND CONTINGENCIES Contingent Liabilities The Company periodically sells customer receivables and operating leases under agreements which contain recourse provisions. The Company could be obligated to repurchase receivables and operating leases which were previously sold on a partial recourse basis, the terms of which allow the Company to limit its risk of loss to $4,222,000 at June 30, 1994. The Company has guarantees of $9,770,000 outstanding at June 30, 1994, supporting Company and third-party performance bonds to customers and others, of which $6,708,000 were collateralized by letters of credit issued under the Company's credit facility. The Company believes it has adequate reserves for any ultimate losses associated with these contingencies. The Company enters into forward foreign exchange contracts to hedge certain receivables and firm contracts for delivery of products and services which are denominated in foreign currencies. At June 30, 1994, the Company had forward foreign exchange contracts of $21,578,000 to hedge future receipts in such currencies. Gains and losses related to the forward contracts are recognized as part of the cost of the underlying transactions being hedged. Forward foreign exchange contracts generally have maturities of one year or less and contain an element of risk that the counterparty may be unable to meet the terms of the agreement. However, the Company minimizes such risk exposure by limiting the counterparty to major financial institutions. Management believes the risk of incurring such losses is remote and any losses therefrom would be immaterial. For information regarding litigation, refer to Part II - Other Information, Item 1. "Legal Proceedings". 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations For the three months ended June 30, 1994, the Company reported revenue of $229.6 million and net income of $36.3 million, or $0.31 per share, compared to revenue of $168.7 million and net income of $18.2 million, or $0.17 per share, for the three months ended June 30, 1993. For the six months ended June 30, 1994, the Company recorded revenue of $430.4 million and net income of $65.9 million, or $0.57 per share, compared to revenue of $324.9 million and a net income of $29.6 million, or $0.29 per share, for the first half of 1993. All average shares and income per share data presented for 1993 have been restated to retroactively reflect the stock split. See "Common Stock" in Notes to Condensed Consolidated Financial Statements for further information. Revenue for the 1994 second quarter and first six months increased more than 36% and 32%, respectively, compared to the same periods in 1993. The growth in revenue was primarily the result of continuing strong demand for switching and access products. In particular, deliveries of switching products to cellular customers experienced substantial growth. Gross profit as a percentage of revenue was approximately 49% for both the second quarter and six month period ended June 30, 1994 compared to 43% for each of the same periods last year. Continued improvement in operating efficiencies, higher business levels and a favorable product mix all contributed to this improvement. The Company's gross margin percentage can vary significantly from period to period due to changes in the relative mix of product deliveries, including software enhancements. Research and product development expense in the second quarter of 1994 and 1993 was $28.9 million, or 13% of revenue, and $19.9 million, or 12% of revenue, respectively. Research and product development expense for the six months ended June 30, 1994 was $53.6 million, or 12% of revenue, compared to $41.1 million, or 13% of revenue, for the six months in 1993. These increases in research and product development expense represent the Company's on-going commitment to develop new products and enhance existing products across all strategic product areas. Selling, general and administrative expense was $33.9 million and $64.5 million in the second quarter of 1994 and six months ended June 30, 1994, respectively, compared to $26.7 million and $52.6 million, respectively, for the same periods in 1993. As a percentage of revenue, selling, general and administrative expense for both the three months and six months ended June 30, 1994 declined to 15% from 16% as compared to the same periods in 1993. 10 Income before income taxes for the second quarter and first half of 1994 was favorably impacted by an increase in interest income and substantially lower interest expense. Interest income for the three months and six months ended June 30, 1994 increased by $2.7 million and $5.0 million, respectively, from the same periods in 1993 due primarily to the investment of the proceeds from the November 1993 equity offering in marketable securities. Interest expense for the three and six months ended June 30, 1994 declined $1.0 million and $2.6 million, respectively, from the same periods in 1993. This was primarily due to the conversion of substantially all of the Company's outstanding subordinated convertible debentures in 1993 and early 1994 into shares of the Company's common stock. The Company's estimated effective income tax rate was 28% for the three month and six month periods ended June 30, 1994. See "Income Taxes" in Notes to Condensed Consolidated Financial Statements for further information. The Company's future quarterly and annual operating results may be affected by a number of factors, including the timing and ultimate receipt of orders from customers which continue to constitute a large portion of the Company's revenue; the successful enhancement of existing products; introduction and market acceptance of new products on a timely basis; mix of products sold; product costs; manufacturing lead times; and changes in general economic conditions, any of which could have an adverse impact on operations. Financial Condition and Liquidity The Company's cash and cash equivalents at June 30, 1994 were $124.6 million compared to $154.9 million at December 31, 1993 while marketable securities were $216.3 million at June 30, 1994 compared to $158.9 million at December 31, 1993. Cash of $126.6 million was generated from operating activities. This was primarily the result of strong earnings, a reduction in accounts receivable and an increase in non-debt liabilities, partially offset by a growth in inventories. The $32.3 million inventory growth primarily relates to finished goods built to support existing customer order backlog and additional customer requirements for the last half of 1994. During the first six months of 1994, the Company invested $63.9 million in property and equipment. The Company's rapid business expansion during 1993 and 1994 and expected future domestic and international growth have and will continue to increase capital requirements, including facilities and manufacturing and development equipment. The Company has initiated a major facilities expansion 11 plan at its current campus location. The Company purchased 148 acres of land near the Company's present campus location for approximately $16.4 million. In addition, construction of a warehouse and an office building began on a portion of the new land which is expected to be completed in early 1995 and cost approximately $50 million. Also, in July 1994 the Company purchased a previously leased building on its campus for approximately $5 million. It is anticipated that 1994 capital requirements for the full year could exceed $150 million. Also included in investing activities in the first half of 1994 is the purchase of $12.5 million of long-term interest bearing investment securities collateralized by U.S. Treasury obligations. Financing activities during the six months ended June 30, 1994 included proceeds of $3.8 million from the issuance of the Company's common stock related to employee stock programs. Additionally, the Company made $8.8 million of scheduled payments on long-term borrowings during the six months ended June 30, 1994. The Company periodically finances facilities and equipment requirements under operating leases. During the first half of 1994, future minimum operating lease obligations increased significantly primarily due to the Company's expansion into new facilities under a long-term lease in the United Kingdom and certain new short term facilities leases. As discussed in the Notes to Condensed Consolidated Financial Statements, debentureholders converted approximately $34.7 million of debentures into approximately 637,000 shares of common stock and approximately $1.7 million of debentures were redeemed for cash. In February 1994, the Company entered into a new unsecured revolving credit facility, which expires on February 24, 1997, providing for borrowings up to $50.0 million. The maximum available borrowings are reduced by the value of outstanding letters of credit issued on behalf of the Company up to $25.0 million. The agreement contains various financial covenants. There have been no borrowings under the credit facility during the six months ended June 30, 1994. At June 30, 1994, the Company could borrow up to $43.3 million under the credit agreement, net of outstanding letters of credit. See "Credit Agreement" in Notes to Condensed Consolidated Financial Statements for further information. The Company believes that its existing cash and short term investments, combined with its available financing alternatives, will be adequate to support its expected business growth, including working capital expansion, necessary capital expenditure requirements, operating lease obligations and scheduled debt payments. 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings. Litigation On January 26, 1994, C. L. Grimes, a shareholder of the Company, filed a suit in Delaware Chancery Court (the "Court"), derivatively purportedly on behalf of the Company as the real party in interest and as a shareholder of the Company, seeking a declaration that the Employment Agreement of James L. Donald, his Executive Income Continuation Plan, and the 1990 Long-Term Incentive Compensation Plan, as it applies to Mr. Donald as well as other employment benefits of Mr. Donald are null and void. The defendants in the suit are Mr. Donald, all current non-employee directors, and two former directors of the Company. The Company itself is a nominal defendant. The plaintiff contends that Mr. Donald's employment contract contains an improper delegation of the Board of Directors' authority to Mr. Donald and excess payments. The suit also contends that the salary and benefits established for Mr. Donald pursuant to the Donald agreements referred to above and by the Company's Board of Directors are excessive and constitute a diversion and waste of corporate assets. The suit seeks an injunction restraining Mr. Donald from exercising any stock options, taking any action to implement any of the Donald agreements, or declaring a constructive termination of his employment, and also seeks unspecified damages against the defendants and Grimes' legal fees. On June 1, 1994, Mr. Grimes filed a first amended and supplemental complaint, which adds claims of various defects in the Company's proxy statement transmitted to stockholders in connection with its Annual Meeting held on April 27, 1994. The plaintiff seeks a decree from the Court that the proxy statement in so far as it relates to the Company's 1994 Long Term Incentive Plan (the "LTIP") and actions taken pursuant to the proxy statement with respect to the LTIP are null and void and seeks to enjoin this Company from implementing the LTIP. All defendants have filed answers denying Grimes' claims and have moved to dismiss such claims, with the exception of the recently added claim relating to the proxy statement, and intend to vigorously contest all claims. On July 20, 1993, the Company filed suit against Advanced Fibre Communications ("AFC"), a California corporation; Quadrium Corporation ("Quadrium"), a California corporation; Alan E. Negrin ("Negrin"); and Henri Sulzer ("Sulzer") in the United States District Court for the Eastern District of Texas, Marshall Division, Civil Action No. 2-93CV126. The Company seeks a declaratory judgment that Negrin and Sulzer are not entitled to any stock options or cash payments under the Company's 1990 Stock Option and Cash Payment Plan because of these defendants' alleged breaches of certain employment-related agreements 13 entered into with the Company. The Company further seeks a declaration that AFC's products, including the UMC 1000 Digital Loop Carrier, are the proprietary property of the Company under the terms of certain Proprietary Information Agreements or certain Consulting Agreements with Quadrium. The Company also seeks unspecified damages for breach of contract, civil conspiracy, and tortious interference. The individual defendants have both filed counterclaims whereby they claim entitlement to certain stock options and cash payments under several of the Company's stock option plans. AFC has also filed a counterclaim alleging that the Company has violated the Sherman Antitrust Act and a California statutory antitrust act known as the Cartwright Act. AFC further claims that the Company has (a) tortiously interfered with existing and prospective contractual relationships, (b) committed industrial espionage and misappropriation, (c) trespassed on AFC's business premises, (d) converted certain property of AFC, and (e) committed unfair competition. AFC also seeks a declaratory judgment that it owns all rights to its product, the UMC Digital Loop Carrier. AFC asks the court to award unspecified actual damages, treble damages under the antitrust statutes, punitive damages, injunctive relief, and attorneys' fees. Although the outcome of litigation is inherently uncertain, the Company believes that it has valid and substantial claims against all of the defendants and valid defenses to all of the counterclaims. The case is still in discovery, and the Company intends to vigorously prosecute its claims and defend all of the defendants' counterclaims. The Company does not believe that the ultimate resolution of any of these suits will have a material adverse effect on its consolidated financial position. The Company is also a party to other legal proceedings which, in the opinion of management, are not expected to have a material adverse effect on the Company's consolidated financial position. 14 Item 6. Exhibits and Reports on Form 8-K. A. Exhibits. 11. Computation of Income Per Share. B. Reports on Form 8-K. No reports on Form 8-K have been filed during the three months ended June 30, 1994. 15 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. DSC COMMUNICATIONS CORPORATION Dated: August 12, 1994 By: /s/ KENNETH R. VINES Kenneth R. Vines Vice President and Controller, duly authorized officer and principal accounting officer 16 EXHIBIT INDEX
Exhibit Number Description - - ------- ----------- 11. Computation of Income Per Share.
EX-11 2 COMPUTATION OF INCOME PER SHARE 1 Exhibit 11 DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES Computation of Income per Share (In thousands) (Unaudited) The following table sets forth the computation of shares used in the calculation of income per share for the three and six months ended June 30, 1994 and 1993. All 1993 amounts presented have been restated to retroactively reflect a two-for-one stock split, effected in the form of a 100% stock dividend, declared by the Board of Directors on April 27, 1994 for shareholders of record on May 11, 1994. Average Shares Used in Income per Share Calculation:
Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 1994 1993 1994 1993 ------- ------- ------- ------- Weighted average shares outstanding during the period................ 111,981 97,826 111,425 93,714 Common share equivalents outstanding: Options and warrants issued and contingently issuable.......... 6,029 11,078 6,516 10,312 Assumed purchase of treasury shares................ (1,406) (2,478) (1,521) (2,178) ------- ------- ------- ------- Weighted average shares used in calculation.............. 116,604 106,426 116,420 101,848 ======= ======= ======= =======
Fully diluted income per share is not shown since the dilutive effect is less than three percent for the three and six months ended June 30, 1994 and 1993. -----END PRIVACY-ENHANCED MESSAGE-----