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Thursday July 23, 4:01 pm Eastern Time
Company Press Release
SOURCE: DSC Communications Corporation
DSC Reports Second Quarter Results
DALLAS, July 23 /PRNewswire/ -- DSC Communications Corporation (Nasdaq: DIGI - news) announced today its operating results for the second quarter and six-month
period ended June 30, 1998. Revenue for the 1998 second quarter was $388.4 million compared to $382.9 million recorded in the second quarter of 1997. The company
incurred a net loss for the 1998 second quarter of $4.7 million, or $0.04 per diluted share, compared to net income of $41.8 million, or $0.35 per diluted share for the 1997
second quarter. Second quarter 1998 results included a pre-tax gain of $10.0 million (after-tax gain of $6.3 million or $0.05 per diluted share) from the sale of DSC's remaining
investment in Airspan Communications Corporation. Net income for the 1997 second quarter included a pre-tax gain of approximately $31.5 million (after-tax gain of $19.5
million or $0.16 per diluted share) from the sale of stock received from a litigation settlement. Excluding the effects of these special gains, the net loss for the 1998 second
quarter was $11.0 million, or $0.09 per diluted share, compared to net income of $22.3 mi1lion or $0.19 per diluted share, for the 1997 second quarter.
For the six months ended June 30, 1998 the company recorded revenue of $703.3 million compared to $729.1 million for the same time period in 1997. The net loss for the six
months ended June 30, 1998 was $34.8 million, or $0.29 per diluted share, compared to net income of $58.2 million, or $0.49 per diluted share for the six months ended June
30, 1997. Excluding the effects of special gains, the net loss for the six months ended June 30, 1998 was $41.1 million, or $0.35 per diluted share, compared to net income of
$36.2 million, or $0.31 per diluted share, for the six months ended June 30, 1997.
The company's second quarter 1998 operating loss of $12.4 million resulted primarily from a reduction in gross margin from 41 percent in the second quarter of 1997 to 31
percent in the second quarter of 1998 and increased operating expenses. Gross margin was impacted by a higher volume of lower margin access and transmission products, and
a lower volume of higher margin switching systems.
Interest income and expense were at higher levels during 1998 compared to 1997 primarily as a result of the proceeds of the convertible debt offering in August 1997 and the
related interest cost.
DSC's chairman and chief executive officer, James L. Donald, commented, ''As noted in our reported first quarter results, the first half of 1998 has been affected by the
confluence of merger activities among two of our long-distance customers, slower deliveries of our wireless systems and delayed revenue from a key Japanese customer. While
these issues affected our first-half results, we are encouraged by sequential 1998 second quarter revenue growth of 23 percent from the first quarter of 1998. This improvement
was primarily due to strong deliveries of access products, resulting in a record level of infrastructure capacity and a more normalized level of line card shipments. In addition,
strong demand for iMTN(R) broadband cross-connect systems contributed to the better revenue performance.
''Order activity during the quarter was especially strong and reached an all-time record quarterly level. As a result, total company backlog is well in excess of one billion dollars
and also at a record level. Based on this continued order strength, together with indications that the issues affecting our long-distance customer base and key Japanese customer
are improving, we remain optimistic about our second-half performance.
''Finally, it should be noted that the process of closing the agreed-upon acquisition of DSC Communications by Alcatel is progressing nicely. DSC's shareholder meeting to vote
upon the acquisition proposal is scheduled for August 27, and the review by the Department of Justice continues. As stated previously, this transaction provides increased value
to each DSC shareholder and an ongoing equity interest in a much larger company with improved long-term growth potential. I am personally supportive of the merger and very
optimistic that the combined companies' future will be bright.''
DSC Communications is a global provider of advanced telecommunications products, including digital switching, transmission, access and network management systems.
DSC's integrated network solutions support voice, data and broadband services, such as intelligent networking, wireless and switched digital video applications. DSC had 1997
annual revenues of approximately $1.6 billion and is active in more than 60 countries worldwide. For more information about DSC and its products, please visit the company's
web site at: dsccc.com.
iMTN is a registered trademark of DSC Communications Corporation.
''Safe Harbor'' statement under the Private Securities Litigation Reform Act of 1995: Except for the historical information contained herein, the matters discussed herein,
including the matters relating to future performance, are forward looking statements that are dependent upon a number of risks and uncertainties that could cause actual results to
differ materially from those in the forward looking statements. These risks and uncertainties include, but are not limited to, economic conditions, product demand and industry
capacity, competitive products and pricing, manufacturing efficiencies, research and new product development, protection of intellectual property, patents, and technology,
ability to attract and retain highly qualified personnel, quarterly fluctuations from factors such as a shift in products delivered including the amount of software content and the
impact of sales price changes, availability of components and critical manufacturing equipment, facility construction and startups, the regulatory and trade environment, and other
risks indicated from time to time in the company's filings with the Securities and Exchange Commission.
DSC COMMUNICATIONS CORPORATION
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
(Unaudited) (Unaudited)
Revenue $388,446 382,883 $703,284 729,086
Cost of revenue 268,023 226,327 491,847 433,255
Gross profit 120,423 156,556 211,437 295,831
Operating costs
and expenses:
Research and product
development 66,616 59,545 135,869 114,326
Selling, general
and administrative 62,719 57,335 122,119 115,386
Other operating costs 3,493 2,462 7,126 4,934
Total operating costs
and expenses 132,828 119,342 265,114 234,646
Operating income (loss) (12,405) 37,214 (53,677) 61,185
Interest income 7,702 4,513 16,031 9,551
Interest expense (12,647) (4,988) (26,701) (10,812)
Other income (expense), net 9,904 30,708 9,117 33,910
Income (loss) before
income taxes (7,446) 67,447 (55,230) 93,834
Income taxes (benefit) (2,755) 25,630 (20,435) 35,657
Net income (loss) $ (4,691) 41,817 $(34,795) 58,177
Basic income (loss)
per share $ (0.04) 0.36 $ (0.29) 0.50
Diluted income (loss)
per share $ (0.04) 0.35 $ (0.29) 0.49
Average shares used
in basic computation 118,350 117,124 118,276 117,072
Average shares used
in diluted computation 118,350 119,301 118,276 119,188
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
June 30, December 31,
1998 1997
(Unaudited)
Assets
Cash and cash equivalents 158,940 277,200
Marketable securities 328,121 340,642
Receivables 392,740 436,093
Inventories 390,338 374,247
Deferred income taxes 100,032 79,879
Other current assets 132,252 86,969
Total current assets 1,502,423 1,595,030
Property and equipment, net 466,114 443,610
Capitalized software
development costs 82,692 72,341
Cost in excess of net assets
of businesses acquired, net 154,379 159,594
Other assets 157,738 168,940
Total assets 2,363,346 2,439,515
Liabilities and Shareholders'
Equity
Accounts payable and
accrued liabilities 419,578 439,715
Current portion of
long-term debt 32,590 32,602
Total current liabilities 452,168 472,317
Long-term debt 598,154 629,206
Noncurrent liabilities 124,070 122,172
Shareholders' equity 1,188,954 1,215,820
Total liabilities and
shareholders' equity 2,363,346 2,439,515
SOURCE: DSC Communications Corporation
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DSC Communications Corp (Nasdaq:DIGI - news)
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