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During the quarter, the company recorded a pre-tax charge of $3.6
million related to previously announced restructurings; and pre-tax
charges of $6.9 million associated with the mark-to-market adjustments
of various equity investments. The after-tax impact of these items
was $6.9 million, or $0.04 per share.
Summarizing the third quarter results, chairman and CEO Jim McDonald
elaborated: "We had another good quarter in an environment
that remains mixed. The increased acceptance by our customers of
new products in the past several quarters reinforces our belief
that innovation continues to be an important driving force in the
cable industry. We intend to continue to be an innovation leader
in the industry; and amid the current economic and industry uncertainty,
we intend to maintain our focus on execution."
Other highlights
A press release states that Scientific-Atlanta sold 929 thousand
Explorer digital set-tops, including 106 thousand Explorer 8000
home entertainment servers and 54 thousand high-definition (HD)
set-tops. In total, set-tops with digital video recording (DVR)
capabilities, HD capabilities, or integrated DOCSIS cable modems
constituted more than 50 per cent of set-top shipments.
The release adds that Scientific-Atlanta continues to expand its
high-speed data product line and add new features to existing products.
In the quarter, the DPX2100 cable modem received DOCSIS 2.0 certification.
The company sold 171 thousand WebSTAR(tm) cable modems in the third
quarter.
The release also adds that digital technology also is continuing
to change the way content is delivered to cable headends. In the
past several weeks, the company announced that four cable networks
have chosen Scientific-Atlanta's PowerVu® digital technology
for programme distribution. These include Turner Broadcasting System,
Inc., Lifetime Television, The Outdoor Channel, and A&E Television
Networks.
Bookings
The release states that third quarter bookings were $339.9 million,
a decrease of $149.7 million, or 31 per cent, from last year's third
quarter. Compared to the preceding quarter, bookings increased slightly.
Results in the preceding quarter included a $19.0 million de-booking
related to the termination of a contract with ish, a cable operator
in Germany.
Compared with the same quarter last year, bookings of subscriber
products declined by 26 per cent to $214.8 million. Subscriber product
bookings declined by 14 per cent sequentially. Bookings of transmission
products declined by 43 per cent from last year's third quarter
to $101.7 million.
On a sequential basis, bookings of transmission products increased
by 57 per cent, partially as a result of the $19.0 million de-booking
related to the ish settlement in the preceding quarter. Satellite
product bookings of $23.5 million were slightly higher than last
year's third quarter, and increased 18 per cent sequentially.
Backlog
The release mentions that backlog at the end of the quarter
was $339.9 million, a decrease of 56 per cent from the third quarter
of last year and a decrease of 11 per cent sequentially. The backlog
included approximately 800 thousand Explorer® digital set-tops.
Although Scientific-Atlanta has a six-month bookings policy, the
company has the production capacity to respond quickly to customer
demand, and the company believes that customers may have shortened
their ordering cycles accordingly.
Results of Operations
The release also points out that sales of $382.6 million decreased
by $70.1 million, or 15 per cent from the same period a year ago,
but increased by nine per cent compared with the preceding quarter.
The release reveals that sales of subscriber products decreased
four per cent from last year's third quarter to $269.3 million,
but increased 18 per cent sequentially. In the quarter, the company
sold 929 thousand Explorer digital set-tops and 171 thousand WebSTAR(tm)
cable modems.
Sales of transmission products of $90.6 million were down 38 per
cent from the third quarter of last year, and down 13 per cent from
last quarter. Satellite product sales of $22.7 million were down
six per cent from the comparable period of last year, but increased
20 per cent from last quarter.
The release also points out that the gross margin in the third
quarter was 34.1 per cent of sales, a decrease of 2.9 points from
the same period a year ago, but an increase of 2.5 points sequentially.
The termination of the ish contract in the preceding quarter negatively
impacted the gross margin by 2.3 points in that quarter.
There was no comparable transaction in the third quarter of the
current year, says the release. The decline compared to last year's
third quarter was primarily due to the increased shipments of new
set-top models that currently have lower gross margins than the
company average.
Scientific-Atlanta reported earnings of $26.8 million, or $0.18
per share. This represented a decline of $17.0 million, or 39 per
cent from the comparable period of the prior year, when earnings
were $43.8 million, or $0.28 per share. Compared to the preceding
quarter, earnings increased by $11.7 million, or 77 per cent. Third
quarter earnings included the two pre-tax charges totaling $10.5
million discussed above, for which the after-tax impact was $6.9
million, or $0.04 per share.
Strong Balance Sheet and Cash Flow
The release also claims that the company's balance sheet remains
very strong with cash and short-term investments of $888.5 million
at the end of the quarter, an increase of $105.3 million from the
end of the preceding quarter, and an increase of $157.2 million
from the end of fiscal year 2002.
Accounts receivable declined by $55.6 million, and DSO improved
to 53 days from 60 days in the preceding quarter. Inventory turns
increased to 7.4 from 6.0 in the preceding quarter, says the release.
In the third quarter, cash provided by operating activities was
$185.6 million. Year-to-date, the company has generated $300.1 million
of cash from operating activities.
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