<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 26, 1998
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 Identification
incorporation or organization) Number)
One Technology Parkway, South 30092-2967
Norcross, Georgia (Zip Code)
(Address of principal executive
offices)
770-903-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
on which registered
Title of each class -------------------
-------------------
New York Stock Exchange
Common Stock, par value
$0.50 per share
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at September 2, 1998, was approximately $1,566,894,335.
As of September 2, 1998, the Registrant had outstanding 79,451,799 shares of
common stock.
Documents Incorporated By Reference:
Specified portions of the Proxy Statement for the Registrant's 1998 Annual
Meeting of Shareholders are incorporated by reference to the extent indicated
in Part III of this Form 10-K.
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<PAGE>
PART I
ITEM 1.BUSINESS
GENERAL
Scientific-Atlanta, Inc. (the "Company") provides its customers with
the products and services for advanced communications networks which deliver
voice, data and video. The Company's products connect information generators
with information users via broadband terrestrial and satellite networks, and
include applications for the converging cable, telephone, and data networks.
The Company operates primarily in one business segment,
Communications, providing communications networks to a range of customers for
a variety of applications and providing network management and systems
integration for those networks. This segment represents over 90% of
consolidated sales, operating profit and identifiable assets.
The Company has evolved from a manufacturer of electronic test
equipment for antennas and electronics for the cable industry to a producer of
a wide variety of products for terrestrial and satellite communications
networks, including digital video, voice and data communications products. The
Company's products include receivers, transmitters, distribution amplifiers,
modulators, demodulators, signal encoders and decoders, controllers, optical
amplifiers, source lasers, analog and digital set-tops, digital video
compression and transmission equipment, fiber optic distribution equipment,
and satellite earth station antennas. These products, and integrated systems
and networks using these and other products, are sold to CATV system
operators, telephone companies, communications carriers, communications
network operators, utility companies and multi-facility business organizations
which use communications satellites for intracompany communications. Sales are
also made to independent system integrators, distributors and dealers who
resell the products to some of the above types of customers.
The Company sells transmission products, including RF (radio
frequency) amplifiers, line extenders, opto-electronic transmitters and
amplifiers, taps, and passives, which transmit signals via coaxial cable or
fiber optics from the cable operator to the end-user customer. The Company's
transmission products enable operators to transmit video and data over the
same network, with a reverse path for customers to communicate back to the
operator. Sales of RF distribution products constituted approximately 18% of
the Company's total sales for fiscal 1998, and approximately 19% and 21% of
such sales in fiscal years 1997 and 1996, respectively. The Company previously
announced that it planned to have production quantities of the new Prisma(TM)
Digital Transport product, an opto-electronics product, available in the first
quarter of fiscal 1999, but the availability of such production quantities is
expected to be delayed until the second quarter of fiscal 1999.
The Company also sells modulators, demodulators and signal processors
for video and audio receiving stations (often referred to as "headend"
systems), products for distributing communications signals by coaxial cable
and fiber optics from headend systems to subscribers and set-top terminals
that enable television sets to receive all channels transmitted by system
operators.
The Company's set-tops include units which are addressable from the
headend system so as to permit control of channel authorizations, including
authorizations for pay-per-view events, impulse ordering and automatic
recording of billing information at the cable operator's central facility, and
menu-driven volume controllable units. Sales of set-tops constituted
approximately 34% of the Company's total sales for fiscal year 1998, and
approximately 30% and 27% of such sales in each of fiscal years 1997 and 1996,
respectively. Proprietary software used in the terminals, as well as system
manager software at the headend system or at the transmission level, was
developed by the Company and is updated from time to time. The Company's new
Explorer(R) 2000 digital set-tops will enable subscribers to access new
services such as e-mail over television, video-on-demand, Web browsing,
Internet Protocol (IP) telephony, various types of electronic-commerce, and
more. For Explorer 2000 digital set-tops to be enabled to provide the above-
described services, the set-tops must be utilized in an advanced, interactive,
two-way, digital cable network, which the Company sells.
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The Company's products, both analog and digital, are being utilized by
the Company's traditional cable operator customers to upgrade their networks
to provide new services and by the telephone companies to build new video,
voice and data networks. They are also utilized by electric utilities in load
management systems which monitor and control power usage and monitor power
outages. The Company's products are also utilized by programmers and
broadcasters to transmit their programs to viewers.
The Company's satellite earth stations receive and transmit signals
for video, voice and data and are utilized in satellite-based telephone, data
and television distribution networks. Some of these earth stations are part of
national and international communications systems which communicate by means
of a satellite with earth stations in other countries or with other earth
stations in the same national network. Earth stations in these systems may be
connected with local telephone, television or other terrestrial communications
networks. The Company's earth stations, signal encoders and decoders, packet
switches and controllers are also used in private business networks for the
exchange of audio, video and data via satellite among various office,
manufacturing and sales facilities and for the delivery of television
programming to hotels, motels and apartment complexes. The Company's data
communications product offerings include private interactive data systems
using VSAT (very small aperture terminal) technology.
The Company designs, manufactures and sells digital video compression
communications products for use by television broadcasters and cable
operators. The Company's digital video compression products utilize the open
architecture MPEG-2 technology adopted by an international standards group, of
which the Company is a founding member. MPEG-2 digital equipment allows
headend, set-top and consumer electronics products and systems to operate
together across networks and in the home.
The Company's satellite products and systems include tracking and
telemetry equipment, earth observation satellite ground stations, and
intercept systems. The Company produces telemetry instruments, radar
platforms, special receivers, special measurement devices and other equipment
used to track aircraft, missiles, satellites and other moving objects and to
communicate with and receive and record various measurements and other data
from the object. The Company's long experience with advanced satellite
tracking technologies has enabled it to offer a range of gateways, network
management centers, transceivers and services for the emerging low earth
orbiting (LEO) satellite communications markets. In addition, the Company has
coupled LEO satellite communications with other wireless and terrestrial
networks to offer two-way interactive solutions to the electric utility
industry for load control and energy management.
See the Consolidated Financial Statements included in this Form 10-K
for the Company's annual sales, annual profits and total assets.
OTHER PRODUCTS AND SERVICES.
The Company has consolidated most of its service functions into a
single service organization, with its goal being to ensure effective post-sale
service for customers using its products, whether such products are under
warranty or no longer under warranty. This service organization offers a
variety of maintenance and service contracts to companies using products
manufactured or sold by the Company, in addition to providing systems
integration, installation, and professional services. In April 1998, the
Company announced the creation of a partially-owned subsidiary, Advanced
Broadband System Services, Inc., which will provide a wide range of services
to the cable industry, including turnkey installation services for customers
such as Tele-Communications Inc. ("TCI").
MARKETING AND SALES
The Company's products are sold primarily through its own sales
personnel who work out of offices in metropolitan Atlanta and other
metropolitan areas in the United States. Certain products are also marketed in
the United States through independent sales representatives and independent
distributors. In addition to direct sales by the Company, sales in foreign
countries are made through wholly-owned subsidiaries and branch offices, as
well as through independent distributors and independent sales
representatives. The Company's management personnel are also actively involved
in marketing and sales activities.
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The Company's international sales constituted 32% of the Company's
total sales for fiscal year 1998 and 37% and 36% of total sales in fiscal
years 1997 and 1996, respectively. Substantially all of these sales were
export sales. Foreign subsidiary sales were not material for any of these
three fiscal years. See Note 3 of the Notes to Consolidated Financial
Statements included in this Form 10-K. Sales to Europe were 14% of total sales
in fiscal 1998 and were 16% and 12% of total sales in fiscal 1997 and 1996,
respectively.
Sales to Time Warner, Inc. and its affiliates were 11% of the
Company's total sales in fiscal 1998 and were 11% of total sales in fiscal
1997. Sales to MediaOne and its affiliates were 11% of the Company's total
sales in fiscal 1998 and were less than 10% of total sales in fiscal 1997. No
customer (or group of customers under common control) accounted for more than
10% of the Company's revenues in fiscal 1996.
BACKLOG
The Company's backlog consists of unfilled customer orders believed to
be firm and long-term contracts which have not been completed. The Company's
backlog as of June 26, 1998, and June 27, 1997, was $486,144,000 and
$483,463,000, respectively.
The Company believes that approximately 90% of the backlog existing at
June 26, 1998, will be shipped within the succeeding fiscal year. With respect
to long-term contracts, the Company includes in its backlog only amounts
representing orders currently released for production. The amount contained in
backlog for any contract or order may not be the total amount of the contract
or order. The amount of the Company's backlog at any time does not reflect
expected revenues for any fiscal period.
PRODUCT RESEARCH AND DEVELOPMENT AND PATENTS
The Company conducts an active research and development program to
strengthen and broaden its existing products and systems and to develop new
products and systems. The Company's development strategy is to identify
products and systems which are, or are expected to be, needed by a substantial
number of customers in the Company's markets and to allocate a greater share
of its research and development resources to areas with the highest potential
for future benefits to the Company. In addition, the Company develops specific
applications related to its present technology. Expenditures in fiscal 1998,
1997 and 1996 were principally for development of commercial digital cable
products and satellite network products. In fiscal 1998, 1997 and 1996, the
Company's research and development expenses were approximately $111,546,000,
$114,344,000, and $95,299,000, respectively.
The Company holds patents with respect to certain of its products and
actively seeks to obtain patent protection for significant inventions and
developments.
MANUFACTURING
The Company develops, designs, fabricates, manufactures, assembles or
acquires its products. Manufacturing operations range from complete assembly
of a particular product by one individual or small group of individuals to
semi-automated assembly lines for volume production. Because many of the
Company's products include precision electronic components requiring close
tolerances, the Company maintains rigorous and exacting test and inspection
procedures designed to prevent production errors, and also constantly reviews
its overall production techniques to enhance productivity and reliability. The
Company's analog set-tops and taps and passives hardware for the CATV industry
are manufactured primarily by contract vendors with high-quality, high-volume
production facilities. In addition to such manufacturing by contract vendors,
the Company commenced its own manufacturing of set-top terminals in fiscal
year 1995 in its new Juarez, Mexico facility. In fiscal year 1997, the Company
completed a 124,000 square foot addition to its manufacturing facility in
Juarez, Mexico. The Company manufactures a variety of products in its Juarez,
Mexico facility, including a portion of its 8600x(TM) advanced analog set-
tops. During fiscal year 1998, the Company launched the production of its
3
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Explorer 2000 set-top in the Juarez, Mexico facility. As announced in August
1998, the Company, during the second fiscal quarter of 1999, is increasing its
manufacturing capacity in Juarez, Mexico for the Explorer 2000 digital
interactive set-top. Also, as the Company announced in June 1998, during the
second quarter of fiscal 1999, it is transferring the RF amplifier product
line to the Juarez, Mexico manufacturing facility from the Norcross, Georgia
manufacturing facility. The transfer is expected to enable the Company to
remain cost competitive in the markets for RF amplifiers. In the same June
1998 announcement, the Company disclosed its decisions to move (i) its cable
headend manufacturing operation from its Vancouver, British Columbia facility
to its Norcross, Georgia manufacturing facility, and (ii) its satellite
services Network Operations Center (including the related research and
development facility) from Melbourne, Florida to Norcross, Georgia.
MATERIALS AND SUPPLIES
The materials and supplies purchased by the Company are standard
electronic components, such as integrated circuits, wire, circuit boards,
transistors, capacitors and resistors, all of which are produced by a number
of manufacturers. Matsushita Electronic Components Co., Ltd. and its
affiliates manufacture analog set-tops for the Company and are a primary
supplier of those set-tops. Cablevision Electronics Co., Ltd and Zinwell
Corporation, Taiwanese companies, are primary suppliers of taps for the
Company. The Company also purchases aluminum and steel, including castings and
semi-fabricated items, produced by a variety of sources. The Company's primary
supplier of die castings for its RF distribution products is Premiere Die
Casting, Inc. Additionally, Motorola, Inc., Broadcom Corporation and SGS-
Thomson Microelectronics, Inc. are three of the Company's primary suppliers of
a variety of semi-conductor products, which are used as components in an array
of the Company's products, including its set-tops. The Company considers its
sources of supply to be adequate and is not dependent upon any single
supplier, except for Matsushita Electronic Components Co., Ltd. (and
affiliates), Cablevision Electronics Co., Ltd., Zinwell Corporation, Premiere
Die Casting, Inc., Motorola, Inc., Broadcom Corporation and SGS-Thomson
Microelectronics, Inc., for any significant portion of the materials used in
the products it manufactures or for the products it sells.
EMPLOYEES
The Company employed approximately 5,736 regular full-time and part-
time employees and approximately 467 additional workers employed through
temporary employment agencies on June 26, 1998. The Company believes its
employee relations are satisfactory.
COMPETITION
The businesses in which the Company is engaged are highly competitive.
The Company competes with companies which have substantially greater resources
and a larger number of products, as well as with smaller specialized
companies. Some of the Company's customers are in businesses closely related
to the production of such products and are, therefore, potential competitors
of the Company. The Company believes that its ability to compete successfully
results from its marketing strategy, engineering skills, product features,
product performance, ability to provide post-purchase services, ability to
provide quality products at competitive prices and broad coverage by its sales
personnel.
FORWARD-LOOKING INFORMATION
This Form 10-K, the 1998 Annual Report, any Form 10-Q or any Form 8-K
of the Company or any written or verbal statements made by representatives of
the Company may include "forward-looking statements." Please see Exhibit 99 to
this Form 10-K for detailed information about the uncertainties and other
factors that may cause actual results to materially differ from the views
stated in such forward-looking statements.
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ITEM 2.PROPERTIES
The Company owns and uses in its operations offices and manufacturing
facilities in metropolitan Atlanta, Georgia; Naperville, Illinois and Juarez,
Mexico, which comprise six sites containing a total of approximately 672,000
square feet.
The Company also owns (i) approximately 130 acres of land in Gwinnett
County, Georgia, where antenna test ranges and a hub station used in providing
interactive data communications services are located, (ii) approximately 219
acres of land in Walton County, Georgia, held for possible future antenna test
range expansion, and (iii) approximately 282 acres of land in Gwinnett County,
Georgia, held for development of and expansion of a consolidated office site
for the Company. The first phase of this consolidated office site is underway;
a 300,000 square foot engineering and office facility is under construction at
this consolidated office site and is expected to be ready for occupancy in the
third quarter of fiscal 1999. The Company presently leases two buildings in
San Diego County, California, neither of which is required for present
operations, and both of which are under sublease to other tenants.
Additional major manufacturing facilities containing an aggregate of
approximately 361,500 square feet are leased by the Company at the following
locations under leases expiring (including renewal options) from 2001 to 2015:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE
-------- --------------
<S> <C>
Norcross, Georgia 249,000
Sonderborg, Denmark 71,500
Vancouver, British Columbia 25,000
Toronto, Ontario 16,000
</TABLE>
The Company also leases laboratory, office and warehouse space in
several buildings in the metropolitan areas of Atlanta, Georgia; Cupertino,
California; Phoenix, Arizona; El Paso, Texas; Sonderborg, Denmark; Toronto,
Ontario; Vancouver, British Columbia; Melbourne, Florida; Frankfurt, Germany;
and Manchester, United Kingdom, and the Company leases sales and service
offices in 28 domestic and foreign cities.
ITEM 3.LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings which
may or could have a material adverse impact on the Company or its operations.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of its fiscal year ended June 26, 1998.
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EXECUTIVE OFFICERS OF THE COMPANY
The following persons are the executive officers of the Company:
<TABLE>
<CAPTION>
EXECUTIVE
NAME AGE OFFICER SINCE PRESENT OFFICE
---- --- ------------- --------------
<C> <C> <C> <S>
James F. McDonald 58 1993 President and Chief Executive
Officer
Conrad Wredberg, Jr. 57 1995 Senior Vice President and Chairman
of Corporate Operating Committee
Dwight B. Duke 46 1997 Senior Vice President; President,
Transmission Network Systems; Member
of Corporate Operating Committee
William E. Eason, Jr. 55 1993 Senior Vice President, General
Counsel and Corporate Secretary
H. Allen Ecker 62 1979 Senior Vice President; President,
Subscriber Networks; Chief Technical
Officer; Member of Corporate
Operating Committee
Larry L. Enterline 45 1997 Senior Vice President, Worldwide
Sales and Services
Wallace G. Haislip 49 1998 Senior Vice President-Finance, Chief
Financial Officer and Treasurer
Brian C. Koenig 51 1988 Senior Vice President, Human
Resources
John H. Levergood 64 1992 Senior Vice President
Raymond D. Lucas 60 1989 Senior Vice President; President,
Satellite Communication Systems;
Member of Corporate Operating
Committee
Stephen K. Necessary 42 1998 Vice President, Marketing
Julian W. Eidson 58 1978 Vice President and Controller;
Member of Corporate Operating
Committee
</TABLE>
Each executive officer is elected annually and serves at the pleasure
of the Board of Directors. Each executive officer, except Mr. Eidson, serves
on the Corporate Management Committee of the Company.
Mr. Wredberg joined the Company in 1995 and was elected to the
position of Vice President in May 1995. In November 1995, Mr. Wredberg was
elected as a Senior Vice President of the Company, and in January 1997, Mr.
Wredberg was appointed Chairman of Corporate Operating Committee. Mr. Wredberg
served as President of American Microsystem, Inc., a supplier of semi-
conductors, from 1985 until 1995.
Mr. Duke was elected Senior Vice President of the Company on April 27,
1998. From June 19, 1996 to April 27, 1998, he served as a Vice President of
the Company. Prior to June 19, 1996, Mr. Duke was employed by the Company in a
variety of management positions for more than five years.
Mr. Eason was a partner at Paul, Hastings, Janofsky & Walker from 1989
to 1998. He became "Of Counsel" to the Firm in 1998. He has been Corporate
Secretary of the Company since August 1993, and became
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Senior Vice President and General Counsel in February 1994. Paul, Hastings,
Janofsky & Walker performs legal services for the Company. Mr. Eason does not
receive a salary from the Firm and has no interest in the Firm's earnings and
profits.
Mr. Enterline was elected Senior Vice President, Worldwide Sales and
Services of the Company on February 23, 1997. From January 1996 through
January 1997, Mr. Enterline was a consultant in the telecommunications
industry, providing consulting services to companies such as the Company and
Compression Labs, Inc. From 1989 through January 1996, Mr. Enterline was
employed in a variety of management positions with the Company.
Mr. Haislip was elected to the position of Senior Vice President-
Finance, Chief Financial Officer and Treasurer on April 27, 1998. Prior to
April 27, 1998, Mr. Haislip was employed by the Company in a variety of
management positions for more than five years.
Mr. Necessary was elected to the position of Vice President, Marketing
on April 23, 1998. From October 1995 until April 1998, Mr. Necessary held a
variety of management positions in the Company. Prior to joining the Company,
Mr. Necessary served as President of ANTEC's Products Group from February 1991
to October 1995.
All other executive officers have been employed by the Company in the
same or similar capacities for more than five years. There are no family
relationships among the executive officers.
PART II
ITEM 5.MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED MATTERS
The Common Stock of the Company is traded on the New York Stock
Exchange (symbol SFA). The approximate number of holders of record of the
Company's Common Stock at September 2, 1998, was 6,606.
It has been the policy of the Company to retain a substantial portion
of its earnings to finance the expansion of its business. In 1976 the Company
commenced payment of quarterly cash dividends and intends to consider the
continued payment of dividends on a regular basis; however, the declaration of
dividends is discretionary with the Board of Directors, and there is no
assurance regarding the payment of future dividends by the Company. During
fiscal years 1997 and 1998, the Company paid a $.015 dividend per share each
quarter.
Information as to the high and low stock prices and dividends paid for
each quarter of fiscal years 1998 and 1997 is included in Note 7 of the Notes
to Financial Statements included in this Report.
ITEM 6.SELECTED FINANCIAL DATA
Selected Financial Data is set forth on page 28 of this Report.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion of Consolidated Statement of Financial
Position, of Consolidated Statement of Earnings, and of Consolidated Statement
of Cash Flows are set forth on pages 13 and 14, 17 through 24, and 26 of this
Report, respectively.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the information required for this Item 7A, see Note 1 of the Notes
to Consolidated Financial Statements included in this Form 10-K.
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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and notes
thereto, the schedule containing certain supporting information and the report
of independent public accountants are set forth on pages 11 through 42 of this
Report. See Part IV, Item 14 for an index of the statements, notes and
schedule.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Pursuant to Instruction G(3) to Form 10-K, the information required in
Items 10-13 (except for the information set forth at the end of Part I with
respect to Executive Officers of the Company) is incorporated by reference
from the Company's definitive proxy statement for the Company's 1998 Annual
Meeting of shareholders, which is expected to be filed pursuant to Regulation
14A within 120 days after the end of the Company's 1998 fiscal year.
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)The following documents are filed as part of this Report:
(1) The consolidated financial statements listed below are included on
pages 11 through 41 of this Report.
Report of Independent Public Accountants.
Consolidated Statement of Financial Position as of June 26, 1998
and June 27, 1997.
Consolidated Statement of Earnings for each of the three years in
the period ended June 26, 1998.
Consolidated Statement of Cash Flows for each of the three years
in the period ended June 26, 1998.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedule:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule II Valuation and Qualifying Accounts for Each of the
Three Years in the Period ended June 26, 1998. 42
</TABLE>
All other Schedules called for under Regulation S-X are not
submitted because they are not applicable or not required or
because the required information is not material or is
included in the financial statements or notes thereto.
(b)Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
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(c)Exhibits:
(3) (a) The Composite Statement of Amended and Restated Articles of
Incorporation of the Company is incorporated by reference to the
Company's report on Form 10-K for the fiscal year ended June 27,
1997.
(b) The By-laws of the Company, as amended, are incorporated by
reference to the Company's report on Form 10-Q for the fiscal
quarter ended December 26, 1997.
(4) The following instrument defining the rights of security holders
is incorporated by reference to the Company's Form 8-A
Registration Statement filed on April 7, 1997:
(a) Rights Agreement, dated as of February 23, 1997, between the
Company and The Bank of New York, as Rights Agent, which includes
as Exhibit A the Preferences and Rights of Series A Junior
Participating Preferred Stock and as Exhibit B the Form of Rights
Certificate.
(10) Material Contracts:
(a) The following material contracts are incorporated by reference to
the Company's report on Form 10-K for the fiscal year ended July
1, 1994:
(i) Scientific-Atlanta, Inc. Supplemental Executive Retirement
Plan.*
(ii) Form of Severance Protection Agreement between the
Company and Certain Officers and Key Employees.*
(b) The following material contract is incorporated by reference to
the Company's report on Form 10-K for the fiscal year ended June
30, 1995:
(i) Credit Agreement, dated May 11, 1995, by and between the
Company and NationsBank of Georgia, National Association,
for itself and as agent for other banks participating in
the credit facility.
(c) The following amendments to the Credit Agreement described in
item (b) above are incorporated by reference to the Company's
report on Form 10-K for its fiscal year ended June 28, 1996:
(i) First Amendment, dated as of December 29, 1995, to the
Credit Agreement.
(ii) Letter Amendment, dated as of April 5, 1996, to the
Credit Agreement.
(iii) Second Amendment, dated as of June 28, 1996, to the
Credit Agreement.
(d) The following material contracts are incorporated by reference to
the Company's report on Form 10-Q for the fiscal quarter ended
September 27, 1996:
(i) Long-Term Incentive Plan of Scientific-Atlanta, Inc., as
amended and restated.*
(ii) Scientific-Atlanta, Inc. 1992 Employee Stock Option Plan,
as amended and restated.*
(e) The following material contract is incorporated by reference to
the Company's Form S-8 Registration Statement, filed on December
27, 1996:
(i) Non-Qualified Stock Option Agreement between Scientific-
Atlanta, Inc. and James F. McDonald.*
(f) The following material contract is incorporated by reference to
the Company's Form S-8 Registration Statement, filed on March 11,
1997:
(i) Non-Qualified Stock Option Agreement between Scientific-
Atlanta, Inc. and Larry L. Enterline.*
(g) The following amendment to the Credit Agreement described in item
(b) above is incorporated by reference to the Company's report on
Form 10-Q for the fiscal quarter ended March 28, 1997:
(i) Third Amendment, dated as of January 27, 1997, to the
Credit Agreement.
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(h) The following material contracts or amendments to material
contracts are incorporated by reference to the Company's report
on Form 10-K for the fiscal year ended June 27, 1997:
(i) Letter Amendment, dated as of April 23, 1997, to the
Credit Agreement described in item (b) above.
(ii) Credit and Investment Agreement, dated as of July 30,
1997, among the Company, Wachovia Capital Markets, Inc.,
Wachovia Bank, N.A., as agent, and the lenders
signatories thereto.
(iii) Lease Agreement, dated as of July 30, 1997, between
Wachovia Capital Markets, Inc. and the Company.
(iv) Acquisition, Agency, Indemnity and Support Agreement
between the Company and Wachovia Capital Markets, Inc.,
dated as of July 30, 1997.
(v) Ground Lease, dated as of July 30, 1997, between the
Company and Wachovia Capital Markets, Inc.
(vi) Scientific-Atlanta, Inc. Non-Employee Directors Stock
Option Plan, as amended.*
(vii) Scientific-Atlanta, Inc. 1981 Incentive Stock Option
Plan, as amended.*
(viii) 1985 Scientific-Atlanta Executive Deferred Compensation
Plan, as amended.*
(ix) Scientific-Atlanta, Inc. 1978 Non-Qualified Stock Option
Plan for Key Employees, as amended.*
(i) Deferred Compensation Plan for Non-Employee Directors of
Scientific-Atlanta, Inc., as amended and restated, is
incorporated by reference to the Company's report on Form 10-Q
for the fiscal quarter ended December 26, 1997.*
(j) Scientific-Atlanta, Inc. Stock Plan for Non-Employee Directors,
as amended and restated.*
(k) Scientific-Atlanta Executive Deferred Compensation Plan, as
amended.*
(l) Scientific-Atlanta, Inc. Senior Officer Annual Incentive Plan, as
amended and restated.*
(m) Scientific-Atlanta, Inc. Annual Incentive Plan for Key Employees,
as amended and restated.*
(n) Scientific-Atlanta, Inc. Restoration Retirement Plan, as
amended.*
(o) Letter Amendment, dated as of April 24, 1998, to the Credit
Agreement described in item (b) above.
(p) The Rights Agreement included as Exhibit 4(a) above, which
Agreement is hereby incorporated by reference.
(11) Computation of Earnings Per Share of Common Stock.
(21) List of Significant Subsidiaries.
(23) Consent of Independent Public Accountants.
(27) Financial Data Schedule.
(99) Cautionary Statements.
- --------
* Indicates management contract or compensatory plan or arrangement.
10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Scientific-Atlanta, Inc.:
We have audited the accompanying consolidated statement of financial
position of Scientific-Atlanta, Inc. (a Georgia corporation) and subsidiaries
as of June 26, 1998 and June 27, 1997 and the related consolidated statements
of earnings and cash flows for each of the three years in the period ended June
26, 1998 appearing on pages 15, 25, and 27, respectively. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Scientific-Atlanta,
Inc. and subsidiaries as of June 26, 1998 and June 27, 1997 and the results of
their operations and their cash flows for each of the three years in the period
ended June 26, 1998 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed in Item
14(a)(2) of this Form 10-K is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
August 4, 1998
REPORT OF MANAGEMENT
The management of Scientific-Atlanta, Inc. (the Company) has the
responsibility for preparing the accompanying financial statements and for
their integrity and objectivity. The statements, which include amounts that are
based on management's best estimates and judgments, have been prepared in
conformity with generally accepted accounting principles and are free of
material misstatement. Management also prepared the other information in the
Form 10-K and is responsible for its accuracy and consistency with the
financial statements.
The Company maintains a system of internal control over the preparation
of its published annual and interim financial statements. It should be
recognized that even an effective internal control system, no matter how well
designed, can provide only reasonable assurance with respect to the preparation
of reliable financial statements; further, because of changes in conditions,
internal control system effectiveness may vary over time.
Management assessed the Company's system of internal control in
relation to criteria for effective internal control over the preparation of its
published annual and interim financial statements. Based on its assessment, it
is management's opinion that its system of internal control as of June 26, 1998
is effective in providing reasonable assurance that its published annual and
interim financial statements are free of material misstatement.
As part of their audit of our financial statements, Arthur Andersen LLP
considered certain elements of our system of internal controls in determining
their audit procedures for the purpose of expressing an opinion on the
financial statements.
The audit committee of the board of directors is composed solely of
outside directors and is responsible for recommending to the board the
independent public accountants to be retained for the year, subject to
stockholder approval. The audit committee meets three times each year to review
with management the Company's system of internal accounting controls, audit
plans and results, accounting principles and practices, and the annual
financial statements.
/s/ James F. McDonald /s/ Wallace G. Haislip
- --------------------------------- --------------------------------
James F. McDonald Wallace G. Haislip
President and Chief Executive Officer Senior Vice President - Finance
Chief Financial Officer and Treasurer
11
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12
<PAGE>
MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Scientific-Atlanta had stockholders' equity of $632.0 million and cash and cash
equivalents of $175.4 million at June 26, 1998. The current ratio of 2.8:1
at June 26, 1998 compared to 2.4:1 at June 27, 1997.
CASH AND CASH EQUIVALENTS at the end of 1998 were $175.4 million, up $68.2
million over last year. Cash generated from earnings, reductions in
inventory levels, the sale of two businesses and the issuance of stock
exceeded expenditures for equipment, expansion of manufacturing capacity and
increases in accounts receivable days sales outstanding in the fourth
quarter of fiscal 1998 as compared to the prior year. Ending working
capital, excluding cash and marketable securities, was $186.5 million, or
15.8 percent of sales, as compared to $240.2 million or 20.6 percent of
sales in the prior year.
MARKETABLE SECURITIES of $95.9 million consist of investments in common stock
and are reported at market value. During fiscal 1998, the Company recorded a
net unrealized gain on $93.8 million in other income from the adjustment of
these investments from cost to the market value.
Recently, equity markets throughout the world have experienced significant
volatility. Marketable securities with a market value of $95.9 million at
June 26, 1998 have increased in value to $101.0 million at September 14,
1998. Management is not currently able to estimate the amount to be
realized from the ultimate sale of these marketable securities.
RECEIVABLES were $254.4 million at year-end, compared to $238.2 million at the
prior fiscal year-end. Average days sales outstanding were 75 in fiscal
1998, approximately the same as the prior year. The allowance for doubtful
accounts of $10.1 million increased $5.9 million due to a one-time provision
of $5.9 million for receivables from customers in the Asia Pacific region
which is currently experiencing currency and other economic crises.
INVENTORY turnover was 4.3 times in 1998, compared to 4.1 in the prior year.
The improvement in inventory turnover was due to lower average inventory
balances in 1998 as compared to 1997 reflecting management's effort to
improve working capital by reducing inventory levels. In addition, the
Company recorded a one-time provision of $26.4 million related to the
restructuring and consolidation of certain satellite business units and
worldwide manufacturing operations. See Management's Discussion of
Consolidated Statement of Earnings.
CURRENT DEFERRED INCOME TAXES decreased $13.3 million due to mark-to-market net
gain on marketable securities which is not taxable until the gain is
realized which was partially offset by increases in non-deductible reserves.
OTHER CURRENT ASSETS of $13.1 million include prepaid taxes, other than income
taxes, license fees, land held for sale, prepaid software maintenance fees
and other miscellaneous prepaid expenses.
NET PROPERTY, PLANT AND EQUIPMENT decreased $6.4 million in 1998 due primarily
to the sale of the interdiction and microwave businesses and disposals
related to the restructuring and consolidation of worldwide manufacturing
operations. Capital additions of $40.6 million included expenditures for
equipment, and expansion of manufacturing capacity, primarily in Juarez,
Mexico.
COST IN EXCESS OF NET ASSETS ACQUIRED decreased $2.4 million in 1998, from the
amortization of the cost of businesses acquired in prior years and the
write-off of costs associated with purchased technology in the satellite
businesses which will no longer be utilized as a result of the restructuring
and consolidation of certain satellite business units in fiscal 1998. See
Management's Discussion of Consolidated Statement of Earnings.
OTHER ASSETS, which include license fees, investments, intellectual property,
capitalized software development costs, cash surrender
13
<PAGE>
MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(CONTINUED)
value of company-owned life insurance and various prepaid expenses,
increased $6.0 million in 1998 due primarily to capitalized software
development costs and additional investments. See Notes 1 and 2.
TOTAL BORROWINGS at year-end amounted to $1.7 million, $0.9 million lower than
the prior year. The borrowings include industrial development bonds and
financing for equipment. Details of borrowings are shown in Note 8.
ACCOUNTS PAYABLE were $103.6 million at year-end, down from $123.7 million
last year. The decrease reflects lower inventory levels at the end of
fiscal 1998 as compared to the prior year. Days in accounts payable of 48
in fiscal 1998 was approximately the same as fiscal 1997.
ACCRUED LIABILITIES of $139.0 million include accruals for restructuring and
consolidation of manufacturing operations, compensation, warranty and
service, customer down-payments, royalties and taxes, excluding income
taxes. The increase in the accruals is due primarily to provisions relating
to restructuring and the consolidation of manufacturing operations and
certain satellite business units and other one-time charges. See
Management's Discussion of Consolidated Statement of Earnings and Notes 4
and 9 for additional information.
OTHER LIABILITIES of $48.5 million are comprised of deferred compensation,
retirement plans, postretirement benefit plans, postemployment benefits and
other miscellaneous accruals. See Note 10 for details.
STOCKHOLDERS' EQUITY was $632.0 million at the end of 1998, up $99.3 million
over the prior year. Net earnings of $80.8 million and $30.7 million from
the issuance of common stock pursuant to employee benefit plans were
partially offset by dividend payments of $4.7 million and the repurchase of
500,000 shares of the Company's stock for $7.5 million. See Note 19 for
details.
14
<PAGE>
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
In Thousands
------------------
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $175,392 $107,143
Marketable securities 95,947 --
Receivables, less allowance for doubtful accounts of
$10,052,000 in 1998 and $4,202,000 in 1997 254,419 238,179
Inventories 159,545 209,570
Deferred income taxes 18,062 31,323
Other current assets 13,133 10,886
-------- --------
TOTAL CURRENT ASSETS 716,498 597,101
-------- --------
PROPERTY, PLANT, AND EQUIPMENT, AT COST
Land and improvements 20,621 19,854
Buildings and improvements 37,316 32,229
Machinery and equipment 193,894 206,760
-------- --------
251,831 258,843
Less - accumulated depreciation and amortization 91,804 92,423
-------- --------
160,027 166,420
-------- --------
COST IN EXCESS OF NET ASSETS ACQUIRED 8,825 11,263
-------- --------
OTHER ASSETS 54,792 48,831
-------- --------
TOTAL ASSETS $940,142 $823,615
======== ========
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 726 $ 842
Accounts payable 103,629 123,675
Accrued liabilities 139,011 111,737
Income taxes currently payable 15,302 13,507
-------- --------
TOTAL CURRENT LIABILITIES 258,668 249,761
-------- --------
LONG-TERM DEBT, less current maturities 983 1,810
-------- --------
OTHER LIABILITIES 48,495 39,394
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 15)
STOCKHOLDERS' EQUITY
Preferred stock, authorized 50,000,000 shares; no
shares issued -- --
Common stock, $0.50 par value, authorized 350,000,000
shares, issued 79,207,004 shares in 1998 and
77,995,475 shares in 1997 39,604 38,998
Additional paid-in capital 195,446 171,857
Retained earnings 399,678 323,608
Accumulated translation adjustments (204) (186)
-------- --------
634,524 534,277
Less - Treasury stock, at cost (122,418 shares in 1998
and 113,000 shares in 1997) 2,528 1,627
-------- --------
631,996 532,650
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $940,142 $823,615
======== ========
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
15
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16
<PAGE>
MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS
The Consolidated Statement of Earnings summarizes Scientific-Atlanta's
operating performance over the last three years, during which time the
Company has accelerated development of new products, particularly the
development, deployment, production and qualification of the Company's
interactive digital networks at customer sites in North America, and
continued its expansion into international markets.
EARNINGS FROM CONTINUING OPERATIONS in 1998 were $80.8 million, or $1.02 per
share as compared to $60.6 million, or $0.78 per share, in 1997. The
Company's 1998 results contain several significant and non-recurring items.
First, during the fourth quarter of 1998, the Company announced that it
would implement a restructuring and consolidation of worldwide
manufacturing operations to achieve reduced costs, improved efficiencies
and better customer service. Production of the RF (radio frequency)
amplifier is expected to be transferred from Norcross, Georgia to the
Company's high volume, low cost manufacturing facility in Juarez, Mexico by
October 1998. The Norcross manufacturing facility is expected to focus on
medium-to-low-volume products requiring close engineering support. The
production of cable headend equipment is planned to be consolidated in
Norcross from Vancouver, British Columbia. This move is designed to improve
efficiency and to more effectively manage the transition of analog to
digital headend products. The Melbourne, Florida satellite services Network
Operations Center (NOC) and research and development facility is scheduled
to be relocated to Norcross. The Company's European headquarters has been
moved from London, England to Frankfurt, Germany to better address market
opportunities in continental Europe. The Far East regional headquarters
have been transferred from Hong Kong to Singapore. The Company's Satellite
Networks and Communications and Tracking Systems business units are being
combined to capitalize on the combined resources provided by concentrated
capabilities in networks, research and development, marketing and sales,
and customer program management and services. As a result of the above, the
Company recorded $76.2 million of restructuring and other one-time pre-tax
charges in the fourth quarter of fiscal 1998. These charges include the
impairment of assets, such as excess inventory related to the consolidation
of manufacturing operations and the discontinuance of certain product
models, costs to relocate production and the NOC, losses on contracts,
costs to abandon facilities, charges to establish an allowance for doubtful
accounts receivable from customers in the Asia Pacific region which is
currently experiencing currency and other economic crises and environmental
issues. The Company charged $33.6 million to cost of sales, $5.9 million to
selling and administrative expenses, $23.4 million to restructuring expense
and $13.3 million to other expense. The Company also recorded a one-time
pre-tax gain of $94.0 million to adjust its investment in Broadcom
Corporation to market value. Net earnings excluding these one-time special
items were $68.5 million, or $0.87 per share. Earnings from continuing
operations in 1997 were $60.6 million, as compared to $7.2 million in 1996.
Earnings from continuing operations in 1996 included one-time, after-tax
charges of $19.5 million for the resolution of an arbitration proceeding
and $9.9 million for the write-off of purchased in-process technology.
Higher sales volume and improved gross margins, which were the primary
factors in the year-to-year increase, were offset partially by increased
sales and administrative expenses and research and development expenses.
SALES of $1,181.4 million increased slightly over the prior year. Higher
domestic sales volume of subscriber products, particularly advanced analog
set-tops, and of transmission products, were offset by significant declines
in sales to customers in the Asia Pacific and Europe regions. The weak
Asian economy continued to negatively impact bookings and sales, and the
Company does not anticipate that these conditions will improve
significantly in the near term. Europe was impacted by a slow down in the
U.K. In addition, a large customer in Europe decided to re-evaluate its
cable strategy, which had the impact of halting orders. Sales in 1998 of
satellite systems also declined as compared to 1997.
17
<PAGE>
MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS (CONTINUED)
During the fourth quarter of fiscal 1998, the Company began the rollout of
advanced two-way digital cable systems which are real-time, interactive
digital networks capable of advanced services such as video-on-demand,
e-mail and Internet browsing, once such services are available. The Company
plans to double the production capacity of its Explorer(R) 2000 digital
set-tops in Juarez to one million units annually beginning in October 1998.
The Company anticipates that sales of the Company's new digital products
will have some negative impact on sales of analog set-tops.
Sales of set-tops constituted approximately 34 percent of the Company's
total sales in 1998, and approximately 30 percent and 27 percent of such
sales in 1997 and 1996, respectively. Sales of RF products were
approximately 18 percent of the Company's total sales in 1998, and
approximately 19 percent and 21 percent of such sales in 1997 and 1996,
respectively. International sales were 32 percent of total sales in 1998,
as compared to 37 percent and 36 percent of such sales in 1997 and 1996,
respectively.
Sales of $1,168.2 million in 1997 increased 11 percent over the prior year.
Higher domestic sales volume of subscriber products, particularly advanced
analog set-tops, was the major contributor to the increase. Sales volume of
distribution equipment, primarily RF products, also contributed to the
increase. Sales in 1997 of satellite systems increased slightly over the
prior year driven by sales of the Company's recently introduced PowerVu(TM)
digital video systems. Sales volume of video game adapters declined as
compared to the prior year.
COST OF SALES as a percent of sales increased 2.7 percentage points in 1998.
Cost of sales in 1998 included one-time charges of $33.6 million for excess
inventory related to the consolidation of manufacturing operations, the
combination of the Satellite Networks and Communications and Tracking
Systems business units, the discontinuance of certain models of products,
estimated losses on a contract and other miscellaneous charges related to
the restructuring and consolidation of worldwide manufacturing operations.
Excluding these charges, cost of sales as a percent of sales decreased 0.1
percentage point from 1997. The improvement of 0.1 percentage point
reflects the continuing benefit from manufacturing in Juarez, negotiated
procurement savings and improved yen exchange rates offset in part by lower
volume of sales in the Asia Pacific region, which generally have higher
margins than some other geographic regions, and margin decreases in
distribution equipment from market pressures.
Cost of sales as a percent of sales in 1997 decreased 3.4 percentage points
from 1996. Improved margins reflect the impact of internal programs to
improve quality and reduce cost, the ramp-up of the Juarez manufacturing
facility, and favorable exchange rates on Japanese yen compared to the
prior year. Favorable margin improvements were offset partially by
increased volumes of certain subscriber products which have lower margins
than some of the Company's other products.
The materials and supplies purchased by the Company are standard electronic
components, such as integrated circuits, wire, circuit boards, transistors,
capacitors and resistors, all of which are produced by a number of
manufacturers. Matsushita Electronic Components Co., Ltd. and its
affiliates manufacture analog set-tops for the Company and are a primary
supplier of those set-tops. Cablevision Electronics Co., Ltd. and Zinwell
Corporation, Taiwanese companies, are primary suppliers of taps for the
Company. The Company also purchases aluminum and steel, including castings
and semi-fabricated items, produced by a variety of sources. The Company's
primary supplier of die castings for its RF distribution products is
Premiere Die Casting, Inc. Additionally, Motorola, Inc., Broadcom
Corporation and SGS-Thomson Microelectronics, Inc. are three of the
Company's primary suppliers of a variety of semi-conductor products, which
are used as components in an array of the Company's products, including its
set-tops. The
18
<PAGE>
MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS (CONTINUED)
Company considers its sources of supply to be adequate and is not dependent
upon any single supplier, except for Matsushita Electronic Components Co.,
Ltd. (and affiliates), Cablevision Electronics Co., Ltd., Zinwell
Corporation, Premiere Die Casting, Inc., Motorola, Inc., Broadcom
Corporation and SGS-Thomson Microelectronics, Inc., for any significant
portion of the materials used in the products it manufactures or for the
products it sells.
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. Currently, the Company has forward exchange contracts to
purchase yen to hedge a portion of its exposure on purchase commitments for
a period of twelve months. See Note 1.
SALES AND ADMINISTRATIVE EXPENSES of $165.6 million in 1998 were $5.0 million
higher than 1997. Sales and administrative expenses in 1998 include a one-
time charge of $5.9 million to establish an allowance for doubtful accounts
receivables from customers in the Asia Pacific region which is currently
experiencing currency and other economic crises. Excluding this one-time
charge, expenses were flat as compared to the prior year and remained at
approximately 14 percent of sales. The Company is continuing to invest in
opportunities to expand into international markets and introduce new
products.
Sales and administrative expenses of $160.6 million in 1997 increased $22.3
million 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. Administrative
expenses increased as higher consulting fees, administrative expenses of ATx
Telecom Systems Inc. (ATx) acquired in June 1996 and Arcodan A/S acquired in
February 1997, and other miscellaneous items more than offset cost
reductions from internal processes and systems improvements. ATx was merged
into the Company on June 26, 1998.
RESEARCH AND DEVELOPMENT EXPENSES were $111.5 million in 1998. Research and
development efforts in 1998 were focused on the development of two-way,
real-time interactive digital networks and set-tops and related software and
the Prisma(TM) Digital Transport product and enhancements to the 8600x set-
tops to include features such as e-mail over television and Web browsing.
The Company previously announced that it planned to have production
quantities of the Prisma Digital Transport product available in the first
quarter of fiscal 1999, but the availability of such production quantities
will be delayed until the second quarter of fiscal 1999. The Company
continues to invest in research and development programs to support existing
products and new product initiatives.
Certain software development costs are capitalized when incurred and are
reported at the lower of unamortized cost or net realizable value.
Capitalization of software development costs begins upon the establishment
of technological feasibility. The establishment of technological feasibility
and the ongoing assessment of recoverability of capitalized software
development costs requires considerable judgment by management with respect
to certain external factors, including, but not limited to, anticipated
future revenues, estimated economic life and changes in software and
hardware technologies.
The Company capitalized $2.2 million and $2.0 million of software
development costs in 1998 and 1997, respectively. Capitalization will cease
when the products are available for general release to customers. Software
development costs were not material and, therefore, were not capitalized in
1996.
The Company periodically allocates engineering resources from research and
development efforts for specific customer orders. The revenue from these
orders will be recognized in future periods and, accordingly,
19
<PAGE>
MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS (CONTINUED)
the related costs have been capitalized as inventory. At June 26, 1998 and
June 27, 1997, the Company had capitalized $11.2 million and $6.0 million,
respectively, of such non-recurring engineering costs. During 1998, the
Company recognized revenue on certain of these orders and, accordingly,
charged $1.3 million to cost of sales. No such revenue was recognized in
1997. There were no material non-recurring engineering costs capitalized at
June 28, 1996.
The Company periodically evaluates the strategic direction of the Company
including an assessment of the markets the Company serves and alternative
methods of generating revenues from its investments in research and
development programs, such as licensing of software and hardware
technology.
Research and development expenses of $114.0 million in 1997 increased $19.0
million over 1996, reflecting the Company's investment in research and
development programs to support existing products and new product
initiatives such as high speed cable data modems, cable telephony products,
interactive set-tops and home automation products for the utility industry.
In fiscal 1998, the Company discontinued its research and development
efforts related to cable telephony products and a stand alone two-way RF
modem because the markets for cable telephony products and two-way stand
alone modems had not developed as quickly as the Company previously
anticipated. A two-way modem solution is currently included in one of the
Company's digital set-top product offerings.
RESTRUCTURING CHARGES of $23.4 million were recorded in the fourth quarter of
fiscal 1998. The charges include $10.2 million and $3.2 million for fixed
assets to be abandoned and expenses related to the cancellation of leases,
respectively, as a result of the consolidation of operations, $5.2 million
for severance and out placement costs, and $4.8 million for the impairment
of certain assets and other miscellaneous expenses.
PURCHASED IN-PROCESS TECHNOLOGY was $14.6 million in 1996. In connection with
the acquisition of ATx on June 28, 1996, the Company recorded a pre-tax
charge of $14.6 million for purchased in-process technology which had not
yet reached technological feasibility and had no alternative future use.
INTEREST EXPENSE was $0.5 million, $0.5 million, and $0.7 million in 1998,
1997, and 1996, respectively. The year-to-year decrease in 1997 as compared
to 1996 reflects lower average working capital borrowings by foreign
subsidiaries.
INTEREST INCOME was $6.0 million, an increase of $2.0 million over the prior
year, reflecting higher average cash balances in fiscal 1998.
OTHER INCOME of $79.9 million in 1998 included a $93.8 million net gain from
the mark-to-market adjustment of marketable securities of which $94.0
million related to the Company's investment in Broadcom Corporation, a $9.1
million gain from the sale of certain assets of the interdiction business,
a loss of $9.0 million from the discontinuance of research and development
efforts related to the Company's CoAxiom(R) telephony products, $6.2
million for estimated losses on the resale of used equipment, $5.5 million
for expenses and the potential settlement of environmental issues and other
miscellaneous items.
During the quarter ended March 27, 1998, the Company sold the inventory,
manufacturing assets and intellectual property of the interdiction business
to Blonder Tongue Laboratories, Inc. (Blonder Tongue) for $19.0 million in
cash, Blonder Tongue stock valued at $1.0 million and an option to acquire
additional shares of Blonder Tongue stock. The Company recorded a pre-tax
gain of $9.1 million related to this sale. At June 26, 1998, the Company
had a reserve of approximately $5.5 million for research and development
commitments, transition services, potential post-closing sales price
adjustments and other miscellaneous expenses related to the sale.
20
<PAGE>
MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS (CONTINUED)
During fiscal 1997, the Company, with consent of its product development
partner, Siemens, decided to decrease its research and development efforts
related to CoAxiom telephony products because the markets for these
products had not developed as quickly as the company previously
anticipated. During the quarter ended March 27, 1998, the Company decided
to discontinue its efforts to develop CoAxiom systems and recorded a pre-
tax charge of approximately $9.0 million. The charge included reserves for
the disposal of inventory and fixed assets which were associated with the
development of CoAxiom systems, research and development costs incurred
during fiscal 1998 and other miscellaneous expenses. Although the Company
discontinued development of CoAxiom telephony products, the Company will
continue to develop applications and technology for telephony on cable
using IP telephony which will be used in the Company's networks and
Explorer 2000 digital interactive set-tops.
During the quarter ended March 28, 1997, the Company decided to dispose of
two business units, microwave and mobile, because these businesses were not
aligned with the Company's core business strategies and recorded a charge
of $5.5 million to adjust the carrying amount of the net assets held for
sale to net realizable value and to provide for estimated indemnifications
to the purchaser, severance, closing costs and other miscellaneous expenses
related to the sale. During the ordinary course of business, the Company
encounters certain risks and uncertainties related to the satisfactory
performance under contracts which it evaluates periodically and provides
reserves, if appropriate. Accordingly, the estimated loss on the sale of
the microwave and mobile businesses was computed on the basis that the
Company would sell the businesses at an amount that would allow the
purchaser, with reasonable assurance, to complete the contracts at a
reasonable margin.
During the quarter ended December 26, 1997, the Company sold the majority
of the net assets of the microwave business unit for $8.1 million of cash.
No gain or loss was recognized on the transaction.
After recording the $5.5 million charge discussed above, at June 26, 1998,
the Company had a remaining reserve of approximately $4.8 million to adjust
the carrying amount of the net assets of the mobile business unit, which
has been discontinued, and to provide for estimated indemnifications to the
purchaser of the microwave business unit, potential losses on contracts of
the microwave business which were retained by the Company, severance,
closing costs and other miscellaneous expenses related to the sale of the
microwave business unit.
Other income of $1.5 million in 1997 included a gain of $5.6 million from
the sale of land and a building in San Diego County, California not
required for current operations, the results of foreign currency
transactions and partnership activities and net gains from rental income
and other miscellaneous items.
Other expense in 1996 included a charge of $28.7 million, related to an
arbitration panel's decision in a proceeding with StarSight Telecast, Inc.
(StarSight), for damages, legal and arbitration expenses and other
expenses, including incremental costs to independently develop an
electronic program guide. In April 1997, the Company and StarSight entered
into a License and Settlement Agreement which resolved all outstanding
disputes and provided for the cross-licensing of technologies.
THE PROVISION FOR INCOME TAXES was 30 percent of pre-tax earnings in 1998 and
32 percent of pre-tax earnings in 1997 and 1996. The lower effective income
tax rate in fiscal 1998 as compared to fiscal 1997 and 1996, is due to
benefits from the Company's foreign sales corporation (FSC) and a decrease
in foreign earnings taxed at a higher rate. Details of the provision for
income taxes are discussed in Note 11.
GAIN ON SALE OF DISCONTINUED OPERATIONS was $3.4 million in 1997 compared to
losses of
21
<PAGE>
MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS (CONTINUED)
$13.2 million in 1996. Losses in 1996 included losses from discontinued
operations of $1.0 million, net of a tax benefit of $0.5 million, and a
one-time, after-tax charge of $12.2 million, net of a tax benefit of $5.7
million, for the estimated loss on the sale of discontinued operations
which was recorded in the quarter ended September 29, 1995, when the
Company decided to discontinue its defense-related businesses in San Diego,
California. Details of the discontinued operations are discussed in Note 6.
NET EARNINGS of $80.8 million in 1998 included after-tax restructuring and
other one-time charges of $53.4 million and an after-tax net gain of $65.6
million from the mark-to-market adjustment of marketable securities.
In 1997, net earnings of $64.0 million, which included an after-tax gain of
$3.4 million from the sale of discontinued operations, compared to a net
loss of $6.0 million in 1996. The net loss in 1996 included after-tax
charges of $9.9 million for purchased in-process technology, $19.5 million
for damages, legal and arbitration expenses and $13.2 million from
discontinued operations.
EARNINGS PER SHARE of $1.02 in 1998 compares with earnings per share of $0.82
in 1997 and with a loss per share of $0.08 in 1996. Diluted shares
outstanding increased slightly to 80.0 million in 1998 from 78.4 million in
1997 and 76.7 million in 1996.
YEAR 2000 issues are being addressed by the Company. The Company, like most
other major companies, is currently addressing a universal problem commonly
referred to as "Year 2000 Compliance," which relates to the ability of
computer programs and systems to properly recognize and process date
sensitive information before and after January 1, 2000. The following
discussion is based on information currently available to the Company.
The Company has analyzed and continues to analyze its internal information
technology ("IT") systems ("IT systems") to identify any computer programs
that are not Year 2000 compliant and implement any changes required to make
such systems Year 2000 compliant. The Company believes that its critical IT
systems currently are capable of functioning without substantial Year 2000
Compliance problems. Of the non-critical, but important, IT systems that
are not currently Year 2000 Compliant, the Company believes such IT systems
will be Year 2000 capable in a time frame that will avoid any material
adverse effect on the Company. Also, the Company does not believe that the
expenditures related to replacing or upgrading any of its IT systems to
make them Year 2000 compliant will have a material adverse effect on the
financial condition of the Company. The Company has identified only two IT
systems (E-mail and electronic calendar) that must be replaced due to Year
2000 concerns, and the Company already had plans to replace these IT system
with one system providing increased functionality.
The Company has evaluated its critical equipment and critical systems that
contain embedded software, such as microcontrollers ("Non-IT systems"), and
the Company believes that all of its critical Non-IT systems are capable of
functioning without substantial Year 2000 Compliance problems.
The Company plans to test its IT systems and Non-IT systems, commencing in
the first calendar quarter of 1999.
Certain products currently sold by the Company contain computer programs
that perform date functions or date calculations. The Company has evaluated
most of its products and is continuing to evaluate its other products, and,
based on its investigation to date, the Company believes that the products
it currently sells (except the System Manager product currently being sold
with the recently-developed System Release 4.5 software) are Year 2000
compliant, provided that they have been upgraded to include all recommended
engineering changes. However, the Company's products are often used by its
customers in systems that contain third party products or products supplied
by the
22
<PAGE>
MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS (CONTINUED)
Company in prior years, such as the System Manager products. Therefore,
even though the Company's current products may be Year 2000 compliant, the
failure of such third party products or historical Company-supplied
products to be Year 2000 compliant, or to properly interface with the
Company's current products, may result in a system failure. Certain
products that the Company no longer offers for sale are not Year 2000
compliant, and the Company has no plans to upgrade them. However, the
Company does have a plan for helping its customers upgrade their System
Manager products and related components to System Release 4.6 software
which is currently in the final stages of development. Such System Release
4.6 software is expected to remedy the Year 2000 problems of System Manager
products historically sold by the Company to its customers. Because some
customers may be using obsolete versions of the System Manager products,
they may also need to purchase equipment to solve their Year 2000 problems.
A customer's failure to upgrade its System Manager products to System
Release 4.6 software may result in such customer having critical Year 2000
problems. Under certain limited circumstances, the Company may incur
expense to remedy such customer's critical Year 2000 failure.
The Company is investigating each of its significant vendors, suppliers,
financial service organizations, service providers and customers to confirm
that the Company's operations will not be materially adversely affected by
the failure of any such third party to have Year 2000 compliant computer
programs. Regardless of the responses that the Company receives from such
third parties, the Company is establishing contingency plans to reduce the
Company's exposure resulting from the non-compliance of third parties.
First, the Company plans to build inventories of critical and/or important
components prior to January 1, 2000, and thereby decrease the Company's
dependence on suppliers that are not Year 2000 compliant. Second, the
Company plans to send hard copies of "Schedules of Ordered Products and
Delivery Dates" to its major customers, commencing in the third calendar
quarter of 1999. Such Schedules should enable customers to accept ordered
products after January 1, 2000, even if their internal computer systems are
not operating properly.
The Company estimates that, through August 31, 1998, it has spent $200,000
to remediate Year 2000 issues in its IT systems, and the Company estimates
that it will spend an additional $500,000 to remediate Year 2000 issues in
its IT systems. Additionally, the Company is accelerating into fiscal 1999
the planned replacement of its E-mail software and electronic calendar
software because such software has Year 2000 problems. The cost of the
replacement software, including installation and training related thereto,
is estimated to be $1.8 million. For the development and deployment of
System Release 4.6 software to remedy Year 2000 problems of System Manager
products sold by the Company, the Company has spent, through August 30,
1998, $1,238,000 and estimates it will spend an additional $1,729,000 to
complete such software development and deployment. All of such expenditures
are included in the budgets of the various departments of the Company
tasked with various aspects of the Year 2000 project. No IT projects have
been deferred due to IT's Year 2000 efforts.
The Company has approached the Year 2000 project in phases. Phase I of the
project involved identification of all software used or sold by the
Company, identification of all significant vendors, and establishment of a
senior management committee (composed of the General Counsel, the Chief
Financial Officer and the Chairman of the Corporate Operating Committee) to
oversee the project. Phase I was completed in the second calendar quarter
of 1998. Phase II of the project involves (a) evaluation of each
significant vendor and evaluation of major customers through letters and
questionnaires (b) communication with customers concerning any products
currently or recently sold by the Company that have Year 2000 issues, and
(c) evaluating the Company's most reasonably likely worst case Year 2000
23
<PAGE>
MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS (CONTINUED)
scenarios and contingency planning related thereto. Phase II is in process
and many of the tasks described in subparagraphs (b) and (c) above have
been completed; Phase II is expected to be completed in the fourth calendar
quarter of 1998. Phase III involves testing of the Company's IT systems and
Non-IT systems to confirm Year 2000 compliance and/or discover any
overlooked Year 2000 problems. Phase III should be completed in the first
calendar quarter of 1999. Last, Phase IV involves implementation of the
Company's contingency plans. Such plans are expected to be implemented in
the third calendar quarter of 1999.
The Company does not currently believe that any of the foregoing will have
a material adverse effect on its financial condition or its results of
operations. However, the process of evaluating the Company's products and
third party products and systems is ongoing. Although not expected,
failures of critical suppliers, critical customers, critical IT systems,
critical Non-IT systems, or products sold by the Company (including any
delay in the deployment of System Releases 4.5 and 4.6) could have a
material adverse effect on the Company's financial condition or results of
operations. As widely publicized, Year 2000 Compliance has many issues and
aspects, not all of which the Company is able to accurately forecast or
predict. There is no way to assure that Year 2000 Compliance will not have
adverse effects on the Company, some of which could be material.
Many of the Company's statements related to Year 2000 are forward-looking
statements and actual results could differ materially from those
anticipated above. The Company is relying on the investigations and
statements of many employees, consultants and third parties in making the
above forward-looking statements and such investigations or statements may
not be accurate. For further risks and uncertainties related to these
forward-looking statements, see Exhibit 99 to this Form 10-K.
24
<PAGE>
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data) 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $1,181,404 $1,168,245 $1,047,901
- ------------------------------------------------------------------------------
COSTS AND EXPENSES
- ------------------------------------------------------------------------------
Cost of sales 850,738 809,081 761,876
Sales and administrative 165,639 160,613 138,362
Research and development 111,546 114,344 95,299
Restructuring 23,412 -- --
Purchased in-process technology -- -- 14,583
Interest expense 476 484 672
Interest income (5,963) (3,943) (1,818)
Other (income) expense, net (79,863) (1,513) 28,374
- ------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 1,065,985 1,079,066 1,037,348
- ------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS 115,419 89,179 10,553
- ------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 34,626 28,537 3,377
- ------------------------------------------------------------------------------
EARNINGS BEFORE DISCONTINUED OPERATIONS 80,793 60,642 7,176
- ------------------------------------------------------------------------------
LOSS FROM DISCONTINUED OPERATIONS, NET OF
TAX -- -- (1,038)
- ------------------------------------------------------------------------------
GAIN (LOSS) ON SALE OF DISCONTINUED
OPERATIONS, NET OF TAX -- 3,400 (12,172)
- ------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 80,793 $ 64,042 $ (6,034)
- ------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE BEFORE
DISCONTINUED OPERATIONS
- ------------------------------------------------------------------------------
Basic $ 1.03 $ 0.78 $ 0.09
Diluted $ 1.02 $ 0.78 $ 0.09
- ------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
- ------------------------------------------------------------------------------
Basic 78,692 78,198 76,666
- ------------------------------------------------------------------------------
Diluted 80,003 78,383 76,666
- ------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
25
<PAGE>
MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF CASH FLOWS
The Statement of Cash Flows summarizes the main sources of Scientific-
Atlanta's cash and its uses. These flows of cash provided or used are
summarized by the Company's operating activities, investing activities and
financing activities.
CASH AND CASH EQUIVALENTS at the end of 1998 were $175.4 million, up $68.2
million from the end of 1997 due to improved earnings, working capital
management, and proceeds from the sale of the interdiction and microwave
businesses and the issuance of common stock.
The Company has a $300 million senior credit facility available that
provides for unsecured borrowings up to $150 million which expires May 1999
and up to $150 million which expires May 2003. There were no outstanding
borrowings under this facility at June 26, 1998 or June 27, 1997. 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.
During the first quarter of fiscal 1998, the Company secured a $38.0
million commitment under a long-term operating lease for the consolidation
of certain operations and future expansion. The initial lease term will be
seven years with the option to extend the lease for an additional 15 years
in 5 year increments.
CASH PROVIDED BY OPERATING ACTIVITIES was $80.3 million for 1998, compared to
$125.1 million for 1997. Cash provided by earnings and reductions in
inventory levels were offset partially by increases in accounts receivable
as compared to the prior year. See Management's Discussion of the Statement
of Financial Position for details of this performance.
In 1997, cash provided by earnings, accounts receivable collections and
reductions in inventory levels was partially offset by decreases in
payables and other liabilities and increases in other assets.
CASH USED BY INVESTING ACTIVITIES of $14.8 million in 1998 included
expenditures for equipment, expansion of manufacturing capacity, primarily
in Juarez, Mexico, and other investing activities. Sources of cash included
proceeds from the sales of the interdiction and microwave businesses. See
Note 2 for additional discussion of investing activities.
Cash used by investing activities in 1997 included expenditures for
equipment, the expansion of manufacturing capacity, the acquisition of
Arcodan and other investing activities. Sources of cash from investing
activities included proceeds from the sale of defense-related businesses
discontinued in 1996 and the sale of land and a building not required for
current operations.
In 1996, cash used by investing activities included expenditures for
equipment, expansion of manufacturing capacity, the purchase of land for
future expansion, the acquisition of ATx and other investing activities.
CASH PROVIDED BY FINANCING ACTIVITIES was $2.8 million in 1998. Financing
activities included the repurchase of 500,000 shares of the Company's
common stock for $7.5 million, dividend payments of $4.7 million and net
debt payments of $0.9 million. The Company reissues these shares under the
Company's stock option plans, 401(k) plan, employee stock purchase plan and
other stock-based employee compensation arrangements. The issuance of stock
pursuant to these plans generated cash of $16.0 million.
Financing activities in 1997 included dividend payments of $4.6 million,
the repurchase of 225,000 shares of the Company's common stock for $3.0
million and net debt payments of $2.0 million. The issuance of stock
pursuant to stock option and employee benefit plans generated cash of $6.6
million.
The repurchase of 1,010,000 shares of the Company's common stock for $12.4
million and dividend payments of $4.6 million exceeded cash generated from
the issuance of stock of $4.3 million in 1996.
----------------
Any statements in Management's Discussion and Analysis of Financial Condition
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-K 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.
PowerVu, Prisma and 8600/x/ are trademarks of Scientific-Atlanta, Inc. CoAxiom
and Explorer are registered trademarks of Scientific-Atlanta, Inc. All other
brands and trademarks are the marks of their respective owners.
26
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(In Thousands) 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
- ---------------------
NET EARNINGS FROM CONTINUING OPERATIONS $ 80,793 $ 60,642 $ 7,176
Adjustments to reconcile net earnings from
continuing operations to net cash provided
by operating activities:
Unrealized gains on marketable securities,
net (93,764) -- --
Depreciation and amortization 48,260 43,151 36,597
Purchased in-process technology -- -- 14,583
Compensation related to stock benefit plans 9,680 6,600 6,193
Provision for losses on accounts receivable 6,231 391 324
(Gain) loss on sale of property, plant and
equipment 4,297 (4,965) (2,123)
Gain on sale of business (6,356) -- --
(Earnings) losses of partnerships 20 (393) 103
Changes in operating assets and liabilities:
Receivables (27,748) 20,028 (21,810)
Inventories 42,753 11,371 29,370
Deferred income taxes 13,261 17,686 (15,308)
Accounts payable and accrued liabilities 3,124 (7,676) (27,546)
Other assets (14,228) (10,690) (4,900)
Other liabilities 13,891 (10,144) 21,450
Net effect of exchange rate fluctuations 50 (899) 35
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 80,264 125,102 44,144
-------- -------- --------
INVESTING ACTIVITIES:
- ---------------------
Purchases of property, plant and equipment (40,643) (53,076) (60,812)
Acquisition of businesses, net of cash
acquired -- (11,237) (24,336)
Payment for businesses purchased -- -- (1,721)
Purchase of land held for resale -- -- (5,085)
Proceeds from the sale of property, plant and
equipment 308 13,183 2,358
Proceeds from the sale of businesses 27,059 -- --
Proceeds from the sale of discontinued
operations -- 18,858 --
(Increase) decrease in net assets of
discontinued operations -- (2,264) 1,505
Proceeds from the sale of investments -- 500 --
Other investments (1,564) (1,875) (2,600)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (14,840) (35,911) (90,691)
-------- -------- --------
FINANCING ACTIVITIES:
- ---------------------
Net short-term borrowings (payments) -- (1,600) 214
Principal payments on long-term debt (943) (400) (373)
Dividends paid (4,723) (4,640) (4,600)
Issuance of stock 16,002 6,635 4,336
Treasury shares acquired (7,511) (2,973) (12,411)
-------- -------- --------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES 2,825 (2,978) (12,834)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 68,249 86,213 (59,381)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 107,143 20,930 80,311
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $175,392 $107,143 $ 20,930
======== ======== ========
</TABLE>
See accompanying notes.
27
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in Thousands,
Except Per Share Data) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES $1,181,404 $1,168,245 $1,047,901 $1,118,057 $755,923
- -----------------------------------------------------------------------------------
Cost of Sales 850,738 809,081 761,876 802,216 525,955
Sales and
Administrative Expense 165,639 160,613 138,362 140,082 107,233
Research and
Development Expense 111,546 114,344 95,299 82,378 58,542
Restructuring Expense 23,412 -- -- -- --
Purchased In-Process
Technology -- -- 14,583 -- --
Interest Expense 476 484 672 775 1,066
Interest Income (5,963) (3,943) (1,818) (2,837) (3,151)
Other (Income) Expense,
Net (79,863) (1,513) 28,374 (1,566) 17,449
- -----------------------------------------------------------------------------------
EARNINGS BEFORE INCOME
TAXES AND DISCONTINUED
OPERATIONS 115,419 89,179 10,553 97,009 48,829
- -----------------------------------------------------------------------------------
PROVISION FOR INCOME
TAXES 34,626 28,537 3,377 31,042 15,624
- -----------------------------------------------------------------------------------
EARNINGS BEFORE
DISCONTINUED OPERATIONS 80,793 60,642 7,176 65,967 33,205
- -----------------------------------------------------------------------------------
EARNINGS (LOSS) FROM
DISCONTINUED
OPERATIONS, NET OF TAX -- 3,400 (13,210) (2,427) 1,817
- -----------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 80,793 $ 64,042 $ (6,034) $ 63,540 $ 35,022
- -----------------------------------------------------------------------------------
DILUTED EARNINGS PER
SHARE BEFORE
DISCONTINUED OPERATIONS $ 1.02 $ 0.78 $ 0.09 $ 0.86 $ 0.44
- -----------------------------------------------------------------------------------
DILUTED EARNINGS (LOSS)
PER SHARE $ 1.02 $ 0.82 $ (0.08) $ 0.83 $ 0.46
- -----------------------------------------------------------------------------------
CASH DIVIDENDS PAID PER
SHARE $ 0.06 $ 0.06 $ 0.06 $ 0.06 $ 0.06
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
WORKING CAPITAL $ 457,830 $ 347,340 $ 301,054 $ 339,665 $302,771
- -----------------------------------------------------------------------------------
TOTAL ASSETS $ 940,142 $ 823,615 $ 763,322 $ 785,264 $640,219
- -----------------------------------------------------------------------------------
Short-Term Debt and
Current Maturities $ 726 $ 842 $ 1,600 $ 1,386 $ 6,487
Long-Term Debt 983 1,810 400 773 1,088
Stockholders' Equity 631,996 532,650 463,652 474,189 395,646
- -----------------------------------------------------------------------------------
TOTAL CAPITAL INVESTED $ 633,705 $ 535,302 $ 465,652 $ 476,348 $403,221
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
GROSS MARGIN % TO SALES 28.0% 30.7% 27.3% 28.2% 30.4%
- -----------------------------------------------------------------------------------
RETURN ON SALES BEFORE
DISCONTINUED OPERATIONS 6.8% 5.2% 0.7% 5.9% 4.4%
- -----------------------------------------------------------------------------------
RETURN ON AVERAGE
STOCKHOLDERS' EQUITY 13.9% 13.0% (1.3)% 14.7% 9.5%
- -----------------------------------------------------------------------------------
EFFECTIVE TAX RATE 30% 32% 32% 32% 32%
- -----------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
BUSINESS
Scientific-Atlanta, Inc. (the "Company") provides its customers with the
products and services they need to develop the advanced communications
networks that deliver voice, data and video. The Company's products connect
information generators with information users via broadband terrestrial and
satellite networks, and include applications for the converging cable,
telephone, and data networks.
The Company operates primarily in one business segment, Communications,
providing communications networks to a range of customers for a variety of
applications, and providing network management and systems integration for
those networks. This segment represents over 90 percent of consolidated sales,
operating profit and identifiable assets.
The Company's products are sold primarily through its own sales personnel who
work out of offices in Norcross and other metropolitan areas in the United
States. Certain products are also marketed in the United States through
independent sales representatives and distributors. In addition to direct
sales by the Company, sales in foreign countries are made through wholly-owned
subsidiaries and branch offices, as well as through independent distributors
and independent sales representatives.
The materials and supplies purchased by the Company are standard electronic
components, such as integrated circuits, wire, circuit boards, transistors,
capacitors and resistors, all of which are produced by a number of
manufacturers. Matsushita Electronic Components Co., Ltd. and its affiliates
manufacture analog set-tops for the Company and are a primary supplier of
those set-tops. Cablevision Electronics Co., Ltd. and Zinwell Corporation,
Taiwanese companies, are primary suppliers of taps for the Company. The
Company also purchases aluminum and steel, including castings and semi-
fabricated items, produced by a variety of sources. The Company's primary
supplier of die castings for its RF distribution products is Premiere Die
Casting, Inc. Additionally, Motorola, Inc., Broadcom Corporation and SGS-
Thomson Microelectronics, Inc. are three of the Company's primary suppliers of
a variety of semi-conductor products, which are used as components in an array
of the Company's products, including its set-tops. The Company considers its
sources of supply to be adequate and is not dependent upon any single
supplier, except for Matsushita Electronic Components Co., Ltd. (and
affiliates), Cablevision Electronics Co., Ltd., Zinwell Corporation, Premiere
Die Casting, Inc., Motorola, Inc., Broadcom Corporation and SGS-Thomson
Microelectronics, Inc., for any significant portion of the materials used in
the products it manufactures or for the products it sells.
FISCAL YEAR-END
The Company's fiscal year ends on the Friday closest to June 30 of each year.
Fiscal year ends are as follows:
<TABLE>
<S> <C>
1998: June 26, 1998
1997: June 27, 1997
1996: June 28, 1996
</TABLE>
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and all subsidiaries after elimination of all material intercompany
accounts and transactions.
USE OF ESTIMATES
The preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates. The
estimates made by management primarily relate to receivable and inventory
reserves, estimated costs to complete long-term contracts and certain accrued
liabilities, principally relating to warranty and service provisions and
restructuring reserves, compensation, claims, litigation and taxes.
FOREIGN CURRENCY TRANSLATION
The financial statements of certain foreign operations are translated into
U.S. dollars at current
29
<PAGE>
exchange rates. Resulting translation adjustments are accumulated as a
component of stockholders' equity and excluded from net earnings. Foreign
currency transaction gains and losses are included in cost of sales and other
income.
FOREIGN EXCHANGE CONTRACTS
The Company enters into foreign exchange forward contracts to hedge certain
firm commitments and assets denominated in currencies other than the U.S.
dollar, primarily Japanese yen. These contracts are for periods consistent with
the exposure being hedged and generally have maturities of one year or less. To
qualify as a hedge, the item to be hedged must expose the Company to inventory
pricing or asset devaluation risk and the related contract must reduce that
exposure and be designated by the Company as a hedge. Gains and losses on
foreign exchange forward contracts, including cost of the contracts, are
deferred and recognized in income in the same period as the hedged
transactions. The Company's foreign exchange forward contracts do not subject
the Company's results of operations to risk due to exchange rate fluctuations
because gains and losses on these contracts generally offset losses and gains
on the exposure being hedged. The Company does not enter into any foreign
exchange forward contracts for speculative trading purposes. If a foreign
exchange forward contract did not meet the criteria for a hedge, the Company
would recognize unrealized gains and losses as they occur.
Firmly committed purchase exposure and related derivative contracts for fiscal
1999 are as follows:
<TABLE>
<CAPTION>
JAPANESE CANADIAN
YEN DOLLAR
--------- --------
<S> <C> <C>
Firmly committed purchased contracts 8,609,000 5,130
Notional amount of forward contracts 5,510,000 5,130
Average contract amount (Foreign currency/United States
dollar) 128.84 1.44
</TABLE>
The Company has no derivative exposure beyond fiscal 1999.
METHOD OF RECORDING CONTRACT PROFITS
Revenues from progress-billed contracts are primarily recorded using the
percentage-of-completion method based on contract costs incurred to date.
Losses, if any, are recorded when determinable. Costs incurred and accrued
profits not billed on these contracts are included in receivables. The
receivables from commercial customers and government agencies were $9,138 at
June 26, 1998 and $22,515 at June 27, 1997. It is anticipated that
substantially all such amounts will be collected within one year.
RESEARCH AND DEVELOPMENT EXPENDITURES
Certain software development costs are capitalized when incurred and are
reported at the lower of unamortized cost or net realizable value.
Capitalization of software development costs begins upon the establishment of
technological feasibility. The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized software development
costs require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future revenues,
estimated economic life and changes in software and hardware technologies.
The Company capitalized $2,181 and $2,022 of software development costs in 1998
and 1997, respectively. Capitalization will cease when the products are
available for general release to customers. Software development costs were not
material and, therefore, were not capitalized in 1996.
The Company periodically allocates engineering resources from research and
development efforts for specific customer orders. The revenue from these orders
will be recognized in future periods and, accordingly, the related costs have
been inventoried. At June 26, 1998 and June 27, 1997, the Company had
capitalized $11,188 and $6,047 of such non-recurring engineering costs. During
1998, the Company recognized revenue on certain of these orders and,
accordingly, charged $1,341 to cost of sales. No such revenue was recognized in
1997. There were no material non-recurring engineering costs capitalized at
June 28, 1996.
DEPRECIATION, MAINTENANCE AND REPAIRS
Depreciation is provided using principally the straight-line method over the
estimated useful lives of the assets. Maintenance and repairs are charged to
expense as incurred. Renewals and betterments are capitalized. The cost and
accumulated depreciation of property retired or otherwise disposed of are
removed from the respective accounts, and the gains
30
<PAGE>
or losses thereon are included in the consolidated statement of earnings.
WARRANTY COSTS
The Company accrues warranty costs at the time of sale. Expenses related to
unusual product warranty problems and product defects are recorded in the
period the problem is identified.
EARNINGS PER SHARE
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 diluted shares of common stock
outstanding.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
MARKETABLE SECURITIES
Marketable securities consist of investments in common stock and are stated at
market value. All marketable securities are defined as trading securities under
the provisions of Statement of Financial Accounting Standards (SFAS) No. 115
and unrealized holding gains and losses are reflected in earnings.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
Cost includes materials, direct labor, and manufacturing overhead. Market is
defined principally as net realizable value. Inventories include purchased and
manufactured components in various stages of assembly as presented in the
following table:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Raw Materials and
Work-In-Process $113,703 $136,699
Finished Goods 45,842 72,871
-------- --------
Total Inventory $159,545 $209,570
======== ========
</TABLE>
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets of businesses acquired is amortized on a straight-
line basis over seventeen years. The Company periodically evaluates the
carrying values assigned to costs in excess of net assets acquired and other
intangible assets.
FINANCIAL PRESENTATION
Certain prior year amounts have been restated to reflect the discontinuance in
1996 of defense related businesses. See Note 6.
2. INVESTMENTS AND ACQUISITIONS
- --------------------------------------------------------------------------------
On February 28, 1997, the Company acquired 100 percent of the outstanding stock
of Arcodan A/S (Arcodan) for $15,000 in cash. Arcodan is a Danish manufacturer
of advanced analog and digital headend systems, opto-electronics and RF
distribution equipment. The acquisition was accounted for as a purchase and,
accordingly, the acquired assets and liabilities were recorded at their
estimated fair value at the date of acquisition. The purchase price has been
allocated to the assets acquired and liabilities assumed, including $5,781 to
cost in excess of net assets acquired.
On June 28, 1996, the Company acquired 100 percent of the outstanding stock of
ATx Telecom Systems, Inc. (ATx) for $24,336 in cash and a subsequent payment of
$152. ATx was a supplier of fiber optic products for hybrid fiber/coax
networks. The acquisition was accounted for as a purchase and, accordingly, the
acquired assets and liabilities were recorded at their estimated fair value at
the date of acquisition. The purchase price of $24,336 has been allocated to
the assets acquired and liabilities assumed. Approximately $14,583 of the total
purchase price represented the value of ATx's in-process technology. Since
technological feasibility had not yet been achieved and there was no
alternative future use for the technology being developed, the amounts
allocated to the in-process technology were expensed concurrent with the
purchase.
During 1996, the Company also acquired a minority interest in Wink
Communications, Inc. (Wink), an enabling software developer, for $2,400. The
Company invested an additional $500 in Wink during fiscal 1997.
3. SALES
- --------------------------------------------------------------------------------
Sales to Time Warner, Inc. and affiliates and MediaOne and affiliates were each
11 percent of total sales in 1998. Sales to Time Warner, Inc. and affiliates
were 11 percent of total sales in 1997. Sales to any one customer were less
than 10 percent
31
<PAGE>
of total sales in 1996. Export sales accounted for 32 percent of total sales in
1998, 37 percent in 1997 and 36 percent in 1996. Sales to Europe were 14
percent, 16 percent and 12 percent of total sales in 1998, 1997 and 1996,
respectively. Sales of set-top terminals constituted approximately 34 percent
of the Company's total sales in 1998, and approximately 30 percent and 27
percent of such sales in 1997 and 1996, respectively. Sales of RF (radio
frequency) products were approximately 18 percent of the Company's total sales
in 1998, and approximately 19 percent and 21 percent of such sales in 1997 and
1996, respectively. Foreign subsidiary sales were not material for any of the
three fiscal years presented.
4. RESTRUCTURING CHARGES
- --------------------------------------------------------------------------------
During 1998, the Company announced that it would implement a restructuring and
consolidation of worldwide manufacturing operations for reduced cost, improved
efficiency and better customer service. Production of the RF amplifier is
expected to be transferred from Norcross, Georgia to the Company's high volume,
low cost manufacturing facility in Juarez, Mexico by October 1998. The Norcross
manufacturing facility is expected to focus on medium-to-low-volume products
requiring close engineering support. The production of cable headend equipment
is planned to be consolidated in Norcross from Vancouver, British Columbia.
This move is designed to improve efficiency and more effectively manage the
transition of analog to digital headend products. The Melbourne, Florida
satellite services Network Operations Center (NOC) and research and development
facility is scheduled to be relocated to Norcross. The Company's European
headquarters have been moved from London, England to Frankfurt, Germany to
better address market opportunities in continental Europe. The Far East
regional headquarters have been transferred from Hong Kong to Singapore. The
Company's Satellite Networks and Communications and Tracking Systems business
units are being combined to capitalize on the combined resources provided by
concentrated capabilities in networks, research and development, marketing and
sales, and customer program management and services.
The Company recorded restructuring charges of $23,412 which included $10,217
and $3,200 for assets to be abandoned and expenses related to the cancellation
of leases, respectively, as a result of the consolidation of operations, $5,173
for severance and outplacement costs for approximately 500 employees primarily
in manufacturing positions and $4,822 for the impairment of certain assets and
other miscellaneous expenses. The Company expects to complete the restructuring
and consolidation of operations within one year.
5. OTHER (INCOME) EXPENSE
- --------------------------------------------------------------------------------
Other income of $79,863 in 1998 included a gain of $94,000 from the adjustment
of the Company's investment in Broadcom Corporation to market value, a gain of
$9,080 from the sale of certain assets of the interdiction business, a loss of
$9,000 from the discontinuance of research and development efforts related to
the Company's CoAxiom telephony products, a loss of $6,250 for estimated losses
on the resale of equipment the Company is contractually obligated to supply,
$5,500 for expenses and the potential settlement of environmental issues and
other miscellaneous items.
During 1998, the Company sold the inventory, manufacturing assets and
intellectual property of the interdiction business to Blonder Tongue
Laboratories, Inc. (Blonder Tongue) for $19,000 in cash, Blonder Tongue stock
valued at $1,000 and an option to acquire additional shares of Blonder Tongue
stock, and the Company recorded a pre-tax gain of $9,080. At June 26, 1998, the
Company had a reserve of approximately $5,500 for research and development
commitments, transition services, potential post-closing sales price
adjustments and other miscellaneous expenses related to the sale.
During fiscal 1997 the Company decided to decrease its research and development
efforts related to CoAxiom telephony products because the markets for these
products had not developed as quickly as the Company previously anticipated.
During fiscal 1998, the Company decided to discontinue its efforts to develop
CoAxiom systems and recorded a pre-tax charge of approximately $9,000. The
charge included reserves for the disposal of inventory and fixed assets which
were associated with the development of CoAxiom systems, research and
development costs incurred during fiscal 1998 and other miscellaneous expenses.
Although the Company discontinued development of CoAxiom telephony products,
the Company will continue to
32
<PAGE>
develop applications and technology for telephony on cable using IP (Internet
protocol) telephony which will be used in the Company's networks and Explorer
2000 digital interactive set-tops.
During the quarter ended March 28, 1997, the Company decided to dispose of two
business units, microwave and mobile, because these businesses were not aligned
with the Company's core business strategies. The Company recorded a charge of
$5,526 during the quarter ended March 28, 1997 to adjust the carrying amount of
the net assets held for sale to net realizable value and to provide for
estimated indemnifications to the purchaser, severance, closing costs and other
miscellaneous expenses related to the sale. During the ordinary course of
business, the Company encounters certain risks and uncertainties related to the
satisfactory performance under contracts which it evaluates periodically and
provides reserves, if appropriate. Accordingly, the estimated loss on the sale
of the microwave and mobile businesses was computed on the basis that the
Company would sell the businesses at an amount that would allow the purchaser,
with reasonable assurance, to complete the contracts at a reasonable margin.
During 1998, the Company sold the majority of the net assets of the microwave
business unit for $8,059 of cash. No gain or loss was recognized on the
transaction.
At June 26, 1998, the Company had a reserve of approximately $4,800 to adjust
the carrying amount of the net assets of the mobile business unit, which has
been discontinued, and to provide for estimated indemnifications to the
purchaser of the microwave business unit, potential losses on contracts of the
microwave business which were retained by the Company, severance, closing costs
and other miscellaneous expenses related to the sale of the microwave business
unit.
Other income of $1,513 in 1997 included a gain from the sale of land and a
building in San Diego County, California not required for current operations,
the results of foreign currency transactions and partnership activities, and
net gains from rental income and other miscellaneous items.
Other expense in 1996 included a charge of $28,700 related to an arbitration
panel's decision in a proceeding with StarSight Telecast, Inc. (StarSight), for
damages, legal and arbitration expenses and other expenses, including
incremental costs to independently develop an electronic program guide.
In April 1997, the Company and StarSight entered into a License and Settlement
Agreement which resolved all outstanding disputes and provided for the cross-
licensing of technologies.
6. DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
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. A one-
time charge of $12,172, net of a tax benefit of $5,728 for the estimated loss
on the sale of discontinued operations was recorded in the quarter ended
September 29, 1995.
On August 14, 1996, the Company completed the sale of its defense-related
businesses to Global Associates, Ltd. (Global) for cash of $13,274 and secured
and unsecured notes aggregating approximately $5,000. The net realizable value
of the assets of the defense-related businesses and settlement of issues
related to the pricing of the unexercised options with a 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 1997. Losses from the defense-
related businesses, while they were accounted for as discontinued operations of
$2,482, net of a tax benefit of $1,168, approximated the amount included in the
$12,172 one-time after-tax charge for the estimated loss on the sale of
discontinued operations. At June 26, 1998, the Company had a reserve of
approximately $7,100 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 and, in January 1998, filed a
voluntary petition for a Chapter 11 reorganization in the United States
Bankruptcy Court. Whether Global will successfully reorganize in this
bankruptcy
33
<PAGE>
proceeding is not known at this time. 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
and related to any contracts of the defense-related businesses from which the
Company has not been released.
Sales and losses (previously accrued) from discontinued operations were as
follows:
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Sales $1,920 $25,780
Losses from discontinued operations, net of tax $ (817) $(2,744)
Tax benefit $ 385 $ 1,291
</TABLE>
7. QUARTERLY FINANCIAL DATA (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Quarters
----------------------------------------
1998 First Second Third Fourth
- ------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $294,501 $294,524 $288,714 $303,665
Gross margin 90,228 86,017 91,272 63,149(2)
Gross margin % 30.6% 29.2% 31.6% 20.8%(2)
Net earnings 16,485 14,832 17,137(1) 32.339(3)
Diluted earnings per
share 0.21 0.19 0.22(1) 0.40(3)
Stock prices
High 23.8750 23.6250 20.6250 25.2500
Low 20.5000 16.5000 14.5625 18.1875
Dividends paid per share 0.015 0.015 0.015 0.015
</TABLE>
- --------
(1) Includes a gain of $6,356 from the sale of certain assets of the
interdiction business and a charge of $6,300 from the discontinuance of
research and development efforts related to CoAxiom products.
(2) Includes charges of $33,591 for excess inventory related to the
consolidation of manufacturing operations, the combination of Satellite
Networks and Communications and Tracking Systems business units, the
discontinuance of certain models of products, estimated losses on a
contract and other miscellaneous charges related to the restructuring and
consolidation of worldwide manufacturing.
(3) Includes pre-tax charges of $23,514 for the items discussed in (2), and
after-tax restructuring charges of $16,388, bad debt expense of $4,126
related to receivables from customers in the Asia Pacific region,
provision for loss on the resale of used equipment of $4,375 and $4,200
for environmental issues, and a one-time gain of $65,800 from the mark-to-
market adjustment of an investment.
<TABLE>
<CAPTION>
Fiscal Quarters
------------------------------------------
1997 First Second Third Fourth
- ------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $261,664 $282,184 $301,741 $322,656
Gross margin 78,770 85,337 94,292 100,765
Gross margin % 30.1% 30.2% 31.2% 31.2%
Net earnings 14,211(1) 13,752 16,461(2) 19,618
Diluted earnings per
share 0.18(1) 0.18 0.21 0.25
Stock prices
High 16.250 18.250 19.125 23.0000
Low 12.000 13.375 15.000 14.6250
Dividends paid per share 0.015 0.015 0.015 0.015
</TABLE>
- --------
(1) Includes a gain of $3,400 ($0.04 per share) from the sale of discontinued
operations.
(2) Includes a gain of $3,733 ($0.05 per share) from the sale of land and a
building in San Diego County, California not required for current
operations and charges of $3,758 ($0.05 per share) related to the
Company's decision to dispose of two business units. See Note 5.
8. INDEBTEDNESS
- -------------------------------------------------------------------------------
At June 26, 1998, the Company had a $300,000 senior credit facility that
provides for unsecured borrowings up to $150,000 which expire May 7, 1999 and
up to $150,000 which expire May 11, 2003. There were no borrowings outstanding
under this facility at June 26, 1998 or June 27, 1997. Interest on borrowings
under this facility are at varying rates and fluctuate based on market rates.
Facility fees based on the average daily aggregate amount of the facility
commitments are payable quarterly.
Long-term debt consisted of:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
6 1/4% - 10% capitalized leases, payable in varying installments
ranging from $200 to $250 through 2001 $ 800 $1,202
Other debt at 7.8% - 8.4% in varying installments ranging from
$11 to $508 through 2001 909 1,450
------ ------
1,709 2,652
Less-Current maturities 726 842
------ ------
$ 983 $1,810
====== ======
</TABLE>
34
<PAGE>
Long-term debt at June 26, 1998 had scheduled maturities as follows: $726 --
1999; $448 -- 2000; $418 -- 2001 and $117 -- 2002.
Total interest paid was $407, $430 and $680, in 1998, 1997, and 1996,
respectively.
9. ACCRUED LIABILITIES
- --------------------------------------------------------------------------------
Accrued liabilities consisted of:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Compensation $ 25,490 $ 29,004
Restructuring reserves 17,667 --
Warranty and service 12,002 14,281
Customer down payments 3,460 5,346
Taxes, other than income taxes 13,810 5,829
Other 66,582 57,277
-------- --------
$139,011 $111,737
======== ========
</TABLE>
10. OTHER LIABILITIES
- --------------------------------------------------------------------------------
Other liabilities consisted of:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Retirement $29,034 $24,679
Compensation 11,486 9,363
Other 7,975 5,352
------- -------
$48,495 $39,394
======= =======
</TABLE>
11. INCOME TAXES
- --------------------------------------------------------------------------------
The tax provision differs from the amount resulting from multiplying earnings
before income taxes by the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Statutory federal tax rate $40,396 $31,213 $3,693
State income taxes, net of federal tax benefit 1,274 1,127 (901)
Tax reserves (464) 2,020 1,689
Research and development tax credit (5,542) (6,394) --
Export incentives (1,328) (2,808) (1,233)
Foreign earnings taxed at different rates 80 2,859 (5)
Other, net 210 520 134
------- ------- ------
$34,626 $28,537 $3,377
======= ======= ======
</TABLE>
Income tax provision (benefit) includes the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Current tax provision (benefit)
Federal $ 7,306 $(10,420) $ 10,974
State 251 (544) 273
Foreign 18,783 17,559 10,187
------- -------- --------
26,340 6,595 21,434
------- -------- --------
Deferred tax provision (benefit)
Federal 9,602 19,647 (16,300)
State 1,709 2,277 (1,659)
Foreign (3,025) 18 (98)
------- -------- --------
8,286 21,942 (18,057)
------- -------- --------
Total provision for income taxes $34,626 $ 28,537 $ 3,377
======= ======== ========
</TABLE>
Total income taxes paid include settlement payments for federal, state and
foreign audit adjustments. The total income taxes paid were $19,134, $22,686
and $5,394 in 1998, 1997, and 1996, respectively. During 1997, the Company
completed an audit of its federal income tax returns for the years 1990 through
1993. The settlement payment from the audit did not have a significant impact
on the consolidated financial statements.
35
<PAGE>
The tax effect of significant temporary differences representing deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Current deferred tax assets
Expenses not currently deductible $ 33,610 $17,750
Inventory valuation 16,922 8,744
Warranty reserves 2,953 3,253
Receivables valuation 1,820 1,286
Other 263 290
-------- -------
Current deferred tax assets 55,568 31,323
======== =======
Current deferred tax liabilities
Unrealized gain on investments (37,506) --
-------- -------
Net current deferred tax asset $ 18,062 $31,323
======== =======
Noncurrent deferred tax assets
Postretirement and postemployment benefits $ 14,124 $10,981
Expenses not currently deductible 3,352 3,469
-------- -------
Noncurrent deferred tax assets 17,476 14,450
Noncurrent deferred tax liabilities
Depreciation and amortization (1,922) (4,634)
Capitalized software (1,471) (708)
-------- -------
Net noncurrent deferred tax asset $ 14,083 $ 9,108
======== =======
</TABLE>
Valuation allowances for current deferred tax assets and noncurrent deferred
tax assets were not required in 1998 or 1997.
The net noncurrent deferred tax asset is included in Other Assets at June 26,
1998 and June 27, 1997.
In 1998, 1997, and 1996, earnings before income taxes included $42,375, $35,658
and $33,745, respectively, of earnings by the Company's foreign operations.
12. RETIREMENT AND BENEFIT PLANS
- -----------------------------------
The Company has a defined benefit pension plan covering substantially all of
its domestic employees. The benefits are based upon the employees' years of
service, age and compensation.
The Company's funding policy is to contribute annually the amount expensed each
year consistent with the requirements of the federal law to the extent that
such costs are currently deductible.
The following table sets forth the plan's funded status and amounts recognized
in the Company's Consolidated Statement of Financial Position at year-end,
using March 31 as a measurement date for all actuarial calculations of asset
and liability values and significant actuarial assumptions:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Accumulated benefit obligation
Vested portion $ 64,797 $ 65,507
Nonvested portion 5,153 4,258
-------- --------
69,950 69,765
Excess of projected benefit obligation over accumulated
benefit obligation 13,886 9,426
-------- --------
Projected benefit obligation 83,836 79,191
Plan assets at fair value (94,102) (74,457)
-------- --------
Projected benefit obligation in excess of (less than) plan
assets (10,266) 4,734
Unrecognized prior service costs 282 316
Unrecognized (loss) gain 11,313 (2,794)
Unrecognized net asset from initial application of SFAS 87 5,715 6,371
Fourth quarter contribution -- (891)
-------- --------
Accrued pension cost $ 7,044 $ 7,736
======== ========
Discount rate 7.25% 7.75%
Rate of increase in future compensation 5.0% 5.0%
Expected long-term rate of return on assets 10.0% 10.0%
</TABLE>
Plan assets are invested in listed stocks, bonds and short-term monetary
investments.
36
<PAGE>
The Company's net pension expense was $4,233 in 1998, $4,091 in 1997 and $3,325
in 1996. The components of pension expense are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
Service cost of benefits earned $ 6,172 $ 6,105 $ 5,169
Interest cost 5,739 5,330 5,128
Actual return on plan assets (23,460) (6,396) (12,532)
Net amortization and deferral 15,782 (948) 5,560
-------- ------- --------
Net periodic pension cost $ 4,233 $ 4,091 $ 3,325
======== ======= ========
</TABLE>
The Company has unfunded defined benefit retirement plans for certain key
officers and non-employee directors. Accrued pension cost for these plans was
$11,074 at June 26, 1998 and $11,605 at June 27, 1997. Retirement expense for
these plans was $2,649, $2,193 and $1,700 in 1998, 1997, and 1996,
respectively.
In addition to providing pension benefits, the Company has contributory plans
that provide certain health care and life insurance benefits to eligible
retired employees.
The following table sets forth the plans' funded status and amounts recognized
in the Company's Consolidated Statement of Financial Position at year-end,
using March 31 as a measurement date for all actuarial calculations of
liability values:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees $ 7,640 $ 8,764
Fully eligible active participants 292 203
Other active participants 252 331
------- -------
8,184 9,298
Unrecognized net gain 1,989 1,040
Fourth quarter claims payments (171) (250)
------- -------
Accrued postretirement benefit cost $10,002 $10,088
======= =======
</TABLE>
The components of postretirement benefit expense are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Service cost of benefits earned $ 46 $ 45
Interest cost 663 704
Net amortization and deferral (51) (24)
---- ----
Postretirement benefit expense $658 $725
==== ====
</TABLE>
Significant actuarial assumptions are as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Annual rate of increase in per capita cost
Pre-Medicare 11.25% 11.25%
Annual decline 0.75% 0.75%
Final rate of increase 6.00% 6.00%
Post-Medicare 9.50% 9.50%
Annual decline 0.50% 0.50%
Final rate of increase 6.00% 6.00%
Impact of one percentage point in health care cost trend rate
on
Accumulated post retirement benefit obligation 8.6% 7.6%
Interest cost component of benefits 8.9% 11.2%
Discount rate used to measure accumulated post-retirement
benefit obligation 7.25% 7.75%
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. The fair value of foreign
currency forward contracts is based on quoted market prices.
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
CARRYING/ CARRYING/
CONTRACT FAIR CONTRACT FAIR
AMOUNT VALUE AMOUNT VALUE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents $175,392 $175,392 $107,143 $107,143
Marketable securities $ 95,947 $ 95,947 $ -- $ --
Foreign currency forward contracts
Sell $ 335 $ 333 $ 1,196 $ 1,087
Buy $ 46,318 $ 43,273 $ 58,984 $ 59,981
</TABLE>
37
<PAGE>
14. RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
The Company had sales of $2,289, $3,591 and $2,728 to Scientific-Atlanta of
Shanghai, Ltd. (SASL) in 1998, 1997 and 1996, respectively. The Company
purchased $4,043 and $2,496 of inventory from SASL in 1998 and 1997,
respectively. There were no such purchases in 1996. The Company had a net
receivable from SASL of $563 at June 26, 1998 and $1,024 at June 27, 1997.
Related party transactions were at prices and terms equivalent to those
available to and transacted with unrelated parties. SASL is a partially-owned
subsidiary of the Company.
15. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS
- --------------------------------------------------------------------------------
Rental expense under operating lease agreements for facilities and equipment
for 1998, 1997 and 1996 was $23,262, $17,462 and $15,347, respectively. The
Company pays taxes, insurance, and maintenance costs with respect to most
leased items. Remaining operating lease terms, including renewals, range up to
eight years. Future minimum payments at June 26, 1998, under operating leases
were $49,676. Payments under these leases for the next five years are as
follows: 1999 -- $14,392; 2000 -- $10,356; 2001 -- $7,709; 2002 -- $5,936; and
2003 -- $4,604.
During the first quarter of fiscal 1998, the Company secured a $38,000
commitment under a long-term operating lease for the consolidation of certain
operations and future expansion. The initial lease term will be seven years
with the option to extend the lease for an additional 15 years in 5 year
increments.
The Company has agreements with certain officers which include certain benefits
in the event of termination of the officers' employment as a result of a change
in control of the Company.
The Company is also committed under certain purchase agreements which are
intended to benefit future periods.
The Company is a party to various legal proceedings arising in the ordinary
course of business. In management's opinion, the outcome of these proceedings
will not have a material adverse effect on the Company's financial position or
results of operations.
16. COMMON STOCK AND RELATED MATTERS
- --------------------------------------------------------------------------------
The Company purchased 500,000 shares of its common stock at an aggregate cost
of $7,511 during fiscal 1998, 225,000 shares at an aggregate cost of $2,973
during fiscal 1997, and 1,010,000 shares at an aggregate cost of $12,411 during
1996.
The Company has non-qualified and incentive stock option plans to provide key
employees and directors with an increased incentive to work for the success of
the Company. Generally, the option price for stock options is the market value
at the date of grant and thus, the plans are non-compensatory. The options
expire 10 years after the dates of their respective grants.
The Company accounts for the stock purchase and stock option plans under APB
Opinion No. 25, which requires compensation costs to be recognized only when
the option price differs from the market price at the grant date. SFAS No. 123
allows a company to follow APB Opinion No. 25 with the following additional
disclosure that shows what the Company's net income (loss) and earnings (loss)
per share would have been using the compensation model under SFAS No. 123:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- --------
<S> <C> <C> <C> <C>
Net income (loss) As reported $80,793 $64,042 $ (6,034)
Pro forma $71,947 $57,761 $(12,455)
Earnings (loss) per share:
Basic As reported $ 1.03 $ 0.82 $ (0.08)
Pro forma $ 0.91 $ 0.74 $ (0.16)
Diluted As reported $ 1.02 $ 0.82 $ (0.08)
Pro forma $ 0.90 $ 0.74 $ (0.16)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to July 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
38
<PAGE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Risk free interest rate 6.01% 6.35% 6.32%
Expected term 5 years 5 years 5 years
Expected forfeiture rate 1% 1% 1%
Volatility 45% 44% 44%
Expected annual dividends $0.06 $0.06 $0.06
</TABLE>
The following information pertains to options on the Company's common stock for
the years ended June 26, 1998, June 27, 1997 and June 28, 1996:
<TABLE>
<CAPTION>
Weighted
Number Average
of Shares Exercise Price
---------- --------------
<S> <C> <C>
1998
Outstanding, beginning of year 6,318,078 $15.469
Granted 1,895,525 $22.011
Canceled (459,276) $19.761
Exercised (1,231,318) $12.019
----------
Outstanding, end of year 6,523,009 $17.763
==========
1997
Outstanding, beginning of year 5,469,550 $15.213
Granted 1,663,000 $15.530
Canceled (300,903) $19.934
Exercised (513,569) $10.423
----------
Outstanding, end of year 6,318,078 $15.469
==========
1996
Outstanding, beginning of year 4,946,199 $13.157
Granted 1,315,050 $20.732
Canceled (309,270) $18.620
Exercised (482,429) $ 6.803
----------
Outstanding, end of year 5,469,550 $15.213
==========
</TABLE>
The following information pertains to options on the Company's common stock at
June 26, 1998:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------
Weighted
Average Weighted
Remaining Average
Range of Life Exercise
Exercise Prices Shares in Years Price
--------------- --------- --------- --------
<S> <C> <C> <C>
$ 3.250 - $10.000 922,648 2.5 $ 6.678
$11.333 - $16.938 1,475,415 7.2 $14.735
$17.000 - $23.682 4,124,946 8.3 $21.352
---------
6,523,009 7.1 $17.780
=========
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
----------------------------
Weighted
Range of Average
Exercise Prices Shares Exercise Price
--------------- --------- --------------
<S> <C> <C>
$ 3.250 - $10.000 922,648 $ 6.68
$11.333 - $16.938 1,061,933 $14.84
$17.000 - $23.682 2,362,202 $21.22
---------
4,346,783 $16.58
=========
</TABLE>
At June 26, 1998, an additional 825,533 shares were reserved under employee and
director stock option plans.
The Company has an employee stock purchase plan whereby the Company provides
certain purchase benefits for participating employees. At June 26, 1998, no
shares were reserved for issuance to employees under the plan. In August 1998,
the Board of Directors approved a new employee stock purchase plan to replace
the existing plan. Under the new plan, 1,000,000 shares were reserved for
issuance to employees.
The Company has a 401(k) plan whereby the Company matches eligible employee
contributions in Company stock, subject to certain limitations. The Company's
expense to match contributions was $6,450, $6,075 and $5,644, in 1998, 1997,
and 1996, respectively. At June 26, 1998, no shares were reserved for issuance
to employees under the plan. On August 20, 1998, the Board of Directors
reserved 3,000,000 shares for this plan.
The Company has a stock plan for non-employee directors which provides for 500
shares of common stock of the Company to be granted to each director annually,
which allows directors to elect to receive all or a portion of his or her
quarterly compensation from the Company in the form of shares of common stock
of the Company, and which also provides for a retirement award of 1,500 shares
of common stock of the Company. At June 26, 1998, 84,000 shares were reserved
for issuance to non-employee directors under the plan.
The Company issues restricted stock awards and non-qualified stock option
grants to certain officers and key employees under a long-term incentive plan.
Compensation expense for restricted stock awards was $2,670, $845, and $470, in
1998, 1997, and 1996, respectively. At June 26, 1998, 1,047,444 shares were
reserved for issuance under this plan.
39
<PAGE>
At June 26, 1998, a total of 1,956,977 shares of authorized stock were reserved
for the above purposes.
The Company adopted a Rights Plan effective upon expiration of its previous
Shareholder Rights Plan in April 1997, and pursuant to the Plan declared a
dividend of one Right for each outstanding share of common stock. For shares
issued after such dividend, a Right attaches to each share of common stock
issued. The Right is to purchase 1/1000th share of preferred stock at an
exercise price of $118. Separate Rights certificates will be distributed and
the Rights will become exercisable if a person or group (i) acquires beneficial
ownership of 15 percent or more of the Company's common stock, (ii) makes a
tender offer to acquire 15 percent or more of the Company's common stock, or
(iii) is determined by the Board of Directors to be an "adverse person" as
defined by the Plan. If a person or a group becomes a 15 percent holder (other
than by offer for all shares approved by the Board of Directors) or is
determined by the Board of Directors to be an "adverse person", each Right will
entitle the holder thereof, other than the acquiring shareholder or adverse
person, to acquire, upon payment of the exercise price, common stock of the
Company having a value equal to twice the exercise price. If the Company
engages in a merger or other business combination in which the Company does not
survive, and which is not approved by the Board of Directors, each Right
entitles the holder to acquire common shares of the surviving company having a
market value equal to twice the exercise price. Following the occurrence of any
event described in either of the two preceding sentences, the Company is
required by the Rights Plan to reserve sufficient shares of its common stock to
permit the exercise in full of all outstanding Rights. At June 26,1998 no
shares of common stock were reserved for this purpose. The Rights may be
redeemed by the Company at a price of $0.01 per Right at any time prior to 10
days after the announcement that a party acquired 15 percent or more of the
Company's common stock or prior to the date any person or group is determined
by the Board of Directors to be an "adverse person". The Rights have no voting
power and, until exercised, no dilutive effect on earnings per share. If not
previously redeemed, the Rights will expire on April 13, 2007.
In connection with adoption of the new Rights Plan, the Board of Directors
designated 350,000 shares of Series A Junior Participating Preferred Stock from
the Company's 50,000,000 authorized shares of preferred stock for issuance
under for the Rights Plan. Upon issuance, each share of preferred stock is
entitled to a quarterly dividend equal to the greater of $0.01 or 1,000 times
the per share amount of all cash dividends, non-cash dividends, or other
distributions, other than dividends payable in common stock, declared on the
Company's common stock. At June 26, 1998, there were 79,085 shares of preferred
stock reserved for this purpose.
17. EARNINGS PER SHARE
- --------------------------------------------------------------------------------
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 adopted SFAS No. 128 in fiscal 1998. Earnings
per share computed under the provisions of SFAS No. 128 were approximately the
same as those computed under Opinion No. 15 for fiscal 1994 through 1997.
Basic and diluted earnings per share for the last three fiscal years follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ------
<S> <C> <C> <C>
Basic
Before discontinued operations $1.03 $0.78 $ 0.09
Discontinued operations -- $0.04 $(0.17)
----- ----- ------
Net earnings (loss) $1.03 $0.82 $(0.08)
===== ===== ======
Diluted
Before discontinued operations $1.02 $0.78 $ 0.09
Discontinued operations -- $0.04 $(0.17)
----- ----- ------
Net earnings (loss) $1.02 $0.82 $(0.08)
===== ===== ======
</TABLE>
18. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
- --------------------------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement 133
"Accounting for Derivative Instruments and Hedging Activities" which the
Company plans to adopt in fiscal 2000. Management is still assessing the impact
of the adoption of this statement. Currently, management does not believe the
adoption of this statement will have a material impact on the Company's results
of operations or financial condition.
40
<PAGE>
19. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In Thousands) 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK
Shares authorized 50,000 50,000 50,000
Shares issued -- -- --
COMMON STOCK ($0.50 PAR VALUE)
Shares authorized 350,000 350,000 350,000
-------- -------- --------
Shares issued at beginning of year 77,995 77,256 76,950
Issuance of shares under employee benefit plans 1,095 612 219
Issuance of restricted shares 117 127 87
-------- -------- --------
Shares issued at end of year 79,207 77,995 77,256
======== ======== ========
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year $171,857 $163,143 $160,206
Issuance of shares under employee benefit plans 14,042 7,137 1,245
Tax benefit from employees' stock plans 5,719 1,664 1,876
Issuance of restricted shares to employees 3,843 4,743 572
Unearned compensation - restricted shares (15) (4,830) (756)
-------- -------- --------
Balance at end of year $195,446 $171,857 $163,143
======== ======== ========
RETAINED EARNINGS
Balance at beginning of year $323,608 $264,206 $274,840
Net earnings (loss) 80,793 64,042 (6,034)
Cash dividends ($0.06 per share) (4,723) (4,640) (4,600)
-------- -------- --------
Balance at end of year $399,678 $323,608 $264,206
======== ======== ========
ACCUMULATED TRANSLATION ADJUSTMENTS
Balance at beginning of year $ (186) $ 740 $ 668
Foreign currency translation adjustments (18) (926) 72
-------- -------- --------
Balance at end of year $ (204) $ (186) $ 740
======== ======== ========
TREASURY STOCK
Balance at beginning of year $ 1,627 $ 3,065 $ --
Treasury shares acquired 7,511 2,973 12,411
Issuance of shares under employee benefit plans (6,610) (4,411) (9,346)
-------- -------- --------
Balance at end of year $ 2,528 $ 1,627 $ 3,065
======== ======== ========
</TABLE>
41
<PAGE>
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 26, 1998
(In Thousands)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ---------- --------------------------------- ---------- ----------
Additions
Balance at --------------------------------- Balance at
beginning Charged to Charged to end of
Description of period costs and expenses other accounts Deductions period
----------- ---------- ------------------ -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Deducted on the balance
sheet from asset to
which it applies:
June 26, 1998 --
Allowance for
doubtful accounts $4,202 $ 6,231(1) $ 2(2) $ (383)(3) $10,052
====== ======= ===== ======= =======
June 27, 1997(4) --
Allowance for
doubtful accounts $3,826 $ 391 $ 186(2) $ (201)(3) $ 4,202
====== ======= ===== ======= =======
June 28, 1996(4) --
Allowance for
doubtful accounts $3,823 $ 324 $ 100(2) $ (421)(3) $ 3,826
====== ======= ===== ======= =======
June 28, 1996 --
Restructuring
Reserves $ -- $23,412 $ -- $(5,745)(5) $17,667
====== ======= ===== ======= =======
</TABLE>
Notes:
(1) Includes charges of $5,895 for receivables from customers in the Asia
Pacific region which is currently experiencing currency and other economic
crises.
(2) Represents recoveries on accounts previously written off, $186 acquired
with the purchases of Arcodan A/S in fiscal 1997 and $100 acquired with the
purchase of ATx Telecom Systems, Inc. in fiscal 1996.
(3) Amounts represent uncollectible accounts written off and $86 transferred to
net assets held for sale in fiscal 1996.
(4) There were no restructuring reserves in fiscal 1997 or fiscal 1996.
(5) Utilization of restructuring reserves for severance, assets abandoned and
other miscellaneous expenses related to the restructuring.
42
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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)
/s/ James F. McDonald September 18,
- ------------------------------------- 1998
James F. McDonald --------------
President and Chief Executive Date
Officer
and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
/s/ James F. McDonald September 18,
- ------------------------------------- 1998
James F. McDonald --------------
President and Chief Executive Officer Date
and Director
(Principal Executive Officer)
/s/ Wallace G. Haislip September 18,
- ------------------------------------- 1998
Wallace G. Haislip --------------
Senior Vice President--Finance Date
Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Julian W. Eidson September 18,
- ------------------------------------- 1998
Julian W. Eidson --------------
Vice President and Controller Date
(Principal Accounting Officer)
/s/ Marion H. Antonini September 18,
- ------------------------------------- 1998
Marion H. Antonini, Director --------------
Date
/s/ David W. Dorman September 18,
- ------------------------------------- 1998
David W. Dorman, Director --------------
Date
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
43
<PAGE>
/s/ William E. Kassling September 18,
- ------------------------------------- 1998
William E. Kassling, Director --------------
Date
/s/ Wilbur Branch King September 18,
- ------------------------------------- 1998
Wilbur Branch King, Director --------------
Date
/s/ Mylle Bell Mangum September 18,
- ------------------------------------- 1998
Mylle Bell Mangum, Director --------------
Date
/s/ Alonzo L. McDonald September 18,
- ------------------------------------- 1998
Alonzo L. McDonald, Director --------------
Date
/s/ David J. McLaughlin September 18,
- ------------------------------------- 1998
David J. McLaughlin --------------
Date
/s/ James V. Napier September 18,
- ------------------------------------- 1998
James V. Napier --------------
Date
/s/ Sam Nunn September 18,
- ------------------------------------- 1998
Sam Nunn, Director --------------
Date
44
<PAGE>
EXHIBIT 10(j)
SCIENTIFIC-ATLANTA, INC.
STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
As Amended August 20, 1998
1. PURPOSES
The purposes of this Plan are to aid the Company in attracting and retaining
highly qualified Non-employee Directors, to provide additional compensation as
an incentive for Non-employee Directors to contribute their best efforts to the
Company's success, and to emphasize and enhance the Company's policy of seeking
to have Non-employee Directors maintain a significant investment in the stock of
the Company and thus a strong commonality of interests with the shareholders.
2. DEFINITIONS
As used in this Plan:
(a) The term "Annual Meeting" means the annual meeting of shareholders of
the Company.
(b) The term "Award" means an Elective Grant, a Stock Award, a Retirement
Award, or a Lump Sum Distribution awarded under this Plan.
(c) The term "Board" means the Board of Directors of the Company.
(d) The term "Board Approval" means approval by a majority of the
directors present at a Board meeting at which a quorum is present.
(e) The term "Company" means Scientific-Atlanta, Inc., a Georgia
corporation.
(f) The term "Committee" shall mean the Governance and Nominations
Committee of the Board or any another committee comprised of directors of the
Board which is vested by the Board with responsibility to administer this Plan.
(g) The term "Elective Grant" shall mean the election by a Non-Employee
Director pursuant to Section 3(a) hereof to receive a portion of his or her
Quarterly Compensation in the form of Shares.
(h) For the purposes of a Stock Award, the term "Eligible Directors" shall
mean those Non-employee Directors who served on the Board for the six months
immediately preceding the Annual Meeting at which a Stock Award is granted and
will continue serving on the Board after such Annual Meeting. For the purposes
of an Elective Grant, the term "Eligible Directors" shall
<PAGE>
mean all Non-employee Directors of the Board. For the purposes of a Retirement
Award and for purposes of the Lump Sum Distribution, the term "Eligible
Directors" shall mean (1) all Non-employee Directors who were not members of the
Board prior to January 1, 1997 and who are serving on the Board on the date of
the Annual Meeting at which the Retirement Award is granted, and (2) all Non-
employee Directors who were members of the Board and Participants in the
Retirement Plan for Non-employee Directors prior to January 1, 1997, and who
elected on or before September 21, 1997, pursuant to the terms of paragraph 3 of
the Retirement Plan for Non-employee Directors, as amended on June 17, 1997, to
receive a Lump Sum Distribution and who are serving on the Board on the date of
the Annual Meeting at which the Retirement Award is granted.
(i) The term "Fair Market Value Per Share" means the closing sale price of
a Share on the New York Stock Exchange on the date such value is determined or,
if there is no trade on such Exchange on that date, then the closing sale price
on the next preceding date on which there is trade of the Company's Common Stock
on such Exchange. In the event that the Company's Common Stock is not listed on
the New York Stock Exchange on the determination date, the Fair Market Value
shall be determined as stated above but with reference to trades on the largest
stock exchange or other public market on which the Company's Common Stock is
then traded.
(j) The term "Lump Sum Distribution" means an award to an Eligible
Director consisting of a number of Shares having an aggregate fair market value,
as of January 1, 1997, determined as provided in Section 2(i) above, equal to
the greater of either (i) the present value, actuarially determined, as of
------
January 1, 1997, of the retirement benefits of such Eligible Director under the
Retirement Plan for Non-employee Directors, as amended on June 17, 1997 (the
"Retirement Plan"), reduced by the present value, actuarially determined by the
----------
Company, as of January 1, 1997, of the stream of annual Retirement Awards
(granted under Section 5(a) hereof) through the electing participant's sixty-
fifth birthday, or (ii) an amount equal to the value of 750 shares of the
--
Company's Common Stock (at the closing price on January 1, 1997) multiplied by
-------------
the Eligible Director's total years of service as a director, as of January 1,
1997, all as determined in accordance with paragraph 3 of the Retirement Plan.
(k) The term "Non-employee Director" means any person who is elected to
the Board and who has not been an employee of the Company or any of its
subsidiaries at any time during the twelve (12) months preceding (i) any
election by such person under Section 3 hereof, (ii) the receipt of a Stock
Award by such person under Section 4 hereof, or (iii) the receipt of a
Retirement Award by such person under Section 5 hereof.
(l) The term "Plan" means this Scientific-Atlanta, Inc. Stock Plan for
Non-employee Directors, as amended from time to time.
(m) The term "Quarterly Compensation" means the sum of all meeting fees,
annual retainer fees, and Committee and Board Chairmanship fees for service as a
director earned by a Non-employee Director during a fiscal quarter. Compensation
paid to Non-employee Directors for their service to the Company in any other
capacity, shall be excluded from the calculation of Quarterly Compensation.
2
<PAGE>
(n) The term "Retirement Award" means an award consisting of 1,500 Shares
(subject to adjustment as herein provided) granted to an Eligible Director
pursuant to Section 5 hereof, which Shares shall be either deferred or
restricted for a period of at least two (2) years from the date of the grant, in
accordance with the terms of Section 5 hereof. Depending on the election made by
each Eligible Director under Section 5(a) hereof, each Retirement Award will be
either a Deferred Retirement Award or a Restricted Retirement Award (as such
terms are defined in Section 5(a) hereof).
(o) The term "Share" means a share of the Company's Common Stock, $.50 par
value. Shares delivered to the Eligible Directors under this Plan may be either
authorized but previously Unicode shares or previously issued shares reacquired
by the Company.
(p) The term "Shareholder Approval" means the affirmative vote of a
majority of the shares of Common Stock present or represented and entitled to
vote at a meeting of the shareholders of the Company at which a quorum is
present.
(q) The term "Stock Award" means an award consisting of 500 Shares
(subject to adjustment as herein provided) granted to an Eligible Director
pursuant to Section 4(a) hereof.
3. ELECTIVE GRANTS
(a) Each Non-employee Director may make an election to receive up to 100
percent (100%) of his or her Quarterly Compensation (in increments of 5%) in the
form of Shares pursuant to an Elective Grant made in accordance with this
Section 3(a). The election by the Non-employee Director to receive an Elective
Grant of Shares must be in writing and must be delivered to the Secretary of the
Company before the start of the fiscal quarter during which services are to be
rendered by the Non-employee Director giving rise to the Quarterly Compensation.
The election made by a Non-employee Director pursuant to this Section 3(a) shall
be in effect as to Quarterly Compensation payable for services rendered during
the fiscal quarter of the Company covered by the election. The Committee shall,
prior to the receipt by a Non-employee Director of shares under an Elective
Grant, approve the issuance of such shares by resolution; however, if the
Committee fails to adopt such an approving resolution, such shares may be issued
to the electing Non-employee Director, but such shares cannot be sold or
otherwise transferred by such Non-employee Director prior to the date which is
six (6) months after the date of such issuance of shares.
(b) The number of Shares to be granted to a Non-employee Director who
makes an Elective Grant shall equal (i) the amount of the Quarterly Compensation
earned during the Company's fiscal quarter subject to the Elective Grant,
divided by (ii) the Fair Market Value Per Share on the last day of such fiscal
quarter. In no event shall the Company be required to issue fractional Shares.
Any fractional Share will be rounded to the nearest whole Share.
3
<PAGE>
(c) As soon as practicable after each Non-employee Director's Elective
Grant of Shares is determined, the Company shall cause to be issued and
delivered to such Non-employee Director a stock certificate registered in the
name of the Non-employee Director evidencing his or her Elective Grant, less any
Shares withheld by the Company pursuant to Section 8 below.
(d) No right to an Elective Grant and no interest therein may be assigned,
pledged, hypothecated, or otherwise transferred by a Non-employee Director
except that, in the event of the death of a Non-employee Director prior to the
issuance of a stock certificate evidencing an Elective Grant, such right to such
Elective Grant may be transferred to the Non-employee Director's designated
beneficiary or, in the absence of such designation, by will or the laws of
descent and distribution.
4. STOCK AWARDS
(a) Beginning with the 1995 Annual Meeting and at the Annual Meeting every
year thereafter through and including the Annual Meeting held in 2009, every
Eligible Director shall be granted a Stock Award.
(b) Subject to the provisions of Section 8 hereof, as soon as practicable
after the applicable Annual Meeting, the Company shall cause to be issued and
delivered to each Eligible Director receiving a Stock Award a stock certificate
registered in the name of such Eligible Director evidencing the Stock Award,
less any Shares withheld by the Company pursuant to Section 8 below.
(c) Eligible Directors shall not be deemed for any purpose to be, or have
any rights as, shareholders of the Company with respect to any Stock Award until
the stock certificates are issued and then only from the date of the issuance of
such stock certificates. Appropriate adjustments shall be made for dividends or
distributions or other rights for which the record date is after an Annual
Meeting and prior to the issuance of such stock certificates.
(d) No right to a Stock Award and no interests therein may be assigned,
pledged, hypothecated, or otherwise transferred by an Eligible Director except
that, in the event of the death of a Non-employee Director prior to the issuance
of a stock certificate evidencing a Stock Award, such right to such Stock Award
may be transferred to the Non-employee Director's designated beneficiary or, in
the absence of such designation, by will or the laws of descent and
distribution.
5. RETIREMENT AWARDS
(a) Beginning with the 1997 Annual Meeting and at the Annual Meeting every
year thereafter through and including the Annual Meeting held 2009, every
Eligible Director shall be granted a Retirement Award. Each Eligible Director
shall elect annually either (i) to defer his or her right to receive such
Retirement Award, under the Deferred Compensation Plan for Non-employee
Directors, for a minimum period of two (2) years after the date of the grant
thereof (a "Deferred Retirement Award"), or (ii) to receive such Retirement
Award as restricted stock that
4
<PAGE>
cannot be sold, assigned or otherwise disposed of by the Eligible Director for a
period of two (2) years after the date of the grant thereof (a "Restricted
Retirement Award").
(b) Subject to the provisions of Section 8, as soon as practicable after
the expiration of (i) the deferral period under the Deferred Compensation Plan
for Non-employee Directors applicable to a Deferred Retirement Award, or (ii)
the restriction period under this Plan applicable to a Restricted Retirement
Award, as applicable, the Company shall cause to be issued to the pertinent
Eligible Director a stock certificate registered in the name of such Eligible
Director evidencing the Deferred Retirement Award or the Restricted Retirement
Award, as applicable.
(c) Eligible Directors shall not be deemed for any purpose to be, or have
any rights as, shareholders of the Company with respect to any Retirement Award
until the stock certificates are issued and then only from the date of the
issuance of such stock certificates. Appropriate adjustments shall be made for
dividends or distributions or other rights for which the record date is after an
Annual Meeting and prior to the issuance of such stock certificates.
(d) No right to a Retirement Award and no interests therein may be
assigned, pledged, hypothecated, or otherwise transferred by an Eligible
Director except that, in the event of the death of a Non-employee Director prior
to the issuance of a stock certificate evidencing a Retirement Award, such right
to such Retirement Award may be transferred to the Non-employee Director's
designated beneficiary or, in the absence of such designation, by will or the
laws of descent and distribution.
(e) During the two (2) year restriction period applicable to a Restricted
Retirement Award, Eligible Directors shall have all rights of a shareholder with
respect to the Shares granted under the Retirement Award, including the right to
vote such Shares and to receive dividends and other distributions paid with
respect to such Shares, but they shall not have the right to sell, exchange,
transfer, pledge, hypothecate or otherwise dispose of such Restricted Retirement
Award, except that such Shares may be transferred upon the death of the Eligible
Director to such of his legal representatives, heirs and legatees as may be
entitled thereto by will or the laws of intestacy.
6. LUMP SUM DISTRIBUTIONS
(a) As soon as practicable after the 1997 Annual Meeting, every Eligible
Director who has elected to receive a Lump Sum Distribution, in accordance with
paragraph 3 of the Retirement Plan for Non-employee Directors, shall be granted
a Lump Sum Distribution under this Plan. Each Eligible Director shall elect to
defer his or her right to receive such Lump Sum Distribution, under the Deferred
Compensation Plan for Non-employee Directors, until not earlier than such
Eligible Director's Retirement, Death or Total Disability (as such terms are
defined in that plan).
5
<PAGE>
(b) Subject to the provisions of Section 8, as soon as practicable after
the expiration of the deferral period under the Deferred Compensation Plan for
Non-employee Directors applicable to such Lump Sum Distribution for an Eligible
Director, the Company shall cause to be issued to such Eligible Director
receiving a Lump Sum Distribution a stock certificate registered in the name of
such Eligible Director evidencing the Lump Sum Distribution.
(c) Eligible Directors shall not be deemed for any purpose to be, or have
any rights as, shareholders of the Company with respect to any Lump Sum
Distribution until the stock certificates are issued and then only from the date
of the issuance of such stock certificates. Appropriate adjustments shall be
made for dividends or distributions or other rights for which the record date is
after an Annual Meeting and prior to the issuance of such stock certificates.
(d) No right to a Lump Sum Distribution and no interests therein may be
assigned, pledged, hypothecated, or otherwise transferred by an Eligible
Director except that, in the event of the death of a Non-employee Director prior
to the issuance of a stock certificate evidencing a Lump Sum Distribution, such
right to such Lump Sum Distribution may be transferred to the Non-employee
Director's designated beneficiary or, in the absence of such designation, by
will or the laws of descent and distribution.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
If a reorganization, recapitalization, stock split, stock dividend, combination
of shares, merger, consolidation, rights offering, or any other change in the
corporate structure of the Company or the Shares occurs, then the number and/or
kind of shares to be awarded under the Plan shall be automatically adjusted as
required in order to prevent an unfavorable effect upon the value of the Awards
to be made under this Plan.
8. ELECTION FOR TAX PURPOSES/TAX WITHHOLDING/DEFERRAL
(a) All Awards made pursuant to this Plan shall be subject to the
withholding of state and federal income taxes, FICA tax or other taxes to the
extent required by applicable law. The Company shall, before delivery of a stock
certificate evidencing an Award, require the recipient to make arrangements
satisfactory to the Company to satisfy such withholding requirement, if any. An
Eligible Director receiving an Award may satisfy such withholding requirement by
having the Company withhold Shares otherwise issuable to the Eligible Director
if such Director makes a written election to do so, which election must be
delivered to the Secretary of the Company. Each Eligible Director receiving a
Restricted Retirement Award shall have the right to make an election, under the
terms of Section 83(b) of the U.S. tax code and related regulations, whereby
such Eligible Director would treat such Restricted Retirement Award as creating
income on the date of the grant thereof, rather than on the date upon which the
restriction period expires.
(b) The right to receive any Shares under this Plan, at the election of
the Non-employee Director receiving an Award (without need for Committee
approval), may be deferred under the provisions of the Company's Deferred
Compensation Plan for Non-employee
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Directors. In the event of such a deferral, the Eligible Director will not have
any rights of ownership, such as voting, selling or receipt of dividends, until
the deferral period for such Award expires.
9. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have full
authority, consistent with the Plan, to interpret the Plan and to promulgate
such rules and regulations with respect to the Plan as it deems desirable for
the administration of the Plan. The Committee shall have authority to determine
all matters relating to the administration and granting of Awards. All
decisions, determinations and interpretations of the Committee shall be binding
upon all persons.
10. COMPLIANCE WITH APPLICABLE LEGAL REQUIREMENTS
The Plan, the Awards, and the obligation of the Company to deliver Shares under
the Plan shall be subject to all applicable laws, regulations, and the
requirements of the exchanges on which Shares may, at the time, be listed. In
the event that the Shares to be issued under this Plan are not registered under
the Securities Act of 1933 and/or any applicable state securities laws prior to
the delivery of such Shares, the Company may require, as a condition to the
issuance thereof, that each Eligible Director to whom such Shares are to be
issued represent and warrant in writing to the Company that the Shares are being
acquired by him or her for investment for his or her account and not for resale
or with any intent of participating directly or indirectly in any distribution
of such Shares and a legend to that effect may be placed on the stock
certificates representing such Shares.
11. AMENDMENTS
The Committee with Board Approval may amend this Plan or any provision thereof
from time to time for the purpose of satisfying the requirements of any changes
in applicable laws or regulations or for any other purpose which at the time may
be permitted by law, provided that no amendment, except with shareholder
Approval, shall: (i) change the calculation of the Awards so as to increase the
value of the award to the Non-employee Directors; (ii) increase the frequency of
the Awards, (iii) materially increase in any other way the benefits to the Non-
employee Directors, (iv) materially modify the definitions of Non-employee
Director or Eligible Directors as defined herein, or (v) disqualify a Non-
employee Director from being a "Non-Employee Director" administrator (within the
meaning of Rule 16b-3 or any successor rule of the Securities and Exchange
Commission) of any stock-based plan of the Company. Notwithstanding the
foregoing, in no case may the Plan provisions pertaining to the amount or
determination of a Stock Award, Elective Grant, Retirement Award, or the
determination of Eligible Directors be amended more than once every six months,
other than to comport with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act, or the rules thereunder.
7
<PAGE>
12. DISCONTINUANCE
The Board may suspend or discontinue this Plan in whole or in part, but any such
suspension or discontinuance shall not affect Awards granted under this Plan
prior thereto.
13. GOVERNING LAW
This Plan is made in accordance with and shall be governed in all respects by
the laws of the State of Georgia.
14. EFFECTIVE DATE
This Plan was effective on August 24, 1995.
15. TERM
The term of this Plan shall be for the period commencing as of the date of Board
Approval and ending with the Annual Meeting held in 2009.
To record the adoption of the Plan by the Board and by the shareholders and to
record the amendments of the Plan, most recently as of August 20, 1998, the
Company has caused its authorized officers to execute this Plan and affix the
corporate name and seal hereto.
SCIENTIFIC-ATLANTA, INC.
By: /s/ Brian C. Koenig
----------------------------
Name: Brian C. Koenig
Title: Senior Vice President - Human Resources
By: /s/ William E. Eason, Jr.
----------------------------
Name: William E. Eason, Jr.
Title: Corporate Secretary
[Corporate Seal]
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<PAGE>
EXHIBIT 10(k)
SCIENTIFIC-ATLANTA
EXECUTIVE DEFERRED COMPENSATION PLAN
AMENDED MAY 14, 1998
Article I - Introduction
------------------------
1.1 Name of the Plan
----------------
This Plan shall be known as the Scientific-Atlanta Executive Deferred
Compensation Plan.
1.2 Purpose of Plan
---------------
The purpose of the Plan is to provide eligible executives of Scientific-
Atlanta, Inc., a Georgia corporation, and its subsidiaries the opportunity to
defer cash compensation payable to them for services to Scientific-Atlanta, Inc.
and its subsidiaries.
1.3 Date of Plan
------------
This Scientific-Atlanta Executive Deferred Compensation Plan was originally
made at Norcross, Georgia, on the 19th day of May, 1993, for the benefit of
certain employees of Scientific-Atlanta, Inc. and its subsidiaries.
Article II - Definitions
------------------------
For purposes of this Plan, the following words and phrases shall have the
meanings and applications set forth below:
2.1 Annual Incentive Plan Payment
-----------------------------
The short-term executive incentive payment, if any, earned by a Participant
in the year preceding a Plan Year and payable by the Employer to the Participant
in the Plan Year.
2.2 Beneficiary
-----------
A person or entity designated in accordance with the terms and conditions
of this Plan to receive benefits upon the death of a Participant.
2.3 Compensation Deferral Election
------------------------------
Each election made by a Participant to defer a portion of his or her
Compensation by executing and submitting an Election Form.
<PAGE>
2.4 Compensation
------------
The total of a Participant's Salary, Annual Incentive Plan Payment, Long-
Term Incentive Plan Payments and any other incentive payments approved by the
Plan Committee ("Other Incentive Compensation") which are payable to the
Participant by the Employer during a Plan Year. Compensation shall be
calculated before reduction for taxes or for compensation deferred pursuant to
this Plan.
2.5 Deferred Benefit Account
------------------------
An account maintained pursuant to and in accordance with the terms and
conditions set forth in Article V hereof by or on behalf of the Employer for
each Compensation Deferral Election made by a Participant under this Plan.
2.6 Deferred Benefit Commencement Date
----------------------------------
The date irrevocably designated by a Participant with respect to each
Compensation Deferral Election as the date on which the payment of the Deferred
Benefits that accumulate as a result of such elections are to begin.
2.7 Deferred Benefits
-----------------
The amounts payable pursuant to this Plan to a Participant or to his or her
Beneficiary or estate following the Participant's termination of employment, the
Deferred Benefit Commencement Date, determination of Total Disability, or death.
2.8 Determination Date
------------------
The last day of each Plan Year.
2.9 Election Amount
---------------
The amount of Salary, Annual Incentive Plan Payment, Long-Term Incentive
Plan Payment or Other Incentive Compensation to be deferred pursuant to a single
Compensation Deferral Election.
2.10 Election Form
-------------
The form completed by a Participant in order to make one or more
Compensation Deferral Elections.
2
<PAGE>
2.11 Employer
--------
Scientific-Atlanta, Inc. or any of its majority owned subsidiaries.
2.12 Employment Termination Date
---------------------------
The date of a Participant's termination of employment, determination of
Total Disability, or death, whichever is applicable.
2.13 Long-Term Incentive Plan Payment
--------------------------------
The long-term performance payment, if any, earned by a Participant during
the performance period immediately preceding the Plan Year and payable by the
Employer to the Participant in the Plan Year.
2.14 Participant
-----------
An employee of the Employer who is eligible to participate in this Plan
according to the criteria adopted from time to time by the Plan Committee and
who elects to participate in this Plan.
2.15 Plan
----
This Scientific-Atlanta Executive Deferred Compensation Plan, as amended
from time to time.
2.16 Plan Committee
--------------
The Human Resources and Compensation Committee of the Board of Directors of
Scientific-Atlanta, Inc. or such other committee as shall be designated by the
Board of Directors from time to time.
2.17 Plan Year
---------
The period beginning on the first day of the Scientific-Atlanta, Inc.
fiscal year and ending on and including the last day of Scientific-Atlanta's
fiscal year. The first Plan Year shall begin with the fiscal year beginning in
July 1993 (fiscal year 1994).
2.18 Plan Interest Rate
------------------
An annual rate of interest that shall be determined by the Committee prior
to the start of each Plan Year and credited to a Participant's Deferred Benefit
Accounts during the Plan Year.
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<PAGE>
2.19 Salary
------
The base salary, including any raises in salary, earned by a Participant in
connection with his or her employment with the Employer and payable to a
Participant by the Employer in a Plan Year.
2.20 Total Disability
----------------
A physical or mental condition which is expected to be totally and
permanently disabling as determined in accordance with the terms and conditions
of the long-term disability insurance plan currently or most recently maintained
by the Employer for the benefit of the Participant claiming to be totally
disabled.
Article III - Eligibility and Participation
-------------------------------------------
3.1 Eligibility
-----------
Employees who are eligible to participate in this Plan will be identified
by the Plan Committee according to criteria adopted from time to time by the
Plan Committee. Such identification shall be conclusive and binding upon all
persons.
3.2 Participation
-------------
The Plan Committee shall notify in writing each employee who becomes
eligible to participate in this Plan of his or her eligibility. Eligible
employees may participate in this Plan by submitting an Election Form in
accordance with Section 4.1 hereof. Such election to participate shall be
effective upon the receipt and acceptance by the Plan Committee of such Election
Form.
3.3 Additional Compensation
-----------------------
A Participant shall receive the Deferred Benefits provided for herein in
addition to any compensation or other benefits paid or provided to the
Participant by the Employer. In the event that a Participant's participation in
this Plan shall cause the Participant to receive a reduced benefit under any
pension plan maintained by the Employer for the benefit of the Participant, then
the Employer shall pay the Participant, at the same time and in the same manner
as would have been paid under such pension plan, the additional pension benefits
that the Participant would have received under such pension plan if the
Participant had not participated in this Plan, unless the Participant is
entitled to receive such additional pension benefits under some other plan
maintained by the Employer for the benefit of the Participant.
4
<PAGE>
Article IV - Compensation Deferral
----------------------------------
4.1 Compensation Deferral Election
------------------------------
A Participant shall make a Compensation Deferral Election by executing and
submitting to the Plan Committee an Election Form. The Election Form shall
specify the Election Amount, the Deferred Benefit Commencement Date, the manner
of payment of the Deferred Benefits attributable to the election, and the
Beneficiary selected by the Participant to receive such Deferred Benefits in the
event of the Participant's death. An election to defer future Salary may be
made either before or during the Plan Year, provided, however, that any such
election must be submitted to the Plan Committee at least 30 days prior to the
applicable fiscal quarter and must apply to at least the entire fiscal quarter.
An election to defer all or a portion of an Annual Incentive Plan Payment, a
Long-Term Incentive Plan Payment or Other Incentive Compensation must be made on
or before the April 1 immediately preceding the Plan Year in which such
incentive award is payable.
4.2 Election Amounts
----------------
Each Election Amount shall be selected as follows:
(a) With respect to Salary, a participant may defer a specified percentage
of the Salary which the Participant will earn and receive during the balance of
the Plan Year, provided, however, that no deferral election with respect to the
current Plan Year may be made after March 31. Percentage deferral must be an
increment of five percentage points and shall not exceed fifty percent.
(b) With respect to an Annual Incentive Plan Payment, a Long-Term
Incentive Plan Payment or Other Incentive Compensation, a Participant may defer
either a specified percentage of the entire payment or a specified percentage of
the payment above a stated dollar amount; provided, however, that any such
percentage must be an increment of five percentage points.
4.3 Reduction of Compensation
-------------------------
The Employer shall deduct Election Amounts deferred from a Participant's
Salary ratably over each remaining pay period in the Plan Year. The Employer
shall deduct Election Amounts deferred from an Annual Incentive Plan Payment, a
Long-Term Incentive Plan Payment or Other Incentive Compensation at the time
such incentive award is otherwise payable.
4.4 Deferred Benefit Commencement Date
----------------------------------
Except as otherwise provided in Article VI hereof, a Participant may elect
to defer receipt of an Election Amount until the Deferred Benefit Commencement
Date selected by the Participant. The permissible Deferred Benefit Commencement
Dates are (i) a set date which is
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<PAGE>
no earlier than July 1 of the calendar year following the end of the Plan Year
in which the Election Amount is deferred; (ii) the Participant's Employment
Termination Date, provided the Participant is fifty-five (55) years of age or
older at the time of such termination; or (iii) a date which is either the fifth
or tenth anniversary of the Participant's Employment Termination Date, provided
the Participant is fifty-five (55) years of age or older at the time of such
termination.
4.5 Manner of Payment
-----------------
Except as otherwise provided in Article VI hereof, the Participant may
elect to receive payment of the Deferred Benefits attributable to a Compensation
Deferral Election pursuant to one of the following methods:
(a) Annual, semiannual or quarterly installments payable over a five, ten
or fifteen year period, and commencing on the respective Deferred Benefit
Commencement Date; or
(b) A single lump sum payment of the entire balance of the respective
Deferred Benefit Account, determined as of and payable on the Deferred Benefit
Commencement Date.
A Participant may change the manner of payment selected with respect to a
Compensation Deferral Election by submitting a request in writing to the Plan
Committee on or before the earlier (i) the date which is six months prior to the
Deferred Benefit Commencement Date, or (ii) the December 31 immediately
preceding the Deferred Benefit Commencement Date.
4.6 Designation of Beneficiaries
----------------------------
A Participant shall designate a Beneficiary with respect to each
Compensation Deferral Election and may change the Beneficiary designation with
respect to any Compensation Deferral Election at any time by submitting a
revised Beneficiary designation in writing reflecting the change to the Plan
Committee.
Article V - Deferred Benefit Accounts
-------------------------------------
5.1 Deferred Benefit Accounts
-------------------------
The Employer shall cause to be established and maintained a separate
Deferred Benefit Account with respect to each Compensation Deferral Election.
The Employer shall credit the Election Amount deferred pursuant to each such
election to the Participant's appropriate Deferred Benefit Account as of the
date deferred from the Participant's Compensation as provided in Section 4.3
hereof. The amount credited to a Participant's Deferred Benefit Account shall
equal the Election Amount deferred reduced by the amount, if any, that the
Employer may be required from time to time to withhold from such Election Amount
pursuant to any federal, state or local law.
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<PAGE>
5.2 Accrual of Interest
-------------------
Except as otherwise provided by Section 6.2(b) hereof, interest shall
accrue, at the Plan Interest Rate in effect from time to time, on any amounts
credited to a Deferred Benefit Account from the date on which the amount is
credited and shall be credited and compounded weekly.
5.3 Determination of Account Balance
--------------------------------
As of each Determination Date, the current balance of a Participant's
Deferred Benefit Account shall equal (A) the sum of (i) the balance of such
Deferred Benefit Account as of the immediately preceding Determination Date,
(ii) any Compensation deferred by such Participant to such Deferred Benefit
Account since the previous Determination Date and (iii) the amount of interest
credited to such Deferred Benefit Account since the preceding Determination
Date, minus (B) any payments to or withdrawals by the Participant from the
Deferred Benefit Account since the previous Determination Date.
5.4 Statement of Accounts
---------------------
Within ninety (90) days after each Determination Date, the Plan Committee
shall submit to each Participant a statement in such form as the Plan Committee
shall deem desirable, setting forth a summary of the Compensation Deferral
Elections made and the current balances of the Deferred Benefit Accounts
maintained for the Participant as of the Determination Date.
Article VI - Payment of Deferred Benefits
-----------------------------------------
6.1 General
-------
Except as otherwise provided herein, Deferred Benefits in each Deferred
Benefit Account shall be payable to a Participant upon the Deferred Benefit
Commencement Date for such Account and pursuant to the manner of payment
selected by the Participant on the applicable Election Form or any permitted
modification thereof. If the Participant has elected to receive such Deferred
Benefits in installments, the amount payable in the first year of such
installments shall be an amount that will fully amortize the balance in the
Participant's Deferred Benefit Account determined as of the Deferred Benefit
Commencement Date over the five, ten, or fifteen year period, based on assumed
interest earnings at the Plan Interest Rate in effect for such first year.
Thereafter, the amount payable in each succeeding year shall be adjusted to an
amount that will fully amortize the remaining balance in such Deferred Benefit
Account over the remaining years in the aforesaid five, ten, or fifteen year
installment period based on the Plan Interest Rate for such succeeding year.
7
<PAGE>
6.2 Termination of Employment
-------------------------
Deferred benefits shall be paid to a Participant upon his or her
termination of employment, as follows:
(a) Upon the involuntary termination of a Participant's employment by the
Employer, if such termination is determined to be involuntary by the Plan
Committee:
(1) the Employment Termination Date shall be deemed to be the Deferred
Benefit Commencement Date applicable to each Deferred Benefit Account;
(2) the amount in each Deferred Benefit Account shall be payable to the
Participant either (i) on the Deferred Benefit Commencement Date that applies to
such Deferred Benefit Account, taking into consideration the aforesaid deemed
date (Section 6.2(a)(1)) pursuant to the method requested by the Participant in
his or her Election Form, or (ii) in the manner requested by the Participant in
his or her Election Form to apply in the event of his or her involuntary
termination by the Employer;
(3) for purposes of this Plan, termination for "good cause" of any
Participant will be construed to be and will be treated as a voluntary
termination by such a Participant, regardless of his or her age, and the
Employer will pay out to such a Participant all amounts in his or her Deferred
Benefit Accounts in accordance with Section 6.2(b) hereof. For purposes of this
Plan, "good cause" shall be determined by the Employer in its sole and absolute
discretion.
(b) Upon the voluntary termination of employment by a Participant prior to
attaining fifty-five years of age:
(1) the amounts in each of the Participant's Deferred Benefit Accounts
shall cease to earn interest and the balance of each Deferred Benefit Account
shall be determined as of the nearest pay date following the Participant's
Employment Termination Date determined in accordance with Article V hereof;
and
(2) the Employer shall pay the Participant the balance of each such
Deferred Benefit Account not according to the Participant's elections as
specified in his or her Election Forms but in a lump sum, to be paid within
sixty (60) days of the Participant's voluntary termination.
(c) For purposes of this Plan, voluntary termination of employment with
the Employer by a Participant who is fifty-five years or older will in all
instances be construed to be and will be treated as an involuntary termination
by such a Participant, and the Employer will pay out to such a Participant all
amounts in his or her Deferred Benefit Account in accordance with the applicable
Election Form.
8
<PAGE>
(d) Other provisions of this Plan to the contrary notwithstanding, in the
event that a Participant's employment with the Employer is terminated for any
reason within two (2) years after a "Change in Control" of Scientific-Atlanta,
Inc., the Employer shall pay the Participant the amounts in the Participant's
Deferred Benefit Accounts according to the terms of Section 6.2(a) hereof as if
the Participant had been terminated involuntarily. For purposes of this Section
6.2(e), a "Change in Control" shall mean any of the following events:
(1) The acquisition in one or more transactions by any "Person" (as the
term person is used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act") of "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty
percent (20%) or more of the combined voting power of the Company's then
outstanding voting securities (the "Voting Securities"), provided, however, that
for purposes of this Section 6.2(e)(1), the Voting Securities acquired directly
from the Company by any Person shall be excluded from the determination of such
Person's Beneficial Ownership of Voting Securities (but such Voting Securities
shall be included in the calculation of the total number of Voting Securities
then outstanding); or
(2) The individuals who are members of the Incumbent Board (as defined
below), cease for any reason to constitute at least two-thirds of the Board.
The "Incumbent Board" shall include the individuals who as of August 20, 1990
are members of the Board and any individual becoming a director subsequent to
August 20, 1990 whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least two-thirds of the directors
then comprising the Incumbent Board; provided, however, that any individual who
is not a member of the Incumbent Board at the time he or she becomes a member of
the Board shall become a member of the Incumbent Board upon the completion of
two full years as a member of the Board; provided, further, however, that
notwithstanding the foregoing, no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office (i) as a result of
either an actual or threatened "election contest" (within the meaning of Rule
14a-11 promulgated under the 1934 Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board (a "Proxy Contest") or (ii) with the approval of the other Board members,
but by reason of any agreement intended to avoid or settle a Proxy Contest; or
(3) Approval by stockholders of the Company of (i) a merger or
consolidation involving the Company if the stockholders of the Company,
immediately before such merger or consolidation, do not own, directly or
indirectly, immediately following such merger or consolidation, more than eighty
percent (80%) of the combined voting power of the outstanding voting securities
of the corporation resulting from such merger or consolidation in substantially
the same proportion as their ownership of the Voting Securities immediately
before such merger or consolidation or (ii) a complete liquidation or
dissolution of the Company or an agreement for the sale or other disposition of
all or substantially all of the assets of the Company.
9
<PAGE>
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because twenty percent (20%) or more of the then outstanding Voting
Securities is acquired by (i) a trustee or other fiduciary holding securities
under one or more employee benefit plans maintained by the Company or any of its
subsidiaries or (ii) any corporation which, immediately prior to such
acquisition, is owned directly or indirectly by the stockholders of the Company
in the same proportion as their ownership of stock in the Company immediately
prior to such acquisition.
Moreover, notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person,
provided, that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities by the Company,
and after such share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities which increases the
percentage of the then outstanding Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control shall be deemed to have occurred.
6.3 Total Disability
----------------
Deferred Benefits shall be paid to a Participant upon his or her becoming
Totally Disabled, as follows:
(a) Upon the determination that a Participant is Totally Disabled.
(1) No further deferrals will be made from his or her Compensation: and
(2) the Employer shall pay the Participant the balance in each of the
Participant's Deferred Benefit Accounts as if the Participant had been
terminated involuntarily, as set forth in Section 6.2(a).
(b) For purposes of this Plan, once a Participant is determined to be
Totally Disabled, he or she will continue to be deemed Totally Disabled
irrespective of the Participant's ceasing to be considered Totally Disabled for
purposes of any other plan maintained by the Employer.
(c) In the event that a Totally Disabled Participant recovers and resumes
active employment with the Employer such Totally Disabled Participant may resume
participation in this Plan at the discretion of the Plan Committee; provided,
however, that in any event the Totally Disabled Participant shall continue to
receive payments of Deferred Benefits that are then being paid pursuant to the
terms of this Plan.
10
<PAGE>
6.4 Death
-----
Deferred Benefits shall be paid upon the death of a Participant, as
follows:
(a) Upon the death of a Participant, the Employer shall pay the amounts in
each of the Participant's Deferred Benefit Accounts to the Beneficiary
designated by the Participant with respect to each Compensation Deferral
Election in each of his or her respective Election Forms, or, if the Participant
fails to so designate a Beneficiary, to his or her estate.
(b) If the Participant dies prior to his or her Employment Termination
Date, the Employer shall pay to each respective Beneficiary or to the
Participant's estate, as the case may be, the amounts in each of the
Participant's respective Deferred Benefit Accounts, in the same manner as for
the Participant who has been terminated involuntarily, as set forth in Section
6.2(a).
(c) If the Participant dies following his or her Employment Termination
Date but prior to his or her receiving the full payment of all Deferred Benefits
payable to him or her, the Employer shall pay to each of the respective
Beneficiaries or to the Participant's estate, as the case may be, the same
Deferred Benefit in the same manner as it otherwise would have paid to the
Participant as if the Participant had not died, unless the Participant has
specified in his or her Election Form a different manner of payment to a
Beneficiary.
(d) Notwithstanding the other provisions of Section 6.4, a Beneficiary may
request a different payment schedule than what has been elected by the
Participant, if such change does not further defer the scheduled payout, by
submitting a request in writing to the Plan Committee. The granting of any such
request shall be within the discretion of the Plan Committee.
(e) If a Beneficiary who is receiving Deferred Benefits pursuant to this
Plan dies, the remainder of the Deferred Benefits to which such Beneficiary was
entitled at the time of his or her death shall continue to be payable to the
beneficiary or beneficiaries designated by such Beneficiary in writing to the
Plan Committee (or to the Beneficiary's estate or heirs if he or she fails to
designate a beneficiary or beneficiaries).
Article VII - Hardship Withdrawals
----------------------------------
7.1 Hardship Withdrawals. A participant may request a Hardship Withdrawal
---------------------
of all or a portion of his or her Deferred Benefits before the Deferred Benefit
Commencement Date, as follows:
(a) The request for withdrawal must be to meet an "unforeseeable
emergency."
(b) For purposes of this Article VII, an unforeseeable emergency is a
severe financial hardship to the Participant resulting from a sudden and
unexpected illness or accident of the Participant or a dependent of the
Participant, loss of Participant's property due to casualty, or
11
<PAGE>
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant. The circumstances that will
constitute an unforeseeable emergency will depend upon the facts of each case,
but, in any case, a hardship withdrawal may not be made to the extent that such
hardship is or may be relieved:
(1) Through reimbursement or compensation by insurance or otherwise,
(2) By liquidation of the participant's assets, to the extent the
liquidation of such assets would not itself cause severe financial hardship, or
(3) By cessation of deferrals under the Plan.
(c) The request for a Hardship Withdrawal must be made in writing to the
Plan Committee and shall state the amount requested, the unforeseeable emergency
to which the amount will be applied and shall also affirm that no other assets
are reasonably available to meet the emergency.
(d) The Plan Committee shall consider applicable regulatory standards in
assessing whether to grant a request for a Hardship Withdrawal.
Article VIII - Plan Administration
----------------------------------
8.1 Plan Committee
--------------
This Plan and all matters related to it shall be administered by the Plan
Committee. The Plan Committee shall have the authority to interpret the
provisions of this Plan and to resolve all questions arising in the
administration, interpretation and application of this Plan. Any such
determination by the Plan Committee shall be conclusive and binding on all
persons. The Plan Committee may, in its sole discretion, delegate any or all of
its responsibilities relative to administration of this Plan to such officers of
Scientific-Atlanta, Inc., as it designates.
8.2 Claim Procedures
----------------
Any Participant or Beneficiary claiming a benefit, or requesting an
interpretation, any information, or a ruling under this Pan shall present the
request, in writing, to the Plan Committee, which shall respond in writing
within thirty (30) days from the date on which it receives the claim or request.
Article IX - Participant's Rights
---------------------------------
9.1 Ineligibility to Participate in Plan
------------------------------------
In the event that the Plan Committee determines that a Participant has
become ineligible to continue to participate in this Plan, the Plan Committee
may terminate Participant's
12
<PAGE>
participation in this Plan upon ten (1) days' prior written notice to the
Participant. In such event, the Participant will not be entitled to make further
Compensation Deferral Elections, but all current Compensation Deferral Elections
shall continue in effect. All Deferred Benefit Accounts shall be payable as
otherwise provided in Article VI hereof.
9.2 Termination of Plan
-------------------
The Board of Directors of Scientific-Atlanta, Inc. may terminate this Plan
at any time, and termination of this Plan shall be effective upon ten (10) days'
written notice to all Participants in the Plan. Upon such termination of this
Plan, the Employer shall pay all active Participants their Deferred Benefits as
provided in Section 6.1 as if each such Participant had actually reached the
Deferred Benefit Commencement Date for all of his or her Deferred Benefit
Accounts. The Plan Committee may, in its discretion, accelerate all payments
due under Plan in the event of a termination of the Plan.
9.3 Participant's Rights
--------------------
The right of a Participant or his or her Beneficiary or estate to receive
any benefits under this Plan shall be solely that of an unsecured creditor of
the Employer. Any asset acquired or held by the Employer or funds allocated by
the Employer in connection with the liabilities assumed by the Employer pursuant
to this Plan shall not be deemed to be held under any trust for the benefit of
any Participant or of any of Participant's Beneficiaries or to be security for
the performance of the Employer's obligations hereunder but shall be and remain
a general asset of the Employer. Provided, however, that nothing herein shall
affect the rights of the Participant with regard to this Pan under that certain
Benefits Protection Trust, between Scientific-Atlanta, Inc. and Wachovia Bank &
Trust Co., N.A., dated February 13, 1991, as amended from time to time.
9.4 Spendthrift Provision
---------------------
Neither a Participant nor any person claiming through a Participant shall
have the right to commute, sell, assign, transfer, pledge, mortgage or otherwise
encumber, transfer, hypothecate or convey any Deferred Benefit payable hereunder
or any part thereof in advance of it actually having been received by a
Participant or other appropriate recipient under this Plan, and the right to
receive all such Deferred Benefits is expressly declared to be non-assignable
and non-transferable. Prior to the actual payment thereof, no part of the
Deferred Benefits payable hereunder shall be subject to seizure or sequestration
for the payment of any debts, judgments, alimony or separate maintenance owed by
a Participant or any person claiming through a Participant or be transferable by
operation of law in the event of a Participant's or any such other person's
bankruptcy or insolvency.
13
<PAGE>
9.5 Plan Not An Employment Agreement
--------------------------------
This Plan shall not be deemed to constitute an employment agreement between
the Employer and any Participant, and no provision hereof shall restrict the
right of the Employer to discharge a Participant as an employee of the Employer
or the right of a Participant to voluntarily terminate his or her employment
with the Employer.
9.6 Cooperation
-----------
Each Participant will cooperate with the Employer by furnishing any and all
information reasonably requested by the Employer in order to facilitate the
payment of Deferred Benefits hereunder and by taking any such other actions as
the Employer or the Plan Committee may reasonably request.
9.7 Offset
------
If a Participant or his or her Beneficiary, as the case may be, shall be
indebted to the Employer at any time that Deferred Benefits are to be paid to a
Participant or his or her Beneficiary under this Plan, then the Employer may
reduce such Deferred Benefits by the amount of such indebtedness prior to the
payment of the Deferred Benefits.
Article X - Miscellaneous
-------------------------
10.1 Amendments and Modifications
----------------------------
The Board of Directors of Scientific-Atlanta, Inc. may amend this Plan in
any respect at any time. In addition, the Plan Committee may authorize the
following types of amendments to the Plan without Board approval:
(a) amendments required by law;
(b) amendments that relate to the administration of the Plan and that do
not materially increase the cost of the Plan; and
(c) amendments that are designed to resolve possible ambiguities,
inconsistencies or omissions in the Plan and that do not materially increase the
cost of the Plan.
All authorized amendments shall be effective upon ten (10) days' written
notice to the Participants. If any such amendment materially adversely affects
a Participant's Deferred Benefits, such affected Participant may, within ninety
(90) days after the effective date of such amendment, elect to terminate his or
her participation in the Plan pursuant to this Section 10.1 in which event the
date of such election shall be deemed to be such Participant's Deferred Benefit
Commencement Date.
14
<PAGE>
10.2 Inurement
---------
This Plan shall be binding upon and shall inure to the benefit of the
Employer and each Participant hereto, and their respective beneficiaries, heirs,
executors, administrators, successors and assigns.
10.3 Governing Law
-------------
This Plan shall be interpreted and administered in accordance with the
Employee Retirement Income Security Act of 1974, as amended. To the extent that
state law is applicable, however, the laws of the State of Georgia shall apply.
SCIENTIFIC-ATLANTA, INC.
By: /s/ Brian C. Koenig
-------------------------------------------
Senior Vice President - Human Resources
Attest:
/s/ William E. Eason, Jr.
- -----------------------------------
Corporate Secretary
15
<PAGE>
EXHIBIT 10(l)
SCIENTIFIC-ATLANTA, INC.
SENIOR OFFICER ANNUAL INCENTIVE PLAN
As adopted by the Board of Directors
on June 22, 1994
and by the Stockholders
on October 3, 1994
and amended by the Board of Directors
on August 20, 1998
<PAGE>
SCIENTIFIC-ATLANTA, INC.
SENIOR OFFICER ANNUAL INCENTIVE PLAN
1. PURPOSE
The purpose of this Plan is to improve the return to the Company's stockholders
by providing incentive compensation to the Chief Executive Officer (and any
other Plan Participants) of the Company for superior performance. Performance
Objectives, i.e., standards of performance, are set at such a level as to
require the Participants to excel in order to attain them. To these ends, the
Plan provides a means of rewarding the Participants for contributing through
their individual performance to the objectives of the Company.
2. DEFINITIONS. When used herein, the following terms shall have the meaning
set forth below:
2.1 "Board" - The Board of Directors of the Company.
2.2 "Business Unit" - An organizational unit, i.e., business unit, region,
function, division, group or sector.
2.3 "Code" - The Internal Revenue Code of 1986, as amended from time to
time, and reference to any specific provisions of the Code shall refer
to the corresponding provisions of the Code as it may hereafter be
amended or replaced.
2.4 "Company" - Scientific-Atlanta, Inc. and its subsidiaries and
affiliates.
2.5 "Committee" - The Human Resources and Compensation Committee of the
Board of Directors or any other committee appointed by the Board whose
members meet the requirements for eligibility to serve set forth in
paragraph 3 of the Plan and which is vested by the Board with
responsibility for the administration of the Plan, provided, however,
that only those members of the Human Resources and Compensation
Committee of the Board who participate in decisions relative to
Performance Objectives and awards and payments under this Plan shall
be deemed to be part of the "Committee" for purposes of this Plan.
2.6 "Exchange Act" - The Securities Exchange Act of 1934, as amended.
2.7 "Participant" - A person selected in accordance with paragraph 4 of
the Plan to receive an incentive compensation award in accordance with
this Plan.
2.8 "Performance Objectives" - The specific targets and objectives
established by the Committee under any or all of the following four
categories: profit before taxes, return on net assets, revenue growth
and gross margin. Performance Objectives shall be determined and
measured in accordance with generally accepted accounting principles
as utilized by the Company in its reports filed under the Exchange
Act.
1
<PAGE>
2.9 "Plan" - This Senior Officer Annual Incentive Plan.
2.10 "Plan Year" - A fiscal year of the Company.
2.11 "Retire" - Voluntary termination of employment with the Company by a
Participant after the date on which: (i) the Participant has
completed five (5) years of Credited Service under the Retirement
Plan, and (ii) the sum of such Participant's age and years of
Credited Service equal sixty-five (65).
2.12 "Retirement Plan" - The Scientific-Atlanta, Inc. Retirement Plan and
Trust.
2.13 "Target" - Incentive compensation award, expressed as a percentage of
Participant's base salary, payable to a Participant upon meeting: (i)
one hundred percent (100%) of quantitative and qualitative objectives
and (ii) all other eligibility criteria under the Plan.
3. ADMINISTRATION AND INTERPRETATION OF THE PLAN. The Board shall appoint the
Committee, which shall consist of not less than two (2) members of the
Board. Unless the Board determines otherwise, the Committee shall be
comprised solely of "outside" directors within the meaning of Section
162(m)(4)(C)(i) of the Code. The Committee shall have the power to (i)
approve eligible Participants, (ii) approve awards and payments under the
Plan, (iii) interpret and construe the Plan, (iv) adopt, amend and rescind
rules and regulations relating to the Plan, and (v) make all other
determinations and take all other actions necessary or desirable for the
Plan's administration.
The decision of the Committee on any question concerning the interpretation
and administration of the Plan shall be final and conclusive. Subject to
paragraph 7 hereof, nothing in the Plan shall give any employee, his/her
legal representatives or assigns, any right to a payment or otherwise to
participate in the Plan, except as the Committee may determine after the
conclusion of a Plan Year.
4. ELIGIBLE PARTICIPANTS.
4.1 DESIGNATION AND APPROVAL. Participants will be the Chief Executive
Officer and any other senior officers who are designated and are
approved by the Committee to receive an incentive compensation award
under the Plan, provided, however, that if a Change in Control (as
-------- -------
defined in paragraph 7) occurs prior to the time Participants are
determined for the Plan Year in which the Change in Control occurs,
all persons who were Participants in the prior Plan Year and who are
active employees of the Company as of the date of the Change in
Control shall be Participants for such Plan Year.
4.2 REQUIREMENT OF ACTIVE EMPLOYMENT AS OF DATE WHICH COMMITTEE APPROVES
AWARDS. Except as the Committee may otherwise determine or as
provided in paragraph 7, in order to be eligible to earn and receive
an incentive compensation award under the Plan, a Participant for any
Plan Year must be an active employee of the Company on the date which
the
2
<PAGE>
Committee meets and approves incentive compensation awards under this
Plan after the end of the Plan Year. Accordingly, if a Participant
voluntarily terminates his/her employment or if the Company
involuntarily terminates a Participant's employment prior to the date
upon which the Committee meets after the end of the Plan Year to
approve incentive compensation awards for that Plan Year, the
Participant does not earn and is not eligible to receive an incentive
compensation award under the Plan.
4.3 PRORATED AWARDS. The Committee may decide to award a prorated award
to a Participant who is newly hired during the Plan Year. Prorated
awards may also be given to Participants who Retire during a Plan Year
and to the estates of Participants who die during a Plan Year.
5. DETERMINATION OF INCENTIVE COMPENSATION AWARDS.
5.1 TARGETS. Each Participant will have a Target established for him/her
by the Company for the Plan Year.
5.2 PERFORMANCE OBJECTIVES. The Committee shall establish one or more
specific Performance Objectives for a Plan Year, and such Performance
Objectives shall be established within ninety (90) days of the
beginning of the Plan Year. The Committee shall also establish a
schedule or schedules setting forth the amount to be paid based on the
extent to which the Performance Objectives are actually achieved as
determined by the Committee. The Committee may at any time adjust the
Performance Objectives and any schedules of payments related thereto
or adjust the way Performance Objectives are measured, provided that
this provision shall not apply to any payment that is intended to
qualify as performance-based compensation under Code Section
162(m)(4)(C), if and to the extent that it would prevent the payment
from so qualifying. The Committee shall have the right to reduce or
eliminate the compensation payable upon the attainment of a
Performance Objective but shall not have the discretion to increase a
payment upon the attainment of a Performance Objective.
6. PAYMENT OF INCENTIVE COMPENSATION AWARDS
6.1 TIME OF PAYMENT. Except as provided in paragraph 7, incentive
compensation awards under this Plan will be fully paid in cash within
ninety (90) days after the end of the Plan Year, or deferred in whole
or in part based on a written request for deferral submitted by the
Participant and approved by the Company in accordance with procedures
established by the Company.
6.2 TREATMENT OF AWARD AS COMPENSATION. Any amounts paid as incentive
compensation under this Plan shall be considered as compensation to
the Participant for purposes of the Retirement Plan and disability and
life insurance programs, unless and to the extent that such
compensation is expressly excluded by the provisions of the Retirement
Plan or the instruments establishing such programs, but such amounts
shall not be considered as compensation for purposes of any other
incentive plan or other benefits unless
3
<PAGE>
the written instrument establishing such other plan or benefits
expressly includes compensation paid under this Plan.
6.3 MAXIMUM AWARD. The maximum dollar value with respect to payments
under this Plan to any Participant in any single Plan Year shall be
$600,000.
7. CHANGE IN CONTROL OF THE COMPANY
7.1 CONTRARY PROVISIONS. Notwithstanding anything contained in the Plan
to the contrary, the provisions of this paragraph 7 shall govern and
supersede any inconsistent terms or provisions of the Plan.
7.2 CHANGE IN CONTROL. For purposes of the Plan, Change in Control shall
mean any of the following events:
7.2.1 The acquisition in one or more transactions by any "Person" (as
the term person is used for purposes of Section 13(d) or 14(d)
of the Securities Exchange Act of 1934, as amended (the "1934
Act")) of "Beneficial Ownership" (within the meaning of Rule
13d-3 promulgated under the 1934 Act) of twenty percent (20%)
or more of the combined voting power of the Company's then
outstanding voting securities (the "Voting Securities");
provided, however, that for purposes of this paragraph 8(b)(1),
-------- -------
the Voting Securities acquired directly from the Company by any
Person shall be excluded from the determination of such
Person's beneficial Ownership of Voting Securities (but such
Voting Securities shall be included in the calculation of the
total number of Voting Securities then outstanding); or
7.2.2 The individuals who are members of the Incumbent Board (as
defined below) cease for any reason to constitute at least two-
thirds (2/3) of the Board. The "Incumbent Board" shall include
the individuals who as of August 20, 1990 are members of the
Board and any individual becoming a director subsequent to
August 20, 1990 whose election, or nomination for election by
the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then comprising the Incumbent
Board; provided, however, that any individual who is not a
-------- -------
member of the Incumbent Board at the time he or she becomes a
member of the Board shall become a member of the Incumbent
Board upon the completion of two (2) full years as a member of
the Board; provided, further, however, that notwithstanding the
-------- ------- -------
foregoing, no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office (i)
as a result of either an actual or threatened "election
contest" (within the meaning of Rule 14a-11 promulgated under
the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board (a "Proxy Contest") or (ii) with the approval of the
other Board members, but by reason of any agreement intended to
avoid or settle a Proxy Contest; or
4
<PAGE>
7.2.3 Approval by stockholders of the Company of (i) a merger or
consolidation involving the Company if the stockholders of the
Company, immediately before such merger or consolidation, do
not own, directly or indirectly immediately following such
merger or consolidation, more than eighty percent (80%) of the
combined voting power of the outstanding voting securities of
the Company resulting from such merger or consolidation in
substantially the same proportion as their ownership of the
Voting Securities immediately before such merger or
consolidation or (ii) a complete liquidation or dissolution of
the Company or an agreement for the sale or other disposition
of all or substantially all of the assets of the Company.
7.2.4 Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because twenty percent (20%) or more of
the then outstanding Voting Securities is acquired by (i) a
trustee or other fiduciary holding securities under one or more
employee benefit plans maintained by the Company or (ii) any
corporation which, immediately prior to such acquisition, is
owned directly or indirectly by the stockholders of the Company
in the same proportion as their ownership of stock in the
Company immediately prior to such acquisition.
7.2.5 Moreover, notwithstanding the foregoing, a Change in Control
shall not be deemed to occur solely because any Person (the
"Subject Person") acquired Beneficial Ownership of more than
the permitted amount of the outstanding Voting Securities as a
result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding,
increases the proportional number of shares Beneficially Owned
by the Subject Person, provided, that if a Change in Control
--------
would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company,
and after such share acquisition by the Company the Subject
Person becomes the Beneficial Owner of any additional Voting
Securities which increases the Percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject
Person, the a Change in Control shall occur.
7.2.6 Notwithstanding anything contained in this Plan to the
contrary, if a Participant's employment is terminated prior to
a Change in Control and the Participant reasonably demonstrates
that such termination (i) was at the request of a third party
who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control who effectuates a
Change in Control or (ii) otherwise occurred in connection with
or in anticipation of a Change in Control which actually
occurs, then for all purposes of this Plan, the date of a
Change in Control in respect of such Participant shall mean the
date immediately prior to the date of termination of such
Participant's employment.
7.3 PAYMENT UPON A CHANGE IN CONTROL. Upon a Change in Control, the
incentive compensation award for a Plan Year ending prior to the date
of the
5
<PAGE>
Change in Control for which payment has not previously been made shall
be unconditionally payable in cash to each Participant.
7.3.1 If a Change in Control occurs with approval of the Board
granted prior to any such Change in Control, incentive
compensation awards for the Plan Year during which the Change
in Control occurs shall be unconditionally payable to each
Participant, such awards to be the Target percentage of each
Participant's base salary or such higher percentage a may be
approved by the Committee.
7.3.2 If a Change in Control occurs without approval of the Board
granted prior to any such Change in Control, incentive
compensation awards for the Plan Year during which the Change
in Control occurs shall be unconditionally payable to each
Participant, such awards to be two (2) times the Target
percentage of each Participant's base salary; provided,
--------
however, that in any case, if a Change in Control occurs before
-------
Target percentages shall have been established for a Plan Year,
the Target percentages for such Plan Year shall be no less
favorable to the Participants than the Target percentages for
the prior Plan Year. Unless the Committee directs an earlier
payment, incentive compensation awards payable in accordance
with this paragraph 7.3.2 shall be paid in cash on or before
the earlier of the date which is five (5) days following the
date of the Change of Control or the date determined in
accordance with paragraph 6 above.
7.4 CONTINUATION OF THE PLAN. For a period of two (2) Plan Years following
the Plan Year in which a Change of Control occurs, the Plan shall not
be terminated or amended in any way (including, but not limited to,
restricting or limiting the right to participate in the Plan of any
person who is a Participant on the day prior to the date of the Change
in Control), nor shall the manner in which the Plan is administered be
changed in a way that adversely affects the level of participation or
reward opportunities of any Participant; provided, however, that the
-------- -------
Plan shall be amended as necessary to make appropriate adjustments for
(i) any negative effect that the costs of expenses incurred by the
Company in connection with the Change in Control may have on the
benefits payable under the Plan and (ii) any changes to the Company
(including, but not limited to, changes in corporate structure or
capitalization, acquisitions or dispositions and increased interest
expense as a result of the incurrence or assumption by the Company of
acquisition indebtedness) following the Change in Control so as to
preserve the reward opportunities and performance targets for
comparable performance under the Plan as in effect on the date
immediately prior to the Change in Control.
7.5 NO AMENDMENT OR TERMINATION OF CHANGE IN CONTROL PROVISION. This
paragraph 7 shall not be amended or terminated at any time. Any
amendment or termination of the Plan prior to a Change in Control
which (i) was at the request of a third party who has indicated an
intention or taken steps reasonably calculated to effect a Change in
Control or (ii) otherwise arose in
6
<PAGE>
connection with or in anticipation of a Change in Control shall be
null and void and shall have no effect whatsoever.
7.6 TRUST ARRANGEMENT. All benefits under the Plan shall be paid by the
Company. The Plan shall be unfunded, and the benefits hereunder shall
be paid only from the general asset of the Company; provided, however,
-------- -------
nothing herein shall prevent or prohibit the Company from establishing
a trust or other arrangement for the purpose of providing for the
payment of the benefits payable under the Plan.
8. NON-ASSIGNABILITY. No payment awarded under this Plan nor any right or
benefit under this Plan shall be subject to anticipation, alienation, sale,
assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, pledge, encumber or charge the same shall be void
and shall not be recognized or given effect by the Company.
9. AMENDMENT OF THE PLAN. This Plan may be amended at any time and from time
to time by the Board, provided that no amendment to the Plan which would
change the material terms of performance goals that were previously
approved by the Company's stockholders within the meaning of Proposed
Treasury Regulation Section 1.162.27(e)(4)(vi) or a successor provision
shall be made without the approval of the stockholders of the Company,
unless the Board determines that such approval: (i) is not necessary to
avoid loss of a deduction under Section 162(m) of the Code, (ii) will not
avoid such a loss of deduction or (iii) is not advisable.
10. NO RIGHT TO EMPLOYMENT. Nothing in this Plan or in any notice of award
pursuant to this Plan shall confer upon any person the right to continue in
the employment of the Company or affect the Company's right to terminate
the employment of any person.
11. PERFORMANCE-BASED COMPENSATION. This Plan is intended to give the
Committee the authority, in its discretion, to make payments that qualify
as performance-based compensation under Code Section 162(m)(4)(C).
12. GOVERNING LAW. This Plan and the rights of all persons claiming rights
under the Plan shall be governed by and interpreted in accordance with the
laws of the State of Georgia, excluding its provisions regarding conflicts
of laws.
7
<PAGE>
To record the adoption of this restated Plan by the Board on August 20, 1998,
the Company has caused its authorized officers to affix the corporate name and
seal hereto.
SCIENTIFIC-ATLANTA, INC.
By: /s/ Brian C. Koenig
----------------------------------------------
Name: Brian C. Koenig
Title: Senior Vice President - Human Resources
Attest: /s/ William E. Eason, Jr.
-----------------------------
Name: William E. Eason, Jr.
Title: Secretary
8
<PAGE>
EXHIBIT 10(m)
SCIENTIFIC-ATLANTA, INC.
ANNUAL INCENTIVE PLAN FOR KEY EMPLOYEES
AS AMENDED AUGUST 20, 1998
<PAGE>
SCIENTIFIC-ATLANTA, INC.
ANNUAL INCENTIVE PLAN FOR KEY EMPLOYEES
1. PURPOSE OF THE PLAN. The purpose of this Plan is to improve the return to
the Company's stockholders by providing incentive compensation awards to
selected Key Employees of the Company for superior performance and by
attracting and retaining individuals of outstanding skills, experience and
ability. Quantitative and qualitative objectives, i.e., standards of
performance, are set at such a level as to require the key employees to
excel in order to attain them. To these ends, the Plan provides a means of
rewarding those who contribute through their individual performance to the
objectives of the Company.
2. DEFINITIONS. When used herein, the following terms shall have the meaning
set forth below:
2.1 "Board" - The Board of Directors of the Company.
2.2 "Business Unit" - An organizational unit, i.e., business unit, region,
function, division, group or sector.
2.3 "Company" - Scientific-Atlanta, Inc. and its subsidiaries or
affiliates.
2.4 "Committee" - The Human Resources and Compensation Committee of the
Board of Directors.
2.5 "Key Employee" - A corporate officer or other executive employee of
the Company who has a significant impact, directly or indirectly, on
profits and Company performance, as determined by the Company and
approved by the Committee.
2.6 "Participant" - A Key Employee selected in accordance with paragraph 4
of the Plan to receive an incentive compensation award in accordance
with this Plan.
2.7 "Plan" - This Annual Incentive Plan for Key Employees.
2.8 "Plan Year" - A fiscal year of the Company.
2.9 "Retire" - Voluntary termination of employment with the Company by a
Participant after the date on which: (i) the Participant has
completed five (5) years of Credited Service under the Retirement
Plan, and (ii) the sum of such Participant's age and years of Credited
Service equal sixty-five (65).
2.10 "Retirement Plan" - The Scientific-Atlanta, Inc. Retirement Plan and
Trust.
2.11 "Target" - Incentive compensation award, expressed as a percentage of
Participant's base salary, payable to a Participant upon meeting: (i)
one hundred percent (100%) of quantitative and qualitative objectives
and (ii) all other eligibility criteria under the Plan.
2
<PAGE>
3. ADMINISTRATION AND INTERPRETATION OF THE PLAN. The Committee shall have
the sole and exclusive discretionary power to (i) approve eligible
Participants, (ii) approve awards and payments under the Plan, (iii)
interpret and construe the Plan, (iv) adopt, amend and rescind rules and
regulations relating to the Plan, and (v) make all other determinations and
take all other actions necessary or desirable for the Plan's
administration. The Committee may delegate any of these powers to the
Chief Executive Officer of the Company or to other officers of the Company
in the Committee's discretion.
The decision of the Committee on any question concerning the interpretation
and administration of the Plan shall be final and conclusive. The
Committee's determinations may differ in the Committee's sole discretion
between different Participants, irrespective of whether they are similarly
situated. Subject to paragraph 7, nothing in the Plan shall give any
employee, his/her legal representative or assigns, any right to a payment
or otherwise to participate in the Plan, except as the Committee may
determine after the conclusion of a Plan Year.
4. ELIGIBLE PARTICIPANTS.
4.1 DESIGNATION AND APPROVAL. Participants will be designated from the
Key Employees by the Chief Executive Officer of the Company and
approved by the Committee in order to be eligible to receive an
incentive compensation award under the Plan; provided, however, that
-------- -------
if a Change in Control (as defined in paragraph 7) occurs prior to the
time Participants are determined for the Plan Year in which the Change
in Control occurs, all persons who were Participants in the prior Plan
Year and who are active employees of the Company as of the date of the
Change in Control shall be Participants for such Plan Year.
4.2 REQUIREMENT OF ACTIVE EMPLOYMENT AS OF DATE WHICH COMMITTEE APPROVES
AWARDS. Except as the Committee may otherwise determine or as
provided in paragraph 7, in order to be eligible to earn and receive
an incentive compensation award under the Plan, a Participant for any
Plan Year must be an active employee of the Company on the date which
the Committee meets and approves incentive compensation awards under
this Plan after the end of the Plan Year. Accordingly, if a
Participant voluntarily terminates his/her employment or if the
Company involuntarily terminates a Participant's employment prior to
the date upon which the Committee meets after the end of the Plan Year
to approve incentive compensation awards for that Plan Year, the
Participant does not earn and is not eligible to receive an incentive
compensation award under the Plan.
4.3 PRORATED AWARDS. The Committee may decide to award a prorated award
to a Participant who is newly hired during the Plan Year or who is
transferred from one Business Unit within the Company to another
during a Plan Year, based on each Business Unit's results. Prorated
awards may also be given to Participants who Retire during a Plan Year
and to the estates of Participants who die during a Plan Year.
3
<PAGE>
5. DETERMINATION OF INCENTIVE COMPENSATION AWARDS
5.1 TARGETS. Each Participant will have a Target established for him/her
by the Company for the Plan Year.
5.2 FACTORS TO BE USED IN DETERMINATION OF AWARDS. Incentive Compensation
awards under the Plan shall be calculated using a quantitative factor
and a qualitative factor. These factors will be established as early
in the Plan Year as practicable.
5.2.1 The quantitative factor shall be determined using Company,
Business Unit or Function results, as appropriate.
5.2.2 The qualitative factor shall be determined by assessing the
Participant's individual accomplishment of qualitative
objectives established for the Participant for the Plan Year.
The following procedure will be used in making appraisals of
individual performance:
(a) At the beginning of the Plan Year, each person eligible to
be a Participant and his superior will mutually establish
individual performance objectives. These objectives should
be specific and committed to writing. Copies of agreed-to
objectives for all Participants should be forwarded to the
respective Human Resources Director or the Senior Vice
President of Human Resources.
(b) If during the year objectives are modified, deleted or
added, an amended list of objectives should be prepared,
agreed and forwarded to the office of the respective Human
Resources Director or the Senior Vice President of Human
Resources.
(c) At the end of the Plan Year, eligible Participants and
their superiors will be asked to assess the degree to
which the stated performance objectives were achieved.
These assessments will be combined with the quantitative
performance results and translated into incentive
compensation awards to be recommended by the Chief
Executive Officer of the Company and approved by the
Committee. The Committee reserves the authority to
exercise its judgment and approve justifiable exceptions
to award levels determined solely by strict application of
weightings and calculations under Plan provisions.
5.3 WEIGHTING OF FACTORS. The weighting of the quantitative and
qualitative objectives for any fiscal year in which the Plan is in
effect will be determined by the Company in its discretion.
4
<PAGE>
6. PAYMENT OF INCENTIVE COMPENSATION AWARDS. Except as provided in paragraph
7, incentive compensation awards under this Plan will be fully paid in cash
within ninety (90) days after the end of the Plan Year, or deferred in
whole or in part based on a written request for deferral submitted by the
Participant and approved by the Company in accordance with procedures
established by the Company.
7. CHANGE IN CONTROL OF THE COMPANY
7.1 CONTRARY PROVISIONS. Notwithstanding anything contained in the Plan
to the contrary, the provisions of this paragraph 7 shall govern and
supersede any inconsistent terms or provisions of the Plan.
7.2 CHANGE IN CONTROL. For purposes of the Plan, Change in Control shall
mean any of the following events:
7.2.1 The acquisition in one or more transactions by any "Person" (as
the term person is used for purposes of Section 13(d) or 14(d)
of the Securities Exchange Act of 1934, as amended (the "1934
Act")) of "Beneficial Ownership" (within the meaning of Rule
13d-3 promulgated under the 1934 Act) of twenty percent (20%)
or more of the combined voting power of the Company's then
outstanding voting securities (the "Voting Securities");
provided, however, that for purposes of this paragraph 8(b)(1),
-------- -------
the Voting Securities acquired directly from the Company by any
Person shall be excluded from the determination of such
Person's beneficial Ownership of Voting Securities (but such
Voting Securities shall be included in the calculation of the
total number of Voting Securities then outstanding); or
7.2.2 The individuals who are members of the Incumbent Board (as
defined below) cease for any reason to constitute at least two-
thirds (2/3) of the Board. The "Incumbent Board" shall include
the individuals who as of August 23, 1993 are members of the
Board and any individual becoming a director subsequent to
August 23, 1993 whose election, or nomination for election by
the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then comprising the Incumbent
Board; provided, however, that any individual who is not a
-------- -------
member of the Incumbent Board at the time he or she becomes a
member of the Board shall become a member of the Incumbent
Board upon the completion of two (2) full years as a member of
the Board; provided, further, however, that notwithstanding the
-------- ------- -------
foregoing, no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office (i)
as a result of either an actual or threatened "election
contest" (within the meaning of Rule 14a-11 promulgated under
the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board (a "Proxy Contest") or (ii) with the approval of the
other Board members, but by reason of any agreement intended to
avoid or settle a Proxy Contest; or
5
<PAGE>
7.2.3 Approval by stockholders of the Company of (i) a merger or
consolidation involving the Company if the stockholders of the
Company, immediately before such merger or consolidation, do
not own, directly or indirectly immediately following such
merger or consolidation, more than eighty percent (80%) of the
combined voting power of the outstanding voting securities of
the Company resulting from such merger or consolidation in
substantially the same proportion as their ownership of the
Voting Securities immediately before such merger or
consolidation or (ii) a complete liquidation or dissolution of
the Company or an agreement for the sale or other disposition
of all or substantially all of the assets of the Company.
7.2.4 Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because twenty percent (20%) or more of
the then outstanding Voting Securities is acquired by (i) a
trustee or other fiduciary holding securities under one or more
employee benefit plans maintained by the Company or (ii) any
corporation which, immediately prior to such acquisition, is
owned directly or indirectly by the stockholders of the Company
in the same proportion as their ownership of stock in the
Company immediately prior to such acquisition.
7.2.5 Moreover, notwithstanding the foregoing, a Change in Control
shall not be deemed to occur solely because any Person (the
"Subject Person") acquired Beneficial Ownership of more than
the permitted amount of the outstanding Voting Securities as a
result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding,
increases the proportional number of shares Beneficially Owned
by the Subject Person, provided, that if a Change in Control
--------
would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company,
and after such share acquisition by the Company the Subject
Person becomes the Beneficial Owner of any additional Voting
Securities which increases the Percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.
7.2.6 Notwithstanding anything contained in this Plan to the
contrary, if a Participant's employment is terminated prior to
a Change in Control and the Participant reasonably demonstrates
that such termination (i) was at the request of a third party
who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates a
Change in Control or (ii) otherwise occurred in connection with
or in anticipation of a Change in Control which actually
occurs, then for all purposes of this Plan, the date of a
Change in Control in respect of such Participant shall mean the
date immediately prior to the date of termination of such
Participant's employment.
7.3 PAYMENT UPON A CHANGE IN CONTROL. Upon a Change in Control, the
incentive compensation award for a Plan Year ending prior to the date
of the
6
<PAGE>
Change in Control for which payment has not previously been made shall
be unconditionally payable in cash to each Participant.
7.3.1 If a Change in Control occurs with approval of the Board
granted prior to any such Change in Control, incentive
compensation awards for the Plan Year during which the Change
in Control occurs shall be unconditionally payable to each
Participant, such awards to be the Target percentage of each
Participant's base salary or such higher percentage as may be
approved by the Committee.
7.3.2 If a Change in Control occurs without approval of the Board
granted prior to any such Change in Control, incentive
compensation awards for the Plan Year during which the Change
in Control occurs shall be unconditionally payable to each
Participant, such awards to be two (2) times the Target
percentage of each Participant's base salary; provided,
--------
however, that in any case, if a Change in Control occurs before
-------
Target percentages shall have been established for a Plan Year,
the Target percentages for such Plan Year shall be no less
favorable to the Participants than the Target percentages for
the prior Plan Year. Unless the Committee directs an earlier
payment, incentive compensation awards payable in accordance
with this paragraph 7.3.2 shall be paid in cash on or before
the earlier of the date which is five (5) days following the
date of the Change of Control or the date determined in
accordance with paragraph 6 above.
7.4 CONTINUATION OF THE PLAN. For a period of two (2) Plan Years
following the Plan Year in which a Change of Control occurs, the Plan
shall not be terminated or amended in any way (including, but not
limited to, restricting or limiting the right to participate in the
Plan of any person who is a Participant on the day prior to the date
of the Change in Control), nor shall the manner in which the Plan is
administered be changed in a way that adversely affects the level of
participation or reward opportunities of any Participant; provided,
--------
however, that the Plan shall be amended as necessary to make
-------
appropriate adjustments for (i) any negative effect that the costs of
expenses incurred by the Company in connection with the Change in
Control may have on the benefits payable under the Plan and (ii) any
changes to the Company (including, but not limited to, changes in
corporate structure or capitalization, acquisitions or dispositions
and increased interest expense as a result of the incurrence or
assumption by the Company of acquisition indebtedness) following the
Change in Control so as to preserve the reward opportunities and
performance targets for comparable performance under the Plan as in
effect on the date immediately prior to the Change in Control.
7.5 NO AMENDMENT OR TERMINATION OF CHANGE IN CONTROL PROVISION. This
paragraph 7 shall not be amended or terminated at any time. Any
amendment or termination of the Plan prior to a Change in Control
which (i) was at the request of a third party who has indicated an
intention or taken steps reasonably calculated to effect a Change in
Control or (ii) otherwise arose in
7
<PAGE>
connection with or in anticipation of a Change in Control shall be
null and void and shall have no effect whatsoever.
7.6 TRUST ARRANGEMENT. All benefits under the Plan shall be paid by the
Company. The Plan shall be unfunded, and the benefits hereunder shall
be paid only from the general asset of the Company; provided, however,
-------- -------
nothing herein shall prevent or prohibit the Company from establishing
a trust or other arrangement for the purpose of providing for the
payment of the benefits payable under the Plan.
8. NON-ASSIGNABILITY. No payment awarded under this Plan nor any right or
benefit under this Plan shall be subject to anticipation, alienation, sale,
assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, assign, pledge, encumber or charge the same shall be void
and shall not be recognized or given effect by the Company.
9. AMENDMENT OF PLAN. Subject to the restrictions set forth in Section 7.5,
the Committee has the authority to amend or modify this Plan at any time in
its discretion.
10. TERMINATION OF PLAN. Subject to the restrictions set forth in Section 7.5
and in this Section 10, the Committee also has the authority to terminate
this Plan at any time. At its August meeting in each Plan Year, the
Committee may terminate the Plan for that Plan Year in its discretion. In
the event of termination at the August meeting, no Participant will be
entitled to any incentive compensation award under the Plan for that Plan
Year. If the Committee terminates the Plan at any time other than the
August meeting, such termination may only be prospective and Participants
will be entitled to receive a pro-rata incentive compensation award
calculated under the terms and conditions of the Plan for the Plan Year in
which the termination occurs.
11. NO RIGHT TO EMPLOYMENT. Nothing in the Plan or in any notice of award
pursuant to the Plan shall confer upon any person the right to continue in
the employment of the Company nor affect the Company's right to terminate
the employment of any person.
12. GOVERNING LAW. This Plan and the rights of all persons claiming rights
under the Plan shall be governed by and interpreted in accordance with the
laws of the State of Georgia, excluding its provisions regarding conflicts
of laws.
8
<PAGE>
EXHIBIT 10(n)
SCIENTIFIC-ATLANTA, INC.
RESTORATION RETIREMENT PLAN
(Effective July 1, 1994)
Includes All Amendments Through February 28, 1997
<PAGE>
SCIENTIFIC-ATLANTA, INC.
------------------------
RESTORATION RETIREMENT PLAN
---------------------------
(Effective July 1, 1994)
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Article I. The Plan
- --------------------
<S> <C>
1.1 Establishment of Plan 1
1.2 Purpose of Plan 1
1.3 Applicability of Plan 1
Article II. Definitions
- ------------------------
2.1 Actuarial Equivalent 1
2.2 Affiliate 2
2.3 Beneficiary 2
2.4 Board 2
2.5 Code 2
2.6 Committee 2
2.7 Company 2
2.8 Employee 2
2.9 Employer 2
2.10 ERISA 2
2.11 Normal Retirement Date 2
2.12 Participant 3
2.13 Pension Equity Benefit 3
2.14 Plan 3
2.15 Plan Year 3
2.16 Prior Plan Benefit 3
2.17 Retirement Plan 3
2.18 Severance from Service Date 3
Article III. Participation
- ---------------------------
3.1 Eligibility 3
3.2 Duration 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Article IV. Benefits
- ---------------------
<S> <C>
4.1 Retirement Benefits 4
4.2 Deferred Retirement Benefits 5
4.3 Form of Payment 6
4.4 Pre-retirement Death Benefits 6
4.5 Change in Control 8
Article V. Financing
- ---------------------
5.1 Financing 10
5.2 Unsecured Interest 10
Article VI. Administration
- ---------------------------
6.1 Administration 10
6.2 Appeals from Denial of Claims 11
6.3 Tax Withholding 12
6.4 Expenses 12
Article VII. Adoption of the Plan by Affiliate;
- ------------------------------------------------
Amendment and Termination of the Plan
- -------------------------------------
7.1 Adoption of the Plan by Affiliate 12
7.2 Amendment and Termination 12
Article VIII. Miscellaneous Provisions
- ---------------------------------------
8.1 No Contract of Employment 12
8.2 Severability 12
8.3 Applicable Law 12
</TABLE>
<PAGE>
SCIENTIFIC-ATLANTA, INC.
------------------------
RESTORATION RETIREMENT PLAN
---------------------------
(Effective July 1, 1994)
Article I. The Plan
--------------------
1.1 Establishment of Plan. Scientific-Atlanta, Inc. (the "Company")
---------------------
hereby establishes this supplemental retirement plan for eligible Employees of
the Company and participating Affiliates, effective as of July 1, 1994. This
plan shall be known as the Scientific-Atlanta, Inc. Restoration Retirement Plan
(the "Plan").
1.2 Purpose of Plan. This Plan restores benefits that are curtailed as
---------------
a result of legal limits applicable to the Scientific-Atlanta, Inc. Retirement
Plan and Trust.
The portion of the Plan that restores benefits affected by the limits
described in Code section 415 is intended to be an "excess benefit plan" as
defined in ERISA section 3(36). The portion of the Plan that restores benefits
affected by changes made in 1993 legislation to the compensation limit described
in Code section 401(a)(17) is intended to be a plan maintained for the purpose
of providing deferred compensation to a "select group of management or highly
compensated employees" within the meaning of ERISA section 201(2).
The Plan is intended to be exempt from the participation, vesting,
funding, and fiduciary requirements of Title I of ERISA.
1.3 Applicability of Plan. This Plan applies only to eligible Employees
---------------------
who are in the active employ of the Company or a participating Affiliate on or
after July 1, 1994.
Article II. Definitions
------------------------
Whenever used in the Plan, the following terms shall have the meanings set
forth below unless otherwise expressly provided. When the defined meaning is
intended, the term is capitalized. The definition of any term in the singular
shall also include the plural, whichever is appropriate in the context.
2.1 "Actuarial Equivalent" means a benefit having the same value as the
---------------------
benefit that it replaces, computed on the bases of the actuarial equivalence
assumptions in effect under the Retirement Plan.
1
<PAGE>
2.2 "Affiliate" means
----------
(a) any corporation while it is a member of the same "controlled group" of
corporations (within the meaning of Code section 414(b)) as the
Company;
(b) any other trade or business (whether or not incorporated) while it is
under "common control" (within the meaning of Code section 414(c))
with the Company;
(c) any organization during any period in which it (along with the
Company) is a member of an "affiliated service group" (within the
meaning of Code section 414(m)); or
(d) any other entity during any period in which it is required to be
aggregated with the Company under Code section 414(o).
2.3 "Beneficiary" means any person (natural or otherwise) designated by
-----------
a Participant to receive any Pre-retirement death benefits payable on the
Participant's behalf under the Retirement Plan, or in the absence of any such
designation, the person or entity determined to be the Participant's beneficiary
under the Retirement Plan.
2.4 "Board" means the Company's Board of Directors.
-----
2.5 "Code" means the Internal Revenue Code of 1986, as amended, or as it
----
may be amended from time to time. A reference to a particular section of the
Code shall also be deemed to refer to regulations and other regulatory guidance
issued under that Code section.
2.6 "Committee" means the Human Resources and Compensation Committee of
---------
the Board.
2.7 "Company" means Scientific-Atlanta, Inc. and any successor thereto
-------
that agrees to adopt and continue this Plan.
2.8 "Employee" means any person who is employed by an Employer.
--------
2.9 "Employer" means the Company and each Affiliate that has adopted this
--------
Plan for the benefit of its eligible Employees.
2.10 "ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, or as it may be amended from time to time. A reference to a particular
section of ERISA shall also be deemed to refer to regulations and other
regulatory guidance issued under that section.
2.11 "Normal Retirement Date" means the first day of the month in which a
----------------------
Participant attains age sixty-five (65).
2
<PAGE>
2.12 "Participant" means an Employee who has met, and continues to meet,
-----------
the eligibility requirements of section 3.1.
2.13 "Pension Equity Benefit" means the benefit amount calculated as a
----------------------
Participant's "Pension Equity Benefit" pursuant to Article IV of the Retirement
Plan.
2.14 "Plan" means this Scientific-Atlanta, Inc. Restoration Retirement
----
Plan, as amended from time to time.
2.15 "Plan Year" means initially the period beginning July 1, 1994 and
---------
ending December 31, 1994. Thereafter, the Plan Year shall be the calendar year.
2.16 "Prior Plan Benefit" means the benefit amount calculated as a
------------------
Participant's "Prior Plan Benefit" (if any) pursuant to Article V of the
Retirement Plan.
2.17 "Retirement Plan" means the Scientific-Atlanta, Inc. Retirement Plan
---------------
and Trust, as amended from time to time.
2.18 "Severance from Service Date" means a Participant's "Severance from
---------------------------
Service Date" as determined under the Retirement Plan.
Article III. Participation
---------------------------
3.1 Eligibility. An Employee shall become a Participant on
-----------
(a) July 1, 1994, provided that the Committee designates the Employee as
eligible to participate in the Plan; or
(b) any subsequent date on which the Committee determines that the
Employee's benefits under the Retirement Plan will be curtailed by the
limits described in Code section 401(a)(17) or 415 and the Committee
designates the Employee as eligible to participate in the Plan.
Participation in the part of this Plan that restores Retirement Plan
benefits curtailed under the compensation limit in effect under Code section
401(a)(17) shall be limited to Employees who are members of a "select group of
management or highly compensated employees" within the meaning of ERISA section
201(2). Additionally, an Employee who participates in the Scientific-Atlanta,
Inc. Supplemental Executive Retirement Plan shall not be eligible to participate
in this Plan.
3
<PAGE>
3.2 Duration. An Employee who becomes a Participant under section 3.1
--------
shall remain an active Participant until the earlier of
(a) his or her Severance from Service Date; or
(b) a declaration by the Committee that he or she is no longer eligible to
participate in the Plan.
An individual whose active participation is terminated under this
section 3.2 shall continue to be an inactive Participant until all benefits to
which he or she is entitled under this Plan have been paid.
Article IV. Benefits
---------------------
4.1 Retirement Benefits.
-------------------
(a) Eligibility. A Participant who has a vested interest in a retirement
-----------
benefit under the Retirement Plan shall be eligible for a retirement
benefit under this section 4.1. This benefit shall be calculated as:
(1) a lump sum representing the Participant's entire interest in the
Plan as of the first day of the month following his or her
Severance from Service Date, in the case of a Participant whose
benefit under the Retirement Plan is payable as a Pension Equity
Benefit; or
(2) a single life annuity commencing as of the first day of the month
following the Participant's Severance from Service Date, in the
case of a Participant whose benefit under the Retirement Plan is
payable as a Prior Plan Benefit.
However, if the commencement of a Participant's retirement benefit is
delayed to any later month following his or her Severance from Service Date, the
benefit determined under this section 4.1 shall be adjusted in accordance with
section 4.2.
(b) Amount. A Participant who is eligible for a retirement benefit under
------
subsection (a) shall be entitled to receive a benefit equal to the
difference between (1) and (2) where
(1) is the benefit to which the Participant would be entitled under
the Retirement Plan as of the first day of the month following
his or her Severance from Service Date, calculated as if the term
"Annual Pay" under the Retirement Plan included elective
deferrals under the Scientific-Atlanta, Inc. Executive Deferred
Compensation Plan in the year that the deferrals were made and
calculated
4
<PAGE>
(A) as if the changes to Code section 401(a)(17) made by the
Omnibus Budget Reconciliation Act of 1993 had not taken
effect; and
(B) without regard to the benefit limits in effect under Code
section 415; and
(2) is the benefit payable to the Participant under the Retirement
Plan as of the first day of the month following his or her
Severance from Service Date.
The Committee shall adjust the compensation limit in paragraph
(b)(1)(A) above in a manner consistent, as determined by the Committee, with the
method used by the Secretary of the Treasury prior to the effective date of the
changes made by the Omnibus Budget Reconciliation Act of 1993.
(c) Commencement. Except as otherwise provided under section 4.2, payment
------------
of a Participant's retirement benefit shall commence as of the first
day of the month following the Participant's Severance from Service
Date.
4.2 Deferred Retirement Benefits.
----------------------------
(a) Delayed Commencement. The Committee, in its sole and absolute
--------------------
discretion, may delay the commencement of a retirement benefit payable
under section 4.1 beyond the first date of the month following the
Participant's Severance from Service Date. Retirement benefits may
begin as of the first day of any month following such date, as
provided by the Committee, but in no event may the Committee delay the
commencement of benefits beyond the Participant's Normal Retirement
Date.
If the Committee elects to delay the commencement of a Participant's
retirement benefits under this subsection, the amount payable as of
the delayed commencement date shall be adjusted in accordance with the
Retirement Plan to reflect this delay.
(b) Employment Beyond Age Sixty-Five (65). Notwithstanding any other
-------------------------------------
provision in this Plan to the contrary, in the case of a Participant
who remains an Employee after his Normal Retirement Date, the
Committee may direct, in its sole and absolute discretion, that the
Participant's retirement benefit shall commence as of any date on or
after his or her Normal Retirement Date and prior to his or her
Severance from Service Date. Any such Participant shall receive a
retirement benefit calculated pursuant to section 4.1 as of the
commencement date selected by the Committee. The retirement benefit
payable to the Participant upon his or her subsequent Severance from
Service Date shall be equal to the greater of:
5
<PAGE>
(1) the retirement benefit determined under section 4.1 as of the
first day of the month following his or her Severance from
Service Date, reduced by following the provisions of Code section
411(b)(1)(H)(iii)(I) for in-service distributions; or
(2) the retirement benefit determined under section 4.1 as of his or
her Normal Retirement Date, increased by applying interest at an
annual rate of five percent (5%) (allocated quarterly) from his
or her Normal Retirement Date until the benefit commencement date
selected by the Committee.
4.3 Form of Payment.
---------------
(a) Unmarried Participant. The form of payment for a Participant who is
---------------------
not married on his or her benefit commencement date shall be a single
life annuity. In the case of a benefit calculated as a lump sum
payment pursuant to section 4.1(a)(1), this single life annuity shall
be the Actuarial Equivalent of the lump sum benefit.
(b) Married Participant. The form of payment for a Participant who is
-------------------
married on his or her benefit commencement date shall be a joint and
fifty percent (50%) surviving spouse annuity. A joint and fifty
percent (50%) surviving spouse annuity provides
(1) a monthly benefit to the Participant for life; and
(2) upon the Participant's death, a monthly benefit to the
Participant's surviving spouse for life equal to fifty percent
(50%) of the amount payable during the Participant's lifetime.
This joint and fifty percent (50%) surviving spouse annuity shall
be the Actuarial Equivalent of the single life annuity described
in subsection (a).
(c) Optional Payment Forms. In lieu of the normal form of payment
----------------------
described in subsection (a) or (b), the Committee may direct, in its
sole and absolute discretion, that benefits shall be paid in one of
the optional forms of payment available under the Retirement Plan. In
that event, the benefit payable under the optional payment form shall
be the Actuarial Equivalent of the single life annuity described in
subsection (a).
4.4 Pre-retirement Death Benefits.
-----------------------------
(a) Eligibility. The Beneficiary of a Participant shall be eligible to
-----------
receive a Pre-retirement death benefit if the Participant dies after
acquiring a vested interest in his or her accrued benefit under the
Retirement Plan, but before starting to receive retirement benefits
under this Plan. This benefit shall be calculated and paid as:
6
<PAGE>
(1) a single life annuity commencing as of the first day of the month
following the Participant's death, in the case of a Beneficiary
who is legally married to the Participant on the date of his or
her death; or
(2) a lump sum payment as of the first day of the month following the
Participant's death, in the case of any other Beneficiary.
(b) Amount. A Beneficiary who is eligible for a Pre-retirement death
------
benefit under subsection (a) shall be entitled to receive a benefit
equal to the difference between (1) and (2) where
(1) is the Pre-retirement death benefit which would have been payable
to the Beneficiary under the Retirement Plan as of the first day
of the month following the Participant's death, calculated as if
the term "Annual Pay" under the Retirement Plan included elective
deferrals under the Scientific-Atlanta, Inc. Executive Deferred
Compensation Plan in the year in which the deferrals were made
and calculated--
(A) as if the changes to Code section 401(a)(17) made by the
Omnibus Budget Reconciliation Act of 1993 had not taken
effect; and
(B) without regard to the benefit limits in effect under Code
section 415; and
(2) is the Pre-retirement death benefit payable to the Beneficiary
under the Retirement Plan as of the first day of the month
following the Participant's death.
The Committee shall adjust the compensation limit in paragraph
(b)(1)(A) above in a manner consistent, as determined by the Committee, with the
method used by the Secretary of the Treasury prior to the effective date of the
changes made by the Omnibus Budget Reconciliation Act of 1993.
(c) Commencement. Payment of a Pre-retirement death benefit under this
------------
section shall commence as of the first day of the month following the
date of the Participant's death. Notwithstanding the foregoing, the
Committee, in its sole and absolute discretion, may delay the
commencement of a Pre-retirement death benefit until the first day of
any later month, but in no event beyond the first day of the month in
which the Participant would have attained age sixty-five (65). If the
Committee elects to delay the commencement of a Pre-retirement death
benefit pursuant to this subsection, the amount payable as of the
delayed commencement date shall be adjusted in accordance with the
Retirement Plan to reflect this delay.
7
<PAGE>
(d) Optional Payment Forms. In lieu of the single life annuity payable to
----------------------
a Beneficiary who is a surviving spouse, the Committee may direct, in
its sole and absolute discretion, that the Pre-retirement death
benefit shall be paid in a single lump sum that is the Actuarial
Equivalent of the single life annuity described in subsection (a).
4.5 Change in Control. Notwithstanding anything contained in this Plan
-----------------
to the contrary, the provisions of this section 4.5 shall govern and supersede
any inconsistent terms or provisions of this Plan in the event of a Change in
Control of the Company.
(a) Immediate Vesting. Each Participant shall be immediately vested in
-----------------
his or her accrued benefit hereunder as of the date of any Change in
Control.
(b) Termination Following Change in Control. If a Participant's
---------------------------------------
employment with the Employer is terminated during the two (2) year
period following a Change in Control for any reason other than cause,
the Participant shall receive a lump sum payment equal to the
Actuarial Equivalent value of the Participant's accrued benefit as of
the date of such termination.
(c) Amendment or Termination. For a period of two (2) Plan Years
------------------------
following the Plan Year in which a Change in Control occurs, the Plan
shall not be terminated or amended in any way that would reduce or
otherwise adversely affect the computation or amount of, or
entitlement to, benefits hereunder (including, but not limited to,
restricting or limiting the right to participate in the Plan of any
person who is a Participant on the day prior to the date of the Change
in Control). Any amendment or termination of the Plan prior to a
Change in Control which a Participant who is an Employee at the time
of the amendment or termination reasonably demonstrates (1) was at the
request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control, or (2) otherwise
arose in connection with or in anticipation of a Change in Control,
and which was not consented to in writing by such Participant, shall
be null and void and shall have no effect whatsoever.
(d) Definition of Change in Control. For purposes of this section, a
-------------------------------
Change in Control shall mean any of the following events:
(1) The acquisition in one or more transactions by any "Person" (as
the term person is used for purposes of section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of "Beneficial Ownership" (within the meaning of Rule 13d-
3 promulgated under the Exchange Act) of twenty percent (20%) or
more of the combined voting power of the Company's then
outstanding voting securities (the "Voting Securities"),
provided, however, that for purposes of this section, any Voting
Securities acquired directly from the Company by any Person shall
be excluded from the determination of such Person's Beneficial
8
<PAGE>
Ownership of Voting Securities (but such Voting Securities shall
be included in the calculation of the total number of Voting
Securities then outstanding);
(2) The individuals who are members of the Incumbent Board (as
defined below) cease for any reason to constitute at least two-
thirds of the Board. The "Incumbent Board" shall include the
individuals who as of August 20, 1990 were members of the Board
and any individual becoming a director subsequent to August 20,
1990 whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least two-thirds (2/3)
of the directors then comprising the Incumbent Board, provided,
however, that any individual who is not a member of the Incumbent
Board at the time he or she becomes a member of the Board shall
become a member of the Incumbent Board upon the completion of two
full years as a member of the Board, provided further, however,
that notwithstanding the foregoing, no individual shall be
considered a member of the Incumbent Board if such individual
initially assumed office (A) as a result of either an actual or
threatened "election contest" (within the meaning of Rule 14a-11
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board (a "Proxy Contest"), or (B) with the
approval of the other Board members, but by reason of any
agreement intended to avoid or settle a Proxy Contest;
(3) Approval by stockholders of the Company of (A) a merger or
consolidation involving the Company if the stockholders of the
Company, immediately before such merger or consolidation, do not
own, directly or indirectly immediately following such merger or
consolidation, more than eighty percent (80%) of the combined
voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation in
substantially the same proportion as their ownership of the
Voting Securities immediately before such merger or
consolidation, or (B) a complete liquidation or dissolution of
the Company or an agreement for the sale or other disposition of
all or substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because twenty percent (20%) or more of the then outstanding
Voting Securities is acquired by (i) a trustee or other fiduciary holding
securities under one or more employee benefit plans maintained by the Company or
any of its Affiliates, or (ii) any corporation that, immediately prior to such
acquisition, is owned directly or indirectly by the stockholders of the Company
in the same proportion as their ownership of stock in the Company immediately
prior to such acquisition.
9
<PAGE>
Moreover, notwithstanding the foregoing, a Change in Control shall not
be deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company
that, by reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person,
provided, that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities by the Company,
and after such share acquisition by the Company the Subject Person becomes the
Beneficial Owner of any additional Voting Securities that increase the
percentage of the then outstanding Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control shall occur.
Notwithstanding anything contained in this Plan to the contrary, if a
Participant's employment is terminated prior to a Change in Control and the
Participant reasonably demonstrates that such termination (1) was at the request
of a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates a Change in
Control, or (2) otherwise occurred in connection with or in anticipation of a
Change in Control that actually occurs, then for all purposes of this Plan, the
date of a Change in Control in respect of such Participant shall mean the date
immediately prior to the date of termination of such Participant's employment.
Article V. Financing
---------------------
5.1 Financing. The benefits under this Plan shall be paid out of the
---------
general assets of the Employers, except to the extent they are paid from the
assets of a grantor trust established by an Employer to pay these benefits.
5.2 Unsecured Interest. No Participant shall have any interest
------------------
whatsoever in any specific asset of the Company or an Affiliate. To the extent
that any person acquires a right to receive payments under this Plan, such right
shall be no greater than the right of any unsecured general creditor of an
Employer.
Article VI. Administration
---------------------------
6.1 Administration. The Plan shall be administered by the Committee.
--------------
The Committee shall have all powers necessary or appropriate to carry
out the provisions of the Plan. It may, from time to time, establish rules for
the administration of the Plan and the transaction of the Plan's business. In
its sole discretion, the Committee may delegate any or all of its
responsibilities relative to administration of the Plan to such officers of the
Company as it designates.
The Committee shall have the exclusive right to make any finding of
fact necessary or appropriate for any purpose under the Plan including, but not
limited to, the determination of eligibility for and amount of any benefit.
10
<PAGE>
The Committee shall have the exclusive right to interpret the terms
and provisions of the Plan and to determine any and all questions arising under
the Plan or in connection with its administration, including, without
limitation, the right to remedy or resolve possible ambiguities,
inconsistencies, or omissions by general rule or particular decision, all in its
sole and absolute discretion.
To the extent permitted by law, all findings of fact, determinations,
interpretations, and decisions of the Committee shall be conclusive and binding
upon all persons having or claiming to have any interest or right under the
Plan.
6.2 Appeals from Denial of Claims. If any claim for benefits under the
-----------------------------
Plan is wholly or partially denied, the claimant shall be given notice of the
denial. This notice shall be in writing, within a reasonable period of time
after receipt of the claim by the Committee. This period shall not exceed
ninety (90) days after receipt of the claim, except that if special
circumstances require an extension of time, written notice of the extension
shall be furnished to the claimant, and an additional ninety (90) days will be
considered reasonable.
This notice shall be written in a manner calculated to be understood
by the claimant and shall set forth the following information:
(a) the specific reasons for the denial;
(b) specific reference to the Plan provisions on which the denial is
based;
(c) a description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why this
material or information is necessary;
(d) an explanation that a full and fair review by the Committee of the
decision denying the claim may be requested by the claimant or an
authorized representative by filing with the Committee, within sixty
(60) days after the notice has been received, a written request for
the review; and
(e) if this request is so filed, an explanation that the claimant or an
authorized representative may review pertinent documents and submit
issues and comments in writing within the same sixty (60) day period
specified in subsection (d).
The decision of the Committee upon review shall be made promptly, and
not later than sixty (60) days after the Committee's receipt of the request for
review, unless special circumstances require an extension of time for
processing. In this case the claimant shall be so notified, and a decision
shall be rendered as soon as possible, but not later than one hundred twenty
(120) days after receipt of the request for review. If the claim is denied,
wholly or in part, the claimant shall be given a copy of the decision promptly.
The decision shall be in writing, shall include specific reasons for the denial,
shall include specific references to the pertinent Plan
11
<PAGE>
provisions on which the denial is based, and shall be written in a manner
calculated to be understood by the claimant.
6.3 Tax Withholding. The Employer may withhold from any payment under
---------------
this Plan any federal, state, or local taxes required by law to be withheld with
respect to the payment and any sum the Employer may reasonably estimate as
necessary to cover any taxes for which the Employer may be liable and that may
be assessed with regard to the payment.
6.4 Expenses. All expenses incurred in the administration of the Plan
--------
shall be paid by the Employers.
Article VII. Adoption of the Plan by Affiliate;
------------------------------------------------
Amendment and Termination of the Plan
-------------------------------------
7.1 Adoption of the Plan by Affiliate. An Affiliate may adopt the Plan
---------------------------------
by appropriate action of its board of directors or authorized officers or
representatives, subject to the approval of the Board.
7.2 Amendment and Termination. The Company hereby reserves the right to
-------------------------
amend, modify, or terminate the Plan at any time, and for any reason, by written
resolution of the Board. However, no amendment or termination shall have the
effect of reducing the benefits accrued by a Participant prior to the date of
the amendment or termination.
Article VIII. Miscellaneous Provisions
---------------------------------------
8.1 No Contract of Employment. Nothing contained in the Plan shall be
-------------------------
construed to give any Participant the right to be retained in the service of the
Company or its Affiliates or to interfere with the right of the Company or its
Affiliates to discharge a Participant at any time.
8.2 Severability. If any provision of this Plan shall be held illegal
------------
or invalid, the illegality or invalidity shall not affect its remaining parts.
The Plan shall be construed and enforced as if it did not contain the illegal or
invalid provision.
8.3 Applicable Law. Except to the extent preempted by applicable federal
--------------
law, this Plan shall be governed by and construed in accordance with the laws of
the state of Georgia.
12
<PAGE>
IN WITNESS WHEREOF, SCIENTIFIC-ATLANTA, INC. has caused this instrument to
be executed by its duly authorized officer, effective as of the date specified
above.
SCIENTIFIC-ATLANTA, INC.
By: /s/ Brian C. Koenig
------------------------------------------
Title: Senior Vice President-Human Resources
--------------------------------------
ATTEST:
By: /s/ William E. Eason, Jr.
-----------------------------------
Title: Corporate Secretary
--------------------------------
13
<PAGE>
EXHIBIT 10(o)
[NationsBank Letterhead]
April 24, 1998
Lenders Party to the $300,000,000
Scientific-Atlanta, Inc. Revolving
Credit Facility
Ladies and Gentlemen:
Reference is made to the Credit Agreement dated as of May 11, 1995, as
amended and restated (the "Credit Agreement") by and among Scientific-Atlanta,
Inc. (the "Borrower"), the financial institutions party thereto as Lenders (the
"Lenders"), and NationsBank, N.A., as Agent (the "Agent"). Capitalized terms
not defined in this letter have the respective meanings given them in the Credit
Agreement.
The Borrower has requested that the Lenders agree to amend the Credit
Agreement to effect an extension of (a) the Facility B Termination date by 364
days from May 8, 1998 to May 7, 1999 and (b) the Facility A Termination Date
from May 11, 2002 to May 11, 2003. Except for this amendment, the Credit
Agreement remains in effect and is restated in its entirety.
To confirm your agreement to such extension of both the Facility B
Termination Date and the Facility A Termination Date, on a copy of this letter,
please type or write the name of your institution in the space provided below,
sign below that and then return the same to the Agent no later than 5:00 p.m.,
May 4, 1998. Formal documentation will follow thereafter.
Should you have any questions, please do not hesitate to call the
undersigned at (214) 508-0997.
Sincerely yours,
NATIONSBANK N.A.,
as Agent
By: /s/ Pamela S. Kurtzman
----------------------
Name: Pamela S. Kurtzman
Title: Vice President
AGREED AND ACCEPTED:
Australia & New Zealand Banking Group Ltd.
- ------------------------------------------
[Type/write Lender name]
By: /s/ K. Ahern
----------------------
Name: Kevin Ahern
----------------
Title: V. P.
---------------
<PAGE>
AGREED AND ACCEPTED:
Bank of Tokyo-Mitsubishi
- -----------------------------------
[Type/write Lender name]
By: /s/ Gary L. England
-------------------------------
Name: Gary L. England
-------------------------
Title: Vice President & Manager
------------------------
AGREED AND ACCEPTED:
The Bank of New York
- -----------------------------------
[Type/write Lender name]
By: /s/ R. R. Reedy
-------------------------------
Name: Ronald R. Reedy
-------------------------
Title: V.P.
------------------------
AGREED AND ACCEPTED:
Wachovia Bank, N.A.
- -----------------------------------
[Type/write Lender name]
By: /s/ Karen H. McClain
-------------------------------
Name: Karen H. McClain
-------------------------
Title: Senior Vice President
------------------------
AGREED AND ACCEPTED:
ABN AMRO BANK N.V.
- -----------------------------------
[Type/write Lender name]
By: /s/ Steven B. Farley /s/ L. K. Kelley
-------------------------------
Name: Steven B. Farley Larry K. Kelley
-------------------------
Title: Vice President Group Vice President
------------------------
AGREED AND ACCEPTED:
NationsBank, N.A.
- -----------------------------------
[Type/write Lender name]
By: /s/ Pamela S. Kurtzman
-------------------------------
Name: Pamela S. Kurtzman
-------------------------
Title: V.P.
------------------------
<PAGE>
EXHIBIT 11
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 26, 1998
(In Thousands, Except Earnings Per Share)
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------- --------------------------
PER SHARE PER SHARE PER SHARE
EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER
COMMON SHARE
Earnings from
continuing operations
available to common
stockholders $80,793 78,692 $ 1.03 $60,642 78,198 $0.78 $ 7,176 76,666 $ 0.09
Discontinued operations -- -- -- 3,400 -- 0.04 (13,210) -- (0.17)
------- ------ ------ ------- ------ ----- -------- ------ ------
Net earnings (loss) $80,793 78,692 $ 1.03 $64,042 78,198 0.82 $ (6,034) 76,666 $(0.08)
======= ====== ====== ======= ====== ===== ======== ====== ======
Effect of Dilutive
Stock Options $ -- 1,311 $(0.01) $ -- 185 $ -- $ -- -- $ --
======= ====== ====== ======= ====== ===== ======== ====== ======
DILUTED EARNINGS PER
COMMON SHARE
Earnings from
continuing operations
available to common
stockholders $80,793 80,003 $ 1.02 $60,642 78,383 $0.78 $ 7,176 76,666 $ 0.09
Discontinued operations -- -- -- 3,400 -- 0.04 (13,210) -- (0.17)
------- ------ ------ ------- ------ ----- -------- ------ ------
Net earnings (loss) $80,793 80,003 $ 1.02 $64,042 78,383 $0.82 $ (6,034) 76,666 $(0.08)
======= ====== ====== ======= ====== ===== ======== ====== ======
</TABLE>
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 options' exercise price was greater than the average
market price of the common shares or because the Company reported a net loss
and inclusion of the options in the earnings per share calculation would have
been anti-dilutive:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
Number of options outstanding 2,123,795 2,670,770 5,543,550
Weighted average exercise price $ 22.84 $ 20.91 $ 15.21
</TABLE>
<PAGE>
EXHIBIT 21
LIST OF SIGNIFICANT SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OR COUNTRY
NAME OF INCORPORATION
- ---- ----------------
<S> <C>
SAMMEX, Inc. Texas
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report appearing on page 11 of this Form 10-K, into the Company's
previously filed registration statements as listed below.
1. Registration Statements on Form S-8 covering the Scientific-Atlanta,
Inc. 1978 Non-Qualified Stock Option Plan for Key Employees, as amended
(File Nos. 2-72029, 33-5623, 33-20858, and 33-36926);
2. Registration Statement on Form S-8 covering the Scientific-Atlanta,
Inc. 1981 Incentive Stock Option Plan (File No. 33-781);
3. Registration Statement on Form S-8 covering the Scientific-Atlanta,
Inc. Non-Employee Directors Stock Option Plan (File No. 33-35313);
4. Registration Statement on Form S-8 covering the Scientific-Atlanta,
Inc. Voluntary Employee Retirement and Investment Plan (File No. 33-
69827);
5. Registration Statement on Form S-8 covering the Scientific-Atlanta,
Inc. 1992 Employee Stock Option Plan (File No. 33-69218);
6. Registration Statement on Form S-8 covering the Scientific-Atlanta,
Inc. 1993 Restricted Stock Awards (File No. 33-52135);
7. Registration Statement on Form S-8 covering the Long-Term Incentive
Plan of Scientific-Atlanta, Inc. (File No. 33-56449);
8. Registration Statement on Form S-8 covering the Scientific-Atlanta,
Inc. Stock Plan for Non-Employee Directors (File No. 33-64065);
9. Registration Statement on Form S-8 covering the 1996 Employee Stock
Option Plan (File No. 333-18893);
10. Registration Statement on Form S-8 covering the Non-Qualified Stock
Option Agreement with Employee (File No. 333-18891);
11. Registration Statement on Form S-8 covering the Non-Qualified Stock
Option Agreement with Employee (File No. 333-23083); and
12. Registration Statement on Form S-8 covering the 1998 Employee Stock
Purchase Plan (File No. 333-62883).
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
September 18, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10_K
FOR THE YEAR ENDED JUNE 26, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-26-1998
<PERIOD-START> JUN-28-1997
<PERIOD-END> JUN-26-1998
<CASH> 175,392
<SECURITIES> 95,947
<RECEIVABLES> 264,471
<ALLOWANCES> 10,052
<INVENTORY> 159,545
<CURRENT-ASSETS> 716,498
<PP&E> 251,831
<DEPRECIATION> 91,804
<TOTAL-ASSETS> 940,142
<CURRENT-LIABILITIES> 258,668
<BONDS> 983
0
0
<COMMON> 39,604
<OTHER-SE> 592,392
<TOTAL-LIABILITY-AND-EQUITY> 940,142
<SALES> 1,181,404
<TOTAL-REVENUES> 1,181,404
<CGS> 850,738
<TOTAL-COSTS> 850,738
<OTHER-EXPENSES> 111,546
<LOSS-PROVISION> 6,231
<INTEREST-EXPENSE> 476
<INCOME-PRETAX> 115,419
<INCOME-TAX> 34,626
<INCOME-CONTINUING> 80,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,793
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.02
</TABLE>
<PAGE>
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-K (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 the development and ownership of
intellectual property; uncertainties relating to the ability of the Company
and other companies to enforce their intellectual property rights;
uncertainties relating to economic conditions (including, but not limited to,
the continued weak economic conditions in the Asia Pacific region);
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 development of new products, including digital set-
top products and the applications to be used on such digital set-top products;
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; reliance on software
programs used by the Company or its suppliers containing problems related to
computations that must be made in 1999, 2000, and beyond ("Year 2000
Problems") and Year 2000 Problems that may exist in products currently or
historically sold to customers of the Company; changes in the financial
markets relating to the Company's capital structure and cost of capital; and
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.
