<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 29, 2000
------------------------------------------------
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
incorporation or organization) Identification Number)
5030 Sugarloaf Parkway
Lawrenceville, Georgia 30042-5447
(Address of principal executive offices) (Zip Code)
770-903-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
---
As of October 27, 2000, Scientific-Atlanta, Inc. had outstanding 161,125,925
shares of common stock.
1 of 10
<PAGE>
PART I - FINANCIAL INFORMATION
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
September 29, October 1,
2000 1999
------------- --------------
<S> <C> <C>
SALES $ 597,240 $ 349,319
--------- ----------
COSTS AND EXPENSES
Cost of sales 420,091 249,371
Sales and administrative 51,239 39,106
Research and development 34,709 28,332
Interest expense 107 358
Interest (income) (8,993) (3,633)
Other (income) expense, net (76,431) (292)
--------- ----------
Total costs and expenses 420,722 313,242
--------- ----------
EARNINGS BEFORE MINORITY INTEREST AND INCOME TAXES 176,518 36,077
MINORITY INTEREST 41 -
--------- ----------
EARNINGS BEFORE INCOME TAXES 176,477 36,077
PROVISION (BENEFIT) FOR INCOME TAXES
Current 65,227 4,596
Deferred (2,033) 6,227
--------- ----------
NET EARNINGS $ 113,283 $ 25,254
========= ==========
EARNINGS PER COMMON SHARE
BASIC $ 0.71 $ 0.16
========= ==========
DILUTED $ 0.67 $ 0.16
========= ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING
BASIC 160,294 155,730
========= ==========
DILUTED 168,983 161,352
========= ==========
DIVIDENDS PER SHARE PAID $ 0.01 $ 0.0075
========= ==========
</TABLE>
2 of 10
<PAGE>
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
<TABLE>
<CAPTION>
In Thousands
------------------------------------
September 29, June 30,
2000 2000
---------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 586,787 $ 462,496
Short-term investments 89,580 60,628
Receivables, less allowance for doubtful
accounts of $4,324,000 at September 29
and $4,134,000 at June 30 379,210 333,242
Inventories 230,714 209,916
Deferred income taxes 48,371 49,681
Other current assets 46,720 34,671
---------- ----------
TOTAL CURRENT ASSETS 1,381,382 1,150,634
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and improvements 21,082 20,248
Buildings and improvements 52,705 40,915
Machinery and equipment 230,409 214,295
---------- ----------
304,196 275,458
Less - Accumulated depreciation and amortization 106,308 96,209
---------- ----------
197,888 179,249
---------- ----------
GOODWILL AND OTHER INTANGIBLE ASSETS 32,515 7,475
---------- ----------
NON-CURRENT MARKETABLE SECURITIES 191,359 381,983
---------- ----------
OTHER ASSETS 69,706 60,119
---------- ----------
TOTAL ASSETS $1,872,850 $1,779,460
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current maturities of long-term debt $ 319 $ 386
Accounts payable 273,405 212,111
Accrued liabilities 144,390 149,402
Income taxes currently payable 15,033 18,264
---------- ----------
TOTAL CURRENT LIABILITIES 433,147 380,163
---------- ----------
LONG-TERM DEBT, less current maturities - 102
---------- ----------
DEFERRED INCOME TAXES 45,746 114,428
OTHER LIABILITIES 87,931 69,807
---------- ----------
MINORITY INTEREST 5,903 -
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, authorized 50,000,000 shares;
no shares issued - -
Common stock, $0.50 par value, authorized
350,000,000 shares; issued 161,879,663 shares at
September 29 and 159,971,077 shares at June 30 80,939 79,986
Additional paid-in capital 442,305 339,649
Retained earnings 719,498 607,822
Accumulated other comprehensive income, net of taxes of
$63,867,000 at September 29 and $135,538,000 at June 30 104,206 221,141
---------- ----------
1,346,948 1,248,598
Less - Treasury stock, at cost (836,387 shares at September 29 and
651,805 shares at June 30) 46,825 33,638
---------- ----------
1,300,123 1,214,960
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,872,850 $1,779,460
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES
3 of 10
<PAGE>
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
September 29, October 1,
2000 1999
--------------- ---------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 49,147 $ 24,268
--------- ---------
INVESTING ACTIVITIES:
Proceeds from the sale of investments 84,158 -
Purchases of property, plant, and equipment (30,562) (12,156)
Investments (5,000) (13,100)
Acquisition of businesses (2,529) (7,697)
Proceeds from the sale of certain assets of a business unit - 3,259
Other 35 162
--------- ---------
Net cash provided by investing activities 46,102 (29,532)
--------- ---------
FINANCING ACTIVITIES:
Issuance of common stock 30,818 21,071
Dividends paid (1,607) (1,173)
Principal payments on long-term debt (169) -
--------- ---------
Net cash provided by financing activities 29,042 19,898
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 124,291 14,634
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 462,496 300,454
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 586,787 $ 315,088
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the period for:
Interest $ 92 $ 16
========= =========
Income taxes, net $ 19,111 $ 5,523
========= =========
Non-cash investing activities:
Net assets of business acquired for subsidiary stock:
Fair value of assets, including goodwill $ 27,441 $ -
Liabilities assumed $ 8,301 $ -
</TABLE>
SEE ACCOMPANYING NOTES
4 of 10
<PAGE>
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------
September 29, October 1,
2000 1999
------------- -------------
<S> <C> <C>
NET EARNINGS $ 113,283 $ 25,254
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX/(1)/
Unrealized gains (losses) on marketable securities, net (115,480) 9,724
Retirement plans minimum liability adjustment (416) (828)
Foreign currency translation adjustments (1,039) (237)
---------- ----------
COMPREHENSIVE INCOME (LOSS) $ (3,652) $ 33,913
========== ==========
</TABLE>
/(1)/Assumed 38 percent tax rate in fiscal years 2001 and 2000.
SEE ACCOMPANYING NOTES
5 of 10
<PAGE>
NOTES:
(Amounts in thousands, except share data).
A. The accompanying consolidated financial statements include the accounts
of Scientific-Atlanta and all subsidiaries after elimination of all
material intercompany accounts and transactions. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. These condensed financial statements
should be read in conjunction with the consolidated financial statements
and related notes contained in our fiscal year 2000 Annual Report on
Form 10-K. The financial information presented in the accompanying
statements reflects all adjustments which are, in the opinion of
management, necessary for a fair presentation of the periods indicated.
All such adjustments are of a normal recurring nature.
B. Basic earnings per share were computed based on the weighted average
number of shares of common stock outstanding. Diluted earnings per share
were computed based on the weighted average number of outstanding common
shares and potentially dilutive shares. Earnings per share for fiscal
year 1999 have been restated to reflect the 2-for-1 stock split in March
2000.
Basic and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
Net Per Share
Quarter Ended September 29, 2000 Earnings Shares Amount
-------------------------------- -------- ------ ---------
<S> <C> <C> <C>
Basic earnings per common share:
Net earnings $113,283 160,294 $ 0.71
======== ======= ======
Diluted earnings per common share:
Net earnings $113,283 168,983 $ 0.67
======== ======= ======
Effect of dilutive stock options - 8,689 $(0.04)
======== ======= =======
Net Per Share
Quarter Ended October 1, 1999 Earnings Shares Amount
----------------------------- -------- ------ ---------
Basic earnings per common share:
Net earnings $ 25,254 155,730 $ 0.16
======== ======= ======
Diluted earnings per common share:
Net earnings $ 25,254 161,352 $ 0.16
======== ======= ======
Effect of dilutive stock options - 5,622 $ -
======== ======= ======
</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 option's exercise price was
greater than the average market price of the common shares and inclusion
of the options in the earnings per share calculation would have been
anti-dilutive:
September 29, October 1,
2000 1999
-------------- -------------
Number of options outstanding 32 3,616
Weighted average exercise price $82.385 $23.324
6 of 10
<PAGE>
C. Inventories consist of the following: September 29, June 30,
2000 2000
--------------- -----------
Raw materials and work-in-process $ 181,383 $ 163,969
Finished goods 49,331 45,947
--------- ---------
Total inventory $ 230,714 $ 209,916
========= =========
D. We acquired 43,228 shares and 17,302 shares of our common stock during the
quarters ended September 29, 2000 and October 1, 1999, respectively, from
the payment in stock rather than cash by employees of tax withholdings on
restricted stock which vested. We also acquired an additional 136,999
shares of common stock from the deferral of the payment of restricted stock
which vested.
E. Other (income) expense for the quarter ended September 29, 2000 included a
gain of $78,757 from the sale of a portion of our investment in Bookham
Technology plc. This gain was partially offset by other miscellaneous
expenses. There were no significant items in other (income) expense for the
quarter ended October 1, 1999.
F. During the quarter ended October 1, 1999, Scientific-Atlanta invested
$13,100 in Bookham Technology plc, formerly Bookham Technology Limited, a
UK-based developer and supplier of optical components, as well as certain
assets of an optics business for a cash payment of $7,697.
G. In July 2000, PowerTV, Inc., a majority-owned subsidiary of Scientific-
Atlanta, acquired 100 percent of the outstanding stock of PRASARA
Technologies, Inc. for shares of PowerTV common stock and $2,609 in cash.
PRASARA provides business and technical solutions to the telecommunications
industry, including development, installation, maintenance and operation of
interactive television technology. The acquisition was accounted for under
the purchase method of accounting 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 $26,762 of goodwill and other
intangibles.
H. During fiscal year 2000, we operated primarily in two reportable business
segments: Broadband and Satellite. The Broadband segment consists of
subscriber and transmission systems, and the Satellite segment consisted of
satellite network and satellite television network systems. On April 25,
2000, ViaSat, Inc. acquired our satellite network business, which
constituted a substantial part of our satellite business. We retained our
satellite television network business, now known as the Media Networks
business of Scientific-Atlanta. Media Networks provides the content
distribution networks. We now operate only in the Broadband segment.
I. Scientific-Atlanta adopted the Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities" in
the first quarter of fiscal year 2001. Under Statement 133, as amended by
Statement 138, every derivative instrument is recorded in the balance sheet
as either an asset or a liability measured at its fair value. Changes in
the derivative instrument's fair value must be recognized currently in
earnings unless specific hedge accounting criteria are met. The adoption of
this statement has not had a material impact on our results of operations
or financial condition.
7 of 10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
-------------------
Scientific-Atlanta had stockholders' equity of $1.3 billion and cash on
hand was $586.8 million at September 29, 2000. Cash increased $124.3 million
during the quarter as cash provided by operations, the sale of a portion of our
investment in Bookham Technology plc, and the proceeds from stock option
exercises exceeded expenditures for facilities and equipment.
In July 2000, PowerTV, Inc., a majority-owned subsidiary of Scientific-
Atlanta, acquired 100 percent of the outstanding stock of PRASARA Technologies
Inc. for shares of PowerTV common stock and $2.6 million in cash. PRASARA
provides business and technical solutions to the telecommunications industry
including development, installation, maintenance and operation of interactive
television technology. The acquisition was accounted for under the purchase
method of accounting 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 $26.8 million of goodwill and other tangibles.
The current ratio of Scientific-Atlanta was 3.2:1 at September 29, 2000, up
from 3.0:1 at June 30, 2000. At September 29, 2000, total debt was $0.3 million
or less than one percent of total capital invested. We believe that funds
generated from operations, existing cash balances and our available senior
credit facility will be sufficient to support growth and planned expansion of
manufacturing capacity.
RESULTS OF OPERATIONS
---------------------
Sales for the quarter ended September 29, 2000 were $597.2 million, up 71
percent over the prior year, driven by the rapid acceleration in the deployment
of digital interactive systems. The company shipped over 1.0 million digital
interactive set-tops during the quarter as compared to 0.2 million in the prior
year. Sales of transmission products also increased significantly with strong
growth across most product areas, particularly opto-electronics products which
increased 51 percent year-over-year. International sales in the quarter ended
September 29, 2000 increased 38 percent over the prior year.
During fiscal year 2000, we operated primarily in two reportable business
segments: Broadband and Satellite. The Broadband segment consists of subscriber
and transmission systems, and the Satellite segment consisted of satellite
network and satellite television network systems. On April 25, 2000, ViaSat,
Inc. acquired our satellite network business, which constituted a substantial
part of our satellite business. We retained our satellite television network
business, now known as the Media Networks business of Scientific-Atlanta. Media
Networks provides the content distribution network. We now operate only in the
Broadband segment.
Gross margins were 29.7 percent, 1.1 percentage points higher than the
prior year, reflecting the benefit of continuing negotiated procurement savings
and manufacturing efficiencies. In addition, revenue from manufacturing
licenses, which have a higher gross margin than Scientific-Atlanta's average,
increased in the quarter.
Research and development costs were $34.7 million up, 23 percent over the
prior year, reflecting our continued investment in research and development
programs which are focused on the development of applications and enhancements
to our interactive broadband networks. Scientific-Atlanta continues to invest
in research and development programs to support existing products as well as
future potential products for our customer base.
Selling and administrative expenses in the quarter ended September 29, 2000
increased 31 percent over the prior year. The increase in expenses is related to
the high volume of sales, improved profitability, higher professional fees and
the increase in the amortization expense of intangible assets related to the
acquisition of PRASARA.
Other (income) expense for the quarter ended September 29, 2000 included a
gain of $78.8 million from the sale of a portion of our investment in Bookham.
This gain was partially offset by other miscellaneous expenses. There were no
significant items in other (income) expense for the quarter ended October 1,
1999.
Earnings before income taxes were $176.5 million in the quarter ended
September 29, 2000, up $140.4 million over the prior year. Significantly higher
sales volumes, improved gross margins and the $78.8 million gain from the sale
of a portion of our investment in Bookham were the primary factors in the year-
over-year increase.
8 of 10
<PAGE>
Scientific-Atlanta's effective income tax rate was 35.8 percent for the
quarter, up from 30 percent in the prior year, as the impact on the tax rate
from research and development credits has been diminished with higher levels of
pretax earnings, as well as higher taxes to be paid on the gains from the sale
of investments.
Net earnings for the quarter ended September 29, 2000 were $113.3 million
compared to $25.3 million in the prior year. Higher sales volume, higher gross
margins as a percent of sales and a gain from the sale of a portion of our
investment in Bookham were the primary factors in the year-over-year increase.
In the third quarter of calendar year 2000, we shipped Explorer/R/ 6000
set-tops without CableLabs certified DOCSIS modem capability activated. In the
first quarter of calendar year 2001, we expect to complete all system
verification testing of the system software related to the Explorer 6000
set-top, including downloadable DOCSIS modem software.
We also previously announced that our current offering of forward and
reverse dense wave division multiplexing (DWDM) transmitters was expected to be
expanded from 16 to 24 wavelengths in October 2000. We now do not expect to
begin shipment of that product until the second calendar quarter of 2001 at the
earliest. Our four channel bdr/TM/ baseband digital reverse products are
scheduled for general availability in the first calendar quarter of 2001 instead
of the fourth calendar quarter of 2000 as previously announced.
Explorer is a registered trademark of Scientific-Atlanta, Inc.
bdr is a trademark of Scientific-Atlanta, Inc.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
------ -----------------------------------------------------------
Scientific-Atlanta enters into foreign exchange forward contracts to hedge
certain firm commitments and assets denominated in currencies other than the
U.S. dollar. 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 us to inventory pricing or asset devaluation
risk and the related contract must reduce that exposure and be designated by
Scientific-Atlanta as a hedge. Our foreign exchange forward contracts do not
significantly subject our 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. We do 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, we would
recognize unrealized gains and losses as they occur.
Firmly committed purchase and sales exposure and related derivative contracts
through fiscal year 2001 are as follows:
Canadian Spanish
Dollar Pesetas
-------- -------
(In thousands, except per dollar amounts)
Firmly committed purchase (sales)
contracts 12,100 (105,000)
Notional amount of forward
exchange contracts 12,100 (105,000)
Average contract amount
(Foreign currency/
United States dollar) 1.48 153.25
Scientific-Atlanta has no derivative exposure beyond fiscal year 2001.
9 of 10
<PAGE>
PART II - OTHER INFORMATION
Item 1 Legal Proceedings.
------
By Order dated October 6, 2000, the United States District Court in
Atlanta denied StarSight Telecast, Inc.'s motion for leave to file a
motion for preliminary injunction in the declaratory judgment action
filed by the Company against StarSight relating to two StarSight
patents, including the so-called "121" or "Young" patent, and described
on page 6 of the Company's Annual Report on Form 10-K. StarSight filed
a motion asking the Court to reconsider its Order, and on October 31,
2000 that motion to reconsider was denied by the Court.
Item 6 Exhibits and Reports on Form 8-K.
------
(a) Exhibits.
Exhibit No. Description
----------- -----------
3 The By-laws of Scientific-Atlanta, Inc.
10 The Scientific-Atlanta, Inc. Stock Plan for
Non-Employee Directors, as amended and
restated.
27 Financial Data Schedule (for SEC filing
purposes only)
99 Cautionary Statements
(b) No reports on Form 8-K were filed during the quarter ended
September 29, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCIENTIFIC-ATLANTA, INC.
------------------------
(Registrant)
Date: November 13, 2000 By: /s/ Wallace G. Haislip
------------------ ----------------------
Wallace G. Haislip
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer and duly
authorized signatory of the Registrant)
10 of 10
<PAGE>
SCIENTIFIC-ATLANTA, INC.
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3 The By-laws of Scientific-Atlanta, Inc.
10 The Scientific-Atlanta, Inc. Stock Plan for Non-Employee
Directors, as amended and restated.
27 Financial Data Schedule (for SEC filing purposes only)
99 Cautionary Statements
