<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 December 31, 1999
-----------------
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)
One Technology Parkway, South
Norcross, Georgia 30092-2967
(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 January 28, 2000, Scientific-Atlanta, Inc. had outstanding 79,061,629
shares of common stock.
1 of 14
<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 Six Months Ended
---------------------------------- ----------------------------
December 31, January 1, December 31, January 1,
1999 1999 1999 1999
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
SALES $ 372,721 $ 310,747 $ 722,040 $ 568,225
------- -------- -------- -------
COSTS AND EXPENSES
Cost of sales 263,512 222,925 512,883 410,034
Sales and administrative 42,260 42,883 81,366 81,672
Research and development 29,508 29,762 57,840 59,053
Interest expense - 355 286 522
Interest income (4,117) (1,837) (7,750) (3,939)
Other (income) expense, net (6,117) (10,753) (6,337) (27,949)
------- -------- -------- -------
Total costs and expenses 325,046 283,335 638,288 519,393
------- -------- -------- -------
EARNINGS BEFORE INCOME TAXES 47,675 27,412 83,752 48,832
PROVISION (BENEFIT) FOR INCOME TAXES
Current 16,185 28,199 20,781 21,712
Deferred (1,882) (19,975) 4,345 (7,062)
------- -------- -------- -------
NET EARNINGS $ 33,372 $ 19,188 $ 58,626 $ 34,182
======= ======== ======== =======
EARNINGS PER COMMON SHARE
BASIC $ 0.42 $ 0.25 $ 0.74 $ 0.44
======= ======== ======== =======
DILUTED $ 0.41 $ 0.25 $ 0.72 $ 0.44
======= ======== ======== =======
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING
BASIC 78,753 75,274 78,309 77,245
======= ======== ======== =======
DILUTED 81,808 76,031 81,237 78,340
======= ======== ======== =======
DIVIDENDS PER SHARE PAID 0.015 0.015 0.03 0.03
======= ======== ======== =======
COMPREHENSIVE INCOME:
NET EARNINGS $ 33,372 $ 19,188 $ 58,626 $ 34,182
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX(1)
Unrealized gains (losses) on marketable
securities, net 9,120 - 22,911 -
Reversal of unrealized gains on marketable
securities sold (2,171) - (6,238) -
Minimum retirement plan minimum liability
adjustment - - (828) -
Foreign currency translation adjustments (670) 1,165 (907) 1,712
------- -------- -------- -------
COMPREHENSIVE INCOME $ 39,651 $ 20,353 $ 73,564 $ 35,894
======= ======== ======== =======
</TABLE>
(1) Assumed 38% and 40% tax rate in
fiscal 2000 and fiscal 1999, respectively
SEE ACCOMPANYING NOTES
2 of 14
<PAGE>
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
In Thousands
-----------------------------------
December 31, July 2,
1999 1999
--------------- ----------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 347,953 $ 300,454
Marketable securities 4,105 2,438
Receivables, less allowance for doubtful
accounts of $8,445,000 at December 31
and $8,160,000 at July 2 298,301 290,274
Inventories 222,012 189,354
Deferred income taxes 34,611 37,130
Other current assets 15,908 11,811
--------- ----------
TOTAL CURRENT ASSETS 922,890 831,461
--------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and improvements 21,161 21,161
Buildings and improvements 32,545 31,802
Machinery and equipment 219,033 197,326
--------- ----------
272,739 250,289
Less - Accumulated depreciation and amortization 107,395 92,751
--------- ----------
165,344 157,538
--------- ----------
COST IN EXCESS OF NET ASSETS ACQUIRED 7,943 7,900
--------- ----------
NON-CURRENT MARKETABLE SECURITIES 42,336 18,783
--------- ----------
OTHER ASSETS 57,610 46,592
--------- ----------
TOTAL ASSETS $ 1,196,123 $ 1,062,274
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current maturities of long-term debt $ 418 $ 416
Accounts payable 149,857 137,146
Accrued liabilities 113,944 125,038
Income taxes currently payable 1,118 5,211
--------- ----------
TOTAL CURRENT LIABILITIES 265,337 267,811
--------- ----------
LONG-TERM DEBT, less current maturities 257 370
--------- ----------
OTHER LIABILITIES 70,153 55,927
--------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, authorized 50,000,000 shares;
no shares issued - -
Common stock, $0.50 par value, authorized
350,000,000 shares; issued 79,621,212 shares at
December 31 and 79,616,712 at July 2 39,811 39,808
Additional paid-in capital 256,415 226,390
Retained earnings 553,673 497,403
Accumulated other comprehensive income, net of taxes of
$13,679,000 at December 31 and $4,921,000 at July 2 22,317 7,379
--------- ----------
872,216 770,980
Less - Treasury stock, at cost (672,129 shares at December 31 and
2,269,646 shares at July 2) 11,840 32,814
--------- ----------
860,376 738,166
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,196,123 $ 1,062,274
========= ==========
</TABLE>
SEE ACCOMPANYING NOTES
3 of 14
<PAGE>
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------
December 31, January 1,
1999 1999
------------ ----------
<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 58,780 $ (11,367)
--------- -------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (28,607) (27,701)
Acquisition of businesses (7,697) -
Proceeds from the sale of certain assets of a business unit 3,259 -
Proceeds from the sale of marketable securities 8,719 64,450
Investments (13,100) -
Other 175 214
--------- -------
Net cash provided (used) by investing activities (37,251) 36,963
--------- -------
FINANCING ACTIVITIES:
Principal payments on long-term debt (111) (235)
Dividends paid (2,356) (2,316)
Issuance of common stock 28,437 5,968
Treasury shares acquired - (65,228)
--------- -------
Net cash provided (used) by financing activities 25,970 (61,811)
--------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 47,499 (36,215)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 300,454 175,392
--------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 347,953 $ 139,177
========= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 246 $ 495
========= =======
Income taxes paid, net $ 8,977 $ 8,697
========= =======
</TABLE>
SEE ACCOMPANYING NOTES
4 of 14
<PAGE>
NOTES:
(Amounts in thousands, except share data).
A. The accompanying consolidated financial statements include the accounts
of the company 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 the company's 1999 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. The company's fiscal year ends on the Friday closest to June 30 of each
year. Fiscal 1999 included fifty-three weeks. The three and six months
ended January 1, 1999 included fourteen weeks and twenty-seven weeks,
respectively.
C. Basic earnings per share were computed based on the weighted average
number of shares outstanding. Diluted earnings per share were computed
based on the weighted average number of dilutive shares of common stock
outstanding. See Exhibit 11.
<TABLE>
<CAPTION>
D. Inventories consist of the following: December 31, July 2,
1999 1999
------------- --------
<S> <C> <C>
Raw materials and work-in-process $ 172,483 $ 129,911
Finished goods 49,530 59,443
--------- ---------
Total inventory $ 222,013 $ 189,354
========= =========
</TABLE>
E. During the six months ended December 31, 1999, the company acquired
17,397 shares of its common stock from the payment in stock rather than
cash by employees of tax withholdings on restricted stock which vested.
During the six months ended January 1, 1999, the company acquired
4,648,000 shares of its common stock for $65,228 and acquired an
additional 75,880 shares primarily from the payment in stock rather than
cash by employees of tax withholdings on restricted stock which vested.
The company re-issues these shares under the company's stock option
plans, 401(k) plan, employee stock purchase plan and other stock-based
employee compensation arrangements.
F. Other income (expense) of $6,117 for the quarter ended December 31, 1999
included a $5,780 gain from the divesture of a portion of the company's
investment in WorldGate Communications, Inc. and other miscellaneous
gains and expenses.
During the six months ended December 31, 1999, the company completed the
sale of certain assets of its Control Systems business unit for $3,259
of cash and recorded a gain of $1,500. This gain was partially offset by
other miscellaneous expenses.
Other (income) expense for the quarter ended January 1, 1999 included a
$20,375 gain from the adjustment of the company's investment in Broadcom
Corporation (Broadcom) to market value, a $10,880 loss on the sale of
one million shares of the company's investment in Broadcom, and a gain
of $6,250 from the cancellation of a loss contract.
In addition, during the quarter ended January 1, 1999, the company
decided to dispose of a business unit, Control Systems, which produced
devices to monitor and manage utility service usage, because the
business unit did not fit with the company's core strategy. The company
recorded a charge of $6,225 to adjust the carrying value of the assets
to be sold to fair value, less costs to sell, to adjust the estimated
profitability on certain contracts to allow the purchaser to achieve
reasonable margins, to provide for indemnification to the purchaser and
to provide for other miscellaneous expenses associated with the sale.
Other (income) expense for the six months ended January 1, 1999 also
included $18,000 gain from the adjustment of the company's investment in
Broadcom to market in the first quarter of the fiscal year.
G. During the six months ended December 31, 1999, the company invested
$13,100 in Bookham Technology Limited (Bookham), a UK-based developer
and supplier of optical components. In addition, the company acquired
certain assets of an optics business for a cash payment of $7,697.
5 of 14
<PAGE>
NOTES: (continued):
(Amounts in thousands, except share data).
H. Information on the segments of the company and reconciliations to
consolidated amounts are as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
December 31, 1999 January 1, 1999
-------------------------------------------- ----------------------------------------------
Corporate Corporate
and and
Broadband Satellite Other Total Broadband Satellite Other Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 328,452 $ 44,131 $ 138 $372,721 $ 259,176 $ 49,912 $ 1,659 $310,747
Earnings (loss)
before taxes $ 40,970 $ (306) $ 7,011/(1)/ $ 47,675 $ 24,155 $ (6,603) $ 9,860/(2)/ $ 27,412
</TABLE>
(1) Includes a gain of $5,780 from the sale of a portion of the company's
investment in WorldGate and interest income of $4,117.
(2) Includes gains of $20,375 from the adjustment of the company's investment
in Broadcom to market value and $6,250 from the cancellation of a
contract and losses of $10,880 from the sale of one million shares of the
company's investment in Broadcom and $6,225 from the decision to dispose
of the Control Systems business unit. (See Note F.) Corporate and Other
also includes interest income of $1,837.
<TABLE>
<CAPTION>
Six Months Ended
----------------
December 31, 1999 January 1, 1999
------------------------------------------ ----------------------------------------------
Corporate Corporate
and and
Broadband Satellite Other Total Broadband Satellite Other Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 632,315 $88,727 $ 998 $722,040 $ 469,414 $ 94,235 $ 4,576 $568,225
Earnings (loss)
before taxes $ 74,010 $(1,487) $ 11,229/(1)/ $ 83,752 $ 32,148 $(14,214) $ 30,898/(2)/ $ 48,832
</TABLE>
(1) Includes interest income of $7,750 in addition to the $5,780 gain from
the sale of a portion of the company's investment in WorldGate discussed
above.
(2) In addition to the items discussed in footnote (1) for the three months
ended December 31, 1999, includes additional interest income of $3,633.
I. In January 2000, the company announced it had reached a definitive agreement
to sell certain assets of the Satellite Networks business unit to ViaSat Inc.
for approximately $75,000. The transaction is subject to various regulatory
and other conditions and is expected to close prior to the end of the fiscal
year. The amount of the purchase price is subject to normal closing
adjustments. The company does not expect the transaction to have a material
impact on the company's results of operations or financial position.
6 of 14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
Scientific-Atlanta had stockholders' equity of $860.4 million and cash
on hand was $348.0 million at December 31, 1999. Cash increased $47.5 million
from July 2, 1999 as cash provided by operations, the issuance of common stock
and the sale of a portion of the company's investment in WorldGate
Communications, Inc. (WorldGate) exceeded the company's expenditures for
equipment, investment in Bookham, a developer and supplier of optical components
and the acquisition of an optics business. The current ratio was 3.5:1 at
December 31, 1999, up from 3.1:1 at July 2, 1999. At December 31, 1999, total
debt was $0.7 million or less than one percent of total capital invested. 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.
RESULTS OF OPERATIONS
- ---------------------
Sales for the quarter ended December 31, 1999 were $372.7 million, up
20 percent over the prior year. Broadband segment sales for the quarter were
$328.5 million, up 27 percent over the prior year, driven by the rapid
acceleration in the deployment of digital interactive systems and strong demand
for the Explorer(R) 2000 digital interactive set-tops. The company shipped
approximately 267,000 Explorer 2000 digital interactive set-tops during the
quarter as compared to approximately 126,000 in the prior year. Sales of
transmission products also increased significantly in the quarter with strong
growth across all product areas. As anticipated and previously announced, sales
of analog set-tops continued to decline as cable operators shifted from analog
to digital products. The company expects that the downward trend in sales of
analog set-tops will continue throughout the fiscal year. Satellite segment
sales were $44.1 million for the quarter ended December 31, 1999, down 12
percent as compared to the prior year. The company expects to continue to
experience softness in the Satellite segment because of its significant reliance
on international markets. In the quarter ended December 31, 1999, international
sales were 26 percent of total sales, up from 23 percent of total sales last
year.
Broadband segment sales for the six months ended December 31, 1999 were
$632.3 million, up 35 percent over the prior year. The increase was driven by
the continued rapid acceleration in the deployment of digital interactive
systems and strong demand for the Explorer 2000 set-tops. Satellite segment
sales for the six months ended December 31, 1999 were $88.7 million, down 6
percent from the prior year. International sales for the six months ended
December 31, 1999 were 24 percent of total sales, approximately the same as the
prior year. Sales for the six months ended December 31, 1999 were $722.0 million
up 27.1 percent from the prior year.
Gross margins were 29.3 percent and 29.0 percent for the three and six
months ended December 31, 1999, 1.0 percentage points and 1.2 percentage points
respectively, higher than the comparable periods of the prior year, reflecting
the economies of scale associated with increased manufacturing volumes, the
continuing benefit from manufacturing in Juarez, Mexico and negotiated
procurement savings.
Decreases in operating expenses relative to last year are due in part
to the fact that the three and six months ended January 1, 1999 included
fourteen and twenty-seven weeks, respectively, as compared to the normal
thirteen and twenty-six week periods in the current year.
Research and development costs were $29.5 million and $57.8 million for
the three and six months ended December 31, 1999, respectively, or 8 percent of
sales, reflecting the company's continued investment in research and development
programs which are focused on the development of applications and enhancements
to the company's interactive broadband networks. The company continues to invest
in research and development programs to support existing products. During the
three and six months ended December 31, 1999, the company capitalized $0.6
million and $1.0 million of software development, respectively. During the three
and six months ended December 31, 1999, the company recognized revenue on
certain of the products on which software development costs had been capitalized
and amortized $1.5 million and $3.2 million, respectively, of these costs to
cost of sales. The company capitalized software development costs of $0.8
million and $1.4 million during the three and six months ended January 1, 1999,
respectively. The company amortized $1.1 million of these costs to cost of sales
during the three and six months ended January 1, 1999.
Selling and administrative expenses were flat for the three and six
months periods ended December 31, 1999 as compared to the prior year. Lower
sales and marketing expenses, due in part to cost reductions from the
restructuring of the Satellite segment, were offset by increases in professional
fees and expenses related to the higher volume of sales in the three and six
months ended December 31, 1999.
7 of 14
<PAGE>
The restructuring plan announced during fiscal 1998 was substantially
completed during fiscal 1999. During the six months ended December 31, 1999,
$0.2 million was charged against the liability for contractual liabilities for
cancelled leases and $1.5 million remains in the liability which is expected to
be utilized by 2002 for expenses related to contractual liabilities for
cancelled leases.
Other (income) expense for the quarter ended December 31, 1999 included
a $5.8 million gain from the divesture of a portion of the company's investment
in WorldGate.
Other (income) expense for the quarter ended January 1, 1999 included a
$20.4 million gain from the adjustment of the company's investment in Broadcom
to market value, a $10.9 million loss on the sale of one million shares of the
company's investment in Broadcom, and a gain of $6.2 million from the
cancellation of a loss contract.
In addition, during the quarter ended January 1, 1999, the company
decided to dispose of a business unit, Control Systems, which produced devices
to monitor and manage utility service usage, because the business unit did not
fit with the company's core strategy. The company recorded a charge of $6.2
million to adjust the carrying value of the assets to be sold to fair value,
less costs to sell, to adjust the estimated profitability on certain contracts
to allow the purchaser to achieve reasonable margins, to provide for
indemnification to the purchaser and to provide for other miscellaneous expenses
associated with the sale.
Other (income) expense in the six months ended December 31, 1999 also
included a gain of $1.5 million from the sale of certain assets of the Control
Systems business unit which was partially offset by other miscellaneous
expenses. Other (income) expense for the six months ended January 1, 1999 also
included an $18.0 million gain from the adjustment of the company's investment
in Broadcom to market value. Other (income) expense for the three and six months
ended December 31, 1999 and January 1, 1999 also included the results of foreign
currency transactions and partnership activities and net gains from rental
income and other miscellaneous items. There were no other significant items in
other (income) expense during the three and six months ended December 31, 1999
and January 1, 1999.
Earnings before taxes were $47.7 million and $83.8 million in the three
and six months ended December 31, 1999, up $20.3 million and $34.9 million,
respectively, over the comparable periods of the prior year. Earnings before
income taxes in the Broadband segment were $41.0 million and $74.0 million,
respectively, in the three and six months ended December 31, 1999, a $16.8
million and $41.9 million improvement, respectively, over the comparable periods
of the prior year. Significantly higher sales volumes and improved gross margins
were the primary factors in the year-over-year increase. Losses before taxes for
the Satellite segment were reduced from $6.6 million to $0.3 million in the
three months ended December 31, 1999 and from $14.2 million to $1.5 million in
the six months ended December 31, 1999 reflecting the benefit from the
previously reported restructuring and resizing efforts in this segment.
The company's effective income tax rate was 30 percent for the three
and six months ended December 31, 1999, unchanged from the prior year.
Net earnings for the quarter ended December 31, 1999 were $33.4 million
compared to $19.2 million in the prior year. Higher sales volume, higher gross
margins as a percent of sales and reduced operating expenses contributed to the
year-over-year improvement in net earnings. Net earnings for the six months
ended December 31, 1999 were $58.6 million compared to $34.2 million in the
prior year.
In January 2000, the company announced it had reached a definitive
agreement to sell certain assets of the Satellite Networks business unit to
ViaSat Inc. for approximately $75 million. The transaction is subject to various
regulatory and other conditions and is expected to close prior to the end of the
fiscal year. The amount of the purchase price is subject to normal closing
adjustments. The company does not expect the transaction to have a material
impact on the company's results of operations or financial position.
Year 2000
- ---------
The company, like most other major companies, has addressed over the
past several years 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. To date, there have not been, and the company does not expect
there to be, any Year 2000 Compliance problems that are
8 of 14
<PAGE>
expected to have a material adverse effect on its financial condition or its
results of operations. In addition, to date, the company is not aware of any
significant customer, vendor, supplier, financial organization or service
provider who experienced critical Year 2000 Compliance problems.
Any of the above statements 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-Q
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.
Explorer is a registered trademark for Scientific-Atlanta.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
-----------------------------------------------------------
The company 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 the company to 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 and sales exposure and related derivative contracts
through June 30, 2000 are as follows:
<TABLE>
<CAPTION>
Canadian Spanish
Dollar Pesetas
---------- ---------
(In thousands, except per dollar amounts)
<S> <C> <C>
Firmly committed purchase (sales)
contracts 9,500 (159,720)
Notional amount of forward
exchange contracts 9,370 (159,720)
Average contract amount
(Foreign currency/
United States dollar) 1.48 202.26
</TABLE>
The company has no derivative exposure beyond June 30, 2000.
9 of 14
<PAGE>
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
The following information is furnished with respect to matters
submitted to a vote of security holders through the solicitation of
proxies:
(a) The matters described below were submitted to a vote of security
holders at the Annual Meeting of Shareholders held on November
10, 1999.
(b) Election of directors:
<TABLE>
<CAPTION>
Votes For Withhold Authority
---------- ------------------
<S> <C> <C>
Marion H. Antonini 66,214,642 484,085
William E. Kassling 66,226,126 472,601
Mylle Bell Mangum 66,215,327 483,400
</TABLE>
David W. Dorman, James F. McDonald, David L. McLaughlin,
James V. Napier and Sam Nunn continue as directors.
(c)(i) Re-approval of the Long-Term Incentive Plan, as amended
Votes For Votes Against Abstain
------------------ ------------------ --------------
59,490,669 6,843,267 364,791
(ii) Re-approval of the Senior Officer Annual Incentive Plan, as
amended
Votes For Votes Against Abstain
------------------- ------------------ --------------
64,406,279 1,874,513 417,935
(iii) Ratification of the selection of Arthur Andersen LLP as
independent auditors
Votes For Votes Against Abstain
------------------- ------------------ --------------
66,365,454 113,560 219,713
Item 6 Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) Exhibits.
Exhibit No. Description
----------- -----------
11 Computation of Earnings Per Share
27 Financial Data Schedule (for commission use only)
99 Cautionary Statements
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1999.
Date: February 11, 2000 /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 14
<PAGE>
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended December 31, 1999 Three Months Ended January 1, 1999
------------------------------------ ----------------------------------
Net Per Share Net Per Share
Earnings Shares Amount Earnings Shares Amount
-------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per common share:
Net earnings $ 33,372 78,753 $ 0.42 $19,188 75,274 $ 0.25
Diluted earnings per common
share:
Net earnings $ 33,372 81,808 0.41 $19,188 76,031 0.25
------ ------ ----- ------ ------ ----
Effect of dilutive stock options $ - 3,055 $ (0.01) $ - 757 $ -
====== ====== ===== ====== ====== ====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended December 31, 1999 Six Months Ended January 1, 1999
---------------------------------- --------------------------------
Net Per Share Net Per Share
Earnings Shares Amount Earnings Shares Amount
-------- ------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per common share:
Net earnings $ 58,626 78,309 $ 0.74 $34,182 77,245 $ 0.44
Diluted earnings per common
share:
Net earnings $ 58,626 81,237 0.72 $34,182 78,340 0.44
------ ------ ------ ------ ------ ----
Effect of dilutive stock options $ - 2,928 $ (0.02) $ - 1,095 $ -
====== ====== ====== ===== ====== ====
</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:
<TABLE>
<CAPTION>
December 31, 1999 January 1, 1999
----------------- ---------------
<S> <C> <C>
Number of options outstanding 61 4,944
Weighted average exercise price $ 60.451 $ 22.473
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the quarter ended December 31, 1999, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-03-1999
<PERIOD-END> DEC-31-1999
<CASH> 347,953
<SECURITIES> 4,105
<RECEIVABLES> 306,746
<ALLOWANCES> 8,445
<INVENTORY> 222,012
<CURRENT-ASSETS> 922,890
<PP&E> 272,739
<DEPRECIATION> 107,395
<TOTAL-ASSETS> 1,196,123
<CURRENT-LIABILITIES> 265,337
<BONDS> 257
0
0
<COMMON> 39,811
<OTHER-SE> 820,565
<TOTAL-LIABILITY-AND-EQUITY> 1,196,123
<SALES> 722,040
<TOTAL-REVENUES> 722,040
<CGS> 512,883
<TOTAL-COSTS> 512,883
<OTHER-EXPENSES> 57,840
<LOSS-PROVISION> 372
<INTEREST-EXPENSE> 286
<INCOME-PRETAX> 83,752
<INCOME-TAX> 25,126
<INCOME-CONTINUING> 58,626
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,626
<EPS-BASIC> 0.74
<EPS-DILUTED> 0.72
</TABLE>
<PAGE>
EXHIBIT 99
CAUTIONARY STATEMENTS
General
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 and some of which are described in more detail below 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 and the Latin
America region); uncertainties relating to government and regulatory policies;
including but not limited to the FCC Report and Order entitled "In the Matter of
Implementation of Section 304 of the Telecommunications Act of 1996 - Commercial
Availability of Navigation Devices; uncertainties relating to customer plans and
commitments; changes in the ownership and/or management of major customers of
the company; changes in customer order patterns; 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, manufacture, and/or deployment of new products, including digital
set-top products and the software applications to be used on such digital set-
top products; delays in testing of new products; uncertainties related to the
regulation of the Internet; rapid technology changes; the highly competitive
environment in which the company operates; the entry of new, well-capitalized
competitors into the company's markets as both competitors and customers;
reliance on software programs used by the company or its suppliers containing
problems related to computations that must be made in 2000 and beyond ("Year
2000 Problems"); in the financial markets relating to the company's capital
structure and cost of capital; the impact of a major earthquake on the company's
operations; and uncertainties inherent in international operations and foreign
currency fluctuations. The words "believe," "expect," "anticipate," "project,"
"plan," "intend," "seek," "estimate" 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.
Factors That May Affect Future Performance
Dependence Of The Company On The Cable Television Industry And Cable Television
Capital Spending. The majority of the company's revenues come from sales of
systems and equipment to the cable television industry. In January 2000, the
company announced that it had reached a definitive agreement to sell certain
assets of the satellite network business unit as part of its strategy to focus
on broadband cable systems and satellite systems that support video and internet
protocol data distribution. Demand for these products depends primarily on
capital spending by cable television system operators for constructing,
rebuilding or upgrading their systems. The amount of this capital spending, and,
therefore, the company's sales and profitability, may be affected by a variety
of factors, including general economic conditions, the continuing trend of cable
system consolidation within the industry, the financial condition of domestic
cable television system operators and their access to financing, competition
from direct-to-home satellite, wireless television providers and telephone
companies offering video programming, technological developments that impact the
deployment of equipment and new legislation and regulations affecting the
equipment used by cable television system operators and their customers. There
can be no assurance that cable television capital spending will increase from
historical levels or that existing levels of cable television capital spending
will be maintained.
Dependence on Key Customers. Although the domestic cable television industry is
comprised of thousands of cable systems, a small number of large cable
television multiple systems operators ("MSOs") own a majority of the cable
television systems and account for a significant portion of the capital
expenditures made by cable television
<PAGE>
system operators. Sales of products to Time Warner, Inc. and its affiliates were
16% of the company's total sales in fiscal 1999, and sales to MediaOne and its
affiliates were 14% of the company's total sales in fiscal 1999. The loss of
business from a significant MSO could have a material adverse effect on the
business of the company.
International. The company has and expects to continue to make significant sales
to customers outside the United States. In addition, a portion of the company's
product manufacturing is located outside the United States. Accordingly, the
company's future results could be adversely affected by a variety of factors,
including changes in a specific country's or region's political conditions or
changes or continued weakness in economic conditions, trade protection measures,
import or export licensing requirements, the overlap of different tax structures
and unexpected changes in regulatory requirements.
Rapid Changes in Technology. The markets for the company's products are
characterized by rapidly changing technology, evolving industry standards,
frequent new product introductions and evolving methods of building and
operating networks. The success of the company's existing and future products is
dependent on several factors, including proper product definition, product cost,
timely completion and introduction of new products, differentiation of new
products from those of the company's competitors and market acceptance of these
products. There can be no assurance that the company will successfully identify
new product opportunities, develop and bring new products to market in a timely
manner and achieve market acceptance of its products or that products and
technologies developed by others will not render its products or technologies
obsolete or noncompetitive.
New Product Introductions. The company's future operating results may be
adversely affected if the company is unable to continue to develop, manufacture
and market innovative products and services that meet customer requirements for
performance and reliability on a timely basis. The process of developing the
company's new high technology products is inherently complex and uncertain. The
company has in the past experienced delays in product development and
introduction, and there can be no assurance that the company will not experience
further delays in connection with its current product development or future
development activities.
Competition. The company's products compete with those of a substantial number
of foreign and domestic companies, some with greater resources, financial or
otherwise, than the company, and the rapid technological changes occurring in
the company's markets are expected to lead to the entry of new competitors. The
company's ability to anticipate technological changes and to introduce enhanced
products on a timely basis will be a significant factor in the company's ability
to anticipate technological changes and to introduce enhanced products on a
timely basis will be a significant factor in the company's ability to expand and
remain competitive.
Intellectual Property. The company generally relies upon patent, copyright,
trademark and trade secret laws to establish and maintain its proprietary rights
in its technology and products. However, there can be no assurance that any of
the company's proprietary rights will not be challenged, invalidated or
circumvented, or that any such rights will provide significant competitive
advantage. Third parties have claimed, and may claim, that the company has
infringed their current, or future, intellectual property rights. Any claims,
with or without merit, could be time-consuming, result in costly litigation,
cause product shipment delays, or require the company to enter into royalty or
licensing agreements, any of which could seriously harm the company's business,
financial condition and results of operations. There can be no assurance that
such royalty or licensing agreements, if required, would be available on terms
acceptable to the company, if at all. Additionally, there can be no assurance
that the company will prevail in any intellectual property infringement
litigation given the complex technical issues and inherent uncertainties in
litigation. In the event an intellectual property claim against the company was
successful and the company could not obtain a license on acceptable terms or
license a substitute technology or redesign to avoid infringement, the company's
business, financial condition and results of operations would be seriously
harmed. Even if the company prevails in litigation, the expense of litigation
could be significant and could seriously harm the company's business, financial
condition and results of operation.
Reliance on Suppliers. The company's growth and ability to meet customer demands
also depend in part on its ability to obtain timely deliveries of parts from the
company's suppliers. Certain components of the company's products are presently
available only from a single source or limited sources. A reduction or
interruption in supply or a significant increase in the price of one or more
components could adversely affect the company's business, operating results and
financial condition and could materially damage customer relationships.
Industry Consolidation and Acquisitions. There has been a recent trend toward
industry consolidation. The company's major competitor, General Instrument
Corporation, was acquired by Motorola, Inc., and a significant customer, Time
Warner Inc., has agreed to be acquired by America Online, Inc. The company
believes that this
<PAGE>
trend toward industry consolidation will continue as companies attempt to
strengthen or hold their market positions in an evolving industry. In addition,
the company's industry is highly competitive, and as such, the company's growth
is dependent upon market growth and its ability to enhance its existing products
and services. Accordingly, one of the ways the company may address the need to
enhance products and services is through acquisitions of other companies.
Acquisitions involve numerous risks, including the following: difficulties in
integration of the operations, technologies and products of the acquired
companies; the risk of diverting management's attention from normal daily
operations of the business; and the potential loss of key employees of the
acquired company. Failure to manage growth effectively and successfully
integrate acquisitions made by the company could materially harm the company's
business and operating results.
Volatility of Stock Price. The trading price of the company's common stock may
be volatile. The stock market in general, and the market for technology
companies in particular, has, from time to time, experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These broad market and industry fluctuations may significantly affect
the trading price of the company's common stock, regardless of its actual
operating performance. The trading price of the company's common stock could be
affected by a number of factors, including: changes in expectations of the
company's future financial performance; changes in securities analysts'
estimates (or the failure to meet such estimates); announcements of
technological innovations; customer relationship developments; conditions
affecting the company's targeted markets in general; and quarterly fluctuations
in the company's revenue and financial results. In the past, following periods
of volatility in the market price of a company's securities, securities class
action litigation has often been instituted. If this were to happen to the
company, such litigation would be expensive and would divert management's
attention.
