<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 March 31, 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)
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 April 28, 2000 Scientific-Atlanta, Inc. had outstanding 159,259,025
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 Nine Months Ended
-------------------------- ----------------------------
March 31, April 2, March 31, April 2,
2000 1999 2000 1999
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
SALES $440,731 $320,019 $1,162,771 $ 888,244
-------- -------- ---------- ---------
COSTS AND EXPENSES
Cost of sales 310,656 228,635 823,539 638,669
Sales and administrative 45,132 37,589 126,498 119,261
Research and development 32,224 27,914 90,064 86,967
Interest expense 130 209 416 731
Interest income (5,328) (1,702) (13,078) (5,641)
Other (income) expense, net 3,476 (2,360) (2,861) (30,309)
-------- -------- ---------- ---------
Total costs and expenses 386,290 290,285 1,024,578 809,678
-------- -------- ---------- ---------
EARNINGS BEFORE INCOME TAXES 54,441 29,734 138,193 78,566
PROVISION (BENEFIT) FOR INCOME TAXES
Current 17,844 4,060 38,625 25,772
Deferred (1,512) 4,860 2,833 (2,202)
-------- -------- ---------- ---------
NET EARNINGS $ 38,109 $ 20,814 $ 96,735 $ 54,996
======== ======== ========== =========
EARNINGS PER COMMON SHARE
BASIC $ 0.24 $ 0.13 $ 0.61 $ 0.36
======== ======== ========== =========
DILUTED $ 0.23 $ 0.13 $ 0.59 $ 0.35
======== ======== ========== =========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING
BASIC 158,627 151,718 157,288 153,566
======== ======== ========== =========
DILUTED 166,615 156,452 163,853 156,604
======== ======== ========== =========
DIVIDENDS PER SHARE PAID $ 0.01 $ 0.0075 $ 0.025 $ 0.0225
======== ======== ========== =========
COMPREHENSIVE INCOME:
NET EARNINGS $ 38,109 $ 20,814 $ 96,735 $ 54,996
OTHER COMPREHENSIVE INCOME (LOSS),
net of tax(1)
Unrealized gains (losses) on marketable
securities, net (9,194) - 13,717 -
Reversal of unrealized gains on marketable
securities sold - - (6,238) -
Minimum retirement plan minimum liability
adjustment - - (828) -
Foreign currency translation adjustments (488) (731) (1,395) 345
-------- -------- ---------- ---------
COMPREHENSIVE INCOME $ 28,427 $ 20,083 $ 101,991 $ 55,341
======== ======== ========== =========
</TABLE>
(1) Assumed 38% and 40% tax rate in fiscal 2000 and fiscal 1999, respectively.
SEE ACCOMPANYING NOTES
2 of 10
<PAGE>
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
In Thousands
----------------------
March 31, July 2,
2000 1999
--------- ----------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $364,182 $300,454
Short-term investments 37,244 -
Marketable securities - 2,438
Receivables, less allowance for doubtful
accounts of $5,056,000 at March 31, 2000
and $8,160,000 at July 2, 1999 312,039 290,274
Inventories 243,539 189,354
Deferred income taxes 41,103 37,130
Other current assets 15,668 11,811
---------- ----------
TOTAL CURRENT ASSETS 1,013,775 831,461
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and improvements 21,161 21,161
Buildings and improvements 35,614 31,802
Machinery and equipment 220,185 197,326
---------- ----------
276,960 250,289
Less - Accumulated depreciation and amortization 100,745 92,751
---------- ----------
176,215 157,538
---------- ----------
COST IN EXCESS OF NET ASSETS ACQUIRED 7,634 7,900
---------- ----------
NON-CURRENT MARKETABLE SECURITIES 31,614 18,783
---------- ----------
INVESTMENTS 21,266 6,027
---------- ----------
OTHER ASSETS 40,827 40,565
---------- ----------
TOTAL ASSETS $1,291,331 $1,062,274
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 400 $ 416
Accounts payable 173,366 137,146
Accrued liabilities 120,475 125,038
Income taxes currently payable - 5,211
---------- ----------
TOTAL CURRENT LIABILITIES 294,241 267,811
---------- ----------
LONG-TERM DEBT, less current maturities 147 370
---------- ----------
OTHER LIABILITIES 71,580 55,927
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, authorized 50,000,000 shares;
no shares issued - -
Common stock, $0.50 par value per share, authorized
350,000,000 shares; issued 159,397,664 shares at
March 31, 2000 and 79,616,712 at July 2, 1999 79,699 39,808
Additional paid-in capital 286,720 226,390
Retained earnings 550,361 497,403
Accumulated other comprehensive income, net of taxes of
$7,744,000 at March 31, 2000 and $4,921,000 at July 2, 1999 12,635 7,379
---------- ----------
929,415 770,980
Less - Treasury stock, at cost (244,300 shares at March 31, 2000 and
2,269,646 shares at July 2, 1999) 4,052 32,814
---------- ----------
925,363 738,166
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,291,331 $1,062,274
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE>
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
March 31, April 2,
2000 1999
--------- ---------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 84,128 $ 14,800
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (52,877) (41,360)
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 185 298
-------- --------
Net cash provided (used) by investing activities (61,511) 23,388
-------- --------
FINANCING ACTIVITIES:
Principal payments on long-term debt (239) (653)
Dividends paid (3,946) (3,460)
Issuance of common stock 45,296 30,384
Treasury shares acquired - (65,228)
------- --------
Net cash provided (used) by financing activities 41,111 (38,957)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 63,728 (769)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 300,454 175,392
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $364,182 $174,623
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 349 $ 678
======== ========
Income taxes paid, net $ 16,057 $ 22,642
======== ========
</TABLE>
SEE ACCOMPANYING NOTES
4 of 10
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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 nine months ended April 2,
1999 included forty weeks.
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.
D. Inventories consist of the following: March 31, July 2,
2000 1999
--------- --------
Raw materials and work-in-process $187,851 $129,911
Finished goods 55,688 59,443
-------- --------
Total inventory $243,539 $189,354
======== ========
E. In February 2000, the company declared a 2-for-1 stock split effected in the
form of a 100 percent stock dividend which was paid on March 27, 2000, to
shareholders of record on March 10, 2000. The stock split has been accounted
for by a transfer from retained earnings to common stock in the amount of
the par value of the additional stock issued. All per share amounts and
options have been restated to reflect the stock split.
In March 2000, the company announced that it had adopted a stock buyback
program for the purchase of up to 8,000,000 shares of its common stock. The
company plans to use the shares repurchased for issuance under the company's
employee stock option plans and other benefit plans. As of March 31, 2000,
no shares had been purchased under this program.
F. During the nine months ended March 31, 2000, the company acquired 70,510
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
nine months ended April 2, 1999, the company acquired 4,648,000 shares of
its common stock pursuant to a stock buyback program 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 and other benefit plans.
G. Other (income) expense of $3,476 in the quarter ended March 31, 2000
included expenses of $10,338 related to contractual obligations to minority
shareholders of a majority-owned subsidiary, $1,548 of discounts taken by
customers and losses of $1,544 from the disposal of fixed assets. Other
(income) expense also included gains of $4,000 and $1,531 from the reduction
of reserves related to the sale of two business units, Control Systems and
Interdiction. During the quarter, the company determined that its exposure
for indemnifications to the purchasers of these business units and other
miscellaneous expenses related to the dispositions were less than the
company had previously estimated and, accordingly, reduced the reserves. At
March 31, 2000, the company had reserves of approximately $2,400 related to
the disposition of these two business units. The company also reversed
approximately $4,500 of a $5,500 charge recorded in fiscal 1998 for expenses
and the potential settlement of environmental issues. As this environmental
matter has progressed, the company has determined that its potential
exposure is less than initially anticipated. At March 31, 2000, the company
had $1,000 remaining in the reserve for expenses and the potential
settlement of environmental issues. Resolution of the remaining issues
related to the reserves for businesses sold and environmental issues may
require future cash outlays; however, the company believes these outlays
will not be significant.
In addition to the items discussed in the preceding paragraph, 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 during the nine months
ended March 31, 2000. The company also recorded a $5,780 gain from the
divestiture of a portion of the company's investment in WorldGate
Communications, Inc. (WorldGate) during the nine months ended March 31,
2000. Other miscellaneous gains and losses for the three and nine months
ended March 31, 2000 were not significant.
Other (income) expense for the quarter ended April 2, 1999 included a gain
of $1,375 from the adjustment of the company's investment in Broadcom Corp
(Broadcom) to market value.
5 of 10
<PAGE>
NOTES: (continued):
(Amounts in thousands, except share data).
Other (income) expense for the nine months ended April 2, 1999 included a
$39,750 gain from the adjustment of the company's investment in 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 nine months ended April 2, 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.
H. During the nine months ended March 31, 2000, 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.
I. Information on the segments of the company and reconciliations to
consolidated amounts are as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 2000 April 2, 1999
------------------------------------------------- -------------------------------------------
Corporate Corporate
and and
Broadband Satellite Other Total Broadband Satellite Other Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $395,676 $44,898 $ 157 $440,731 $270,783 $45,831 $3,405 $320,019
Earnings (loss)
before taxes $42,114/(1)/ $ (302) $12,629/(2)/ $ 54,441 $ 26,415 $ (449) $3,768/(3)/ $ 29,734
</TABLE>
(1) Includes expenses of $10,338 related to contractual obligations to minority
shareholders of a majority-owned subsidiary.
(2) Includes $5,531 from the reduction of reserves related to businesses sold
and $4,500 from the reduction of a reserve for expenses and potential
settlement of environmental issues. (See Note G.) Corporate and Other
also includes interest income of $5,328.
(3) Includes a gain of $1,375 from the adjustment of the company's investment
in Broadcom to market value and interest income of $1,702.
<TABLE>
<CAPTION>
Nine Months Ended
------------------
March 31, 2000 April 2, 1999
----------------------------------------------------- -----------------------------------------------
Corporate Corporate
and and
Broadband Satellite Other Total Broadband Satellite Other Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $1,027,992 $133,626 $ 1,153 $1,162,771 $740,197 $140,065 $ 7,982 $888,244
Earnings (loss)
before taxes $ 116,124/(1)/ $ (1,789) $23,858/(2)/ $ 138,193 $ 58,562 $(14,662) $34,666/(3)/ $ 78,566
</TABLE>
(1) Includes expenses of $10,338 related to contractual obligations to
minority shareholders of a majority-owned subsidiary.
(2) In addition to the items discussed in footnote (2) for the three months
ended March 31, 2000, includes a $5,780 gain from the divestiture of a
portion of the company's investment in WorldGate and a $1,500 gain from the
sale of certain assets of Control Systems business unit. (See Note G.)
Corporate and Other also includes interest income of $13,078.
(3) Includes $39,750 gain from the adjustment of the company's investment in
Broadcom to market value, a $10,880 loss on sale of one million shares of
the company's investment in Broadcom, a gain from the cancellation of a loss
contract and a charge of $6,225 related to the company's decision to dispose
of the Control Systems business unit. (See Note G.) Corporate and Other also
includes interest income of $5,641.
J. In April 2000, the company completed the previously announced sale of
certain assets of the Satellite Networks business unit to ViaSat Inc. The
company does not expect the transaction to have a material impact on the
company's results of operations or financial position.
6 of 10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
Scientific-Atlanta had stockholders' equity of $925.4 million and cash on
hand was $364.2 million at March 31, 2000. Cash increased $63.7 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 3.4:1 at March 31, 2000, up from
3.1:1 at July 2, 1999. At March 31, 2000, total debt was $0.5 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 March 31, 2000 were $440.7 million, up 38
percent over the prior year. Broadband segment sales for the quarter were $395.7
million, up 46 percent over the prior year, driven by the rapid acceleration in
the deployment of digital interactive systems and strong demand for the Explorer
2000 digital interactive set-tops. The company shipped approximately 512,000
Explorer digital interactive set-tops during the quarter as compared to
approximately 151,000 in the prior year. Sales of transmission products also
increased significantly in the quarter with strong growth across all product
areas. Sales of RF (radio frequency) and opto-electronic products increased 75
percent and 73 percent, respectively, year-over-year. As anticipated and
previously announced, sales of analog set-tops continued to decline as cable
operators shift 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 $44.9 million for the quarter ended March 31,
2000, down 2 percent as compared to the prior year. In the quarter ended March
31, 2000, international sales were 20 percent of total sales, as compared to 22
percent of total sales last year.
Sales for the nine months ended March 31, 2000 were $1,162.8 million, up 31
percent over the prior year. Broadband segment sales for the nine months ended
March 31, 2000 were $1,028.0 million, up 39 percent over the prior year. Sales
of transmission products led the year-over-year increase with growth of 65
percent and 50 percent in sales of opto-electronic and RF products,
respectively. The continued rapid acceleration in the deployment of digital
interactive systems and strong demand for the Explorer 2000 set-tops also
contributed to the year-over-year growth. The company shipped over one million
Explorer set-tops during the nine months ended March 31, 2000 as compared to
slightly more than 300,000 digital set-tops in the prior year. Satellite segment
sales for the nine months ended March 31, 2000 were $133.6 million, down 5
percent from the prior year. International sales for the nine months ended March
31, 2000 were 22 percent of total sales, approximately the same as the prior
year.
In April 2000, the company completed the previously announced sale of
certain assets of the Satellite Networks business unit to ViaSat Inc. The
company does not expect the transaction to have a material impact on the
company's results of operations or financial position. Sales of Satellite
Networks business unit were approximately 5 percent of total sales in both the
three and nine months ended March 31, 2000.
Gross margins were 29.5 percent and 29.2 percent for the three and nine
months ended March 31, 2000, 0.9 percentage points and 1.1 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.
Research and development costs were $32.2 million and $90.1 million for the
three and nine months ended March 31, 2000, respectively, or approximately 7
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.
Selling and administrative expenses increased 20 percent and 6 percent for
the three and nine months periods ended March 31, 2000, respectively, over the
prior year. Increases in expenses related to the high volume of sales and
professional fees more than offset cost reductions from the restructuring of the
Satellite segment.
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<PAGE>
The restructuring plan announced during fiscal 1998 was substantially
completed during fiscal 1999. During the nine months ended March 31, 2000, $0.3
million was charged against the liability for contractual liabilities for
cancelled leases and $1.4 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 of $3.5 million in the quarter ended March 31, 2000
included expenses of $10.3 million related to contractual obligations to
minority shareholders of a majority-owned subsidiary, $1.5 million of discounts
taken by customers and losses of $1.5 million from the disposal of fixed assets.
Other (income) expense also included gains of $4.0 million and $1.5 million from
the reduction of reserves related to the sale of two business units, Control
Systems and Interdiction. During the quarter, the company determined that its
exposure for indemnifications to the purchasers of these business units and
other miscellaneous expenses related to the dispositions were less than the
company had previously estimated and, accordingly, reduced the reserves. At
March 31, 2000, the company had reserves of approximately $2.4 million related
to the disposition of these two business units. The company also reversed
approximately $4.5 million of a $5.5 million charge recorded in fiscal 1998 for
expenses and the potential settlement of environmental issues. As this
environmental matter has progressed, the company has determined that its
potential exposure is less than initially anticipated. At March 31, 2000, the
company had $1.0 million remaining in the reserve for expenses and the potential
settlement of environmental issues. Resolution of the remaining issues related
to the reserves for businesses sold and environmental issues may require future
cash outlays; however, the company believes these outlays will not be
significant.
In addition to the items discussed in the preceding paragraph, the company
completed the sale of certain assets of its Control Systems business unit for
$3.3 million of cash and recorded a gain of $1.5 million during the nine months
ended March 31, 2000. The company also recorded a $5.8 million gain from the
divesture of a portion of the company's investment in WorldGate during the nine
months ended March 31, 2000. Other miscellaneous gains and losses for the three
and nine months ended March 31, 2000 were not significant.
Other (income) expense for the quarter ended April 2, 1999 included a gain
of $1.4 million from the adjustment of the company's investment in Broadcom Corp
(Broadcom) to market value.
Other (income) expense for the nine months ended April 2, 1999 included a
$39.8 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 $6.3 million from the
cancellation of a loss contract. In addition, during the nine months ended
April 2, 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.
Earnings before taxes were $54.4 million and $138.2 million in the three
and nine months ended March 31, 2000, up $24.7 million and $59.6 million,
respectively, over the comparable periods of the prior year. Earnings before
income taxes in the Broadband segment were $42.1 million and $116.1 million,
respectively, in the three and nine months ended March 31, 2000, a $15.7 million
and $57.6 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 $0.4 million to $0.3 million in the three
months ended March 31, 2000 and from $14.7 million to $1.8 million in the nine
months ended March 31, 2000 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
nine months ended March 31, 2000, unchanged from the prior year. The company
expects its effective tax rate to increase in fiscal 2001.
Net earnings for the quarter ended March 31, 2000 were $38.1 million
compared to $20.8 million in the prior year. Higher sales volume and higher
gross margins as a percent of sales contributed to the year-over-year
improvement in net earnings. Net earnings for the nine months ended March 31,
2000 were $96.7 million compared to $55.0 million in the prior year.
Explorer is a registered trademark for Scientific-Atlanta.
8 of 10
<PAGE>
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 December 29, 2000 are as follows:
Canadian Japanese Spanish
Dollar Yen Pesetas
------------- ------------ -------------
(In thousands, except per dollar amounts)
Firmly committed purchase (sales)
contracts 9,500 22,457 (105,000)
Notional amount of forward
exchange contracts 9,115 - (105,000)
Average contract amount
(Foreign currency/
United States dollar) 1.45 - 123.31
The company has no derivative exposure beyond December 29, 2000.
9 of 10
<PAGE>
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
- ---------------------------------------
(a) Exhibits.
Exhibit No. Description
----------- -----------
10 Scientific-Atlanta, Inc. Supplemental Executive
Retirement Plan
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 March 31,
2000.
Date: May 12, 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>
Exhibit 10
SCIENTIFIC-ATLANTA, INC.
SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN
Amended and Restated on February 19, 2000
<PAGE>
SCIENTIFIC-ATLANTA, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PREAMBLE
--------
This Scientific-Atlanta, Inc. Supplemental Executive Retirement Plan is
designed to provide supplemental retirement benefits to certain key executive
employees of Scientific-Atlanta, Inc. and its subsidiaries (the "Company").
This Plan is not intended to qualify under Section 401(a) of the Internal
Revenue Code, but is an unfunded plan maintained primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees. The Plan constitutes an unfunded, unsecured contractual
obligation of the Company to pay certain retirement benefits to Participants out
of the general assets of the Company.
ARTICLE I
DEFINITIONS
For purposes of this Plan, each term defined below, when capitalized, shall
have the meaning specified below:
1.1 "Accrue" shall mean the rate at which the benefits under this Plan are
credited to a Participant. Benefits which Accrue under this Plan do not Vest in
the employee except as provided in Section 3.3 and Articles VII and VIII hereof.
1.2 "Accrued Benefit" shall mean that percentage of a Participant's Final
Average Earnings which has Accrued pursuant to Section 3 hereof, as determined
from time to time. Accrued Benefits are not earned by or payable to a
Participant unless such Benefits have Vested as provided in Section 3.3 and
Articles VII and VIII hereof.
1.3 "Cause" shall have the meaning set forth in Section 1.17.
1.4 "Change in Control" shall have the meaning set forth in Section 8.4
hereof.
1.5 "Committee" shall mean the Human Resources and Compensation Committee
of the Board of Directors of Scientific-Atlanta, Inc.
1.6 "Company" shall mean Scientific-Atlanta, Inc. and any of its majority-
owned subsidiaries.
1.7 "Compensation" shall mean a Participant's base salary and any bonus
payments received by the Participant pursuant to the Scientific-Atlanta, Inc.
Annual Incentive Plan and the Senior Officer Annual Incentive Plan.
Compensation shall include any amounts deferred under the Scientific-Atlanta,
Inc. Executive Deferred Compensation Plan. The year that such deferred
1
<PAGE>
amounts will be included in compensation for purposes of this Plan will be the
year in which the amount would have been paid but for the deferral election.
1.8 "Continuous Service" shall mean the period of time during which a
Participant is continuously employed by the Company. A Participant shall be
credited with a month of Continuous Service if he or she is employed by the
Company on any day during a calendar month. In addition, if an employee is re-
employed by the Company after a break in service, the employee's prior service
shall be treated as Continuous Service if the break in service was less than
twelve (12) months or if service prior to the break was of a longer duration
than the break in service.
1.9 "Early Retirement Date" shall mean either (a) the first day of the
calendar month in which a Participant is at least fifty-five (55) years of age
and has completed ten (10) years of Continuous Service, or (b) the first day of
the calendar month in which the Participant is at least sixty (60) years of age,
regardless of years of service.
1.10 "Eligible Employee" shall have the meaning set forth in Section 2.1
1.11 (a) "Final Average Earnings" shall mean the average annual
Compensation of a Participant for each of the three (3) calendar years in which
such Compensation was the highest during each of the ten (10) calendar years
preceding and including the calendar year in which the date of the Participant's
retirement, death or termination of employment occurs.
(b) If a Change of Control occurs (as defined in Article VIII), the
following special rules shall apply to the calculation of "Final Average
Earnings," but only if using these special rules results in a benefit to the
Participant which is greater than the benefit calculated using the regular
calculation set forth in 1.11(a) above.
(i) Annual Compensation for any calendar year during which the
Participant was employed for less than the full calendar year shall be the
greater of:
(A) the Participant's actual Compensation (as determined under
Section 1.7) for such partial calendar year of employment, or
(B) the Participant's annualized base salary and target incentive
compensation, as determined by the Company, that is in effect during such
partial calendar year of employment.
(ii) For a Participant who has been re-employed for less than
three (3) full calendar years after a break in service, Compensation shall be
computed using the annual Compensation for only the full calendar years and
partial calendar years (calculated in accordance with subsection (a) above)
since re-employment, unless inclusion of Compensation for one or more full or
partial calendar years from the period of prior employment that fall within the
ten (10) calendar years preceding and including the calendar year in which the
date of the Participant's retirement, death or termination of employment occurs
would result in a higher Final Average Earnings.
2
<PAGE>
1.12 "Normal Retirement Date" shall mean the first day of the calendar
month in which a Participant is at least sixty-five (65) years of age and has
completed ten (10) years of Continuous Service.
1.13 "Participant" shall mean any Eligible Employee selected to
participate in the Plan pursuant to Section 2.2 hereof.
1.14 "Plan" shall mean the Scientific-Atlanta, Inc. Supplemental Executive
Retirement Plan, as it may be amended from time to time.
1.15 "Reduced Retirement Benefit" shall have the meaning set forth in
Section 4.2.
1.16 "Reduced Service Period" shall mean, in the case of a Participant who
is first employed by the Company after the first day of the month in which the
Participant attains forty-five (45) years of age, the period between the first
day of the calendar month during which the Participant's employment commences
and the first day of the calendar month during which the Participant would
attain age sixty-five (65), provided, however, that if the Participant is fifty-
-------- -------
five years of age or older at the date of his employment, the Reduced Service
Period shall mean the ten (10) year period commencing on the first day of the
calendar month during which the Participant's employment commences.
1.17 "retire" or "retirement" shall include any voluntary termination of
the Participant's employment by the Participant or any involuntary termination
of the Participant's employment by the Company without "Cause." For purposes of
this Plan, a termination for "Cause" is a termination evidenced by a resolution
adopted in good faith by two-thirds (2/3) of the Board of Directors of the
Company that the Participant (i) has been convicted of a felony, or (ii) has
engaged in conduct which constitutes (A) willful neglect in carrying out his
duties to the Company or (B) willful misconduct, in either case which is
demonstrably and materially injurious to the Company, monetarily or otherwise;
provided, however, that no termination of the Participant's employment shall be
for Cause as set forth in clause (ii) above until (x) there shall have been
delivered to the Participant a copy of the written notice setting forth that the
Participant was guilty of the conduct set forth in clause (ii) and specifying
the particulars thereof in detail, and (y) the Participant shall have been
provided an opportunity to be heard by the Board (with the assistance of the
Participant's counsel if the Participant so desires). No act, or failure to
act, on the Participant's part shall be considered "willful" unless he has
acted, or failed to act, with an absence of good faith and without a reasonable
belief that this action or failure to act was in the best interest of the
Company. Notwithstanding anything contained in this Plan to the contrary, no
benefits shall be paid under this Plan to any Participant when such
Participant's employment is terminated by the Company for Cause.
1.18 "Vest" shall mean that the benefits Accrued under this Plan for a
Participant are payable to the Participant at the times and in the amounts
provided for herein. Benefits under this Plan Vest only as provided in Section
3.3 and Articles VII and VIII hereof.
ARTICLE II
3
<PAGE>
PARTICIPATION
2.1 Eligible Employees.
------------------
The class of eligible employees from which Participants may be
selected is limited to officers, both elected and appointed, and other key
executives of the Company ("Eligible Employees").
2.2 Selection of Participants.
-------------------------
From time to time, the Committee shall select from among the class of
Eligible Employees one or more individuals for admission to the Plan. The
Committee's determinations shall be made in its sole discretion and shall be
conclusive and binding on all persons. The Committee shall notify in writing
each Participant of his or her selection as a Participant.
ARTICLE III
BENEFIT ACCRUALS AND VESTING
3.1 General.
-------
Except as provided in Sections 3.2 and 4.2 hereof, benefits shall
Accrue under this Plan at an annual rate of three and one-half percent (3 1/2%)
of Final Average Earnings for each of the Participant's first ten (10) years (or
partial years computed on a monthly basis (expressed in decimal form)) of
Continuous Service and at an annual rate of one and one-half percent (1 1/2%)
of Final Average Earnings for each of the next ten (10) years (or partial years
computed on a monthly basis (expressed in decimal form)) of Continuous Service.
The maximum Accrued Benefit to which a Participant may be entitled under the
Plan shall be equal to fifty percent (50%) of the Participant's Final Average
Earnings.
3.2 Reduced Service Period.
----------------------
In the event a Participant is first employed by the Company after the
first day of the month in which the Participant attains the age of forty-five
(45) years, benefits shall Accrue under this Plan over the Participant's Reduced
Service Period as follows:
(a) For each full or partial year of Continuous Service during the
first half of the Reduced Service Period, benefits shall Accrue under this Plan
at an annual rate determined by dividing thirty-five percent (35%) of Final
Average Earnings by one-half (1/2) of the number of years (including any
partial year computed on a monthly basis (expressed in decimal form)) contained
in the Reduced Service Period; and
(b) For each full or partial year of Continuous Service during the
second half of the Reduced Service Period, benefits shall Accrue under this Plan
at an annual rate determined by dividing fifteen percent (15%) of Final Average
Earnings by one-half (1/2) of the number of
4
<PAGE>
years (including any partial year computed on a monthly basis (expressed in
decimal form)) contained in the Reduced Service Period.
3.3 Vesting.
-------
A Participant shall Vest in his or her Accrued Benefit hereunder on
the earlier of the completion of ten (10) years of Continuous Service or the
attainment of age sixty (60), regardless of service, provided, however, that an
Eligible Employee who is selected by the Committee to be a Participant in the
Plan on or after August 1, 1999, and who has been re-employed after having a
break in service, shall not Vest in his or her Accrued Benefit if he or she
either voluntarily terminates employment or is involuntarily terminated for
Cause within three (3) years after being re-employed, unless such Participant
has attained age sixty (60) prior to voluntary termination. Notwithstanding the
foregoing, nothing in this Article 3.3 shall override or supercede the vesting
provisions set forth in Articles VII and VIII hereof. Also notwithstanding the
foregoing, a Participant who (a) terminates employment with the Company prior to
completing ten (10) years of Continuous Service and (b) has not vested in any of
his or her Accrued Benefit as a result of a Change in Control, shall be vested
in an amount equal to the benefit he or she would be entitled to receive if he
or she had participated in the Scientific-Atlanta, Inc. Restoration Retirement
Plan during the period he or she was a Participant in this Plan.
ARTICLE IV
RETIREMENT BENEFITS
4.1 Normal Retirement.
------------------
A Participant who retires from the Company on or after his or her
Normal Retirement Date shall be entitled to receive an annual retirement benefit
(the "Normal Retirement Benefit") for life, equal to the excess of:
(a) the Participant's Accrued Benefits determined under Sections 3.1
or 3.2 hereof; over
(b) the sum of:
(i) the annual retirement benefits payable to the Participant as a
life annuity pursuant to the defined benefit retirement plan of the Company (as
such plan might be amended, supplemented or superseded from time to time) which
is the actuarial equivalent (as defined in Section 5.3) of such Participant's
Pension Equity Account as defined in such plan;
(ii) the annual retirement benefits payable to the Participant
pursuant to any employer-funded defined benefit plan maintained by a prior
employer of the Participant, assuming that such benefits are payable in the form
of a single life annuity for the life of the Participant; and
5
<PAGE>
(iii) the Participant's annual primary insurance amount under the
Federal Social Security Act as in effect on the Participant's Normal Retirement
Date or, if applicable, his date of death. In determining such amount under
Section 4.2 below for a Participant who severs from service prior to his Normal
Retirement Date, it shall be assumed that the Participant will continue to
receive, until his Normal Retirement Date, annual compensation (which would be
treated as wages for purposes of the Federal Social Security Act) at the same
rate which is in effect immediately prior to his termination of employment.
4.2 Early Retirement.
----------------
(a) A Participant who retires from the Company on or after his or her
Early Retirement Date but prior to his or her Normal Retirement Date shall be
entitled to receive his or her Normal Retirement Benefit commencing on the date
of his or her retirement; provided, however, that such date of commencement may,
at the election of the Participant pursuant to Section 4.3 (or, if the
Participant has not made an election, at the election of the Committee), be
deferred to the date that the Participant attains age sixty (60). If the
Participant retires prior to age sixty (60) and begins to receive benefits under
this Plan prior to age sixty (60), such Participant shall be entitled to receive
only a Reduced Retirement Benefit (determined as hereinafter provided)
commencing at his or her date of retirement. "Reduced Retirement Benefit" shall
mean the amount equal to that percentage of the Participant's Normal Retirement
Benefit determined by subtracting from one hundred percent (100%) the aggregate
of 6.67% for each year (prorated over any partial year based on completed months
of service) between the Participant's retirement date and the date on which the
Participant would reach age sixty (60). If a Participant retires prior to age
sixty (60) but does not begin receiving benefits under this Plan until he or she
is at least age sixty (60), there shall be no reduction in the Participant's
Normal Retirement Benefit. For purposes of determining the amount of the Normal
Retirement Benefit or the Reduced Retirement Benefit, as the case may be, for a
Participant who retires after August 1, 1996, and prior to age sixty-five (65),
each of the offset amounts under paragraphs (i), (ii) and (iii) of Section
4.1(b) shall be calculated by: (i) determining the value of the projected amount
such Participant would receive if he or she began receiving the benefits
described in such paragraphs beginning on the earliest date such benefits become
payable and (ii) converting this amount to an actuarially equivalent (determined
in accordance with Section 5.3) single life annuity beginning on the date such
Participant begins receiving benefits under this Plan.
(b) If a Participant retires prior to his or her Early Retirement
Date, the Participant shall be entitled to receive any of his or her Normal
Retirement Benefit which is then Vested. Such Normal Retirement Benefit shall
be payable, at the election of the Participant pursuant to Section 4.3 (or, if
the Participant has not made an election, at the election of the Committee), as
follows: (1) beginning at the time the Participant becomes age fifty-five (55)
(or at Participant's current age if he is age fifty-five (55) or older), with a
Reduced Retirement Benefit determined as provided in subparagraph (a) above, or
(2) beginning at the time the Participant becomes age sixty (60), with no
reduction in the Normal Retirement Benefit, or (3) if Participant is under
fifty-five (55) years of age when he or she retires, as a single lump sum
payment at the time of retirement equal to the present value of his or her
Normal Retirement Benefit, determined using the actuarial equivalent, as defined
in Section 5.3.
6
<PAGE>
4.3 Elections Related to Early Retirement.
-------------------------------------
For a Participant retiring after his Early Retirement Date but prior to
his Normal Retirement Date pursuant to Section 4.2(a), he may elect, by a
written election delivered to the Corporate Secretary of the Company at least
thirty (30) days prior to his retirement, whether he wishes to receive: (1) a
Reduced Retirement Benefit which will begin being paid immediately pursuant to
the payment terms of Article V (not applicable if Participant is age sixty (60)
or older), or (2) a Normal Retirement Benefit that will not begin being paid
until age sixty (60) (or his current age if he is age sixty (60) or older). For
a Participant retiring prior to his Early Retirement Date pursuant to Section
4.2(b), he may elect, by a written election delivered to the Corporate Secretary
of the Company at least thirty (30) days prior to his retirement, whether he
wishes to receive: (1) a Reduced Retirement Benefit which will become payable,
per the payment terms of Article V, at age fifty-five (55) (or his current age
if he is age fifty-five (55) or older), or (2) a Normal Retirement Benefit which
will become payable, per the payment terms of Article V, at age sixty (60), or
(3) if a Participant is under age fifty-five (55), the actuarial equivalent,
determined in accordance with Section 5.3, of his Normal Retirement Benefit,
paid as a lump sum payment. For each Participant electing either option (1) or
option (2) above, such Participant may elect an optional form of payment under
the terms of Section 5.4.
ARTICLE V
FORM OF PAYMENT
5.1 Normal Form of Payment.
----------------------
Unless an optional form of payment is elected by the Participant in
accordance with Section 5.4 (or by the Committee in accordance with Section 4.2
or Section 5.2 hereof), all retirement benefits payable pursuant to this Plan
will be paid in the form of a single life annuity, payable monthly, for the life
of the Participant. Except as otherwise provided in this Plan, the first
monthly payment shall be made on the first day of the calendar month following
the Participant's retirement date.
5.2 Other Forms of Payment.
----------------------
Each Participant may elect, pursuant to Section 5.4, to receive
payment of his retirement benefits via one of the following optional forms of
payment, rather than via the form of payment described in Section 5.1:
(a) A one hundred percent (100%) joint and survivor annuity, pursuant
to which an annuity is payable for the life of the Participant with a survivor's
annuity for the life of the Participant's spouse, which annuity is equal to one
hundred percent (100%) of the amount of the annuity payable during the joint
lives of the Participant and his or her spouse.
(b) A fifty percent (50%) joint and survivor annuity, pursuant to
which an annuity is payable for the life of the Participant with a survivor's
annuity for the life of the
7
<PAGE>
Participant's spouse, which annuity is equal to fifty percent (50%) of the
amount of the annuity payable during the joint lives of the Participant and his
or her spouse.
(c) A ten (10) year certain installment payment, pursuant to which a
fixed monthly benefit is payable to the Participant for the lesser of ten (10)
years or the life of the Participant, with the continuation of the same benefit
to the Participant's designated beneficiary for any remaining portion of the ten
(10) year certain period if the Participant dies prior to the end of such
period.
(d) A five (5) year certain installment payment, pursuant to which a
fixed monthly benefit is payable to the Participant for the lesser of five (5)
years or the life of the Participant, with the continuation of the same benefit
to the Participant's designated beneficiary for any remaining portion of the
five (5) year certain period if the Participant dies prior to the end of such
period.
(e) A single lump sum payment.
If a Participant does not make a timely election to receive payment of
his retirement benefits via one of the optional forms of payment described in
Subsections (a) through (e) above, the Committee may elect one of the above-
described optional forms of payment for such Participant, but only with his
written consent.
5.3 Actuarial Equivalent.
--------------------
Any optional form of payment described in Section 5.2 shall be the
actuarial equivalent of the normal form of payment specified in Section 5.1
hereof. All determinations of actuarial equivalency will be based on the 1983
Unloaded Group Annuity Mortality Table weighted fifty percent (50%) male and an
interest rate of eight percent (8.0%). The lump sum amount will equal the
present value of future payments under this Plan, assuming payment of benefits
commenced immediately (or age fifty-five (55) for a Vested termination on or
before the Participant's 55th birthday).
5.4 Election of Form of Payment.
---------------------------
If a Participant does not make a written election to the contrary at
least thirty (30) days prior to his retirement, such Participant's retirement
benefits under this Plan shall be payable in the form of a single life annuity,
paid pursuant to the terms of Section 5.1, unless the Committee (with the
consent of such Participant) elects to pay the retirement benefits pursuant to
one of the other forms of payment set forth in Section 5.2. If a Participant
makes a written election at least thirty (30) days prior to his retirement, he
may elect one of the forms of payment described in Sections 5.2(a) through
5.2(e), and the Committee must comply with such payment election. Participant
may modify his election at any time by making another written election, provided
such written election is received by the Company's Corporate Secretary at least
thirty (30) days prior to his retirement. For a written election to be validly
made, Participant must deliver such a written election to the Corporate
Secretary of the Company and such election shall be deemed made on the date on
which the Corporate Secretary receives it.
8
<PAGE>
ARTICLE VI
SPOUSAL BENEFIT
In the event a Participant who is Vested shall die while actively employed,
or after his or her Early Retirement Date but prior to the commencement of
payment of retirement benefits, the Participant shall be deemed to have retired
for purposes of this Plan on the later of (i) the day immediately preceding his
or her death, or (ii) the first day of the first calendar month thereafter in
which the Participant would have attained age fifty-five (55), and the
Participant's surviving spouse, if any, shall be entitled to a benefit equal to
fifty percent (50%) of the retirement benefit the Participant would have
received if he or she had actually retired on such deemed retirement date. Such
benefit shall be payable in the form of a single life annuity for the life of
the surviving spouse.
ARTICLE VII
DISABILITY
In the event a Participant becomes disabled and is eligible for benefits
under the Scientific-Atlanta, Inc. Long Term Disability Plan, such Participant
shall continue to receive credit, for Vesting purposes only, toward the
Participant's years of Continuous Service during the period of such disability.
ARTICLE VIII
CHANGE IN CONTROL
8.1 Immediate Vesting and Continued Vesting.
---------------------------------------
In the event of a Change in Control of the Company, a Participant
shall be immediately Vested in his Accrued Benefits hereunder as of the date of
such Change in Control. Participant also shall be automatically vested in any
Accrued Benefits that are accrued after a Change in Control, regardless of the
terms of Section 3.3.
9
<PAGE>
8.2 Termination Following Change in Control.
---------------------------------------
If a Participant's employment with the Company is terminated by the
Company or by the Participant following a Change in Control for any reason other
than Cause, the Participant shall receive retirement benefits in accordance with
the terms of Articles III, IV and V of this Plan.
8.3 Continuation of the Plan
------------------------
For a period of two (2) years following a Change in Control, the Plan
shall not be terminated or amended in any way nor shall the manner in which the
Plan is administered be changed in a way that adversely affects the level of
retirement benefits received by a Participant under the Plan.
8.4 Definition of Change in Control.
-------------------------------
For purposes of this Plan, a Change in Control shall mean any of the
following events:
(a) 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 8.4, 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
(b) 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
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
(c) Approval by stockholders of the Company of (i) a merger or
consolidation
10
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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 eight 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.
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 acquisition, by reducing the number of Voting Securities outstanding,
increases the proportional number of shares Beneficially Owned by the Subject
Person, provided that if, after a Change in Control would occur (but for the
operation of this sentence) as a result of such 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.
ARTICLE IX
PLAN ADMINISTRATION
9.1 Committee.
---------
This Plan and all matters related to it shall be administered by the
Committee. The 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
Committee shall be conclusive and binding on all persons.
9.2 Claim Procedures.
----------------
Any Participant claiming a benefit, or requesting an interpretation,
any information, or a ruling under this Plan, shall present the request, in
writing, to the Committee, which shall respond in writing within thirty (30)
days from the date on which it receives the claim or request.
11
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ARTICLE X
MISCELLANEOUS
10.1 Termination or Amendment of the Plan.
------------------------------------
Except as provided in Section 8.3 hereof, the Committee may, at any
time and from time to time, modify, amend, suspend or terminate the Plan in any
respect; provided, however, that any modification, amendment, suspension, or
termination of the Plan shall not reduce or otherwise adversely affect any
Participant's Vested rights under any terms, provisions or conditions of the
Plan on the date of any modification, amendment, suspension or termination,
without the consent of the Participant.
10.2 Non-Assignability.
-----------------
No benefit payable pursuant to this Plan, nor any other right 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.
10.3 No Right to Employment.
----------------------
Nothing in the Plan shall confer upon any Participant the right to
continue in the employment of the Company nor does participating in the Plan
obligate the Participant to continue in the employ of the Company.
10.4 Effective Date.
--------------
The Plan became effective on June 21, 1993, and Participants may be
designated at any time on and after that date.
10.5 Governing Law.
-------------
This Plan is made in accordance with and shall be governed in all
respects by the laws of the state of Georgia, to the extent not preempted by
federal law.
12
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The Company has caused the following officers to execute this Plan to
evidence that this Plan, as amended and restated by the Board on February 19,
2000, accurately reflects the Plan approved by the Board.
Scientific-Atlanta, Inc.
By: /s/ Brian C. Koenig
------------------------
Brian C. Koenig
Senior Vice President-
Human Resources
By: /s/ William E. Eason, Jr.
--------------------------
William E. Eason, Jr.
Senior Vice President,
General Counsel &
Corporate Secretary
13
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Exhibit 11
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000 Three Months Ended April 2, 1999
------------------------------------------- -------------------------------------------
Net Per Share Net Per Share
Earnings Shares Amount Earnings Shares Amount
-------------- ------ ------------- ------------- ------------- ------------
Basic earnings per common share:
<S> <C> <C> <C> <C> <C> <C>
Net earnings $38,109 158,627 $0.24 $20,814 151,718 $0.13
Diluted earnings per common share:
Net earnings $38,109 166,615 0.23 $20,814 156,452 0.13
------- ------- ----- ------- ------- -----
Effect of dilutive stock options $ - 7,988 $0.01 $ - 4,737 $ -
======= ======= ===== ======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended March 31, 2000 Nine Months Ended April 2, 1999
------------------------------------------- --------------------------------------------
Net Per Share Net Per Share
Earnings Shares Amount Earnings Shares Amount
-------------- ------------ ------------- ------------- ------------- -----------
Basic earnings per common share:
<S> <C> <C> <C> <C> <C> <C>
Net earnings $96,735 157,288 $0.61 $54,996 153,566 $0.35
Diluted earnings per common share:
Net earnings $96,735 163,853 0.59 $54,996 156,604 0.35
------- ------- ----- ------- ------- -----
Effect of dilutive stock options $ - 6,565 $0.02 $ - 3,038 $ -
======= ======= ===== ======= ======= =====
</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>
March 31, 2000 April 2, 1999
-------------- -------------
<S> <C> <C>
Number of options outstanding 4,107 64
Weighted average exercise price $51.792 $8.0125
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-3-1999
<PERIOD-END> MAR-31-2000
<CASH> 364,182
<SECURITIES> 0
<RECEIVABLES> 317,095
<ALLOWANCES> 5,056
<INVENTORY> 243,539
<CURRENT-ASSETS> 1,013,775
<PP&E> 276,960
<DEPRECIATION> 100,745
<TOTAL-ASSETS> 1,291,331
<CURRENT-LIABILITIES> 294,241
<BONDS> 400
0
0
<COMMON> 79,699
<OTHER-SE> 845,664
<TOTAL-LIABILITY-AND-EQUITY> 1,291,331
<SALES> 1,162,771
<TOTAL-REVENUES> 1,162,771
<CGS> 823,539
<TOTAL-COSTS> 823,539
<OTHER-EXPENSES> 90,064
<LOSS-PROVISION> (3,384)
<INTEREST-EXPENSE> 416
<INCOME-PRETAX> 138,193
<INCOME-TAX> 41,458
<INCOME-CONTINUING> 96,735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96,735
<EPS-BASIC> 0.61
<EPS-DILUTED> 0.59
</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-Q
(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;
uncertainties 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 April 2000, the
company completed the previously announced sale of certain assets of the
Satellite Networks business unit to ViaSat Inc. 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 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.
