-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, STgVFRmKiCEVbCYJkb8g3wICD+L9t3KlUAmRhHyThPwMx0vXMzXJjqyud1N52PtW 0tF0awtX20dIa7eMleA4YA== 0000931763-98-002798.txt : 19981110 0000931763-98-002798.hdr.sgml : 19981110 ACCESSION NUMBER: 0000931763-98-002798 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980925 FILED AS OF DATE: 19981109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCIENTIFIC ATLANTA INC CENTRAL INDEX KEY: 0000087777 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 580612397 STATE OF INCORPORATION: GA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05517 FILM NUMBER: 98740929 BUSINESS ADDRESS: STREET 1: ONE TECHNOLOGY PKWY S CITY: NORCROSS STATE: GA ZIP: 30092-2967 BUSINESS PHONE: 7709035000 MAIL ADDRESS: STREET 1: ONE TECHNOLOGY PKWY S CITY: NORCROSS STATE: GA ZIP: 30092-2967 FORMER COMPANY: FORMER CONFORMED NAME: SCIENTIFIC ASSOCIATES INC DATE OF NAME CHANGE: 19671024 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 25, 1998 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO -------------- -------------- COMMISSION FILE NUMBER 1-5517 SCIENTIFIC-ATLANTA, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) GEORGIA 58-0612397 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER 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 OCTOBER 30, 1998, SCIENTIFIC-ATLANTA, INC. HAD OUTSTANDING 74,946,685 SHARES OF COMMON STOCK. 1 of 12 PART I - FINANCIAL INFORMATION SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Ended ----------------------------- September 25, September 26, 1998 1997 ------------ ------------ SALES $257,478 $294,501 -------- -------- COSTS AND EXPENSES Cost of sales 187,109 204,273 Sales and administrative 38,789 41,099 Research and development 29,291 26,750 Interest expense 167 115 Interest (income) (2,102) (1,101) Other (income) expense, net (17,196) (185) -------- -------- Total costs and expenses 236,058 270,951 -------- -------- EARNINGS BEFORE INCOME TAXES 21,420 23,550 PROVISION (BENEFIT) FOR INCOME TAXES Current (6,487) 6,971 Deferred 12,913 94 -------- -------- NET EARNINGS $ 14,994 $ 16,485 ======== ======== EARNINGS PER COMMON SHARE BASIC $ 0.19 $ 0.21 ======== ======== DILUTED $ 0.19 $ 0.21 ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC 79,216 78,248 ======== ======== DILUTED 80,649 79,926 ======== ======== DIVIDENDS PER SHARE PAID $ 0.015 $ 0.015 ======== ========
SEE ACCOMPANYING NOTES 2 of 12 SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In Thousands ---------------------------- September 25, June 26, 1998 1998 ------------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents $147,605 $175,392 Marketable securities 113,631 95,947 Receivables, less allowance for doubtful accounts of $9,996,000 at September 25 and $10,052,000 at June 26 254,201 254,419 Inventories 181,908 159,545 Deferred income taxes 3,578 18,062 Other current assets 18,689 13,133 -------- -------- TOTAL CURRENT ASSETS 719,612 716,498 -------- -------- PROPERTY, PLANT AND EQUIPMENT, at cost Land and improvements 21,488 20,621 Buildings and improvements 39,235 37,316 Machinery and equipment 201,560 193,894 -------- -------- 262,283 251,831 Less-Accumulated depreciation and amortization 100,019 91,804 -------- -------- 162,264 160,027 -------- -------- COST IN EXCESS OF NET ASSETS ACQUIRED 8,600 8,825 -------- -------- OTHER ASSETS 57,082 54,792 -------- -------- TOTAL ASSETS $947,558 $940,142 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt and current maturities of long-term debt $ 1,294 $ 726 Accounts payable 118,749 103,629 Accrued liabilities 130,828 139,011 Income taxes currently payable 3,338 15,302 -------- -------- TOTAL CURRENT LIABILITIES 254,209 258,668 -------- -------- LONG-TERM DEBT, less current maturities 819 983 -------- -------- OTHER LIABILITIES 52,069 48,495 -------- -------- STOCKHOLDERS' EQUITY Preferred stock, authorized 50,000,000 shares; no shares issued -- -- Common stock, $0.50 par value, authorized 350,000,000 shares; issued 79,610,337 shares at September 25 and 79,207,004 shares at June 26 39,805 39,604 Additional paid-in capital 200,915 195,446 Retained earnings 413,481 399,678 Accumulated translation adjustments 709 (204) -------- -------- 654,910 634,524 Less - Treasury stock, at cost (743,163 shares at September 25 and 122,418 shares at June 26) 14,449 2,528 -------- -------- 640,461 631,996 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $947,558 $940,142 ======== ========
SEE ACCOMPANYING NOTES 3 of 12 SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Three Months Ended ------------------------------------ September 25, September 26, 1998 1997 ------------- ------------- NET CASH USED BY OPERATING ACTIVITIES $ (5,821) $(19,448) -------- -------- INVESTING ACTIVITIES: Purchases of property, plant, and equipment (13,219) (10,518) Other 149 (110) -------- -------- Net cash used by investing activities (13,070) (10,628) -------- -------- FINANCING ACTIVITIES: Net short-term borrowings 537 -- Principal payments on long-term debt (133) (240) Dividends paid (1,191) (1,176) Issuance of common stock 3,314 8,803 Treasury shares acquired (11,423) -- -------- --------- Net cash provided (used) by financing activities (8,896) 7,387 -------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (27,787) (22,689) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 175,392 107,143 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $147,605 $ 84,454 ======== ========= SUPPLEMENTAL CASH FLOW DISCLOSURES Interest paid $ 154 $ 111 ======== ========= Income taxes paid, net $ 4,629 $ 6,243 ======== =========
SEE ACCOMPANYING NOTES 4 of 12 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 1998 Form 10-K. The financial information presented in the accompanying statements reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the periods indicated. All such adjustments are of a normal recurring nature. B. Basic earnings per share were computed based on the weighted average number of shares outstanding. Diluted earnings per share were computed based on the weighted average number of dilutive shares of common stock outstanding. See Exhibit 11. C. Inventories consist of the following: September 25, June 26, 1998 1998 ------------ -------- Raw materials and work-in-process $123,333 $113,703 Finished goods 58,576 45,842 -------- -------- Total inventory $181,908 $159,545 ======== ======== D. During the quarter ended September 25, 1998, the company acquired 601,000 shares of its common stock for $11,423 and acquired an additional 38,111 shares primarily from the payment in stock rather than cash by employees of tax withholdings on restricted stock which vested. Subsequent to the end of the first quarter, the company acquired an additional 4,047,000 shares for $53,805. During the quarter ended September 26, 1997, the company obtained 70,006 shares of its common stock, primarily from the cancellation of unvested, restricted stock grants. 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. E. Income taxes paid of $6,243 in the first quarter of fiscal 1998 included approximately $4,900 of payments in connection with the filing of amended federal income tax returns. F. Other (income) expense for the quarter ended September 25, 1998 included an $18,000 pre-tax gain from the adjustment of the company's investment in Broadcom Corporation (Broadcom) to market value as required by generally accepted accounting principles, and the results of foreign currency transactions and partnership activities and net gains from rental income and other miscellaneous items. Subsequent to the end of the quarter, the company sold one million shares of its Broadcom investment at an average price per share that was less than the per share market value as of September 25, 1998, resulting in a pre-tax loss of $10,880 or approximately $0.10 per Scientific-Atlanta share in the second quarter. The valuation associated with this event will be recorded in the company's second quarter results. Management is not currently able to estimate the amount to be realized from the ultimate sale of the company's remaining investment in Broadcom. There were no significant items in other (income) expense in the quarter ended September 26, 1997. 5 of 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION - ------------------- Scientific-Atlanta had stockholders' equity of $640.5 million and cash on hand was $147.6 million at September 25, 1998. Cash decreased $27.8 million during the quarter as increases in inventory levels, reductions in accrued expenses and income taxes payable, expenditures for equipment and the acquisition of shares of the company's common stock exceeded cash generated from earnings and the issuance of common stock. The current ratio was 2.8:1 at September 25, 1998, unchanged from June 26, 1998. At September 25, 1998, total debt was $2.1 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 September 25, 1998 were $257.5 million, or 13 percent lower than last year's first quarter sales, as weakness in international markets and delays in customers' roll-outs of their digital cable networks continued to negatively impact sales. International sales were approximately $54 million, or 21 percent of total sales, compared with $116 million, or 40 percent of total sales, in last year's first quarter. Compared to last year's first quarter, International sales were down $62 million, or 54 percent, with major declines in all non-domestic regions, including a $38 million decline in Asia Pacific. Domestic sales grew approximately $24 million year over year, or 13 percent, but the growth was not sufficient to overcome the decline in international sales. The reduction in international sales was due primarily to softness in Satellite and Transmission Network Systems. The shortfall in Satellite Network Systems was caused by delays in shipments of PowerVu(R) digital compression systems in India, the loss or deferral of customer funding for some orders in Eastern Europe and Asia Pacific, and by the slowness in cable TV related satellite activities abroad. The company expects to continue to experience softness in Satellite Network Systems because of its significant reliance on international markets. The company's Transmission Network Systems was impacted in Latin America, where continued delay in the issuance of cable licenses in Brazil caused a delay in deployments in that country, and in Europe where there were delays in certain new system deployments. As anticipated and announced previously, sales of analog set-tops declined in response to the introduction of two-way digital technology. The company expected a decline in analog sales as cable operators establish the ideal mix of analog and digital services in each cable system. However, the company had a book to bill ratio greater than one in both the analog and digital businesses. Sales of digital products increased, but the increase was not sufficient to fully offset the anticipated reduction in analog sales, resulting in an additional net decline in subscriber sector sales of $20 million over the fourth quarter of fiscal 1998. Delays in customers' launch plans resulted in lower than anticipated digital set-top shipments. These delays resulted from system integration and implementation cycles that took longer than expected and a shift in focus from sequential deployment of a limited number of cable systems, to widespread simultaneous roll-outs of digital services. This shift resulted in greater-than-expected sales of digital headends to major cities while postponing the deployment of digital set-tops. Gross margins were 27.3 percent, 3.3 percentage points lower than the prior year. The main factors contributing to this margin erosion were reduced volumes and the under-utilization of satellite manufacturing capacity. Certain material purchases are denominated in Japanese yen and, accordingly, the purchase price in U.S. dollars is subject to change based on exchange rate fluctuations. The company has forward exchange contracts to purchase yen to hedge a portion of its exposure on purchase commitments for a period of approximately twelve months. Research and development costs were $29.3 million, or 11 percent of sales, reflecting the company's continued investment in research and development programs to support new product initiatives. During the quarter ended September 25, 1998, the company capitalized $0.6 million of software development costs. The company capitalized $1.0 million of software development costs and $3.0 million of non-recurring engineering costs during the quarter ended September 26, 1997. The company periodically allocates engineering resources from research and development efforts for specific customer orders. The revenue from these orders will be recognized in future periods and, accordingly, the related costs have been capitalized as inventory. There were no material non-recurring engineering costs incurred, and accordingly, none were capitalized during the quarter ended September 25, 1998. 6 of 12 Research and development spending, including non-recurring engineering and software costs which were capitalized, was $29.9 million, down $0.9 million from last year. The year-to-year decline was due primarily to lower spending in fiscal 1999 on cable telephony and cable modems and reduced activity in Satellite Network Systems. Selling and administrative expense decreased $2.3 million, or 6 percent, from the prior year. Reduced selling expenses reflect costs associated with lower sales volumes for Transmission and Subscriber Network Systems in the Europe and Asia Pacific regions and significantly reduced worldwide selling expenses for Satellite Network Systems. Administrative expenses also declined due to lower consulting and professional spending and reductions from sold or discontinued business. These declines were offset partially by increased marketing efforts for digital video products. Other (income) expense for the quarter ended September 25, 1998 included an $18.0 million pre-tax gain from the adjustment of the company's investment in Broadcom Corporation (Broadcom) to market value as required by generally accepted accounting principles, and the results of foreign currency transactions and partnership activities and net gains from rental income and other miscellaneous items. Subsequent to the end of the quarter, the company sold one million shares of its Broadcom investment at an average price per share that was less than the per share market value as of September 25, 1998, resulting in a pre-tax loss of $10.9 million or approximately $0.10 per Scientific-Atlanta share in the second quarter. The valuation associated with this event will be recorded in the company's second quarter results. Management is not currently able to estimate the amount to be realized from the ultimate sale of the company's remaining investment in Broadcom. There were no significant items in other (income) expense in the quarter ended September 26, 1997. The company's effective income tax rate was 30 percent for the quarter, unchanged from the prior year. Net earnings for the quarter ended September 25, 1998 were $15.0 million compared to $16.5 million in the prior year. Lower sales volume and lower gross margins as a percent of sales, offset by the $18.0 million pre-tax gain discussed above, were the primary factors in the year-to-year decline in net earnings. YEAR 2000 - --------- The company, like most other major companies, is currently addressing a universal problem commonly referred to as "Year 2000 Compliance," which relates to the ability of computer programs and systems to properly recognize and process date sensitive information before and after January 1, 2000. The following discussion is based on information currently available to the company. The company has analyzed and continues to analyze its internal information technology ("IT") systems ("IT systems") to identify any computer programs that are not Year 2000 compliant and implement any changes required to make such systems Year 2000 compliant. The company believes that its critical IT systems currently are capable of functioning without substantial Year 2000 Compliance problems. Of the non-critical, but important, IT systems that are not currently Year 2000 Compliant, the company believes such IT systems will be Year 2000 compliant in a time frame that will avoid any material adverse effect on the company. Also, the company does not believe that the expenditures related to replacing or upgrading any of its IT systems to make them Year 2000 compliant will have a material adverse effect on the financial condition of the company. The company has identified only two IT systems (E-mail and electronic calendar) that must be replaced due to Year 2000 concerns, and the company already had plans to replace these IT systems with one system providing increased functionality. The company has evaluated its critical equipment and critical systems that contain embedded software, such as microcontrollers ("Non-IT systems"), and the company believes that all of its critical Non-IT systems are capable of functioning without substantial Year 2000 Compliance problems. The company plans to test its IT systems and Non-IT systems, commencing in the first calendar quarter of 1999. 7 of 12 Certain products currently sold by the company contain computer programs that perform date functions or date calculations. The company has evaluated most of its products and is continuing to evaluate its other products, and, based on its investigation to date, the company believes that the products it currently sells (except the System Manager product currently being sold with the recently- developed System Release 4.5 software) are Year 2000 compliant, provided that they are upgraded to include all recommended engineering changes. However, the company's products are often used by its customers in systems that contain third party products or products supplied by the company in prior years, such as the System Manager products. Therefore, even though the company's current products may be Year 2000 compliant, the failure of such third party products or historical company-supplied products to be Year 2000 compliant, or to properly interface with the company's current products, may result in a system failure. Certain products that the company no longer offers for sale are not Year 2000 compliant, and the company has no plans to upgrade them. However, the company does have a plan for helping its customers upgrade their System Manager products and related components to System Release 4.6 software which is currently in the final stages of development. Such System Release 4.6 software is expected to remedy the Year 2000 problems of System Manager products historically sold by the company to its customers. Because some customers may be using obsolete versions of the System Manager products, they may also need to purchase equipment to solve their Year 2000 problems. A customer's failure to upgrade its System Manager products and related equipment to System Release 4.6 software and related equipment may result in such customer having critical Year 2000 problems. Under certain limited circumstances, the company may incur expense to help remedy such customer's critical Year 2000 failure. The company is investigating each of its significant vendors, suppliers, financial service organizations, service providers and customers to confirm that the company's operations will not be materially adversely affected by the failure of any such third party to have Year 2000 compliant computer programs. Regardless of the responses that the company receives from such third parties, the company is establishing contingency plans to reduce the company's exposure resulting from the non-compliance of third parties. First, the company plans to build inventories of critical and/or important components prior to January 1, 2000, and thereby decrease the company's dependence on suppliers that are not Year 2000 compliant. Second, the company plans to send hard copies of "Schedules of Ordered Products and Delivery Dates" to its major customers, commencing in the third calendar quarter of 1999. Such Schedules should enable customers to accept ordered products after January 1, 2000, even if their internal computer systems are not operating properly. The company estimates that, through October 30, 1998, it has spent $250,000 to remediate Year 2000 issues in its IT systems, and the company estimates that it will spend an additional $450,000 to remediate Year 2000 issues in its IT systems. Additionally, the company is accelerating into fiscal 1999 the planned replacement of its E-mail software and electronic calendar software because such software has Year 2000 problems. The cost of the replacement software, including installation and training related thereto, is estimated to be $1.8 million. For the development and deployment of System Release 4.6 software to remedy Year 2000 problems of System Manager products sold by the company, the company has spent, through October 30, 1998, $1,400,000 and estimates it will spend an additional $1,567,000 to complete such software development and deployment. All of such expenditures are included in the budgets of the various departments of the company tasked with various aspects of the Year 2000 project. No IT projects have been deferred due to IT's Year 2000 efforts. The company has approached the Year 2000 project in phases. Phase I of the project involved identification of all software used or sold by the company, identification of all significant vendors, and establishment of a senior management committee (composed of the General Counsel, the Chief Financial Officer and the Chairman of the Corporate Operating Committee) to oversee the project. Phase I was completed in the second calendar quarter of 1998. Phase II of the project involves (a) evaluation of each significant vendor and evaluation of major customers through letters and questionnaires (b) communication with customers concerning any products currently or recently sold by the company that have Year 2000 issues, and (c) evaluating the company's most reasonably likely worst case Year 2000 scenarios and contingency planning related thereto. Phase II is in process and most of the tasks described in subparagraphs (a) and (b) above have been completed; Phase II is expected to be completed in the fourth calendar quarter of 1998. Phase III involves testing of the company's IT systems and Non-IT systems to confirm Year 2000 compliance and/or discover any overlooked Year 2000 problems. Phase III should be completed in the first calendar quarter of 1999. Last, Phase IV involves implementation of the company's contingency plans. Such plans are expected to be implemented in the third calendar quarter of 1999. The company does not currently believe that any of the foregoing will have a material adverse effect on its financial condition or its results of operations. However, the process of evaluating the company's products and third party products and systems is ongoing. Although not expected, failures of critical suppliers, critical customers, 8 of 12 critical IT systems, critical Non-IT systems, or products sold by the company (including any delay in the deployment of System Releases 4.5 and 4.6) could have a material adverse effect on the company's financial condition or results of operations. As widely publicized, Year 2000 Compliance has many issues and aspects, not all of which the company is able to accurately forecast or predict. There is no way to assure that Year 2000 Compliance will not have adverse effects on the company, some of which could be material. Many of the company's statements related to Year 2000 are forward-looking statements and actual results could differ materially from those anticipated above. The company is relying on the investigations and statements of many employees, consultants and third parties in making the above forward-looking statements and such investigations or statements may not be accurate. 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. PowerVu is a registered trademark of Scientific-Atlanta, Inc. ITEM 3. QUANTITIVE 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, primarily Japanese yen. These contracts are for periods consistent with the exposure being hedged and generally have maturities of one year or less. To qualify as a hedge, the item to be hedged must expose the company to inventory pricing or asset devaluation risk and the related contract must reduce that exposure and be designated by the company as a hedge. Gains and losses on foreign exchange forward contracts, including cost of the contracts, are deferred and recognized in income in the same period as the hedged transactions. The company's foreign exchange forward contracts do not subject the company's results of operations to risk due to exchange rate fluctuations because gains and losses on these contracts generally offset losses and gains on the exposure being hedged. The company does not enter into any foreign exchange forward contracts for speculative trading purposes. If a foreign exchange forward contract did not meet the criteria for a hedge, the company would recognize unrealized gains and losses as they occur. Firmly committed purchase exposure and related derivative contracts through September 25, 1999 are as follows:
JAPANESE CANADIAN YEN DOLLAR --------- --------- (In thousands, except per dollar amounts) Firmly committed purchase contracts 8,256,000 4,970 Notional amount of forward exchange contracts 4,559,000 4,970 Average contract amount (Foreign currency/ United States dollar) 130.87 1.49
The company has no derivative exposure beyond September 25, 1999. 9 of 12 PART II - OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K. - ------ (a) Exhibits. EXHIBIT NO. DESCRIPTION ----------- ----------- 11 Computation of Earnings Per Share 27 Financial Data Schedule 99 Cautionary Statements (b) No reports on Form 8-K were filed during the quarter ended September 25, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SCIENTIFIC-ATLANTA, INC. ------------------------ (Registrant) DATE: November 9, 1998 /s/ Wallace G. Haislip ---------------- ------------------ Wallace G. Haislip Senior Vice President-Finance, Chief Financial Officer and Treasurer (Principal Financial Officer and duly authorized signatory of the Registrant) 10 of 12 EX-11 2 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
FISCAL 1999 FISCAL 1998 ----------- ----------- PER SHARE PER SHARE EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT -------- ---------- --------- -------- ---------- --------- BASIC EARNINGS PER COMMON SHARE Net earnings $14,994 79,216 $ 0.19 $16,485 79,248 $ 0.21 ======= ====== ===== ======= ====== ==== EFFECT OF DILUTIVE STOCK OPTIONS $ - 1,433 $ - $ - 1,678 $ - ======= ====== ===== ======= ====== ==== DILUTED EARNINGS PER COMMON SHARE NET EARNINGS $14,994 80,649 $ 0.19 $16,485 79,926 $ 0.21 ======= ====== ===== ======= ====== ====
The following information pertains to options to purchase shares of common stock which were not included in the computation of Diluted Earnings per Common Share because the options' exercise price was greater than the average market price of the common shares and inclusion of the options in the earnings per share calculation would have been anti-dilutive: 1999 1998 - ------------------------------------------------------------------------------- Number of options outstanding 2,396 956 Weighted average exercise price $23.573 $23.356 11 of 12 EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Form 10-Q for the quarter ended September 25, 1998, and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS JUL-02-1999 JUN-27-1998 SEP-25-1998 147,605 113,631 264,197 9,996 181,908 719,612 262,283 100,019 947,558 254,209 819 0 0 39,805 600,656 947,558 257,478 257,478 187,109 187,109 29,291 0 167 21,420 6,426 14,994 0 0 0 14,994 0.19 0.19
EX-99 4 CAUTIONARY STATEMENTS EXHIBIT 99 CAUTIONARY STATEMENTS From time to time, the company may publish, verbally or in written form, forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. In fact, this Form 10-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 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; uncertainties relating to customer plans and commitments; the company's dependence on the cable television industry and cable television spending; signal security; the pricing and availability of equipment, materials and inventories; technological developments; performance issues with key suppliers and subcontractors; governmental export and import policies; global trade policies; worldwide political stability and economic growth; regulatory uncertainties; delays in development and/or deployment of new products, including digital set-top products and the applications to be used on such digital set-top products; delays in testing of new products; rapid technology changes; the highly competitive environment in which the company operates; the entry of new, well-capitalized competitors into the company's markets; reliance on software programs used by the company or its suppliers containing problems related to computations that must be made in 1999, 2000, and beyond ("Year 2000 Problems") and Year 2000 Problems that may exist in products currently or historically sold to customers of the company; changes in the financial markets relating to the company's capital structure and cost of capital; and uncertainties inherent in international operations and foreign currency fluctuations. The words "believe," "expect," "anticipate," "project," "plan" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward- looking statements, which speak only as of the date the statement was made. 12 of 12 -----END PRIVACY-ENHANCED MESSAGE-----