-----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, M5l+Ugijhs9Q5A/+QOvnparizDys0oEKCZJStUFbYM0ABOBLDMDJYd9CTBiYIMCE dMj1hq9g8qdi2pLq40fH6A== 0000931763-99-000503.txt : 19990217 0000931763-99-000503.hdr.sgml : 19990217 ACCESSION NUMBER: 0000931763-99-000503 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990101 FILED AS OF DATE: 19990216 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: 99542464 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 January 1, 1999 --------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________________ TO __________________ COMMISSION FILE NUMBER 1-5517 SCIENTIFIC-ATLANTA, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) GEORGIA 58-0612397 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) ONE TECHNOLOGY PARKWAY, SOUTH NORCROSS, GEORGIA 30092-2967 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) 770-903-5000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO __ - AS OF JANUARY 29, 1999, SCIENTIFIC-ATLANTA, INC. HAD OUTSTANDING 75,491,737 SHARES OF COMMON STOCK. 1 of 14 PART I - FINANCIAL INFORMATION SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Ended Six Months Ended ----------------------- ------------------------- January 1, December 26, January 1, December 26, 1999 1997 1999 1997 ---------- ------------ ---------- ------------ SALES $310,747 $294,524 $568,225 $589,025 -------- -------- -------- -------- COSTS AND EXPENSES Cost of sales 222,925 208,507 410,034 412,780 Sales and administrative 42,883 39,187 81,672 80,286 Research and development 29,762 26,651 59,053 53,401 Interest expense 355 154 522 269 Interest income (1,837) (1,234) (3,939) (2,335) Other (income) expense, net (10,753) 71 (27,949) (114) -------- -------- -------- -------- Total costs and expenses 283,335 273,336 519,393 544,287 -------- -------- -------- -------- EARNINGS BEFORE INCOME TAXES 27,412 21,188 48,832 44,738 PROVISION (BENEFIT) FOR INCOME TAXES Current 28,199 6,045 21,712 13,016 Deferred (19,975) 311 (7,062) 405 ------- -------- -------- -------- NET EARNINGS $ 19,188 $ 14,832 $ 34,182 $ 31,317 ======== ======== ======== ======== EARNINGS PER COMMON SHARE BASIC $ 0.25 $ 0.19 $ 0.44 $ 0.40 ======== ======== ======== ======== DILUTED $ 0.25 $ 0.19 $ 0.44 $ 0.40 ======== ======== ======== ======== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC 75,274 78,885 77,245 78,567 ======== ======== ======== ======== DILUTED 76,031 80,149 78,340 80,038 ======== ======== ======== ======== DIVIDENDS PER SHARE PAID $ 0.015 $ 0.015 $ 0.03 $ 0.03 ======== ======== ======== ========
SEE ACCOMPANYING NOTES 2 of 14 SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In Thousands -------------------------- January 1, June 26, 1999 1998 -------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents $139,177 $175,392 Marketable securities 59,133 95,947 Receivables, less allowance for doubtful accounts of $9,916,000 at January 1 and $10,052,000 at June 26 289,338 254,419 Inventories 196,515 159,545 Deferred income taxes 25,264 18,062 Other current assets 21,298 13,133 -------- -------- TOTAL CURRENT ASSETS 730,725 716,498 -------- -------- PROPERTY, PLANT AND EQUIPMENT, at cost Land and improvements 21,488 20,621 Buildings and improvements 40,096 37,316 Machinery and equipment 213,467 193,894 -------- -------- 275,051 251,831 Less-Accumulated depreciation and amortization 109,040 91,804 -------- -------- 166,011 160,027 -------- -------- COST IN EXCESS OF NET ASSETS ACQUIRED 8,349 8,825 -------- -------- OTHER ASSETS 59,675 54,792 -------- -------- TOTAL ASSETS $964,760 $940,142 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 680 $ 726 Accounts payable 122,259 103,629 Accrued liabilities 150,055 139,011 Income taxes currently payable 27,220 15,302 -------- -------- TOTAL CURRENT LIABILITIES 300,214 258,668 -------- -------- LONG-TERM DEBT, less current maturities 794 983 -------- -------- OTHER LIABILITIES 55,188 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 79,616,712 shares at January 1 and 79,207,004 shares at June 26 39,808 39,604 Additional paid-in capital 201,309 195,446 Retained earnings 431,544 399,678 Accumulated other comprehensive income (loss) 1,590 (204) -------- -------- 674,251 634,524 Less - Treasury stock, at cost (4,667,736 shares at January 1 and 122,418 shares at June 26) 65,687 2,528 -------- -------- 608,564 631,996 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $964,760 $940,142 ======== ========
SEE ACCOMPANYING NOTES 3 of 14 SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Six Months Ended -------------------------------- January 1, December 26, 1999 1997 ---------- ------------ NET CASH USED BY OPERATING ACTIVITIES $(11,367) $(14,508) -------- -------- INVESTING ACTIVITIES: Proceed from the sale of marketable securities 64,450 -- Purchases of property, plant, and equipment (27,701) (19,270) Proceeds from the sale of a business unit -- 8,059 Other 214 25 -------- -------- Net cash (used) provided by investing activities 36,963 (11,186) -------- -------- FINANCING ACTIVITIES: Principal payments on long-term debt (235) (338) Dividends paid (2,316) (2,360) Issuance of common stock 5,968 10,403 Treasury shares acquired (65,228) -- -------- -------- Net cash provided (used) by financing activities (61,811) 7,705 -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (36,215) (17,989) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 175,392 107,143 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $139,177 $ 89,154 ======== ======== SUPPLEMENTAL CASH FLOW DISCLOSURES Interest paid $ 495 $ 242 ======== ======== Income taxes paid, net $ 8,697 $ 15,662 ======== ========
SEE ACCOMPANYING NOTES 4 of 14 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. The company's fiscal year ends on the Friday closest to June 30 of each year. Fiscal 1999 includes fifty-three weeks. The quarter and six months ended January 1, 1999 include fourteen weeks and twenty-seven weeks, respectively. C. Basic earnings per share were computed based on the weighted average number of shares outstanding. Diluted earnings per share were computed based on the weighted average number of dilutive shares of common stock outstanding. See Exhibit 11. D. Other (income) expense for the quarter ended January 1, 1999 included a $20,375 gain from the adjustment of the company's investment in Broadcom Corporation (Broadcom) to market value as required by generally accepted accounting principles, 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 contract under which the company was obligated to supply equipment which, upon resale, the company had estimated losses would be incurred. In addition, during the quarter ended January 1, 1999, the company decided to dispose of a business unit, Control Systems, which produces 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 net realizable value, to adjust the estimated profitability on certain contracts to allow the purchaser to achieve reasonable margins, to provide for indemnification to the purchaser and to provide for other miscellaneous expenses associated with the sale. Other (income) expense for the six months ended January 1, 1999 also included a $18,000 gain from the adjustment of the company's investment in Broadcom to market in the first quarter of the fiscal year. Management is not currently able to estimate the amount to be realized from the ultimate sale of the company's remaining investment in Broadcom. Other (income) expense for the three and six months ended January 1, 1999 and December 26, 1997 also included the results of foreign currency transactions and partnership activities and net gains from rental income and other miscellaneous items. There were no significant items in other (income) expense for the three and six months ended December 26, 1997.
E. Inventories consist of the following: January 1, June 26, 1999 1998 ---------- ---------- Raw materials and work-in-process $131,713 $113,703 Finished goods 64,802 45,842 -------- -------- Total inventory $196,515 $159,545 ======== ========
E. During the six months ended January 1, 1999, the company acquired 4,648,000 shares of its common stock for $65,228 and acquired an additional 75,880 shares from the payment in stock rather than cash by employees of tax withholdings on restricted stock which vested and cancellation of unvested, restricted stock. During the six months ended December 26, 1997, the company obtained 70,496 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. 5 of 14 NOTES: (Amounts in thousands, except share data) G. The company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income" in fiscal 1999. SFAS No. 130 requires the reporting of a measure of all changes in equity of an entity that result from recognized transactions and other economic events other than transactions with owners in their capacity as owners. Other comprehensive income (loss) for each period presented includes only foreign currency translation adjustments. The calculation of comprehensive income is as follows:
Three Months Ended Six Months Ended --------------------------- -------------------------- January 1, December 26, January 1, December 26, 1999 1997 1999 1997 ------------ ------------ ----------- ------------ Net earnings $ 19,188 $ 14,832 $ 34,182 $ 31,317 Other comprehensive income(loss) 881 (735) 1,794 (270) --------- --------- -------- --------- Comprehensive income $ 20,069 $ 14,097 $ 35,976 $ 31,047 ========= ========= ======== =========
H. Income taxes paid of $15,662 in the six months ended December 26, 1997 included approximately $5,800 of payments in connection with the filing of amended federal income tax returns. 6 of 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION - ------------------- Scientific-Atlanta had stockholders' equity of $608.6 million and cash on hand was $139.2 million at January 1, 1999. Cash decreased $36.2 million from June 26, 1998 as expenditures for the acquisition of shares of the company's common stock, increases in inventory levels and accounts receivable and expenditures for equipment exceeded proceeds from the sale of marketable securities and cash generated from earnings, increases in payables and the issuance of common stock. The current ratio was 2.4:1 at January 1, 1999, down slightly from 2.8:1 at June 26, 1998. At January 1, 1999. total debt was $1.5 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 January 1, 1999, were $310.7 million, up 6 percent over the prior year. Strong North American sales growth in Transmission Network Systems' and Subscriber Systems' products and services were offset in part by declines in international sales in all businesses. The growth in Transmission Network Systems was driven by the North American rebuild cycle. The significant increase in sales of digital products was the primary factor in the year-to-year increase in Subscriber Systems. Satellite sales declined in fiscal 1999 as this sector, which relies significantly on international markets, continues to be impacted by the weak economic situations in Eastern Europe and the Asia Pacific region. International sales were 23 percent of total sales in the quarter ended January 1, 1999 as compared to 41 percent of total sales last year. Sales for the six months ended January 1, 1999 were $568.2 million, down 4 percent from the prior year. The negative impact of weak economic conditions in the Asia Pacific, Eastern Europe and Latin American regions on the international sales of each sector more than offset the strong growth in North American sales of Transmission Network Systems' and Subscriber Systems' products described in the preceding paragraph. International sales were 23 percent of total sales in the six months ended January 1, 1999 as compared to 40 percent of total sales last year. The company previously announced that it planned to have production quantities of the new Prisma(TM) Digital Transport product available in the second quarter of fiscal 1999, but the availability of such production was delayed until the third quarter of fiscal 1999. 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 for the six months ended January 1, 1999. Sales of digital products in the six months ended January 1, 1999 increased more than the anticipated reduction in analog sales. Gross margins were 28.3 percent and 27.8 percent for the three and six months ended January 1, 1999, 0.9 percentage points and 2.1 percentage points lower than the comparable periods of the prior year. Margins on digital set- tops, which were lower than the company average, and the under-utilization of satellite manufacturing capacity offset gains from higher volumes of Transmission Network Systems' and Subscriber Systems' products and cost reductions from the transfer of RF (radio frequency) production to Juarez, Mexico from Norcross, Georgia. 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. Increases in operating expenses relative to last year are due in part to the fact that the three and six months ended January 1, 1999 included fourteen and twenty-seven weeks, respectively, as compared to the normal thirteen and twenty-six week periods in the prior year. 7 of 14 Research and development expenses were $29.8 million and $59.1 million for the three and six months ended January 1, 1999, respectively, or 10 percent of sales, reflecting the company's continued investment in research and development programs to support new product initiatives, particularly digital products. The company capitalized software development costs of $0.8 million and $1.4 million during the three and six months ended January 1, 1999, respectively. During the three and six months ended December 26, 1997, the company capitalized software development costs of $0.4 million and $1.4 million and non-recurring engineering costs of $3.2 million and $6.2 million, respectively. Research and development spending, including capitalized software development costs and non-recurring engineering, was approximately $30 million in each of the three month periods ended January 1, 1999 and December 26, 1997 and $61 million in each of the six month periods ended January 1, 1999 and December 26, 1997. Sales and administrative expenses increased year-over-year due in part to the additional week in the quarter and six month period in fiscal 1999 as compared to fiscal 1998. Sales and marketing expenses also increased in 1999 due to increased marketing efforts related to digital video products and Prisma Digital Transport products. Higher professional fees related to previously announced patent litigation and expenses related to the previously announced re- sizing of the Satellite businesses were the primary factors in the increase in administrative expenses in the second quarter of fiscal 1999 as compared to the prior year. Excluding the additional week in the six month period ended January 1, 1999, administrative expenses were down as compared to the prior year due to lower spending on consulting and professional services and reductions from sold or discontinued businesses. Other (income) expense for the quarter ended January 1, 1999 included a $20.4 million gain from the adjustment of the company's investment in Broadcom to market value as required by generally accepted accounting principles, a $10.9 million loss on the sale of one million shares of the company's investment in Broadcom, and a gain of $6.2 million from the cancellation of a contract under which the company was obligated to supply equipment which, upon resale, the company had estimated losses would be incurred. In addition, during the quarter ended January 1, 1999, the company decided to dispose of a business unit, Control Systems, which produces 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 net realizable value, to adjust the estimated profitability on certain contracts to allow the purchaser to achieve reasonable margins, to provide for indemnification to the purchaser and to provide for other miscellaneous expenses associated with the sale. Other (income) expense for the six months ended January 1, 1999 also included a $18.0 million gain from the adjustment of the company's investment in Broadcom to market in the first quarter of the fiscal year. Management is not currently able to estimate the amount to be realized from the ultimate sale of the company's remaining investment in Broadcom. Other (income) expense for the three and six months ended January 1, 1999 and December 26, 1997 also included the results of foreign currency transactions and partnership activities and net gains from rental income and other miscellaneous items. There were no significant items in other (income) expense for the three and six months ended December 26, 1997. The company's effective income tax rate was 30 percent for the quarter and six months, unchanged from the prior year. Net earnings for the three months ended January 1, 1999 were $19.2 million, up $4.4 million over the prior year. An after-tax gain of $6.6 million from the company's investment in Broadcom and higher sales volume year-over-year were offset in part by higher operating expenses. Net earnings for the six months ended January 1, 1999 were $34.2 million, up $2.9 million over the prior year. Lower sales volume, lower gross margin rates and increased operating expenses more than offset an after-tax gain of $19.2 million from the company's investment in Broadcom. 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 8 of 14 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. 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 available for purchase. 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 expects the costs related to remediating Year 2000 issues not to be material. 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 9 of 14 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 second calendar quarter of 1999. 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 is under way and is expected to be completed in the second calendar quarter of 1999. Last, Phase IV involves implementation of the company's contingency plans. Such plans are expected to be implemented in the third calendar quarter of 1999. The company does not currently believe that any of the foregoing will have a material adverse effect on its financial condition or its results of operations. However, the process of evaluating the company's products and third party products and systems is ongoing. Although not expected, failures of critical suppliers, critical customers, critical IT systems, critical Non-IT systems, or products sold by the company (including any delay in the deployment of System Releases 4.5 and 4.6) could have a material adverse effect on the company's financial condition or results of operations. As widely publicized, Year 2000 Compliance has many issues and aspects, not all of which the company is able to accurately forecast or predict. There is no way to assure that Year 2000 Compliance will not have adverse effects on the company, some of which could be material. Many of the company's statements related to Year 2000 are forward-looking statements and actual results could differ materially from those anticipated above. The company is relying on the investigations and statements of many employees, consultants and third parties in making the above forward-looking statements and such investigations or statements may not be accurate. 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. Prisma is a 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. 10 of 14 Firmly committed purchase exposure and related derivative contracts through December 31, 1999 are as follows:
Japanese Canadian Yen Dollar ---------- -------- (In thousands, except per dollar amounts) Firmly committed purchase contracts 6,471,000 4,070 Notional amount of forward exchange contracts 5,467,000 4,070 Average contract amount (Foreign currency/ United States dollar) 123.03 1.524
The company has no derivative exposure beyond December 31, 1999. 11 of 14 PART II - OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders - ------ --------------------------------------------------- The following information is furnished with respect to matters submitted to a vote of security holders through the solicitation of proxies: (a) The matters described below were submitted to a vote of security holders at the Annual Meeting of Shareholders held on November 11, 1998. (b) Election of directors:
Votes For Withhold Authority ----------- ------------------ James F. McDonald 66,046,136 831,403 David W. Dorman 66,044,762 832,777
Marion H.Antonini, William E.Kassling, Mylle Bell Mangum, David L McLaughlin, James V. Napier and Sam Nunn continue as directors. Wilbur King and Alonzo L. McDonald retired from the Board of Directors effective November 11, 1998. (c)(i) Approval of the Amended Non-Employee Directors Stock Option Plan
Votes For Votes Against Abstain --------- ------------- ------- 62,954,781 3,340,723 582,035
(ii) Ratification of the selection of Arthur Andersen LLP as independent auditors
Votes For Votes Against Abstain -------- ------------- ------- 66,430,340 177,651 269,548
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 January 1, 1999. Date: February 16, 1999 /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) 12 of 14 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)
THREE MONTHS ENDED THREE MONTHS ENDED JANUARY 1, 1999 DECEMBER 26, 1997 ------------------------------ --------------------------- PER SHARE PER SHARE EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT --------- ------ --------- -------- ------ --------- BASIC EARNINGS PER COMMON SHARE Earnings from continuing operations available to common stockholders $ 19,188 75,274 $ 0.25 $ 14,832 78,885 $ 0.19 EFFECT OF DILUTIVE SECURITIES Options -- 757 -- -- 1,264 -- ------ ------ ------ ------ ------ ------ DILUTED EARNINGS PER COMMON SHARE Earnings from continuing operations available to common stockholders and assumed conversions $ 19,188 76,031 $ 0.25 $ 14,832 80,149 $ 0.19 ====== ====== ====== ====== ====== ======
SIX MONTHS ENDED SIX MONTHS ENDED JANUARY 1, 1999 DECEMBER 26, 1997 ------------------------------ --------------------------- PER SHARE PER SHARE EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT --------- ------ --------- -------- ------ --------- BASIC EARNINGS PER COMMON SHARE Earnings from continuing operations available to common stockholders $ 34,182 77,245 $ 0.44 $ 31,317 78,567 $ 0.40 EFFECT OF DILUTIVE SECURITIES Options -- 1,095 -- -- 1,471 -- ------ ------ ------ ------ ------ ------ DILUTED EARNINGS PER COMMON SHARE Earnings from continuing operations available to common stockholders and assumed conversions $ 34,182 78,340 $ 0.44 $ 31,317 80,038 $ 0.40 ====== ====== ====== ====== ====== ======
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:
January 1, 1999 December 26, 1997 --------------- ----------------- Number of options outstanding 4,944 3,341 Weighted average exercise price $22.473 $22.371
13 of 14 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE QUARTER ENDED JANUARY 1, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JUL-02-1999 JUN-27-1998 JAN-01-1999 139,177 59,133 299,254 9,916 196,515 730,725 275,051 109,040 964,760 300,214 794 0 0 39,808 568,756 964,760 568,225 568,225 410,034 410,034 59,053 (56) 522 48,832 14,650 34,182 0 0 0 34,182 0.44 0.44
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 as both competitors and customers; reliance on software programs used by the company or its suppliers containing problems related to computations that must be made in 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. 14 of 14 -----END PRIVACY-ENHANCED MESSAGE-----