-----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, GokCo7M+xdZV3Ej2drnhtm/R14GxPcuAu8xfDAHqQx2izj778YmknYBagRl8E1OY Oynnkbj6NeOed+SQ0uJmlg== 0000931763-00-000248.txt : 20000214 0000931763-00-000248.hdr.sgml : 20000214 ACCESSION NUMBER: 0000931763-00-000248 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000211 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: 533112 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 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1999 ----------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________________ to _____________________ Commission file number 1-5517 SCIENTIFIC-ATLANTA, INC. (Exact name of Registrant as specified in its charter) Georgia 58-0612397 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) One Technology Parkway, South Norcross, Georgia 30092-2967 (Address of principal executive offices) (Zip Code) 770-903-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ - As of January 28, 2000, Scientific-Atlanta, Inc. had outstanding 79,061,629 shares of common stock. 1 of 14 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 ---------------------------------- ---------------------------- December 31, January 1, December 31, January 1, 1999 1999 1999 1999 ------------- ------------- ----------- ------------ SALES $ 372,721 $ 310,747 $ 722,040 $ 568,225 ------- -------- -------- ------- COSTS AND EXPENSES Cost of sales 263,512 222,925 512,883 410,034 Sales and administrative 42,260 42,883 81,366 81,672 Research and development 29,508 29,762 57,840 59,053 Interest expense - 355 286 522 Interest income (4,117) (1,837) (7,750) (3,939) Other (income) expense, net (6,117) (10,753) (6,337) (27,949) ------- -------- -------- ------- Total costs and expenses 325,046 283,335 638,288 519,393 ------- -------- -------- ------- EARNINGS BEFORE INCOME TAXES 47,675 27,412 83,752 48,832 PROVISION (BENEFIT) FOR INCOME TAXES Current 16,185 28,199 20,781 21,712 Deferred (1,882) (19,975) 4,345 (7,062) ------- -------- -------- ------- NET EARNINGS $ 33,372 $ 19,188 $ 58,626 $ 34,182 ======= ======== ======== ======= EARNINGS PER COMMON SHARE BASIC $ 0.42 $ 0.25 $ 0.74 $ 0.44 ======= ======== ======== ======= DILUTED $ 0.41 $ 0.25 $ 0.72 $ 0.44 ======= ======== ======== ======= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC 78,753 75,274 78,309 77,245 ======= ======== ======== ======= DILUTED 81,808 76,031 81,237 78,340 ======= ======== ======== ======= DIVIDENDS PER SHARE PAID 0.015 0.015 0.03 0.03 ======= ======== ======== ======= COMPREHENSIVE INCOME: NET EARNINGS $ 33,372 $ 19,188 $ 58,626 $ 34,182 OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX(1) Unrealized gains (losses) on marketable securities, net 9,120 - 22,911 - Reversal of unrealized gains on marketable securities sold (2,171) - (6,238) - Minimum retirement plan minimum liability adjustment - - (828) - Foreign currency translation adjustments (670) 1,165 (907) 1,712 ------- -------- -------- ------- COMPREHENSIVE INCOME $ 39,651 $ 20,353 $ 73,564 $ 35,894 ======= ======== ======== =======
(1) Assumed 38% and 40% tax rate in fiscal 2000 and fiscal 1999, respectively SEE ACCOMPANYING NOTES 2 of 14 SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION
In Thousands ----------------------------------- December 31, July 2, 1999 1999 --------------- ---------- ASSETS (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 347,953 $ 300,454 Marketable securities 4,105 2,438 Receivables, less allowance for doubtful accounts of $8,445,000 at December 31 and $8,160,000 at July 2 298,301 290,274 Inventories 222,012 189,354 Deferred income taxes 34,611 37,130 Other current assets 15,908 11,811 --------- ---------- TOTAL CURRENT ASSETS 922,890 831,461 --------- ---------- PROPERTY, PLANT AND EQUIPMENT, at cost Land and improvements 21,161 21,161 Buildings and improvements 32,545 31,802 Machinery and equipment 219,033 197,326 --------- ---------- 272,739 250,289 Less - Accumulated depreciation and amortization 107,395 92,751 --------- ---------- 165,344 157,538 --------- ---------- COST IN EXCESS OF NET ASSETS ACQUIRED 7,943 7,900 --------- ---------- NON-CURRENT MARKETABLE SECURITIES 42,336 18,783 --------- ---------- OTHER ASSETS 57,610 46,592 --------- ---------- TOTAL ASSETS $ 1,196,123 $ 1,062,274 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt and current maturities of long-term debt $ 418 $ 416 Accounts payable 149,857 137,146 Accrued liabilities 113,944 125,038 Income taxes currently payable 1,118 5,211 --------- ---------- TOTAL CURRENT LIABILITIES 265,337 267,811 --------- ---------- LONG-TERM DEBT, less current maturities 257 370 --------- ---------- OTHER LIABILITIES 70,153 55,927 --------- ---------- STOCKHOLDERS' EQUITY Preferred stock, authorized 50,000,000 shares; no shares issued - - Common stock, $0.50 par value, authorized 350,000,000 shares; issued 79,621,212 shares at December 31 and 79,616,712 at July 2 39,811 39,808 Additional paid-in capital 256,415 226,390 Retained earnings 553,673 497,403 Accumulated other comprehensive income, net of taxes of $13,679,000 at December 31 and $4,921,000 at July 2 22,317 7,379 --------- ---------- 872,216 770,980 Less - Treasury stock, at cost (672,129 shares at December 31 and 2,269,646 shares at July 2) 11,840 32,814 --------- ---------- 860,376 738,166 --------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,196,123 $ 1,062,274 ========= ==========
SEE ACCOMPANYING NOTES 3 of 14 SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Six Months Ended ---------------- December 31, January 1, 1999 1999 ------------ ---------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 58,780 $ (11,367) --------- ------- INVESTING ACTIVITIES: Purchases of property, plant, and equipment (28,607) (27,701) Acquisition of businesses (7,697) - Proceeds from the sale of certain assets of a business unit 3,259 - Proceeds from the sale of marketable securities 8,719 64,450 Investments (13,100) - Other 175 214 --------- ------- Net cash provided (used) by investing activities (37,251) 36,963 --------- ------- FINANCING ACTIVITIES: Principal payments on long-term debt (111) (235) Dividends paid (2,356) (2,316) Issuance of common stock 28,437 5,968 Treasury shares acquired - (65,228) --------- ------- Net cash provided (used) by financing activities 25,970 (61,811) --------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 47,499 (36,215) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 300,454 175,392 --------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 347,953 $ 139,177 ========= ======= SUPPLEMENTAL CASH FLOW DISCLOSURES Interest paid $ 246 $ 495 ========= ======= Income taxes paid, net $ 8,977 $ 8,697 ========= =======
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 1999 Form 10-K. The financial information presented in the accompanying statements reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the periods indicated. All such adjustments are of a normal recurring nature. B. The company's fiscal year ends on the Friday closest to June 30 of each year. Fiscal 1999 included fifty-three weeks. The three and six months ended January 1, 1999 included fourteen weeks and twenty-seven weeks, respectively. C. Basic earnings per share were computed based on the weighted average number of shares outstanding. Diluted earnings per share were computed based on the weighted average number of dilutive shares of common stock outstanding. See Exhibit 11.
D. Inventories consist of the following: December 31, July 2, 1999 1999 ------------- -------- Raw materials and work-in-process $ 172,483 $ 129,911 Finished goods 49,530 59,443 --------- --------- Total inventory $ 222,013 $ 189,354 ========= =========
E. During the six months ended December 31, 1999, the company acquired 17,397 shares of its common stock from the payment in stock rather than cash by employees of tax withholdings on restricted stock which vested. During the six months ended January 1, 1999, the company acquired 4,648,000 shares of its common stock for $65,228 and acquired an additional 75,880 shares primarily from the payment in stock rather than cash by employees of tax withholdings on restricted stock which vested. The company re-issues these shares under the company's stock option plans, 401(k) plan, employee stock purchase plan and other stock-based employee compensation arrangements. F. Other income (expense) of $6,117 for the quarter ended December 31, 1999 included a $5,780 gain from the divesture of a portion of the company's investment in WorldGate Communications, Inc. and other miscellaneous gains and expenses. During the six months ended December 31, 1999, the company completed the sale of certain assets of its Control Systems business unit for $3,259 of cash and recorded a gain of $1,500. This gain was partially offset by other miscellaneous expenses. Other (income) expense for the quarter ended January 1, 1999 included a $20,375 gain from the adjustment of the company's investment in Broadcom Corporation (Broadcom) to market value, a $10,880 loss on the sale of one million shares of the company's investment in Broadcom, and a gain of $6,250 from the cancellation of a loss contract. In addition, during the quarter ended January 1, 1999, the company decided to dispose of a business unit, Control Systems, which produced devices to monitor and manage utility service usage, because the business unit did not fit with the company's core strategy. The company recorded a charge of $6,225 to adjust the carrying value of the assets to be sold to fair value, less costs to sell, to adjust the estimated profitability on certain contracts to allow the purchaser to achieve reasonable margins, to provide for indemnification to the purchaser and to provide for other miscellaneous expenses associated with the sale. Other (income) expense for the six months ended January 1, 1999 also included $18,000 gain from the adjustment of the company's investment in Broadcom to market in the first quarter of the fiscal year. G. During the six months ended December 31, 1999, the company invested $13,100 in Bookham Technology Limited (Bookham), a UK-based developer and supplier of optical components. In addition, the company acquired certain assets of an optics business for a cash payment of $7,697. 5 of 14 NOTES: (continued): (Amounts in thousands, except share data). H. Information on the segments of the company and reconciliations to consolidated amounts are as follows:
Three Months Ended ------------------ December 31, 1999 January 1, 1999 -------------------------------------------- ---------------------------------------------- Corporate Corporate and and Broadband Satellite Other Total Broadband Satellite Other Total Sales $ 328,452 $ 44,131 $ 138 $372,721 $ 259,176 $ 49,912 $ 1,659 $310,747 Earnings (loss) before taxes $ 40,970 $ (306) $ 7,011/(1)/ $ 47,675 $ 24,155 $ (6,603) $ 9,860/(2)/ $ 27,412
(1) Includes a gain of $5,780 from the sale of a portion of the company's investment in WorldGate and interest income of $4,117. (2) Includes gains of $20,375 from the adjustment of the company's investment in Broadcom to market value and $6,250 from the cancellation of a contract and losses of $10,880 from the sale of one million shares of the company's investment in Broadcom and $6,225 from the decision to dispose of the Control Systems business unit. (See Note F.) Corporate and Other also includes interest income of $1,837.
Six Months Ended ---------------- December 31, 1999 January 1, 1999 ------------------------------------------ ---------------------------------------------- Corporate Corporate and and Broadband Satellite Other Total Broadband Satellite Other Total Sales $ 632,315 $88,727 $ 998 $722,040 $ 469,414 $ 94,235 $ 4,576 $568,225 Earnings (loss) before taxes $ 74,010 $(1,487) $ 11,229/(1)/ $ 83,752 $ 32,148 $(14,214) $ 30,898/(2)/ $ 48,832
(1) Includes interest income of $7,750 in addition to the $5,780 gain from the sale of a portion of the company's investment in WorldGate discussed above. (2) In addition to the items discussed in footnote (1) for the three months ended December 31, 1999, includes additional interest income of $3,633. I. In January 2000, the company announced it had reached a definitive agreement to sell certain assets of the Satellite Networks business unit to ViaSat Inc. for approximately $75,000. The transaction is subject to various regulatory and other conditions and is expected to close prior to the end of the fiscal year. The amount of the purchase price is subject to normal closing adjustments. The company does not expect the transaction to have a material impact on the company's results of operations or financial position. 6 of 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION - ------------------- Scientific-Atlanta had stockholders' equity of $860.4 million and cash on hand was $348.0 million at December 31, 1999. Cash increased $47.5 million from July 2, 1999 as cash provided by operations, the issuance of common stock and the sale of a portion of the company's investment in WorldGate Communications, Inc. (WorldGate) exceeded the company's expenditures for equipment, investment in Bookham, a developer and supplier of optical components and the acquisition of an optics business. The current ratio was 3.5:1 at December 31, 1999, up from 3.1:1 at July 2, 1999. At December 31, 1999, total debt was $0.7 million or less than one percent of total capital invested. The company believes that funds generated from operations, existing cash balances and its available senior credit facility will be sufficient to support growth and planned expansion of manufacturing capacity. RESULTS OF OPERATIONS - --------------------- Sales for the quarter ended December 31, 1999 were $372.7 million, up 20 percent over the prior year. Broadband segment sales for the quarter were $328.5 million, up 27 percent over the prior year, driven by the rapid acceleration in the deployment of digital interactive systems and strong demand for the Explorer(R) 2000 digital interactive set-tops. The company shipped approximately 267,000 Explorer 2000 digital interactive set-tops during the quarter as compared to approximately 126,000 in the prior year. Sales of transmission products also increased significantly in the quarter with strong growth across all product areas. As anticipated and previously announced, sales of analog set-tops continued to decline as cable operators shifted from analog to digital products. The company expects that the downward trend in sales of analog set-tops will continue throughout the fiscal year. Satellite segment sales were $44.1 million for the quarter ended December 31, 1999, down 12 percent as compared to the prior year. The company expects to continue to experience softness in the Satellite segment because of its significant reliance on international markets. In the quarter ended December 31, 1999, international sales were 26 percent of total sales, up from 23 percent of total sales last year. Broadband segment sales for the six months ended December 31, 1999 were $632.3 million, up 35 percent over the prior year. The increase was driven by the continued rapid acceleration in the deployment of digital interactive systems and strong demand for the Explorer 2000 set-tops. Satellite segment sales for the six months ended December 31, 1999 were $88.7 million, down 6 percent from the prior year. International sales for the six months ended December 31, 1999 were 24 percent of total sales, approximately the same as the prior year. Sales for the six months ended December 31, 1999 were $722.0 million up 27.1 percent from the prior year. Gross margins were 29.3 percent and 29.0 percent for the three and six months ended December 31, 1999, 1.0 percentage points and 1.2 percentage points respectively, higher than the comparable periods of the prior year, reflecting the economies of scale associated with increased manufacturing volumes, the continuing benefit from manufacturing in Juarez, Mexico and negotiated procurement savings. Decreases in operating expenses relative to last year are due in part to the fact that the three and six months ended January 1, 1999 included fourteen and twenty-seven weeks, respectively, as compared to the normal thirteen and twenty-six week periods in the current year. Research and development costs were $29.5 million and $57.8 million for the three and six months ended December 31, 1999, respectively, or 8 percent of sales, reflecting the company's continued investment in research and development programs which are focused on the development of applications and enhancements to the company's interactive broadband networks. The company continues to invest in research and development programs to support existing products. During the three and six months ended December 31, 1999, the company capitalized $0.6 million and $1.0 million of software development, respectively. During the three and six months ended December 31, 1999, the company recognized revenue on certain of the products on which software development costs had been capitalized and amortized $1.5 million and $3.2 million, respectively, of these costs to cost of sales. The company capitalized software development costs of $0.8 million and $1.4 million during the three and six months ended January 1, 1999, respectively. The company amortized $1.1 million of these costs to cost of sales during the three and six months ended January 1, 1999. Selling and administrative expenses were flat for the three and six months periods ended December 31, 1999 as compared to the prior year. Lower sales and marketing expenses, due in part to cost reductions from the restructuring of the Satellite segment, were offset by increases in professional fees and expenses related to the higher volume of sales in the three and six months ended December 31, 1999. 7 of 14 The restructuring plan announced during fiscal 1998 was substantially completed during fiscal 1999. During the six months ended December 31, 1999, $0.2 million was charged against the liability for contractual liabilities for cancelled leases and $1.5 million remains in the liability which is expected to be utilized by 2002 for expenses related to contractual liabilities for cancelled leases. Other (income) expense for the quarter ended December 31, 1999 included a $5.8 million gain from the divesture of a portion of the company's investment in WorldGate. Other (income) expense for the quarter ended January 1, 1999 included a $20.4 million gain from the adjustment of the company's investment in Broadcom to market value, a $10.9 million loss on the sale of one million shares of the company's investment in Broadcom, and a gain of $6.2 million from the cancellation of a loss contract. In addition, during the quarter ended January 1, 1999, the company decided to dispose of a business unit, Control Systems, which produced devices to monitor and manage utility service usage, because the business unit did not fit with the company's core strategy. The company recorded a charge of $6.2 million to adjust the carrying value of the assets to be sold to fair value, less costs to sell, to adjust the estimated profitability on certain contracts to allow the purchaser to achieve reasonable margins, to provide for indemnification to the purchaser and to provide for other miscellaneous expenses associated with the sale. Other (income) expense in the six months ended December 31, 1999 also included a gain of $1.5 million from the sale of certain assets of the Control Systems business unit which was partially offset by other miscellaneous expenses. Other (income) expense for the six months ended January 1, 1999 also included an $18.0 million gain from the adjustment of the company's investment in Broadcom to market value. Other (income) expense for the three and six months ended December 31, 1999 and January 1, 1999 also included the results of foreign currency transactions and partnership activities and net gains from rental income and other miscellaneous items. There were no other significant items in other (income) expense during the three and six months ended December 31, 1999 and January 1, 1999. Earnings before taxes were $47.7 million and $83.8 million in the three and six months ended December 31, 1999, up $20.3 million and $34.9 million, respectively, over the comparable periods of the prior year. Earnings before income taxes in the Broadband segment were $41.0 million and $74.0 million, respectively, in the three and six months ended December 31, 1999, a $16.8 million and $41.9 million improvement, respectively, over the comparable periods of the prior year. Significantly higher sales volumes and improved gross margins were the primary factors in the year-over-year increase. Losses before taxes for the Satellite segment were reduced from $6.6 million to $0.3 million in the three months ended December 31, 1999 and from $14.2 million to $1.5 million in the six months ended December 31, 1999 reflecting the benefit from the previously reported restructuring and resizing efforts in this segment. The company's effective income tax rate was 30 percent for the three and six months ended December 31, 1999, unchanged from the prior year. Net earnings for the quarter ended December 31, 1999 were $33.4 million compared to $19.2 million in the prior year. Higher sales volume, higher gross margins as a percent of sales and reduced operating expenses contributed to the year-over-year improvement in net earnings. Net earnings for the six months ended December 31, 1999 were $58.6 million compared to $34.2 million in the prior year. In January 2000, the company announced it had reached a definitive agreement to sell certain assets of the Satellite Networks business unit to ViaSat Inc. for approximately $75 million. The transaction is subject to various regulatory and other conditions and is expected to close prior to the end of the fiscal year. The amount of the purchase price is subject to normal closing adjustments. The company does not expect the transaction to have a material impact on the company's results of operations or financial position. Year 2000 - --------- The company, like most other major companies, has addressed over the past several years a universal problem commonly referred to as "Year 2000 Compliance," which relates to the ability of computer programs and systems to properly recognize and process date sensitive information before and after January 1, 2000. To date, there have not been, and the company does not expect there to be, any Year 2000 Compliance problems that are 8 of 14 expected to have a material adverse effect on its financial condition or its results of operations. In addition, to date, the company is not aware of any significant customer, vendor, supplier, financial organization or service provider who experienced critical Year 2000 Compliance problems. Any of the above statements that are not statements about historical facts are forward-looking statements. Such forward-looking statements are based upon current expectations but involve risks and uncertainties. Investors are referred to the Cautionary Statements contained in Exhibit 99 to this Form 10-Q for a description of the various risks and uncertainties that could cause the company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the company's forward- looking statements. Such Exhibit 99 is hereby incorporated by reference into Management's Discussion and Analysis of Financial Condition and Results of Operations. Explorer is a registered trademark for Scientific-Atlanta. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS ----------------------------------------------------------- The company enters into foreign exchange forward contracts to hedge certain firm commitments and assets denominated in currencies other than the U.S. dollar. These contracts are for periods consistent with the exposure being hedged and generally have maturities of one year or less. To qualify as a hedge, the item to be hedged must expose the company to asset devaluation risk and the related contract must reduce that exposure and be designated by the company as a hedge. Gains and losses on foreign exchange forward contracts, including cost of the contracts, are deferred and recognized in income in the same period as the hedged transactions. The company's foreign exchange forward contracts do not subject the company's results of operations to risk due to exchange rate fluctuations because gains and losses on these contracts generally offset losses and gains on the exposure being hedged. The company does not enter into any foreign exchange forward contracts for speculative trading purposes. If a foreign exchange forward contract did not meet the criteria for a hedge, the company would recognize unrealized gains and losses as they occur. Firmly committed purchase and sales exposure and related derivative contracts through June 30, 2000 are as follows:
Canadian Spanish Dollar Pesetas ---------- --------- (In thousands, except per dollar amounts) Firmly committed purchase (sales) contracts 9,500 (159,720) Notional amount of forward exchange contracts 9,370 (159,720) Average contract amount (Foreign currency/ United States dollar) 1.48 202.26
The company has no derivative exposure beyond June 30, 2000. 9 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 10, 1999. (b) Election of directors:
Votes For Withhold Authority ---------- ------------------ Marion H. Antonini 66,214,642 484,085 William E. Kassling 66,226,126 472,601 Mylle Bell Mangum 66,215,327 483,400
David W. Dorman, James F. McDonald, David L. McLaughlin, James V. Napier and Sam Nunn continue as directors. (c)(i) Re-approval of the Long-Term Incentive Plan, as amended Votes For Votes Against Abstain ------------------ ------------------ -------------- 59,490,669 6,843,267 364,791 (ii) Re-approval of the Senior Officer Annual Incentive Plan, as amended Votes For Votes Against Abstain ------------------- ------------------ -------------- 64,406,279 1,874,513 417,935 (iii) Ratification of the selection of Arthur Andersen LLP as independent auditors Votes For Votes Against Abstain ------------------- ------------------ -------------- 66,365,454 113,560 219,713 Item 6 Exhibits and Reports on Form 8-K - ------ -------------------------------- (a) Exhibits. Exhibit No. Description ----------- ----------- 11 Computation of Earnings Per Share 27 Financial Data Schedule (for commission use only) 99 Cautionary Statements (b) No reports on Form 8-K were filed during the quarter ended December 31, 1999. Date: February 11, 2000 /s/ Wallace G. Haislip ----------------- ---------------------- Wallace G. Haislip Senior Vice President Chief Financial Officer and Treasurer (Principal Financial Officer and duly authorized signatory of the Registrant) 10 of 14 EX-11 2 COMPUTATION OF EARNINGS PER SHARE SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES Exhibit 11 COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Ended December 31, 1999 Three Months Ended January 1, 1999 ------------------------------------ ---------------------------------- Net Per Share Net Per Share Earnings Shares Amount Earnings Shares Amount -------- ------ ------ -------- ------ ------ Basic earnings per common share: Net earnings $ 33,372 78,753 $ 0.42 $19,188 75,274 $ 0.25 Diluted earnings per common share: Net earnings $ 33,372 81,808 0.41 $19,188 76,031 0.25 ------ ------ ----- ------ ------ ---- Effect of dilutive stock options $ - 3,055 $ (0.01) $ - 757 $ - ====== ====== ===== ====== ====== ====
Six Months Ended December 31, 1999 Six Months Ended January 1, 1999 ---------------------------------- -------------------------------- Net Per Share Net Per Share Earnings Shares Amount Earnings Shares Amount -------- ------ ------ -------- ------ ------ Basic earnings per common share: Net earnings $ 58,626 78,309 $ 0.74 $34,182 77,245 $ 0.44 Diluted earnings per common share: Net earnings $ 58,626 81,237 0.72 $34,182 78,340 0.44 ------ ------ ------ ------ ------ ---- Effect of dilutive stock options $ - 2,928 $ (0.02) $ - 1,095 $ - ====== ====== ====== ===== ====== ====
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:
December 31, 1999 January 1, 1999 ----------------- --------------- Number of options outstanding 61 4,944 Weighted average exercise price $ 60.451 $ 22.473
EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Form 10-Q for the quarter ended December 31, 1999, and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS JUN-30-2000 JUL-03-1999 DEC-31-1999 347,953 4,105 306,746 8,445 222,012 922,890 272,739 107,395 1,196,123 265,337 257 0 0 39,811 820,565 1,196,123 722,040 722,040 512,883 512,883 57,840 372 286 83,752 25,126 58,626 0 0 0 58,626 0.74 0.72
EX-99 4 CAUTIONARY STATEMENT EXHIBIT 99 CAUTIONARY STATEMENTS General From time to time, the company may publish, verbally or in written form, forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. In fact, this Form 10-K (or any other periodic reporting documents required by the 1934 Act) may contain forward-looking statements reflecting the current views of the company concerning potential future events or developments. The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward- looking statements. These Cautionary Statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of the "safe harbor" provisions of the Act. In order to comply with the terms of the "safe harbor," the company cautions investors that any forward-looking statements made by the company are not guarantees of future performance and that a variety of factors could cause the company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the company's forward-looking statements. The risks and uncertainties which may affect the operations, performance, development and results of the company's business and some of which are described in more detail below include, but are not limited to, the following: uncertainties relating to the development and ownership of intellectual property; uncertainties relating to the ability of the company and other companies to enforce their intellectual property rights; uncertainties relating to economic conditions (including, but not limited to, the continued weak economic conditions in the Asia Pacific region and the Latin America region); uncertainties relating to government and regulatory policies; including but not limited to the FCC Report and Order entitled "In the Matter of Implementation of Section 304 of the Telecommunications Act of 1996 - Commercial Availability of Navigation Devices; uncertainties relating to customer plans and commitments; changes in the ownership and/or management of major customers of the company; changes in customer order patterns; the company's dependence on the cable television industry and cable television spending; signal security; the pricing and availability of equipment, materials and inventories; technological developments; performance issues with key suppliers and subcontractors; governmental export and import policies; global trade policies; worldwide political stability and economic growth; regulatory uncertainties; delays in development, manufacture, and/or deployment of new products, including digital set-top products and the software applications to be used on such digital set- top products; delays in testing of new products; uncertainties related to the regulation of the Internet; rapid technology changes; the highly competitive environment in which the company operates; the entry of new, well-capitalized competitors into the company's markets as both competitors and customers; reliance on software programs used by the company or its suppliers containing problems related to computations that must be made in 2000 and beyond ("Year 2000 Problems"); in the financial markets relating to the company's capital structure and cost of capital; the impact of a major earthquake on the company's operations; and uncertainties inherent in international operations and foreign currency fluctuations. The words "believe," "expect," "anticipate," "project," "plan," "intend," "seek," "estimate" and similar expressions identify forward- looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. Factors That May Affect Future Performance Dependence Of The Company On The Cable Television Industry And Cable Television Capital Spending. The majority of the company's revenues come from sales of systems and equipment to the cable television industry. In January 2000, the company announced that it had reached a definitive agreement to sell certain assets of the satellite network business unit as part of its strategy to focus on broadband cable systems and satellite systems that support video and internet protocol data distribution. Demand for these products depends primarily on capital spending by cable television system operators for constructing, rebuilding or upgrading their systems. The amount of this capital spending, and, therefore, the company's sales and profitability, may be affected by a variety of factors, including general economic conditions, the continuing trend of cable system consolidation within the industry, the financial condition of domestic cable television system operators and their access to financing, competition from direct-to-home satellite, wireless television providers and telephone companies offering video programming, technological developments that impact the deployment of equipment and new legislation and regulations affecting the equipment used by cable television system operators and their customers. There can be no assurance that cable television capital spending will increase from historical levels or that existing levels of cable television capital spending will be maintained. Dependence on Key Customers. Although the domestic cable television industry is comprised of thousands of cable systems, a small number of large cable television multiple systems operators ("MSOs") own a majority of the cable television systems and account for a significant portion of the capital expenditures made by cable television system operators. Sales of products to Time Warner, Inc. and its affiliates were 16% of the company's total sales in fiscal 1999, and sales to MediaOne and its affiliates were 14% of the company's total sales in fiscal 1999. The loss of business from a significant MSO could have a material adverse effect on the business of the company. International. The company has and expects to continue to make significant sales to customers outside the United States. In addition, a portion of the company's product manufacturing is located outside the United States. Accordingly, the company's future results could be adversely affected by a variety of factors, including changes in a specific country's or region's political conditions or changes or continued weakness in economic conditions, trade protection measures, import or export licensing requirements, the overlap of different tax structures and unexpected changes in regulatory requirements. Rapid Changes in Technology. The markets for the company's products are characterized by rapidly changing technology, evolving industry standards, frequent new product introductions and evolving methods of building and operating networks. The success of the company's existing and future products is dependent on several factors, including proper product definition, product cost, timely completion and introduction of new products, differentiation of new products from those of the company's competitors and market acceptance of these products. There can be no assurance that the company will successfully identify new product opportunities, develop and bring new products to market in a timely manner and achieve market acceptance of its products or that products and technologies developed by others will not render its products or technologies obsolete or noncompetitive. New Product Introductions. The company's future operating results may be adversely affected if the company is unable to continue to develop, manufacture and market innovative products and services that meet customer requirements for performance and reliability on a timely basis. The process of developing the company's new high technology products is inherently complex and uncertain. The company has in the past experienced delays in product development and introduction, and there can be no assurance that the company will not experience further delays in connection with its current product development or future development activities. Competition. The company's products compete with those of a substantial number of foreign and domestic companies, some with greater resources, financial or otherwise, than the company, and the rapid technological changes occurring in the company's markets are expected to lead to the entry of new competitors. The company's ability to anticipate technological changes and to introduce enhanced products on a timely basis will be a significant factor in the company's ability to anticipate technological changes and to introduce enhanced products on a timely basis will be a significant factor in the company's ability to expand and remain competitive. Intellectual Property. The company generally relies upon patent, copyright, trademark and trade secret laws to establish and maintain its proprietary rights in its technology and products. However, there can be no assurance that any of the company's proprietary rights will not be challenged, invalidated or circumvented, or that any such rights will provide significant competitive advantage. Third parties have claimed, and may claim, that the company has infringed their current, or future, intellectual property rights. Any claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays, or require the company to enter into royalty or licensing agreements, any of which could seriously harm the company's business, financial condition and results of operations. There can be no assurance that such royalty or licensing agreements, if required, would be available on terms acceptable to the company, if at all. Additionally, there can be no assurance that the company will prevail in any intellectual property infringement litigation given the complex technical issues and inherent uncertainties in litigation. In the event an intellectual property claim against the company was successful and the company could not obtain a license on acceptable terms or license a substitute technology or redesign to avoid infringement, the company's business, financial condition and results of operations would be seriously harmed. Even if the company prevails in litigation, the expense of litigation could be significant and could seriously harm the company's business, financial condition and results of operation. Reliance on Suppliers. The company's growth and ability to meet customer demands also depend in part on its ability to obtain timely deliveries of parts from the company's suppliers. Certain components of the company's products are presently available only from a single source or limited sources. A reduction or interruption in supply or a significant increase in the price of one or more components could adversely affect the company's business, operating results and financial condition and could materially damage customer relationships. Industry Consolidation and Acquisitions. There has been a recent trend toward industry consolidation. The company's major competitor, General Instrument Corporation, was acquired by Motorola, Inc., and a significant customer, Time Warner Inc., has agreed to be acquired by America Online, Inc. The company believes that this 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. -----END PRIVACY-ENHANCED MESSAGE-----