-----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, KEW6IFzvqEoPXYH08caUQfdxMX8lw+Ao91hSrtzwtQvMmzqSQRV3VJXSAfmGTcRq Fsux5ti8quCyDYIgKVh08A== /in/edgar/work/0000931763-00-002185/0000931763-00-002185.txt : 20000928 0000931763-00-002185.hdr.sgml : 20000928 ACCESSION NUMBER: 0000931763-00-002185 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000926 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCIENTIFIC ATLANTA INC CENTRAL INDEX KEY: 0000087777 STANDARD INDUSTRIAL CLASSIFICATION: [3663 ] IRS NUMBER: 580612397 STATE OF INCORPORATION: GA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05517 FILM NUMBER: 728865 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-K 1 0001.txt FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 2000 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2000 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-5517 SCIENTIFIC-ATLANTA, INC. (Exact name of Registrant as specified in its charter) Georgia 58-0612397 (State or other jurisdiction of incorporation (I.R.S. Employer Identification Number) or organization) One Technology Parkway, South 30092-2967 Norcross, Georgia (Zip Code)
(Address of principal executive offices) 770-903-5000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- --------------------- Common Stock, par value New York Stock Exchange $0.50 per share Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None 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 [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the voting stock held by non-affiliates of the Registrant at August 31, 2000, was approximately $12,500,038,749. As of August 31, 2000, the Registrant had outstanding 160,938,677 shares of common stock. Documents Incorporated By Reference: Specified portions of the Proxy Statement for the Registrant's 2000 Annual Meeting of Shareholders are incorporated by reference to the extent indicated in Part III of this Form 10-K. - -------------------------------------------------------------------------------- PART I In this Form 10-K, the words "Scientific-Atlanta," "we," "our," "ours," and "us" refer to Scientific-Atlanta, Inc. and its subsidiaries. Our fiscal year ends on the Friday closest to June 30 of each year. The references to fiscal year by date refer to our fiscal year ending in that particular calendar year; for example, fiscal year 1998 refers to our fiscal year ended June 26, 1998, fiscal year 1999 refers to our fiscal year ended July 2, 1999 and fiscal year 2000 refers to our fiscal year ended June 30, 2000. Item 1. Business General Scientific-Atlanta, Inc. provides its customers with content distribution networks, broadband transmission networks, digital interactive subscriber systems and worldwide customer service and support. We have evolved from a manufacturer of electronic test equipment for antennas and electronics for the cable industry to a producer of a wide variety of products for terrestrial and satellite communications networks, including digital video, voice and data communications products. During fiscal year 2000, we operated primarily in two reportable business segments: Broadband and Satellite. The Broadband segment consists of subscriber and transmission systems, and the Satellite segment consisted of satellite network and satellite television network systems. On April 25, 2000, ViaSat, Inc. acquired our satellite network business, which constituted a substantial part of our satellite business. We retained our satellite television network business, which provides the content distribution networks. We now operate only in the Broadband segment. See the Consolidated Financial Statements included in this Form 10-K for information concerning Scientific-Atlanta's total sales, profits and assets by segment. Broadband Our Broadband segment includes modulators, demodulators and signal processors for video and audio receiving stations (often referred to as "headend" systems), products for distributing communications signals by coaxial cable and fiber optics from headend systems to subscribers and analog and digital set-top terminals that enable television sets to receive all channels transmitted by cable television system operators. Proprietary software and the operating system used in the terminals, as well as system manager software at the headend or at the transmission level, was developed by us and is updated from time to time. The products in the Broadband segment also include receivers, transmitters, distribution amplifiers, taps and passives, signal encoders and decoders, controllers, optical amplifiers, source lasers, digital video compression and transmission equipment and fiber optic distribution equipment. Our analog set-tops include units which are addressable from the headend system so as to permit control of channel authorizations, including authorizations for pay-per-view events, impulse ordering and automatic recording of billing information at the cable operator's central facility, and menu-driven volume controllable units. Sales of analog set-tops constituted approximately 9 percent of Scientific-Atlanta's total sales for fiscal year 2000, and approximately 24 percent and 33 percent of such sales in each of fiscal years 1999 and 1998, respectively. As anticipated and announced previously, sales of analog set-top have declined in response to the introduction of two-way digital technology. Sales of digital set-tops constituted approximately 34 percent, 15 percent and 1 percent of Scientific-Atlanta's total sales in fiscal years 2000, 1999 and 1998, respectively. Our Explorer(R) digital set-tops are designed to enable subscribers to access new services to be developed such as e-mail over television, video-on-demand, Web browsing, Internet Protocol (IP) services, and various types of electronic commerce. Several of the advanced services, including e-mail, video-on-demand and Web browsing, have already been deployed on our networks. PowerTV, Inc., our majority-owned subsidiary located in Cupertino, California, develops and markets operating system, middleware and application software products for the advanced digital interactive cable television markets. PowerTV's core product is the PowerTV(R) Operating System, which it has licensed to 1 Pace Micro Technology plc and Pioneer Corporation. PowerTV has developed a number of applications: SofaMAIL(TM), an electronic mail system, and SofaSURF(TM), a web browser. Scientific-Atlanta and PowerTV both conduct active developer application programs for the Explorer network. We previously announced that we are a supplier of digital interactive subscriber systems for high-speed Internet and Voice over IP (VoIP) networks. However, we expect to deliver our cable modem product in the first half of calendar year 2001, and we expect to deliver a VoIP product during calendar year 2001. Transmission products in the Broadband segment include headend equipment, RF (radio frequency) amplifiers, line extenders, opto-electronic transmitters and amplifiers, taps, and passives, which transmit signals via coaxial cable or fiber optics from the cable operator to the end-user customer. These products enable operators to transmit video and data over the same network, with a reverse path for customers to communicate back to the operator. Sales of RF distribution products constituted approximately 18 percent of Scientific-Atlanta's total sales for fiscal year 2000, and approximately 16 percent and 18 percent of such sales in fiscal years 1999 and 1998, respectively. We previously announced that our forward and reverse dense wave division multiplexing (DWDM) transmitter capabilities would be expanded to 48 wavelengths in October 2000. Instead, our DWDM transmitters are expected to be upgraded from 16 to 24 wavelengths in October 2000. Scientific-Atlanta's two channel bdr(TM) product, which uses baseband digital reverse technology, is currently shipping, and the four channel bdr product is scheduled for general availability in the fourth calendar quarter, as previously announced. Scientific-Atlanta is continuing to look at the market demand for the single channel bdr product and does not expect to begin shipment of that product until at least the first calendar quarter of 2001. We had previously announced that shipment of the single channel bdr product would begin in August 2000. We design, manufacture and sell digital video compression communications products for use by television broadcasters and cable operators. Our digital video compression products utilize the open architecture MPEG-2 technology adopted by an international standards group, of which we are a founding member. MPEG-2 digital equipment allows headend, set- top and consumer electronics products and systems to operate together across networks and in the home. Our broadband products, both analog and digital, are being utilized by our traditional cable operator customers to upgrade their networks to provide new services and new builders of such systems, including telephone companies and competitive local exchange carriers, to build new video, voice and data networks. Satellite On April 25, 2000, ViaSat, Inc. acquired our satellite network business (excluding the satellite television networks business) which included products such as tracking and telemetry equipment, earth observation satellite ground stations, and intercept systems. We produced satellite earth stations that receive and transmit signals for video and are utilized in satellite- based telephone, data and television distribution networks, packet switches, radar platforms, special receivers, special measurement devices and other equipment used to track aircraft, missiles, satellites and other moving objects and to communicate with and receive and record various measurements and other data from the object. Our data communications products offerings had included private interactive data systems using VSAT (very small aperture terminal) technology. In addition, our long experience with advanced satellite tracking technologies had enabled us to offer a range of gateways, network management centers, transceivers, and services for the emerging low earth orbiting (LEO) satellite communications markets prior to the disposition of our satellite network business. Scientific-Atlanta retained the satellite television networks business, which is now known as the Media Networks business of Scientific- Atlanta. The Media Network business produces encoders, statistical multiplexers, modulators and receivers. Customers, such as television programmers, broadcasters, and service providers use these products to deliver compressed digital video via satellite to cable operators and viewers. 2 Services We have consolidated most of our service functions into a single service organization, SciCare(TM) Broadband Services, with its goal being to ensure effective post-sale service for customers using its products, whether such products are under warranty or no longer under warranty. SciCare Broadband Services offers a variety of maintenance and service contracts to customers using products manufactured or sold by Scientific-Atlanta and by other manufacturers, in addition to providing systems integration, installation, and professional services. Marketing and Sales Our products are sold primarily through our own sales personnel who work out of offices throughout the United States and various foreign countries. Certain products are also marketed in the United States through independent sales representatives and independent distributors. In addition to direct sales by Scientific-Atlanta, sales in foreign countries are made through wholly-owned subsidiaries and branch offices, as well as through independent distributors and independent sales representatives. Sales of our products are also made to independent system integrators, distributors and dealers who resell the products to customers. Our management personnel are also actively involved in marketing and sales activities. International sales constituted 21 percent of our total sales for fiscal year 2000, and 22 percent and 32 percent of total sales in fiscal years 1999 and 1998, respectively. Substantially all of these sales were export sales. See Note 6 of the Notes to Consolidated Financial Statements included in this Form 10-K. Sales of products to Time Warner, Inc. and its affiliates were 23 percent of our total sales in fiscal year 2000, and were 16 percent and 11 percent of total sales in fiscal years 1999 and 1998, respectively. Sales of products to AT&T, which merged with MediaOne during fiscal year 2000, and its affiliates were 10 percent of our total sales in fiscal year 2000, were 16 percent of total sales in fiscal year 1999 and 12 percent of total sales in 1998. Sales of products to Charter Communications, Inc. and its affiliates were 14 percent, 7 percent and 2 percent of sales in fiscal years 2000, 1999 and 1998, respectively. Sales to these three customers were principally broadband products. No other customer accounted for 10 percent or more of our sales in any of the three years. Backlog Our backlog consists of unfilled customer orders believed to be firm and long-term contracts which have not been completed. Scientific-Atlanta's backlog as of June 30, 2000 and July 2, 1999 was as follows:
2000 1999 ------------ ------------ Broadband........................................... $786,671,000 $448,456,000 Satellite........................................... 25,002,000 80,862,000 Corporate and Other................................. 16,000 90,000 ------------ ------------ Total.............................................. $811,689,000 $529,408,000 ============ ============
We believe that approximately 90 percent of the backlog existing at June 30, 2000, will be shipped within the succeeding fiscal year. With respect to long-term contracts, we include in our backlog only amounts representing orders currently released for production. The amount contained in backlog for any contract or order may not be the total amount of the contract or order. The amount of our backlog at any time does not reflect expected revenues for any fiscal period. Product Research and Development and Patents We conduct an active research and development program to strengthen and broaden existing products and systems and to develop new products and systems. Our development strategy is to identify products and systems which are, or are expected to be, needed by a substantial number of customers in markets and to allocate a greater share of its research and development resources to areas with the highest potential for future benefits to Scientific-Atlanta. In addition, we develop specific applications related to our present technology. Expenditures 3 in fiscal years 2000, 1999 and 1998 were principally for development of digital set-top and digital network products, opto-electronic and RF transmission products, and introduction of our PowerVu(R) products. In fiscal years 2000, 1999 and 1998, our research and development expenses were approximately $122.4 million, $117.3 million and $111.5 million, respectively. We hold patents with respect to certain of our products and actively seek to obtain patent protection for significant inventions and developments. Patents are important to our Broadband and Satellite segments. See Item 3. Legal Proceedings. Manufacturing Manufacturing operations range from complete assembly of a particular product by one individual or small group of individuals to semi-automated assembly lines for volume production. Because many of our products include precision electronic components requiring close tolerances, we maintain rigorous and exacting test and inspection procedures designed to prevent production errors, and also constantly review our overall production techniques to enhance productivity and reliability. Our analog set-tops and taps and passives hardware for the cable television industry are manufactured primarily by contract vendors with high-quality, high-volume production facilities. In addition to such manufacturing by contract vendors, we commenced our own manufacturing of high volume products in fiscal year 1995 in our Juarez, Mexico facility. We manufacture a variety of products in the Juarez facility, including digital set-tops and our RF amplifier product line. We plan to increase the production capacity of our digital set-tops in our Juarez facility to 1.3 million units per quarter by second quarter fiscal year 2001. Materials and Supplies The materials and supplies we purchase are standard electronic components, such as integrated circuits, wire, circuit boards, transistors, capacitors and resistors, all of which are produced by a number of manufacturers. Matsushita Electronic Components Corporation of America and its affiliates manufacture analog set-tops for us and are a primary supplier of those set-tops. Cablevision Electronics Co., Ltd and Zinwell Corporation, Taiwanese companies, are our primary suppliers of taps. We also purchase aluminum and steel, including castings and semi-fabricated items, produced by a variety of sources. Our primary supplier of die castings for RF distribution products is Premiere Die Casting, Inc. Additionally, Motorola, Inc., Broadcom Corporation and STMicroelectronics are three of our primary suppliers of a variety of semiconductor products, which are used as components in an array of products, including set-tops. Anadigics, Inc. is a provider of CATV hybrid integrated circuits for use in our RF distribution products. We consider our sources of supply to be adequate and are not dependent upon any single supplier, except for Matsushita Electronic Components Corporation of America (and affiliates), Cablevision Electronics Co., Ltd., Zinwell Corporation, Premiere Die Casting, Inc., Motorola, Inc., Broadcom Corporation, Anadigics, and STMicroelectronics, for any significant portion of the materials used in the products we manufacture or for the products we sell. From time to time, we experience shortages of certain electronic components from our suppliers. Recently, we have experienced substantial shortages of certain electronic components from our suppliers and expect that such shortages will continue to be substantial. These shortages have not had, and are not expected to have, a material effect on our operations. Employees As of June 30, 2000, we employed approximately 10,227 regular full- time and part-time employees and approximately 407 additional workers employed through temporary employment agencies. We believe our employee relations are satisfactory. Competition The businesses in which we are engaged are highly competitive. In the Broadband segment, we compete with a small number of equipment suppliers, most of which specialize in the production and sale of equipment to cable television system operators. Our Media Networks business competes with a variety of satellite television equipment providers. We believe that our ability to compete successfully results from our marketing strategy, engineering skills, product features, product performance, ability to provide post-purchase services, ability to provide quality products at competitive prices and broad coverage by our sales personnel. 4 Forward-Looking Information This Form 10-K, the 2000 Annual Report, any Form 10-Q or any Form 8-K of Scientific-Atlanta or any written or verbal statements made by representatives of Scientific-Atlanta may include "forward-looking statements." Please see Exhibit 99 to this Form 10-K for detailed information about the uncertainties and other factors that may cause actual results to materially differ from the views stated in such forward-looking statements. Item 2. Properties We own and use offices and manufacturing facilities in metropolitan Atlanta, Georgia; Naperville, Illinois; and Juarez, Mexico, which contain a total of approximately 434,000 square feet, of which approximately 339,000 square feet are located at the Juarez manufacturing facility. We also own (i) approximately 130 acres of land and a 138,000 square foot facility in Gwinnett County, Georgia, which are leased to ViaSat, Inc., and (ii) approximately 280 acres of land in Gwinnett County, Georgia, held for development of a consolidated office site for Scientific-Atlanta. The first phase of this consolidated office site, 283,000 square feet of engineering and office facilities, was completed in the third quarter of fiscal year 1999 utilizing a long-term operating lease arrangement. The second phase will be completed in the third quarter of fiscal year 2001, and will consist of an additional 299,000 square feet of engineering and office space. We presently lease two buildings in San Diego County, California, neither of which is required for present operations, and both of which are under sublease to other tenants. In addition to the property we own, which is described above, we lease additional major manufacturing facilities containing an aggregate of approximately 336,500 square feet at the following locations under leases expiring (including renewal options) from 2001 to 2015:
Approximate Location Square Footage -------- -------------- Metropolitan Atlanta, Georgia 249,000 Sonderborg, Denmark 71,500 Toronto, Ontario 16,000
We also lease laboratory, office and warehouse space in several buildings in the metropolitan areas of Atlanta, Georgia; Cupertino, California; Phoenix, Arizona; Juarez, Mexico; Sonderborg, Denmark; Toronto, Ontario; Vancouver, British Columbia; Frankfurt, Germany; Sydney, Australia; and London and Manchester, United Kingdom, and we lease sales and service offices in 22 domestic and foreign cities. Item 3. Legal Proceedings From time to time, we are involved in litigation and legal proceedings incident to the ordinary course of our business, such as personal injury claims, employment matters, contractual disputes and intellectual property disputes. We do not have pending any litigation or proceedings that management believes will have a material adverse effect, either individually or in the aggregate, upon us. Included in the litigation which we currently have pending are several lawsuits we have filed as plaintiff against Gemstar International Group Ltd. and affiliated companies. On December 3, 1998, we filed an action against Gemstar International Group Ltd. (now Gemstar-TV Guide International, Inc.), in the U.S. District Court in Atlanta. Gemstar-TV Guide International, Inc. and/or its affiliated entities are referred to hereafter as "Gemstar." The suit alleges that Gemstar violated federal antitrust laws and misused certain patents. We seek damages, an injunction and a declaration that eight patents that Gemstar asserts are related to electronic program guides are invalid, unenforceable and not infringed. Gemstar has filed a counterclaim against us alleging infringement of five of the patents. 5 On the next day, December 4, 1998, Gemstar filed a responsive action against us in the United States District Court in Los Angeles, California alleging infringement of two of the same patents involved in the Atlanta suit filed by us on December 3, 1998. The suit asks for damages and injunctive relief. As indicated below, all proceedings in this case have been stayed. On December 23, 1998, Gemstar filed a motion with the Judicial Panel on Multi-district Litigation requesting that the cases filed on December 3rd and 4th 1998 be consolidated with cases previously filed by Gemstar in California against General Instrument Corp. and Pioneer Electronic Corp., and in Oklahoma against TV Guide Networks, Inc. The motion asked that the actions be consolidated in a U.S. District Court in California. A hearing on the motion was held, and in April 1999 the Judicial Panel ordered that all cases (except the action against TV Guide Networks, Inc.) be consolidated, but in Atlanta rather than California, for all pretrial proceedings. Therefore, all of these cases are now in the discovery phase in the Atlanta court and the proceedings in the California case filed by Gemstar have been stayed. On April 23, 1999, we filed a patent infringement action against Gemstar in the U.S. District Court in Atlanta. The suit alleges that Gemstar infringes three Scientific-Atlanta patents relating to electronic program guides, and seeks damages and injunctive relief. On June 25, 1999, we filed an action against StarSight Telecast, Inc., a subsidiary of Gemstar International Group Ltd., in the U.S. District Court in Atlanta, seeking a declaratory judgment of invalidity and non-infringement of two StarSight patents that StarSight asserts are related to electronic program guides. StarSight initially answered our complaint as to one of the two patents, and filed a counterclaim against us alleging infringement of this one patent. After proceedings before the court, StarSight ultimately answered the complaint as to the second patent, but has not filed a counterclaim based on that patent. StarSight's counterclaim seeks damages and injunctive relief. StarSight also filed a motion for preliminary injunctive relief pending the final outcome of the case. This case is now in the discovery phase. On July 23, 1999, we filed a patent infringement action against StarSight in the U.S. District Court in Atlanta. The suit alleges that StarSight infringes three Scientific-Atlanta patents relating to electronic program guides, and seeks damages and injunctive relief. This case was coordinated with the April 23, 1999 action by us against Gemstar described above, and the coordinated cases are now in the discovery phase. In both of the cases involving our patents, we seek both damages and an injunction against the Gemstar defendants, deployment of infringing programs guides. In the cases challenging the Gemstar defendants' patents, we seek an injunction against Gemstar's enforcement of these patents. In those cases where the Gemstar defendants' patents are at issue, they have sought damages and injunctive relief against us for infringement of certain of those patents. The party or parties prevailing on their patents in these actions could be entitled to damages measured either as actual lost profits or as a reasonable royalty for the past sale of infringing electronic program guides, and potentially a trebling of damages if the court determines that the losing party acted willfully. The prevailing party may also be entitled to an injunction against the future sale of infringing electronic program guides. Accordingly, an adverse judgment against either us or the Gemstar defendants could result in an injunction against the future sale by us or the Gemstar defendants of infringing electronic program guides and could cause the offending party to have to redesign their program guide to avoid infringement. None of the actions described above is related to the 1995 American Arbitration Association arbitration action brought against us by StarSight. That arbitration action concerned the alleged delay by us in the deployment of StarSight-capable set-top boxes and our development of a competing electronic program guide allegedly using StarSight's proprietary information in violation of a licensing agreement between us and StarSight. StarSight won an award in that action from the arbitration panel, which we appealed to federal court. While the appeal was pending the controversy was settled by a cross-license agreement between the parties. The arbitration action did not address the issue of patent infringement by either StarSight or us. 6 Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of Scientific-Atlanta's security holders during the last quarter of its fiscal year ended June 30, 2000. Item 4A. Executive Officers of Scientific-Atlanta The following persons are the executive officers of Scientific- Atlanta:
Executive Name Age Officer Since Present Office ---- --- ------------- -------------- James F. McDonald 60 1993 President and Chief Executive Officer Conrad J. Wredberg, Jr. 59 1995 Senior Vice President and Chief Operating Officer J. Lawrence Bradner 49 1999 Senior Vice President; President, SciCare Broadband Services Dwight B. Duke 48 1997 Senior Vice President; President, Transmission Network Systems William E. Eason, Jr. 57 1993 Senior Vice President, General Counsel and Corporate Secretary H. Allen Ecker 64 1979 Senior Vice President; President, Subscriber Networks Wallace G. Haislip 51 1998 Senior Vice President, Chief Financial Officer and Treasurer Brian C. Koenig 53 1988 Senior Vice President, Human Resources John H. Levergood 66 1992 Senior Vice President Robert C. McIntyre 50 1999 Senior Vice President and Chief Technical Officer Julian W. Eidson 61 1978 Vice President and Controller Perry D. Tanner 42 2000 Vice President, Marketing Patrick M. Tylka 51 2000 Vice President; President, Worldwide Sales
Each executive officer is elected annually and serves at the pleasure of the Board of Directors. Mr. Wredberg joined Scientific-Atlanta in 1995 and was elected to the position of Vice President in May 1995. In November 1995, Mr. Wredberg was elected as a Senior Vice President, and in January 1997, Mr. Wredberg was appointed Chairman of the Corporate Operating Committee. In May 1999, Mr. Wredberg was elected Chief Operating Officer. Mr. Wredberg served as President of American Microsystem, Inc., a supplier of semiconductors, from 1985 until 1995. Mr. Bradner joined Scientific-Atlanta in August 1999. Mr. Bradner served as Chairman and Chief Executive Officer of Syntellect, Inc. from March 1996 to May 1999. Mr. Bradner was Chairman and Chief Executive Officer of Pinnacle Investment Associates and its wholly-owned subsidiary, Telecorp Systems, Inc., from January 1991 to March 1996. Mr. Bradner was employed by Scientific-Atlanta from 1977 to 1990, where he held various management positions and was elected Vice President in 1987. Mr. Bradner is a director of Telemate.net, Inc. Mr. Duke was elected Senior Vice President of Scientific-Atlanta on April 27, 1998. From June 19, 1996 to April 27, 1998, he served as a Vice President of Scientific-Atlanta. Prior to June 19, 1996, Mr. Duke was employed by Scientific-Atlanta in a variety of management positions for more than five years. Mr. Haislip was elected to the position of Senior Vice President- Finance, Chief Financial Officer and Treasurer on April 27, 1998. Prior to April 27, 1998, Mr. Haislip was employed by Scientific-Atlanta in a variety of management positions for more than five years. 7 Mr. McIntyre was employed by Scientific-Atlanta from 1991 through 1997. He served as a Vice President of Scientific-Atlanta from February 1995 through November 1995 and as a Senior Vice President of Scientific-Atlanta from November 1995 through September 1997. From September 1997 through November 1998, Mr. McIntyre served as Chief Operating Officer and as Chief Executive Officer from July 1998 to November 1998 of Avex, Inc. Mr. McIntyre re-joined Scientific-Atlanta as an employee in February 1999 and was elected Senior Vice President and Chief Technical Officer in May 1999. Mr. Tanner was elected to the position of Vice President, Marketing in May 2000. Prior to May 2000, he was employed by Scientific-Atlanta in a variety of management positions for more than five years. All other executive officers have been employed by Scientific-Atlanta in the same or similar capacities for more than five years. There are no family relationships among the executive officers. PART II Item 5. Market for the Registrant's Common Stock and Related Matters The Common Stock of Scientific-Atlanta is traded on the New York Stock Exchange (symbol SFA). The approximate number of holders of record of Scientific-Atlanta's Common Stock at August 31, 2000, was 5,901. It has been the policy of Scientific-Atlanta to retain a substantial portion of its earnings to finance the expansion of its business. In 1976, Scientific-Atlanta commenced payment of quarterly cash dividends and intends to consider the continued payment of dividends on a regular basis; however, the declaration of dividends is discretionary with the Board of Directors, and there is no assurance regarding the payment of future dividends by Scientific- Atlanta. During fiscal years 1998 and 1999, Scientific-Atlanta paid a $.0075, respectively, dividend per share each quarter. During fiscal year 2000, Scientific-Atlanta paid a $.0075 and a $.01 dividend per share in the first two quarters and the second two quarters, respectively. Information as to the high and low stock prices and dividends paid for each quarter of fiscal years 1999 and 2000 is included in Note 5 of the Notes to Financial Statements included in this Report. Item 6. Selected Financial Data Selected Financial Data is set forth on page 28 of this Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion of Consolidated Statement of Financial Position, of Consolidated Statement of Earnings, and of Consolidated Statement of Cash Flows are set forth on pages 15 and 16, 18 through 22, and 24 and 25 of this Report, respectively. Item 7A. Quantitative and Qualitative Disclosures about Market Risk For the information required for this Item 7A, see Note 1 of the Notes to Consolidated Financial Statements included in this Form 10-K. Item 8. Financial Statements and Supplementary Data The consolidated financial statements of Scientific-Atlanta and notes thereto, the schedule containing certain supporting information and the report of independent public accountants are set forth on pages 14 through 43 of this Report. See Part IV, Item 14 for an index of the statements, notes and schedule. 8 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Pursuant to Instruction G(3) to Form 10-K, the information required in Items 10-13 (except for the information set forth at the end of Part I in Item 4A with respect to Executive Officers of Scientific-Atlanta) is incorporated by reference from Scientific-Atlanta's definitive proxy statement for Scientific-Atlanta's 2000 Annual Meeting of Shareholders, which is expected to be filed pursuant to Regulation 14A within 120 days after the end of fiscal year 2000. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as part of this Report: (1) The consolidated financial statements listed below are included on pages 14 through 42 of this Report. Report of Independent Public Accountants. Consolidated Statements of Financial Position as of June 30, 2000 and July 2, 1999. Consolidated Statements of Earnings for each of the three years in the period ended June 30, 2000. Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 2000. Consolidated Statements of Stockholders' Equity and Comprehensive Income for each of the three years in the period ended June 30, 2000 Notes to Consolidated Financial Statements. (2) Financial Statement Schedule:
Page ---- Schedule II Valuation and Qualifying Accounts for Each of the Three Years in the Period ended June 30, 2000. 43
All other Schedules called for under Regulation S-X are not submitted because they are not applicable or not required or because the required information is not material or is included in the financial statements or notes thereto. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last quarter of the period covered by this report. (c) Exhibits: Periodic reports, proxy statements and other information filed by Scientific-Atlanta with the SEC pursuant to the informational requirements of the Exchange Act may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the following Regional Offices of the SEC: Midwest Regional Office, Citicorp Center, Suite 1400, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661-2511; and Northeast Regional Office, Suite 1300, 13th Floor, 7 World Trade Center, New York, New York 10048. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The SEC also maintains a Web site (http://www.sec.gov) that makes available reports, proxy statements and other information regarding Scientific-Atlanta. Scientific-Atlanta's SEC file number reference is Commission File No. 1-5517. 9 (3) (a) The Composite Statement of Amended and Restated Articles of Incorporation of Scientific-Atlanta is incorporated by reference to Scientific-Atlanta's report on Form 10-K for the fiscal year ended June 27, 1997. (b) The By-laws of Scientific-Atlanta, as amended, is incorporated by reference to Scientific-Atlanta's report on Form 10-K for the fiscal year ended July 2, 1999. (4) The following instrument defining the rights of security holders is incorporated by reference to Scientific-Atlanta's Form 8-A Registration Statement filed on April 7, 1997: (a) Rights Agreement, dated as of February 23, 1997, between Scientific-Atlanta and The Bank of New York, as Rights Agent, which includes as Exhibit A the Preferences and Rights of Series A Junior Participating Preferred Stock and as Exhibit B the Form of Rights Certificate. (10) Material Contracts: (a) The following material contracts are incorporated by reference to Scientific-Atlanta's report on Form 10-K for the fiscal year ended July 1, 1994: (i) Form of Severance Protection Agreement between Scientific-Atlanta and Certain Officers and Key Employees.* (b) The following material contract is incorporated by reference to Scientific-Atlanta's report on Form 10-K for the fiscal year ended June 30, 1995: (i) Credit Agreement, dated May 11, 1995, by and between Scientific-Atlanta and NationsBank of Georgia, National Association, for itself and as agent for other banks participating in the credit facility. (c) The following amendments to the Credit Agreement described in item (b) above are incorporated by reference to Scientific- Atlanta's report on Form 10-K for its fiscal year ended June 28, 1996: (i) First Amendment, dated as of December 29, 1995, to the Credit Agreement. (ii) Letter Amendment, dated as of April 5, 1996, to the Credit Agreement. (iii) Second Amendment, dated as of June 28, 1996, to the Credit Agreement. (d) The following material contract is incorporated by reference to Scientific-Atlanta's Form S-8 Registration Statement, filed on December 27, 1996: (i) Non-Qualified Stock Option Agreement between Scientific-Atlanta, Inc. and James F. McDonald.* (e) The following amendment to the Credit Agreement described in item (b) above is incorporated by reference to Scientific- Atlanta's report on Form 10-Q for the fiscal quarter ended March 28, 1997: (i) Third Amendment, dated as of January 27, 1997, to the Credit Agreement. (f) The following material contracts or amendments to material contracts are incorporated by reference to Scientific-Atlanta's report on Form 10-K for the fiscal year ended June 27, 1997: (i) Letter Amendment, dated as of April 23, 1997, to the Credit Agreement described in item (b) above. (ii) Credit and Investment Agreement, dated as of July 30, 1997, among Scientific-Atlanta, Wachovia Capital Markets, Inc., Wachovia Bank, N.A., as agent, and the lenders signatories thereto. (iii) Lease Agreement, dated as of July 30, 1997, between Wachovia Capital Markets, Inc. and Scientific-Atlanta. (iv) Acquisition, Agency, Indemnity and Support Agreement between Scientific-Atlanta and Wachovia Capital Markets, Inc., dated as of July 30, 1997. 10 (v) Ground Lease, dated as of July 30, 1997, between Scientific-Atlanta and Wachovia Capital Markets, Inc. (vi) Scientific-Atlanta, Inc. 1981 Incentive Stock Option Plan, as amended.* (vii) Scientific-Atlanta, Inc. 1978 Non-Qualified Stock Option Plan for Key Employees, as amended.* (g) The following material contracts or amendments to material contracts are incorporated by reference to Scientific-Atlanta's report on Form 10-K for the fiscal year ended June 26, 1998: (i) Scientific-Atlanta, Inc. Restoration Retirement Plan, as amended.* (ii) Letter Amendment, dated as of April 24, 1998, to the Credit Agreement described in item (b) above. (h) The following material contracts or amendments to material contracts are incorporated by reference to Scientific-Atlanta's report on Form 10-Q for the fiscal quarter ended April 2, 1999: (i) Form of First Amendment of Severance Protection Agreement by and between Scientific-Atlanta, Inc. and Certain Executives* (ii) Scientific-Atlanta, Inc. Retirement Plan for Non- Employee Directors* (iii) Scientific-Atlanta, Inc. Annual Incentive Plan for Key Employees as amended and restated* (iv) 1985 Executive Deferred Compensation Plan of Scientific-Atlanta, Inc., as amended and restated* (v) Letter Amendment to Credit and Investment Agreement among Scientific-Atlanta, Inc., Wachovia Bank, N.A. and Wachovia Capital Markets, Inc. (vi) Amendment to Credit and Investment Agreement among Scientific-Atlanta, Inc., Wachovia Bank, N.A. and Wachovia Capital Markets, Inc. (vii) Second Amendment to Credit and Investment Agreement among Scientific-Atlanta, Inc., Wachovia Bank, N.A. and Wachovia Capital Markets, Inc. (viii) Fourth Amendment to Credit Agreement between Scientific-Atlanta, Inc. and NationsBank, N.A. and other lenders (ix) First Amendment to Lease Agreement between Scientific- Atlanta, Inc. and Wachovia Capital Markets, Inc. (x) Second Amendment to Lease Agreement between Scientific- Atlanta, Inc. and Wachovia Capital Markets, Inc. (i) The following material contracts or amendments to material contracts are incorporated by reference to Scientific-Atlanta's annual report on Form 10-K for the fiscal year ended July 2, 1999: (i) Long-Term Incentive Plan of Scientific-Atlanta, Inc., as amended and restated.* (ii) Scientific-Atlanta, Inc. Senior Officer Annual Incentive Plan, as amended and restated.* (iii) Amended and Restated Credit Agreement, dated as of May 7, 1999, by and among Scientific-Atlanta and The Bank of New York and ABN Amro Bank N.V. as co-agents and NationsBank, N.A. as administrative agent for the participating lenders. 11 (iv) Amendment No. 1 to the Amended and Restated Credit Agreement by and among Scientific-Atlanta and The Bank of New York and ABN Amro Bank N.V. as co-agent and NationsBank, N.A. as administrative agent for the participating lenders. (j) Supplemental Executive Retirement Plan, as amended and restated.* (k) Stock Plan for Non-Employee Directors, as amended and restated.* (l) Non-Employee Directors Stock Option Plan, as amended and restated.* (m) Executive Deferred Compensation Plan, as amended and restated.* (n) 1996 Employee Stock Option Plan, as amended and restated.* (o) Deferred Compensation Plan for Non-Employee Directors, as amended and restated.* (p) Second Amendment to Amended and Restated Credit Agreement dated as of May 4, 2000 among Scientific-Atlanta and The Bank of New York and ABN Amro Bank N.V. as co-agents and Bank of America, N.A., successor to Nationsbank, N.A. (21) Significant Subsidiaries of Scientific-Atlanta. (23) Consent of Independent Public Accountants. (27) Financial Data Schedule. (99) Cautionary Statements. - -------- * Indicates management contract or compensatory plan or arrangement. 12 [This Page Intentionally Left Blank] 13 Report of Independent Public Accountants To the Stockholders of Scientific-Atlanta, Inc.: We have audited the accompanying consolidated statements of financial position of Scientific-Atlanta, Inc. (a Georgia corporation) and subsidiaries as of June 30, 2000, and July 2, 1999, and the related consolidated statements of earnings, cash flows and stockholders' equity and comprehensive income for each of the three years in the period ended June 30, 2000 appearing on pages 17, 23, 26 and 27, respectively. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Scientific-Atlanta, Inc. and subsidiaries as of June 30, 2000 and July 2, 1999, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2000 in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule listed in Item 14(a)(2) of this Form 10-K is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Atlanta, Georgia July 26, 2000 Report of Management The management of Scientific-Atlanta, Inc. (the Company) has the responsibility for preparing the accompanying financial statements and for their integrity and objectivity. The statements, which include amounts that are based on management's best estimates and judgments, have been prepared in conformity with accepted accounting principles generally accepted in the United States and are free of material misstatement. Management also prepared the other information in the Form 10-K and is responsible for its accuracy and consistency with the financial statements. The Company maintains a system of internal control over the preparation of its published annual and interim financial statements. It should be recognized that even an effective internal control system, no matter how well designed, can provide only reasonable assurance with respect to the preparation of reliable financial statements; further, because of changes in conditions, internal control system effectiveness may vary over time. Management assessed the Company's system of internal control in relation to criteria for effective internal control over the preparation of its published annual and interim financial statements. Based on its assessment, it is management's opinion that its system of internal control as of June 30, 2000 is effective in providing reasonable assurance that its published annual and interim financial statements are free of material misstatement. As part of their audit of our financial statements, Arthur Andersen LLP considered certain elements of our system of internal controls in determining their audit procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors is composed solely of outside directors and is responsible for recommending to the board the independent public accountants to be retained for the year, subject to stockholder approval. The audit committee meets three times each year to review with management the Company's system of internal accounting controls, audit plans and results, accounting principles and practices, and the annual financial statements. /s/ James F. McDonald /s/ Wallace G. Haislip
James F. McDonald Wallace G. Haislip President and Chief Executive Officer Senior Vice President - Finance Chief Financial Officer and Treasurer
14 Management's Discussion of Consolidated Statements of Financial Position Scientific-Atlanta had stockholders' equity of $1,215.0 million and cash and short-term investments of $523.1 million at June 30, 2000. The current ratio was 3.0:1 at June 30, 2000 compared to 3.1:1 at July 2, 1999. Receivables were $333.2 million at fiscal year-end, compared to $290.3 million at the prior year-end. Average days sales outstanding were 65 in fiscal 2000, as compared to 81 days in the prior year. The allowance for doubtful accounts of $4.1 million decreased $4.0 million primarily due to the collection of receivables from customers in the Asia Pacific region that had previously been reserved. Inventory turnover was 5.7 times in 2000, compared to 4.9 in the prior year. The improvement in inventory turnover was due to higher sales volume, the sale of the Satellite Networks business unit which historically had low inventory turnover rates and management's continued effort to improve working capital in fiscal year 2000. Current deferred income taxes increased $12.6 million in fiscal year 2000 primarily due to research and development credit carryforwards and increases in reserves currently not deductible. Other current assets of $34.7 million include vendor deposits, license fees, prepaid taxes, other than income taxes, land held for sale, prepaid software maintenance fees and other miscellaneous prepaid expenses. Net property, plant and equipment increased $21.7 million in fiscal year 2000. Capital additions of $82.8 million included expenditures for equipment and expansion of manufacturing capacity, primarily in Juarez, Mexico. Non-current marketable securities consist of investments in common stock of publicly traded companies and are reported at market value. During fiscal year 2000 and fiscal year 1999, we recorded unrealized gains of $348.9 million and $12.4 million, respectively, on these securities due to market value appreciation which are included in accumulated other comprehensive income. Other assets, which include investments, license fees, intellectual property, capitalized software development costs, cash surrender value of company- owned life insurance and various prepaid expenses, increased $13.5 million in fiscal year 2000 due primarily to investments of $13.1 million in Bookham Technology, plc., a UK-based developer and supplier of optical components, $10.0 million in Luminous Networks, a developer of optical transport technology and $6.9 million in Broadband Innovations, Inc., a telecommunications technology company. Total borrowings at year-end amounted to $0.5 million, $0.3 million lower than the prior year. The borrowings consist primarily of financing for equipment. See Note 7. Accounts payable were $212.1 million at year-end, up from $137.1 million last year. The increase reflects the higher inventory levels at the end of fiscal year 2000 as compared to the prior year and the increase in days in accounts payable to 49 at the end of fiscal year 2000 from 44 at the end of fiscal year 1999. Accrued liabilities of $149.4 million include accruals for compensation, provisions for businesses sold, warranty and service obligations, customer down-payments, royalties and taxes, excluding income taxes. See Management's Discussion of Consolidated Statement of Earnings and Notes 3 and 8 for additional information. Non-current deferred income taxes of $114.4 million relate primarily to the net unrealized gain on marketable securities classified as available for sale under the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." At July 2, 1999, we had a net non-current deferred tax asset which was included in Other Assets. Other liabilities of $69.8 million are comprised of deferred compensation, retirement plans, postretirement benefit plans, postemployment benefits and other miscellaneous accruals. See Note 9 for details. 15 Management's Discussion of Consolidated Statements of Financial Position (Continued) Stockholders' equity was $1.21 billion at the end of fiscal year 2000, up $476.8 million over the prior year. Net earnings of $155.8 million, $116.4 million from the issuance of common stock pursuant to employee benefit and other stock-based compensation plans and a $213.8 million increase in accumulated comprehensive income were partially offset by dividend payments of $5.5 million and the repurchase of 75,000 shares of our stock for $3.7 million. See the Consolidated Statements of Stockholders' Equity and Comprehensive Income for details. 16 Consolidated Statements of Financial Position
In Thousands --------------------- 2000 1999 - ------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 462,496 $ 300,454 Short-term investments 60,628 -- Receivables, less allowance for doubtful accounts of $4,134,000 in 2000 and $8,160,000 in 1999 333,242 290,274 Inventories 209,916 189,354 Deferred income taxes 49,681 37,130 Other current assets 34,671 14,249 ---------- ---------- Total current assets 1,150,634 831,461 ---------- ---------- Property, plant, and equipment, at cost Land and improvements 20,248 21,161 Buildings and improvements 40,915 31,802 Machinery and equipment 214,295 197,326 ---------- ---------- 275,458 250,289 Less - accumulated depreciation and amortization 96,209 92,751 ---------- ---------- 179,249 157,538 ---------- ---------- Cost in excess of net assets acquired 7,475 7,900 ---------- ---------- Non-current marketable securities 381,983 18,783 ---------- ---------- Other assets 60,119 46,592 ---------- ---------- Total Assets $1,779,460 $1,062,274 ========== ========== - ------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities Current maturities of long-term debt $ 386 $ 416 Accounts payable 212,111 137,146 Accrued liabilities 149,402 125,038 Income taxes currently payable 18,264 5,211 ---------- ---------- Total current liabilities 380,163 267,811 ---------- ---------- Long-term debt, less current maturities 102 370 ---------- ---------- Deferred income taxes 114,428 -- ---------- ---------- Other liabilities 69,807 55,927 ---------- ---------- Commitments and contingencies (Note 14) Stockholders' equity Preferred stock, authorized 50,000,000 shares; no shares issued -- -- Common stock, $0.50 par value, authorized 350,000,000 shares, issued 159,971,077 shares in 2000 and 79,616,712 shares in 1999 79,986 39,808 Additional paid-in capital 339,649 226,390 Retained earnings 607,822 497,403 Accumulated other comprehensive income, net of taxes of $135,538,000 in 2000 and $4,921,000 in 1999 221,141 7,379 ---------- ---------- 1,248,598 770,980 Less - Treasury stock, at cost (651,805 shares in 2000 and 2,269,646 shares in 1999) 33,638 32,814 ---------- ---------- 1,214,960 738,166 ---------- ---------- Total Liabilities and Stockholders' Equity $1,779,460 $1,062,274 ========== ==========
- -------------------------------------------------------------------------------- See accompanying notes. 17 Management's Discussion of Consolidated Statements of Earnings The Consolidated Statements of Earnings summarizes Scientific-Atlanta's operating performance over the last three years, during which time we have accelerated development of new products, particularly the development, deployment, production and qualification of our interactive digital networks at customer sites in North America, and continued our expansion into international markets. Net earnings were $155.8 million, or $0.94 per share as compared to $102.3 million, or $0.65 per share in fiscal year 1999. Earnings in fiscal year 1999 included gains of $41.6 million from the sale of certain marketable securities and the adjustment of our investments in other marketable securities to market value. Excluding these gains, earnings from continuing operations in 1999 were $60.7 million, or $0.39 per share. Our fiscal year 1998 results contain several significant and non-recurring items. We recorded $76.2 million of restructuring and other one-time pre- tax charges in the fourth quarter of fiscal year 1998. These charges include the impairment of assets, such as excess inventory related to the consolidation of manufacturing operations and the discontinuance of certain product models, costs to relocate production and the Network Operations Center (NOC), losses on contracts, costs to abandon facilities, charges to establish an allowance for doubtful accounts receivable from customers in the Asia Pacific region and environmental issues. We charged $33.6 million to cost of sales, $5.9 million to selling and administrative expenses, $23.4 million to restructuring expense and $13.3 million to other expense. We also recorded a one-time pre-tax gain of $94.0 million to adjust our investment in Broadcom Corporation to market value. Net earnings excluding these one-time special items were $68.5 million, or $0.44 per share. Sales of $1.72 billion in fiscal year 2000 increased 38 percent over the prior year. Domestic sales grew $391.3 million, or 41 percent, year-over-year while international sales increased $80.6 million, or 29 percent, year- over-year. During fiscal year 2000, Scientific-Atlanta accelerated the rollout of advanced two-way digital cable systems which are real-time, interactive digital networks capable of advanced services such as video-on-demand, e-mail and Web browsing. During fiscal year 2000, we increased the production capacity of our digital set-tops in our Juarez facility from 250,000 units per quarter to 1 million units per quarter. We plan to increase the production capacity of our digital set-tops in the Juarez facility to 1.3 million units per quarter by the second quarter of fiscal year 2001. Broadband segment sales in fiscal year 2000 were $1.55 billion, up 48 percent over the prior year. Sales of subscriber products led the year- over-year increase with growth of 51 percent driven by the continued rapid acceleration in the deployment of digital interactive systems and strong demand for the Explorer(R) set-tops. We shipped more than 1.8 million Explorer set-tops during fiscal year 2000 as compared to approximately 0.5 million in fiscal year 1999. As anticipated and previously announced, sales of analog set-tops continued to decline as cable operators shift from analog to digital products. We expect that the downward trend in sales of analog set-tops will continue throughout the next fiscal year. Sales of transmission products increased 44 percent led by growth of 79 percent and 51 percent in sales of opto-electronics and RF (radio frequency) products, respectively. Satellite segment sales declined 11 percent from the prior year due to lower sales in the Satellite Networks business unit which relies significantly on international markets which were negatively impacted by the weak economic conditions in Eastern Europe and the Asia Pacific region and the sale of the Satellite Networks business unit to ViaSat, Inc. in April 2000. We do not expect the sale of the Satellite Networks business to have a material impact on our results of operations or financial position. Sales of the Satellite Networks business unit were approximately 4 percent of total sales in fiscal year 2000 and 8 percent of total sales in fiscal year 1999. 18 Management's Discussion of Consolidated Statements of Earnings (Continued) Sales of $1.24 billion in fiscal year 1999 increased 5 percent over the prior year. Domestic sales grew $160.1 million, or 20 percent, year over year offsetting weaknesses in markets outside the United States. International sales declined $98.1 million, or 26 percent, year-over-year. Broadband segment sales of $1.05 billion in fiscal year 1999 increased 18 percent over the prior year with strong domestic growth in both the transmission and subscriber businesses driven by the cable industry's accelerating moves into Internet Protocol based digital interactive services. The growth in sales of transmission products was driven by cable system rebuilds. The significant increase in sales of digital products was the primary factor in the year-to-year increase in the subscriber businesses. Satellite segment sales in fiscal year 1999 were $184.6 million, down 28 percent from the prior year. Sales of digital set-tops constituted 34 percent of our total sales in fiscal year 2000, and approximately 15 percent and 1 percent of our total sales in fiscal years 1999 and 1998, respectively. Sales of RF products were approximately 18 percent of our total sales in fiscal year 2000, and approximately 16 percent and 18 percent of such sales in fiscal years 1999 and 1998, respectively. Sales of analog set-tops constituted 9 percent of our total sales in fiscal year 2000, and approximately 24 percent and 33 percent of such sales in fiscal years 1999 and 1998, respectively. International sales were 21 percent of total sales in fiscal year 2000, as compared to 22 percent and 32 percent of such sales in fiscal years 1999 and 1998, respectively. Cost of sales as a percent of sales decreased 0.7 percentage points in fiscal year 2000 from 1999, reflecting the economies of scale associated with increased manufacturing volumes, the continuing benefit from manufacturing in Juarez, Mexico and negotiated procurement savings. Cost of sales as a percent of sales decreased 0.6 percentage points in fiscal year 1999 from 1998. Cost of sales in fiscal year 1998 included one- time charges of $33.6 million previously discussed. Excluding these one- time charges, cost of sales as a percent of sales increased 2.2 percentage points in fiscal year 1999 over 1998. Margins on digital set-tops, which were lower than Scientific-Atlanta's average, more than offset gains from cost reductions from the transfer of RF production to Juarez, Mexico from Norcross, Georgia, negotiated procurement savings and economies of scale associated with increased manufacturing volumes. The materials and supplies we purchase are standard electronic components, such as integrated circuits, wire, circuit boards, transistors, capacitors and resistors, all of which are produced by a number of manufacturers. Matsushita Electronic Components Corporation of America and its affiliates manufacture analog set-tops for us and are a primary supplier of those set- tops. Cablevision Electronics Co., Ltd. and Zinwell Corporation, Taiwanese companies, are primary suppliers of taps. We also purchase aluminum and steel, including castings and semi-fabricated items, produced by a variety of sources. Our primary supplier of die castings for our RF distribution products is Premiere Die Casting, Inc. Anadigics, Inc. is a provider of CATV hybrid integrated circuits for use in our RF distribution products. Additionally, Motorola, Inc., Broadcom Corporation and STMicroelectronics are three of our primary suppliers of a variety of semi-conductor products, which are used as components in an array of our products, including set- tops. We consider our sources of supply to be adequate and are not dependent upon any single supplier, except for those listed above, for any significant portion of the materials used in the products we manufacture or for the products we sell. From time to time we experience shortages of certain electronic components from our suppliers. Recently, we have experienced substantial shortages of certain electronic components from our suppliers and expect that such shortages will continue to be substantial. These shortages have not had, and are not expected to have, a material effect on our operations. 19 Management's Discussion of Consolidated Statements of Earnings (Continued) Sales and administrative expenses of $177.6 million were up $15.6 million over the prior year. Increases in expenses related to the high volume of sales and higher professional fees more than offset cost reductions from the restructuring of the Satellite segment. Sales and administrative expenses of $162.0 million in fiscal year 1999 were $3.6 million lower than 1998. Research and development expenses were $122.4 million in fiscal year 2000, up $5.1 million over 1999. Research and development efforts in 2000 continued to focus on the development of applications and enhancements to Scientific- Atlanta's interactive broadband networks, particularly for opto-electronic products, digital set-tops and digital network products. Research and development expenses were approximately 7 percent of sales in fiscal year 2000 and 9 percent of sales in fiscal years 1999 and 1998. We continue to invest in research and development programs to support existing products as well as future potential products and services for our customer base. Certain software development costs are capitalized when incurred and are reported at the lower of unamortized cost or net realizable value. Capitalization of software development costs begins upon the establishment of technological feasibility. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future revenues, estimated economic life and changes in software and hardware technologies. We capitalized $3.4 million, $3.3 million and $2.2 million of software development costs in fiscal years 2000, 1999 and 1998, respectively. We recognized revenue on certain of these products and amortized $4.4 million and $0.6 million of these development costs to cost of sales in fiscal years 2000 and 1999, respectively. No such revenue was recognized in fiscal year 1998. Capitalization ceases and amortization begins when the products are available for general release to customers. We periodically allocate 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 non-recurring engineering costs capitalized in inventory at June 30, 2000. At July 2, 1999, we had capitalized $9.0 million of such non-recurring engineering costs capitalized in inventory. During fiscal years 2000, 1999 and 1998, we recognized revenue on certain of these orders and, accordingly, charged $9.0 million, $2.2 million and $1.3 million, respectively, to cost of sales. We invest in our technology and in select emerging technologies of innovative companies. During fiscal year 2000, we invested $13.1 million in Bookham Technology, plc., a UK-based developer and supplier of optical components, $10.0 million in Luminous Networks, a developer of next- generation optical transport technology, and $6.9 million in Broadband Innovations, Inc., a telecommunications technology company specializing in RF and digital signal processing solutions for broadband communications. We periodically evaluate our strategic direction including an assessment of the markets we serve and alternative methods of generating revenues from our investments in research and development programs, such as licensing of software and hardware technology. Restructuring charges of $23.4 million were recorded in the fourth quarter of fiscal year 1998. The charges included $10.2 million and $3.2 million for fixed assets to be abandoned and expenses related to the remaining contractual liabilities for cancelled leases, respectively, as a result of the consolidation of operations, $5.2 million for severance costs, and $4.8 million for the impairment of certain assets and other miscellaneous expenses. 20 Management's Discussion of Consolidated Statements of Earnings (Continued) As part of the restructuring, production of the RF amplifier was transferred from Norcross, Georgia to Scientific-Atlanta's high volume, low cost manufacturing facility in Juarez, Mexico during the first half of fiscal year 1999. The Norcross manufacturing facility is focused on medium- to low-volume products requiring close engineering support. The production of cable headend equipment was consolidated in Norcross from Vancouver, British Columbia during the second half of fiscal year 1999. The Melbourne, Florida satellite services NOC and research and development facility were also relocated to Norcross. During fiscal year 1998, our European headquarters moved from London, England to Frankfurt, Germany to better address market opportunities in continental Europe. The Far East regional headquarters were transferred from Hong Kong to Singapore. Our Satellite Networks and Communications and Tracking Systems business units combined in fiscal year 1999 to capitalize on the combined resources provided by concentrated capabilities in networks, research and development, marketing and sales, and customer program management and services. We substantially completed our restructuring program in fiscal year 1999. Approximately $1.4 million of the original $23.4 million restructuring charge will be incurred after June 30, 2000 for expenses related to contractual obligations under cancelled leases. Interest expense was $0.6 million, $0.6 million and $0.5 million in fiscal years 2000, 1999 and 1998, respectively. Interest income was $19.6 million, an increase of $11.1 million over the prior year, due to higher average cash balances and the increase in short-term investments in fiscal year 2000. Other (income) expense of $0.7 million in fiscal year 2000 included expenses of $10.3 million related to contractual obligations to minority shareholders of a majority-owned subsidiary and losses of $2.4 million from the disposal of fixed assets. During fiscal year 2000, we completed the sale of certain assets of our Control Systems business unit for $3.3 million of cash and recorded a gain of $1.5 million. We also recorded a $5.8 million gain from the sale of a portion of our investment in WorldGate Communications, Inc. (WorldGate). Other (income) expense also included gains of $5.5 million from the reduction of reserves related to the sale of two business units. During the year, we determined that our exposure for indemnifications to the purchasers of these business units and other miscellaneous expenses related to the dispositions were ultimately less than we had previously estimated and, accordingly, reduced the reserves. We also completed the sale of the majority of the Satellite Networks business unit for $65.3 million of cash. No gain or loss was recognized on this transaction. At June 30, 2000, we had reserves of approximately $28.7 million related to the disposition of these three business units to provide for potential sales price adjustments, expenses related to contractual commitments to the purchasers, indemnifications to the purchasers, severance and other miscellaneous expenses related to the sales. We also reversed approximately $4.5 million of a $5.5 million charge recorded in fiscal year 1998 for expenses and the potential settlement of environmental issues. As this environmental matter has progressed, we have determined that its potential exposure is less than initially anticipated. At June 30, 2000, we had $0.9 million remaining in the reserve for expenses and the potential settlement of environmental issues. Other income of $62.3 million in fiscal year 1999 included gains of $41.3 million and $16.6 million from the sale of our investments in Broadcom Corporation and Harmonic Inc., respectively, $6.2 million from the cancellation of a contract under which we were obligated to supply equipment and $5.0 million from an investment in a partnership. In addition, during the second quarter of fiscal year 1999, we 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 our core strategy. We recorded a charge of approximately 21 Management's Discussion of Consolidated Statements of Earnings (Continued) $6.0 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 of $79.9 million in fiscal year 1998 included a $93.8 million net gain from the mark-to-market adjustment of marketable securities of which $94.0 million related to our investment in Broadcom Corporation, a $9.1 million gain from the sale of certain assets of the Interdiction business, a loss of $9.0 million from the discontinuance of research and development efforts related to our CoAxiom(R) telephony products, $6.2 million for estimated losses on the resale of used equipment and $5.5 million for expenses and the potential settlement of environmental issues and other miscellaneous items. During fiscal year 1998, we sold the inventory, manufacturing assets and intellectual property of our Interdiction business to Blonder Tongue Laboratories, Inc. (Blonder Tongue) for $19.0 million in cash, Blonder Tongue stock valued at $1.0 million and an option to acquire additional shares of Blonder Tongue stock, and recorded a pre-tax gain of $9.1 million. During fiscal year 1998, we also sold the majority of the net assets of our Microwave business unit for $8.1 million of cash. No gain or loss was recognized on the transaction. The provision for income taxes was 30 percent of pre-tax earnings in fiscal years 2000, 1999 and 1998. We expect our effective income tax rate will increase to 34 percent of pre-tax earnings in fiscal year 2001 as the impact on the tax rate from research and development credits is diminished with higher levels of pretax earnings. Details of the provision for income taxes are discussed in Note 10. Earnings per share of $0.94 in fiscal year 2000 compares with earnings per share of $0.65 in 1999 and $0.50 in 1998. Average diluted shares outstanding increased to 164.9 million in fiscal year 2000 from 157.1 million in 1999 due primarily to the issuance of shares pursuant to stock option plans, 401(k) plan and other stock-based compensation arrangements. Average diluted shares declined in fiscal year 1999 as compared to 1998 due primarily to the repurchase of 4,648,000 shares of our common stock in 1999. Earnings per share and weighted average shares outstanding for prior periods have been restated to reflect the 2-for-1 stock split in March 2000. See Notes 15 and 16. 22 Consolidated Statements of Earnings
(In Thousands, Except Per Share Data) 2000 1999 1998 - ----------------------------------------------------------------------------- Sales $1,715,410 $1,243,473 $1,181,404 - ----------------------------------------------------------------------------- Costs and expenses Cost of sales 1,212,655 888,162 850,738 Sales and administrative 177,588 162,017 165,639 Research and development 122,403 117,261 111,546 Restructuring -- -- 23,412 Interest expense 564 635 476 Interest income (19,636) (8,526) (5,963) Other (income) expense, net (747) (62,281) (79,863) - ----------------------------------------------------------------------------- Total costs and expenses 1,492,827 1,097,268 1,065,985 - ----------------------------------------------------------------------------- Earnings before income taxes 222,583 146,205 115,419 - ----------------------------------------------------------------------------- Provision for income taxes 66,775 43,862 34,626 - ----------------------------------------------------------------------------- Net earnings $ 155,808 $ 102,343 $ 80,793 - ----------------------------------------------------------------------------- Earnings per common share - ----------------------------------------------------------------------------- Basic $ 0.99 $ 0.67 $ 0.51 Diluted $ 0.94 $ 0.65 $ 0.50 - ----------------------------------------------------------------------------- Weighted average number of common shares outstanding - ----------------------------------------------------------------------------- Basic 157,807 153,630 157,384 - ----------------------------------------------------------------------------- Diluted 164,895 157,130 160,006 - -----------------------------------------------------------------------------
See accompanying notes. 23 Management's Discussion of Consolidated Statements of Cash Flows The Statement of Cash Flows summarizes the main sources of our cash and its uses. These flows of cash provided or used are summarized by Scientific- Atlanta's operating activities, investing activities and financing activities. Cash and cash equivalents at the end of fiscal year 2000 were $462.5 million, up $162.0 million from the end of 1999 due to improved earnings and proceeds from the sale of the Satellite and Control Systems business units and the issuance of stock. During fiscal year 2000, we transferred $60.6 million from cash and cash equivalents to short-term investments to improve the yield on our investments. We have a $300 million senior credit facility available that provides for unsecured borrowings up to $150 million which expires May 2001 and up to $150 million which expires May 2004. There were no outstanding borrowings under this facility at June 30, 2000 or at July 2, 1999. We believe that funds generated from operations, existing cash balances and our available senior credit facility will be sufficient to support growth and planned expansion of manufacturing capacity. Cash provided by operating activities was $222.2 million for fiscal year 2000, compared to $46.2 million for fiscal year 1999. Cash provided by improved earnings and increases in accounts payable and other liabilities were offset partially by increases in accounts receivable and inventory levels as compared to the prior year. See Management's Discussion of the Statement of Financial Position for details of this performance. In fiscal year 1999, cash provided by earnings and increases in accounts payable were also offset partially by increases in accounts receivable and inventory levels as compared to the prior year. Cash used by investing activities of $103.7 million included expenditures for equipment and expansion of manufacturing capacity, primarily in Juarez, Mexico, purchases of short-term investments and technology investments. Cash provided by investing activities included proceeds from the sale of the Satellite and Control System business units and the divestiture of a portion of our investment in WorldGate Communications, Inc. See Note 2 for additional discussion of investing activities. Cash provided by investing activities of $107.0 million in fiscal year 1999 consisted of proceeds from the sale of marketable securities and other investments offset by investing activities of $51.4 million for expenditures for equipment and the expansion of manufacturing capacity, primarily in Juarez, Mexico. Cash used by investing activities of $14.8 million in fiscal year 1998 included expenditures for equipment, expansion of manufacturing capacity, primarily in Juarez, Mexico, and other investing activities. Sources of cash included proceeds from the sales of the Interdiction and Microwave businesses. Cash provided by financing activities of $43.5 million included $53.1 million from the issuance of stock pursuant to stock option and employee benefit plans offset partially by dividend payments of $5.5 million, the repurchase of 75,000 shares of Scientific-Atlanta's common stock for $3.7 million and payments on long-term debt of $0.3 million. Cash used by financing activities of $28.1 million in fiscal year 1999 included the acquisition of 4,648,000 shares of Scientific-Atlanta's stock for $65.2 million, dividend payments of $4.6 million and payments on long- term debt of $0.9 million. We reissue these shares under the Scientific- Atlanta stock option plans, 401(k) plan, employee stock purchase plan and other stock-based employee compensation arrangements. The issuance of stock pursuant to these plans generated cash of $42.6 million. Cash provided by financing activities was $2.8 million in fiscal year 1998. Financing activities included the repurchase of 500,000 shares of Scientific-Atlanta's common stock for 24 Management's Discussion of Consolidated Statements of Cash Flows (Continued) $7.5 million, dividend payments of $4.7 million and net debt payments of $0.9 million. The issuance of stock pursuant to stock option and employee benefit plans generated cash of $16.0 million. ---------------- Any statements in Management's Discussion and Analysis of Financial Condition 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-K for a description of the various risks and uncertainties that could cause Scientific-Atlanta's actual results and experience to differ materially from the anticipated results or other expectations expressed in Scientific-Atlanta'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. CoAxiom and Explorer are registered trademarks of Scientific-Atlanta, Inc. 25 Consolidated Statements of Cash Flows
(In Thousands) 2000 1999 1998 - ------------------------------------------------------------------------------ Operating Activities: - --------------------- Net earnings from continuing operations $ 155,808 $102,343 $ 80,793 Adjustments to reconcile net earnings from continuing operations to net cash provided by operating activities: (Gains) on marketable securities, net (5,780) (59,465) (93,764) Depreciation and amortization 50,707 46,075 48,260 Compensation related to stock benefit plans 20,779 9,720 9,680 Provision for losses on accounts receivable (3,165) (1,615) 6,231 Losses on sale of property, plant and equipment 2,396 4,436 4,297 (Gain) on sale of businesses, net (6,527) -- (9,080) (Earnings) losses of partnerships, net 754 (6,023) 20 Changes in operating assets and liabilities: Receivables (55,409) (34,209) (27,748) Inventories (28,308) (29,809) 42,753 Deferred income taxes (22,570) (15,593) 8,286 Accounts payable and accrued liabilities 74,435 25,185 3,124 Other assets (29,204) (7,867) (9,253) Other liabilities 71,571 12,658 16,615 Exchange rate fluctuations, net (3,266) 316 50 --------- -------- -------- Net cash provided by operating activities 222,221 46,152 80,264 --------- -------- -------- Investing Activities: - --------------------- Purchases of property, plant and equipment (82,772) (51,352) (40,643) Purchases of short-term investments (60,628) -- -- Proceeds from the sale of businesses 68,606 -- 27,059 Proceeds from the sale of investments 8,719 152,974 -- Other investments (37,713) 4,952 (1,564) Other 106 469 308 --------- -------- -------- Net cash provided (used) by investing activities (103,682) 107,043 (14,840) --------- -------- -------- Financing Activities: - --------------------- Principal payments on long-term debt (298) (923) (943) Dividends paid (5,541) (4,618) (4,723) Issuance of stock 53,087 42,636 16,002 Treasury shares acquired (3,745) (65,228) (7,511) --------- -------- -------- Net cash provided (used) by financing activities 43,503 (28,133) 2,825 --------- -------- -------- Increase in cash and cash equivalents 162,042 125,062 68,249 Cash and cash equivalents at beginning of year 300,454 175,392 107,143 --------- -------- -------- Cash and cash equivalents at end of year $ 462,496 $300,454 $175,392 ========= ======== ========
See accompanying notes. 26 Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Dollars In Thousands, Except Per Share Data) 2000 1999 1998 - ------------------------------------------------------------------------------- Preferred Stock Shares authorized 50,000 50,000 50,000 Shares issued -- -- -- - ------------------------------------------------------------------------------- Common Stock ($0.50 Par Value) Shares authorized 350,000 350,000 350,000 Shares issued at beginning of year 79,617 79,207 77,995 Issuance of a 2-for-1 stock split effected in the form of a stock dividend 79,696 -- -- Issuance of shares under employee benefit plans 633 264 1,095 Issuance of restricted shares 25 146 117 - ------------------------------------------------------------------------------- Shares issued at end of year 159,971 79,617 79,207 - ------------------------------------------------------------------------------- Additional Paid-in Capital Balance, beginning of year $ 226,390 $195,446 $171,857 Issuance of shares under employee benefit plans 27,839 11,431 14,042 Tax benefit related to the exercise of stock options 45,867 15,317 5,719 Issuance of restricted shares to employees 46,759 8,616 3,843 Restricted shares forfeited/canceled 25,891 849 1,934 Unearned compensation -- restricted shares (33,097) (5,269) (1,949) - ------------------------------------------------------------------------------- Balance, end of year $ 339,649 $226,390 $195,446 - ------------------------------------------------------------------------------- Retained Earnings Balance, beginning of year $ 497,403 $399,678 $323,608 Net income(a) 155,808 102,343 80,793 Issuance of a 2-for-1 stock split effected in the form of a stock dividend (39,848) -- -- Cash dividends ($0.035 per share in fiscal year 2000 and $0.03 in fiscal years 1999 and 1998) (5,541) (4,618) (4,723) - ------------------------------------------------------------------------------- Balance, end of year $ 607,822 $497,403 $399,678 - ------------------------------------------------------------------------------- Accumulated Other Comprehensive Income (loss) (net of tax) Balance, beginning of year $ 7,379 $ (123) $ (112) Foreign currency translation adjustments(b) (1,997) 72 (11) Unrealized holding gains (losses) on marketable securities, net of reclassification adjustments(c) 216,587 7,430 -- Minimum pension liability adjustment(d) (828) -- -- - ------------------------------------------------------------------------------- Balance, end of year $ 221,141 $ 7,379 $ (123) - ------------------------------------------------------------------------------- Treasury Shares Balance, beginning of year $ 32,814 $ 2,528 $ 1,627 Treasury shares acquired 3,745 65,228 7,511 Restricted shares forfeited/canceled 25,891 849 1,934 Issuance of shares under employee benefit plans (28,812) (35,791) (8,544) - ------------------------------------------------------------------------------- Balance, end of year $ 33,638 $ 32,814 $ 2,528 - ------------------------------------------------------------------------------- Total Stockholders' Equity $1,214,960 $738,166 $632,077 Total Comprehensive Income (a+b+c+d) $ 369,570 $109,845 $ 80,782 - -------------------------------------------------------------------------------
See accompanying notes. 27 Selected Financial Data
(Dollars in Thousands, Except Per Share Data) 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------- Sales $1,715,410 $1,243,473 $1,181,404 $1,168,245 $1,047,901 - -------------------------------------------------------------------------------------- Cost of Sales 1,212,655 888,162 850,738 809,081 761,876 Sales and Administrative Expense 177,588 162,017 165,639 160,613 138,362 Research and Development Expense 122,403 117,261 111,546 114,344 95,299 Restructuring Expense -- -- 23,412 -- -- Purchased In-Process Technology -- -- -- -- 14,583 Interest Expense 564 635 476 484 672 Interest Income (19,636) (8,526) (5,963) (3,943) (1,818) Other (Income) Expense, Net (747) (62,281) (79,863) (1,513) 28,374 - -------------------------------------------------------------------------------------- Earnings Before Income Taxes and Discontinued Operations 222,583 146,205 115,419 89,179 10,553 - -------------------------------------------------------------------------------------- Provision for Income Taxes 66,775 43,862 34,626 28,537 3,377 - -------------------------------------------------------------------------------------- Earnings Before Discontinued Operations 155,808 102,343 80,793 60,642 7,176 - -------------------------------------------------------------------------------------- Earnings (Loss) from Discontinued Operations, Net of Tax -- -- -- 3,400 (13,210) - -------------------------------------------------------------------------------------- Net Earnings (Loss) $ 155,808 $ 102,343 $ 80,793 $ 64,042 $ (6,034) - -------------------------------------------------------------------------------------- Basic Earnings Per Share before Discontinued Operations $ 0.99 $ 0.67 $ 0.51 $ 0.39 $ 0.05 - -------------------------------------------------------------------------------------- Diluted Earnings Per Share before Discontinued Operations $ 0.94 $ 0.65 $ 0.50 $ 0.39 $ 0.05 - -------------------------------------------------------------------------------------- Diluted Earnings (Loss) Per Share $ 0.94 $ 0.65 $ 0.50 $ 0.41 $ (0.04) - -------------------------------------------------------------------------------------- Cash Dividends Paid Per Share $ 0.035 $ 0.030 $ 0.030 $ 0.030 $ 0.030 - -------------------------------------------------------------------------------------- Working Capital $ 770,471 $ 563,650 $ 457,830 $ 347,340 $ 301,054 - -------------------------------------------------------------------------------------- Total Assets $1,779,460 $1,062,274 $ 940,223 $ 823,689 $ 763,026 - -------------------------------------------------------------------------------------- Short-Term Debt and Current Maturities of Long- Term Debt $ 386 $ 416 $ 726 $ 842 $ 1,600 Long-Term Debt 102 370 983 1,810 400 Stockholders' Equity 1,214,960 738,166 632,077 532,724 463,356 - -------------------------------------------------------------------------------------- Total Capital Invested $1,215,448 $ 738,952 $ 633,786 $ 535,376 $ 465,356 - -------------------------------------------------------------------------------------- Gross Margin % of Sales 29.3% 28.6% 28.0% 30.7% 27.3% - -------------------------------------------------------------------------------------- Return on Sales Before Discontinued Operations 9.1% 8.2% 6.8% 5.2% 0.7% - -------------------------------------------------------------------------------------- Return on Average Stockholders' Equity 17.2% 15.6% 13.9% 13.0% (1.3)% - -------------------------------------------------------------------------------------- Effective Tax Rate 30% 30% 30% 32% 32% - --------------------------------------------------------------------------------------
28 Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) 1. Summary of Significant Accounting Policies - -------------------------------------------------------------------------------- Business Scientific-Atlanta provides its customers with content distribution networks, broadband transmission networks, digital interactive subscriber systems and worldwide customer service and support. We are a producer of a wide variety of products for terrestrial and satellite communications networks, including digital video, voice and data communications products. We operate primarily in two reportable business segments: Broadband and Satellite. The Broadband segment consists of subscriber and transmission systems and the Satellite segment consists of satellite network and satellite television network systems. In April 2000, ViaSat, Inc. acquired our Satellite Networks business, which constituted a substantial part of our Satellite segment. We retained the satellite television network business which provides the content distribution networks. Our products are sold primarily through our own sales personnel who work out of offices in Norcross, Georgia and other metropolitan areas in the United States. Certain products are also marketed in the United States through independent sales representatives and distributors. In addition to our direct sales, sales in foreign countries are made through wholly-owned subsidiaries and branch offices, as well as through independent distributors and independent sales representatives. The materials and supplies we purchase are standard electronic components, such as integrated circuits, wire, circuit boards, transistors, capacitors and resistors, all of which are produced by a number of manufacturers. Matsushita Electronic Components Corporation of America and its affiliates manufacture analog set-tops for us and are a primary supplier of those set-tops. Cablevision Electronics Co., Ltd. and Zinwell Corporation, Tiawanese companies, are primary suppliers of taps. We also purchase aluminum and steel, including castings and semi-fabricated items, produced by a variety of sources. Our primary supplier of die castings for our RF distribution products is Premiere Die Casting, Inc. Anadigics, Inc. is a provider of CATV hybrid integrated circuits for use in our RF distribution products. Additionally, Motorola, Inc., Broadcom Corporation and STMicroelectronics are three of our primary suppliers of a variety of semiconductor products, which are used as components in an array of our products, including set-tops. We consider our sources of supply to be adequate and are not dependent upon any single supplier, except for those listed above, for any significant portion of the materials used in the products we manufacture or for the products we sell. From time to time, we experience shortages of certain electronic components from our suppliers. Recently, we have experienced substantial shortages of certain electronic components and expect that such shortages will continue to be substantial. These shortages have not had, and are not expected to have, a material effect on our operations. Fiscal Year-End Scientific-Atlanta's fiscal year ends on the Friday closest to June 30 of each year. Fiscal year ends are as follows: 2000: June 30, 2000 1999: July 2, 1999 1998: June 26, 1998
Fiscal 1999 includes fifty three weeks. Consolidation The accompanying consolidated financial statements include the accounts of Scientific-Atlanta and all subsidiaries after elimination of all material intercompany accounts and transactions. Use of Estimates The preparation of the accompanying consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The estimates made by management primarily relate to receivable and inventory reserves, estimated costs to complete long-term contracts and certain accrued liabilities, principally relating to warranty and service provisions and restructuring reserves, compensation, claims, litigation and taxes. 29 Foreign Currency Translation The financial statements of certain foreign operations are translated into U.S. dollars at current exchange rates. Resulting translation adjustments are accumulated as a component of accumulated other comprehensive income and excluded from net earnings. Foreign currency transaction gains and losses are included in cost of sales and other income. Foreign Exchange Contracts Scientific-Atlanta 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 us to inventory pricing or asset devaluation risk and the related contract must reduce that exposure and be designated by Scientific-Atlanta as a hedge. Gains and losses on foreign exchange forward contracts, including the cost of the contracts, are deferred and recognized in income in the same period as the hedged transactions. Our foreign exchange forward contracts do not significantly subject our 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. We do 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, we would recognize unrealized gains and losses as they occur. Firmly committed purchase exposure and related derivative contracts for fiscal 2001 are as follows:
Japanese Canadian Spanish Yen Dollar Pesetas -------- -------- -------- Firmly committed purchase (sales) contracts 7,607 11,512 (105,000) Notional amount of forward contracts -- 12,100 (105,000) Average contract amount (Foreign currency/United States dollar) -- 1.48 153.25
Scientific-Atlanta has no derivative exposure beyond December 2000. In June 1998, the Financial Accounting Standards Board issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" which we will adopt in fiscal 2001. Under Statement 133, every derivative instrument is recorded in the balance sheet as either an asset or a liability measured at its fair value. Changes in the derivative instrument's fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. Management does not believe the adoption of this statement will have a material impact on our results of operations or financial condition. Revenue Recognition Scientific-Atlanta's revenue recognition policies are in compliance with Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" issued by the Securities and Exchange Commission. Revenue is recognized at the time product is shipped or title passes pursuant to the terms of the agreement with the customer which include a standard right of return, the amount due from the customer is fixed and collectibility of the related receivable is reasonably assured. Revenues from progress-billed contracts are primarily recorded using the percentage-of-completion method based on contract costs incurred to date. Losses, if any, are recorded when determinable. Costs incurred and accrued profits not billed on these contracts are included in receivables. Unbilled receivables, which consist of retainage, were $1,269 at June 30, 2000 and $13,051 at July 2, 1999. It is anticipated that substantially all such amounts will be collected within one year. Research and Development Expenditures Certain software development costs are capitalized when incurred and are reported at the lower of unamortized cost or net realizable value. Capitalization of software development costs begins upon the establishment of technological feasibility. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated future revenues, estimated economic life and changes in software and hardware technologies. 30 Scientific-Atlanta capitalized $3,401, $3,268 and $2,181 of software development costs in fiscal years 2000, 1999 and 1998, respectively. We recognized revenue on certain of these products and charged $4,445 and $603 to cost of sales in fiscal years 2000 and 1999, respectively. No such revenue was recognized in fiscal year 1998. Capitalization will cease when the products are available for general release to customers. We periodically allocate 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 in inventory. There were no non-recurring engineering costs capitalized in inventory at June 30, 2000. At July 2, 1999, we had $9,013 of such non-recurring engineering costs capitalized in inventory. During fiscal years 2000, 1999 and 1998, we recognized revenue on certain of these orders and, accordingly, charged $9,013, $2,175 and $1,341 to cost of sales, respectively. Depreciation, Maintenance and Repairs Depreciation is provided using principally the straight-line method over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred. Renewals and betterments are capitalized. The cost and accumulated depreciation of property retired or otherwise disposed of are removed from the respective accounts, and the gains or losses thereon are included in the consolidated statement of earnings. Warranty Costs Scientific-Atlanta accrues warranty costs at the time of sale. Expenses related to unusual product warranty problems and product defects are recorded in the period the problem is identified. Earnings Per Share Basic earnings per share were computed based on the weighted average number of shares of common stock outstanding. Diluted earnings per share were computed based on the weighted average number of outstanding common shares and potentially dilutive shares. Earnings per share have been restated to reflect the 2-for-1 stock split in March 2000. Cash and Cash Equivalents Scientific-Atlanta considers all investments purchased with an original maturity of three months or less to be cash equivalents. Short-term Investments Short-term investments include debt instruments with an original maturity greater than three months and are classified as trading securities under the provisions of SFAS No. 115. Investment income is included in interest income. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Cost includes materials, direct labor, and manufacturing overhead. Market is defined principally as net realizable value. Inventories include purchased and manufactured components in various stages of assembly as presented in the following table:
2000 1999 -------- -------- Raw Materials and Work-In-Process $163,969 $129,911 Finished Goods 45,947 59,443 -------- -------- Total Inventory $209,916 $189,354 ======== ========
Long-Lived Assets Scientific-Atlanta records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. Cost in Excess of Net Assets Acquired Cost in excess of net assets acquired is being amortized on a straight-line basis over seventeen years. Subsequent to acquisition, Scientific-Atlanta continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of goodwill might warrant revision or that the remaining balance of goodwill may not be recoverable. When factors indicate that goodwill should be evaluated for possible impairment, we use an estimate of the related business segment's undiscounted net income or other methods of determining fair value, if more 31 readily determinable, over the remaining life of the goodwill in measuring whether the goodwill is recoverable. Non-Current Marketable Securities Non-current marketable securities consist of investments in common stock and are stated at market value. All non-current marketable securities are defined as available for sale under the provisions of SFAS No. 115 and unrealized holding gains and losses are included, net of taxes, in accumulated other comprehensive income. Comprehensive Income Comprehensive income consists of net income, unrealized gains on marketable securities defined as available for sale under the provisions of SFAS No. 115, foreign currency translation adjustments and charges for adjustments to the minimum pension liability. Financial Presentation Certain prior year amounts have been restated to conform to the current year presentation. 2. Investments, Acquisitions and Dispositions - -------------------------------------------------------------------------------- During fiscal year 2000, Scientific-Atlanta invested $13,100 in Bookham Technology, plc., a UK-based developer and supplier of optical components, $10,000 in Luminous Networks, a developer of next-generation optical transport technology, and $6,917 in Broadband Innovations, Inc., a telecommunications technology company specializing in RF and digital signal processing solutions for broadband communications. In addition, we acquired certain assets of an optics business for a cash payment of $7,697. To the extent that these investments represent non-marketable securities, they are recorded under the cost method of accounting. During fiscal year 2000, we completed the sale of the majority of the Satellite Networks business unit and certain assets of the Control Systems business unit for cash payments of $65,347 and $3,259, respectively. 3. Restructuring Charges - -------------------------------------------------------------------------------- During fiscal year 1998, we announced a restructuring and consolidation of worldwide manufacturing operations for reduced cost, improved efficiency and better customer service. Production of the RF amplifier was transferred from Norcross, Georgia to our high volume, low cost manufacturing facility in Juarez, Mexico during the first half of fiscal year 1999. The Norcross manufacturing facility is focused on medium- to low-volume products requiring close engineering support. The production of cable headend equipment was consolidated in Norcross from Vancouver, British Columbia during the second half of fiscal year 1999. The Melbourne, Florida satellite services Network Operations Center (NOC) and research and development facility was relocated to Norcross. During fiscal year 1998, our European headquarters moved from London, England to Frankfurt, Germany to better address market opportunities in continental Europe. The Far East regional headquarters were transferred from Hong Kong to Singapore. Our Satellite Networks and Communications and Tracking Systems business units combined in fiscal year 1999 to capitalize on the combined resources provided by concentrated capabilities in networks, research and development, marketing and sales, and customer program management and services. These businesses were sold in fiscal year 2000. No gain or loss was recognized. During fiscal year 1998, we recorded restructuring charges of $23,412 which included $10,217 and $3,200 for assets to be abandoned and expenses related to the remaining contractual liabilities for cancelled leases, respectively, as a result of the consolidation of operations, $5,173 for severance costs for approximately 500 employees primarily in manufacturing positions and $4,822 for the impairment of certain assets and other miscellaneous expenses. As of July 2, 1999, benefits paid and charged against the liability for severance totaled $6,360, and approximately 560 employees have actually been terminated. The restructuring plan was substantially completed during fiscal year 1999. As of June 30, 2000, $5,454 has been charged against the liability for contractual liabilities for cancelled leases and other miscellaneous costs, and $1,381 32 remains in the liability which is expected to be utilized by 2002 for expenses related to contractual liabilities for cancelled leases. The following reconciles the beginning restructuring charge to the liability at the end of fiscal years 1998, 1999 and 2000:
Contractual Obligations under Fixed Cancelled Assets Leases Severance Other Total -------- ----------- --------- ------- -------- Restructuring charge $ 10,217 $3,200 $ 5,173 $ 4,822 $ 23,412 Charges to the reserve and assets written off (10,217) -- (1,321) (2,197) (13,735) -------- ------ ------- ------- -------- Balance at June 28, 1998 -- 3,200 3,852 2,625 9,677 Charges to the reserve -- (927) (5,039) (2,111) (8,077) Reserve adjustments -- (673) 1,187 (514) -- -------- ------ ------- ------- -------- Balance at July 2, 1999 -- 1,600 -- -- 1,600 Charges to the reserve -- (219) -- -- (219) -------- ------ ------- ------- -------- Balance at June 30, 2000 $ -- $1,381 $ -- $ -- $ 1,381 ======== ====== ======= ======= ========
4. Other (Income) Expense - -------------------------------------------------------------------------------- Other income of $747 in fiscal year 2000 included expenses of $10,338 related to contractual obligations to minority shareholders of a majority-owned subsidiary and losses of $2,396 from the disposal of fixed assets. During fiscal year 2000, we completed the sale of certain assets of our Control Systems business unit for $3,259 of cash and recorded a gain of $1,500. We also recorded a $5,814 gain from the sale of a portion of our investment in WorldGate. Other (income) expense also included gains of $5,531 from the reduction of reserves related to the sale of two business units. During the year, we determined that our exposure for indemnifications to the purchasers of these business units and other miscellaneous expenses related to the dispositions were ultimately less than we had previously estimated and, accordingly, reduced the reserves. We also completed the sale of the majority of the Satellite Networks business unit for $65,347 of cash. No gain or loss was recognized on this transaction. At June 30, 2000, we had reserves of approximately $28,662 related to the disposition of these three business units to provide for potential sales price adjustments, expenses related to contractual commitments to the purchasers, indemnifications to the purchasers, severance and other miscellaneous expenses related to the sales. We also reversed approximately $4,540 of a $5,500 charge recorded in fiscal 1998 for expenses and the potential settlement of environmental issues. As this environmental matter has progressed, we determined that our potential exposure is less than initially anticipated. At June 30, 2000, we had $919 remaining in the reserve for expenses and the potential settlement of environmental issues. Other income of $62,281 in fiscal year 1999 included gains of $41,329 and $16,646 from the sale of our investments in Broadcom Corporation (Broadcom) and Harmonic Inc. (Harmonic), respectively, $6,250 from the cancellation of a contract under which we were obligated to supply equipment and $4,952 from an investment in a partnership. In addition, during the second quarter of fiscal year 1999, we 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 our core strategy. We 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. There were no charges to the reserve through July 2, 1999. Other income of $79,863 in fiscal year 1998 included a gain of $94,000 from the adjustment of our investment in Broadcom Corporation to market value, a gain of $9,080 from the sale of certain assets of the Interdiction business, a loss of $9,000 from the discontinuance of research and development efforts related to our CoAxiom telephony products, a loss of $6,250 for estimated losses on the resale of equipment we were contractually obligated to supply, $5,500 for expenses and the potential settlement of environmental issues and other miscellaneous items. During fiscal year 1998, we sold the inventory, manufacturing assets and intellectual property of our Interdiction business to Blonder Tongue Laboratories, 33 Inc. (Blonder Tongue) for $19,000 in cash, Blonder Tongue stock valued at $1,000 and an option to acquire additional shares of Blonder Tongue stock, and recorded a pre-tax gain of $9,080. During fiscal year 1998, we also sold the majority of the net assets of the Microwave business unit for $8,059 of cash. No gain or loss was recognized on this transaction. 5. Quarterly Financial Data (Unaudited) - -------------------------------------------------------------------------------
Fiscal Quarters ------------------------------------------ 2000 First Second Third Fourth ---- -------- -------- -------- -------- Sales $349,319 $372,721 $440,731 $552,639 Gross margin 99,948 109,209 130,075 163,523 Gross margin % 28.6% 29.3% 29.5% 29.6% Net earnings 25,254 33,372(1) 38,109(2) 59,073 Earnings per share Basic 0.16 0.21 0.25 0.37 Diluted 0.16 0.20 0.23 0.35 Stock prices High 29.2188 33.0625 74.5938 74.5000 Low 17.5938 24.1875 25.0938 50.1875 Dividends paid per share 0.0075 0.0075 0.0100 0.0100
- -------- (1) Includes a gain of $4,046 from the sale of a portion of our investment in WorldGate. (2) Includes expenses of $7,237 related to contractual obligations to minority shareholders of a majority-owned subsidiary, $3,872 from the reduction of reserves related to businesses sold and $3,178 from the reduction of a reserve for expenses and potential settlement of environmental issues.
Fiscal Quarters ------------------------------------------ 1999 First Second Third Fourth ---- -------- -------- -------- -------- Sales $257,478 $310,747 $320,019 $355,229 Gross margin 70,369 87,822 91,384 105,736 Gross margin % 27.3% 28.3% 28.6% 29.8% Net earnings 14,994(1) 19,188(2) 20,814 47,347(3) Earnings per share Basic 0.09 0.13 0.13 0.32 Diluted 0.09 0.13 0.13 0.30 Stock prices High 13.4375 11.4375 17.1875 19.6563 Low 8.8438 6.3438 11.2500 13.4375 Dividends paid per share 0.0075 0.0075 0.0075 0.0075
- -------- (1) Includes a gain of $12,600 from the adjustment of our investment in Broadcom to market value. (2) Includes a gain of $14,263 from the adjustment of our investment in Broadcom to market value, a loss of $7,616 from the sale of one million shares of our investment in Broadcom, a gain of $4,375 from the cancellation of a contract and a charge of $4,356 related to the discontinuance of our Control Systems business unit. (3) Includes gains of $11,652 from the sale of 720,000 shares of our investment in Harmonic, $8,721 from the sale of our remaining investment in Broadcom and $3,466 from an investment in a partnership. 6. Segment Information - ------------------------------------------------------------------------------- Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. We produce a wide variety of products for terrestrial and satellite communications networks, including digital video, voice and data communications and operate primarily in two reportable business segments: Broadband and Satellite. The Broadband segment consists of subscriber and transmission systems and the Satellite segment consists of satellite network and satellite television network systems. The Broadband segment includes modulators, demodulators and signal processors for video and audio receiving stations (often referred to as "headend" systems), products for distributing communications signals by coaxial cable and fiber optics from headend systems to subscribers and analog and digital set-top terminals that enable television sets to receive all channels transmitted by system operators. The products in the Broadband segment also include receivers, transmitters, distribution amplifiers, signal encoders and decoders, controllers, optical amplifiers, source lasers, digital video compression and transmission equipment and fiber optic distribution equipment. In April 2000, ViaSat, Inc. acquired our satellite network business (excluding the satellite television networks business) which included products such as tracking and telemetry equipment, earth observation satellite ground stations, and intercept systems. We produced satellite earth stations that receive and transmit signals for video and are utilized in satellite-based telephone, data and television distribution networks, packet switches, radar 34 platforms, special receivers, special measurement devices and other equipment used to track aircraft, missiles, satellites and other moving objects and to communicate with and receive and record various measurements and other data from the object. Our data communications products offerings had included private interactive data systems using VSAT (very small aperture terminal) technology. In addition, our long experience with advanced satellite tracking technologies had enabled us to offer a range of gateways, network management centers, transceivers, and services for the emerging low earth orbiting (LEO) satellite communications markets prior to the disposition of our satellite network business. Scientific-Atlanta retained the satellite television networks business, which is now known as the Media Networks business of Scientific-Atlanta. Media Networks produces encoders, statistical multiplexers, modulators, and receivers. Customers, such as television programmers, broadcasters, and service providers use these products to deliver compressed digital video via satellite to cable operators and viewers. The accounting policies of the segments are the same as those described in the summary of significant accounting policies for internal management reporting purposes. Certain items, such as restructuring charges and one-time gains and losses, have not been allocated to the segments. We measure segment performance based on earnings before taxes. Information on the segments and reconciliations to consolidated amounts are as follows:
Corporate and 2000 Broadband Satellite Other(2) Total - ---- ---------- --------- ---------- ---------- Sales $1,550,122 $164,049 $ 1,239 $1,715,410 Earnings (loss) before taxes 199,863 (708) 23,428(3) 222,583 Segment assets 661,290(1) 50,061(1) 1,068,109(4) 1,779,460 Depreciation and amortization expense 36,612 7,525 6,570 50,707 Capital expenditures 72,605 1,489 8,678 82,772 1999 - ---- Sales $1,049,410 $184,626 $ 9,437 $1,243,473 Earnings (loss) before taxes 95,998 (17,567) 67,774(3) 146,205 Segment assets 505,805(1) 119,266(1) 437,203(4) 1,062,274 Depreciation and amortization expense 31,378 5,843 8,854 46,075 Capital expenditures 33,096 10,247 8,009 51,352
Corporate and 1998 Broadband Satellite Other(2) Total - ---- --------- --------- --------- ---------- Sales $887,279 $255,990 $38,135 $1,181,404 Earnings before taxes 72,634 17,794 24,991(3) 115,419 Segment assets 425,059(1) 118,930(1) 396,234(4) 940,223 Depreciation and amortization expense 32,660 5,529 10,071 48,260 Capital expenditures 25,701 9,414 5,528 40,643
- -------- (1) Includes accounts receivable, inventory, property, plant and equipment and intangible assets. (2) Includes Corporate and business units which have been discontinued or sold, other than the Satellite business unit. (3) Includes the gains and losses discussed in Note 4 "Other (Income) Expense" and restructuring and other one-time charges in 1998. Also includes interest income of $19,636 in fiscal year 2000, $8,526 in 1999 and $5,963 in 1998. (4) Consists primarily of cash, short-term investments, marketable securities, and deferred income taxes. Sales to Time Warner, Inc. and its affiliates were 23 percent of our total sales in fiscal year 2000, 16 percent of total sales in 1999 and 11 percent of total sales in 1998. Sales to Charter Communications and its affiliates were 14 percent of our total sales in fiscal year 2000, and 7 percent of total sales in 1999 and 2 percent of total sales in 1998. Sales to AT&T, which merged with MediaOne during fiscal year 2000, and its affiliates were 10 percent of our total sales in fiscal year 2000, 16 percent of total sales in 1999, and 12 percent of total sales in 1998. No other customer accounted for 10 percent or more of our sales in any of the three years. Export sales accounted for 21 percent of total sales in fiscal year 2000, 22 percent in 1999 and 32 percent in 1998. Sales of digital set-tops constituted 34 percent, 15 percent and 1 percent of our total sales in fiscal years 2000, 1999 and 1998, respectively. Sales of RF products were approximately 18 percent of our total sales in fiscal 2000, and approximately 16 percent and 18 percent of such sales in 1999 and 1998, respectively. Sales of analog set-tops constituted 9 percent of our total sales in fiscal year 2000, and approximately 24 percent and 33 percent of such sales in 1999 and 1998, respectively. Sales are attributed to geographic areas based upon the location to which the product is shipped. Long- 35 lived assets include property, plant and equipment, cost in excess of net assets acquired, investments other than marketable securities, and intellectual property.
2000 U.S. Foreign Total - ---- ---------- -------- ---------- Sales $1,356,206 $359,204 $1,715,410 Long-lived assets 160,346 38,019 198,365 1999 - ---- Sales $ 964,911 $278,562 $1,243,473 Long-lived assets 147,934 35,148 183,082 1998 - ---- Sales $ 804,761 $376,643 $1,181,404 Long-lived assets 148,908 36,854 185,762
Sales in any single country did not exceed 10 percent of total sales in fiscal years 2000, 1999 or 1998, except for the United States. Long-lived assets in the United States and Mexico were 81 percent and 10 percent, respectively, of total long-lived assets in fiscal year 2000. Long-lived assets in any single country did not exceed 10 percent of total long-lived assets in fiscal years 1999 or 1998 except for the United States. 7. Indebtedness - -------------------------------------------------------------------------------- At June 30, 2000, we had a $300,000 senior credit facility that provides for unsecured borrowings up to $150,000 which expires May 4, 2001, and up to $150,000 which expires May 11, 2004. There were no borrowings outstanding under this facility at June 30, 2000 or July 2, 1999. Interest on borrowings under this facility are at varying rates and fluctuate based on market rates. Facility fees based on the average daily aggregate amount of the facility commitments are payable quarterly. Long-term debt at June 30, 2000 had scheduled maturities as follows: $386 - 2001 and $102 - 2002. Total interest paid, including fees on the senior credit facility, was $480, $581 and $407, in fiscal years 2000, 1999 and 1998, respectively. 8. Accrued Liabilities - -------------------------------------------------------------------------------- Accrued liabilities consisted of:
2000 1999 -------- -------- Compensation $ 52,535 $ 29,211 Taxes, other than income taxes 13,916 13,474 Warranty and service 9,449 9,256 Restructuring reserves 1,381 1,600 Other 72,121 71,497 -------- -------- $149,402 $125,038 ======== ========
9. Other Liabilities - -------------------------------------------------------------------------------- Other liabilities consisted of:
2000 1999 ------- ------- Retirement $40,012 $34,419 Compensation 17,086 12,911 Other 12,709 8,597 ------- ------- $69,807 $55,927 ======= =======
10. Income Taxes - -------------------------------------------------------------------------------- The tax provision differs from the amount resulting from multiplying earnings before income taxes by the statutory federal income tax rate as follows:
2000 1999 1998 ---- ---- ---- Statutory federal tax rate 35.0% 35.0% 35.0% State income taxes, net of state credits and federal tax benefit 0.7 2.0 1.1 Tax contingencies and settlements (2.7) (2.3) (0.4) Research and development tax credit (2.3) (3.7) (4.8) Other, net (0.7) (1.0) (0.9) ---- ---- ---- 30.0% 30.0% 30.0% ==== ==== ====
36 Income tax provision (benefit) includes the following:
2000 1999 1998 -------- -------- ------- Current tax provision Federal $ 70,760 $ 46,638 $ 7,306 State 4,009 7,708 251 Foreign 10,748 5,107 18,783 -------- -------- ------- 85,517 59,453 26,340 -------- -------- ------- Deferred tax provision (benefit) Federal (17,786) (14,094) 9,602 State (1,728) (3,317) 1,709 Foreign 772 1,820 (3,025) -------- -------- ------- (18,742) (15,591) 8,286 -------- -------- ------- Total provision for income taxes $ 66,775 $ 43,862 $34,626 ======== ======== =======
Total income taxes paid include settlement payments for federal, state and foreign audit adjustments. The total income taxes paid were $31,386, $54,178 and $19,134 in fiscal years 2000, 1999 and 1998, respectively. The tax effect of significant temporary differences representing deferred tax assets and liabilities are as follows:
2000 1999 ------- ------- Current deferred tax assets Expenses not currently deductible $25,679 $21,008 Inventory valuation 14,754 11,695 Research and development credit carryforwards 5,016 -- Warranty reserves 3,407 3,536 Other 825 1,866 ------- ------- Current deferred tax assets 49,681 38,105 Current deferred tax liabilities Unrealized gain on investments -- (975) ------- ------- Net current deferred tax asset $49,681 $37,130 ======= =======
2000 1999 --------- ------- Noncurrent deferred tax assets Postretirement and postemployment benefits $ 18,925 $16,429 Expenses not currently deductible 5,186 2,461 --------- ------- Noncurrent deferred tax assets 24,111 18,890 Noncurrent deferred tax liabilities Depreciation and amortization (963) (5,667) Accumulated comprehensive income items (135,538) (4,920) Capitalized software (2,038) (2,615) --------- ------- Net noncurrent deferred tax asset (liability) $(114,428) $ 5,688 ========= =======
Valuation allowances for current deferred tax assets and noncurrent deferred tax assets were not required in fiscal years 2000 or 1999. The net noncurrent deferred tax asset is included in Other Assets at July 2, 1999. In fiscal years 2000, 1999 and 1998, earnings before income taxes included $33,052, $17,242 and $42,375, respectively, of earnings by our foreign operations. 11. Retirement and Benefit Plans - -------------------------------------------------------------------------------- We have a defined benefit pension plan covering substantially all of our domestic employees. The benefits are based upon the employees' years of service, age and compensation. Our funding policy is to contribute annually the amount expensed each year consistent with the requirements of the federal law to the extent that such costs are currently deductible. 37 The following table sets forth the plan's funded status and amounts recognized in Scientific-Atlanta's Consolidated Statement of Financial Position at year- end, using March 31 as a measurement date for all actuarial calculations of asset and liability values and significant actuarial assumptions:
2000 1999 -------- ------- Change in Benefit Obligation Benefit obligation at beginning of year $ 91,127 $83,836 Service cost 7,048 6,941 Interest cost 6,166 5,671 Actuarial (gain)/loss (4,398) 3,995 Benefits paid (4,439) (9,316) Effect of curtailment 2,677 -- Effect of settlement (18,739) -- -------- ------- Benefit obligation at end of year $ 79,442 $91,127 ======== ======= Change in Plan Assets Fair value of plan assets at beginning of year $ 91,267 $94,102 Actual return on plan assets 14,306 6,481 Benefits paid (4,439) (9,316) Effect of settlement (18,739) -- -------- ------- Fair value of plan at end of year $ 82,395 $91,267 ======== ======= 2000 1999 -------- ------- Funded status $ (2,953) $ (140) Unrecognized net actuarial loss 12,586 6,481 Unrecognized transition obligation 3,132 5,059 Unrecognized prior service cost 190 248 -------- ------- Accrued pension cost $ 12,955 $11,648 ======== =======
2000 1999 1998 ----- ----- ----- Weighted-Average Assumptions Discount rate 8.00% 7.25% 7.25% Expected return on plan assets 10.00% 10.00% 10.00% Rate of compensation increase 5.00% 5.00% 5.00%
Plan assets are invested in listed stocks, bonds and short-term monetary investments. Our net pension expense was $1,306 in fiscal year 2000, $4,604 in 1999 and $4,233 in 1998. The components of pension expense are as follows:
2000 1999 1998 ------- ------- ------- Service cost $ 7,048 $ 6,941 $ 6,172 Interest cost 6,166 5,671 5,739 Expected return on plan assets (7,487) (7,318) (6,988) Amortization of transition net asset (656) (656) (656) Amortization of prior service cost (34) (34) (34) Amount recognized due to settlement (3,707) -- -- Amount recognized due to curtailment (24) -- -- ------- ------- ------- Pension expense $ 1,306 $ 4,604 $ 4,233 ======= ======= =======
The settlement and curtailment relate to the sale of the Satellite Networks business unit. We have unfunded defined benefit retirement plans for certain key officers and non-employee directors. Accrued pension cost for these plans was $17,293 at June 30, 2000 and $12,580 at July 2, 1999. Retirement expense for these plans was $3,786, $2,494 and $2,195 in fiscal years 2000, 1999 and 1998, respectively. In addition to providing pension benefits, we have contributory plans that provide certain health care and life insurance benefits to eligible retired employees. The following table sets forth the plans' funded status and amounts recognized in Scientific-Atlanta's Consolidated Statement of Financial Position at year-end, using March 31 as a measurement date for all actuarial calculations of liability values:
2000 1999 ------- ------ Change in Benefit Obligation Benefit obligation at beginning of year $ 7,487 $8,184 Service cost 50 45 Interest cost 521 570 Amendments -- 380 Actuarial (gain)/loss 552 (914) Benefits paid (1,053) (778) ------- ------ Benefit obligation at end of year $ 7,557 $7,487 ======= ======
38
2000 1999 ------ ------ Change in Plan Assets Fair value of plan assets at beginning of year $ 197 $ 171 Company contributions 1,078 804 Benefits paid (1,053) (778) ------ ------ Fair value of plan assets at end of year $ 222 $ 197 ====== ====== Funded status $7,335 $7,290 Unrecognized net actuarial gain 2,110 2,810 Unrecognized prior service cost (338) (380) ------ ------ Accrued benefit cost $9,107 $9,720 ====== ======
Significant actuarial assumptions are as follows:
2000 1999 1998 ----- ----- ----- Weighted-average Assumptions Discount rate 8.00% 7.25% 7.25% Expected return on plan assets 10.00% 10.00% 10.00% Rate of compensation increase 5.00% 5.00% 5.00%
The assumed rate of future increase in health care cost was 6.6 percent, 7.3 percent and 7.9 percent for fiscal years 2000, 1999 and 1998, respectively, and is expected to decrease to 6.0 percent by 2001. The components of postretirement benefit expense are as follows:
2000 1999 1998 ----- ---- ---- Service cost $ 50 $ 45 $ 46 Interest cost 521 570 663 Amortization of net actuarial gain (107) (93) (51) ----- ---- ---- Postretirement benefit expense $ 464 $522 $658 ===== ==== ====
A change in the assumed health care trend rate would have the following effects:
1% 1% Increase Decrease -------- -------- Effect on total of 2000 service and interest cost components $ 35 $ (31) Effect on beginning of year 2000 postretirement benefit obligation $436 $(389)
12. Fair Value of Financial Instruments - -------------------------------------------------------------------------------- The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those instruments. Short-term investments are carried at fair value. The fair value of foreign currency forward contracts is based on quoted market prices.
2000 1999 ------------------ ------------------ Carrying/ Carrying/ Contract Fair Contract Fair Amount Value Amount Value --------- -------- --------- -------- Cash and cash equivalents $462,496 $462,496 $300,454 $300,454 Short-term investments $ 60,628 $ 60,628 -- -- Marketable securities $ -- $ -- $ 2,438 $ 2,438 Non-current marketable securities $381,983 $381,983 $ 18,783 $ 18,783 Foreign currency forward contracts Sell $ 685 $ 581 $ 9,229 $ 9,450 Buy $ -- $ -- $ 25,063 $ 23,623
13. Related Party Transactions - -------------------------------------------------------------------------------- We had sales of $554, $1,907 and $2,289 to Scientific-Atlanta of Shanghai, Ltd. (SASL) in fiscal years 2000, 1999, and 1998, respectively. We purchased $5,660, $5,664 and $4,043 of inventory from SASL in fiscal 2000, 1999 and 1998, respectively. We had a net payable to SASL of $119 at June 30, 2000 and $51 at July 2, 1999. We had sales of $249 and $79 to Advanced Broadband System Services, Inc. (ABSS) and purchased services of $17,084 and $16,311 from ABSS in fiscal years 2000 and 1999, respectively. There were no such sales or purchases in 1998. We had a net receivable of $1,251 at June 30, 2000 and $32 at July 2, 1999 from ABSS. We also had sales of $2,637, $2,170 and $1,170 in fiscal years 2000, 1999 and 1998 to Arcodan Visiorep and receivables from Arcodan Visiorep of $404 at June 30, 2000 and $913 at July 2, 1999. Related party transactions were at prices and terms equivalent to those available to and transacted with unrelated parties. SASL and ABSS are partially-owned subsidiaries of Scientific-Atlanta. We have a minority interest in Arcodan Visiorep. 39 14. Commitments, Contingencies, and Other Matters - -------------------------------------------------------------------------------- Rental expense under operating lease agreements for facilities and equipment for fiscal years 2000, 1999 and 1998 was $16,418, $18,879 and $23,262, respectively. We pay taxes, insurance, and maintenance costs with respect to most leased items. Remaining operating lease terms, including renewals, range up to ten years. Future minimum payments at June 30, 2000, under operating leases were $40,582. Payments under these leases for the next five years are as follows: 2001 - $14,347; 2002 - $9,913; 2003 - $7,630; 2004 - $5,002; and 2005 - - $1,888. We have agreements with certain officers which include certain benefits in the event of termination of the officers' employment as a result of a change in control of Scientific-Atlanta. We are also committed under certain purchase agreements which are intended to benefit future periods. We are a party to various legal proceedings arising in the ordinary course of business. In management's opinion, the outcome of these proceedings will not have a material adverse effect on our financial position or results of operations. 15. Common Stock and Related Matters - -------------------------------------------------------------------------------- In February 2000, we declared a 2-for-1 stock split effected in the form of a 100 percent stock dividend which was paid on March 27, 2000 to shareholders of record on March 10, 2000. The stock split has been accounted for by a transfer from retained earnings to common stock in the amount of the par value of the additional stock issued. All share price, per share amounts and stock option information included herein have been restated to reflect the stock split. The number of common shares outstanding and treasury shares in fiscal years 1999 and 1998 have not been restated. In March 2000, Scientific-Atlanta announced a stock buyback program for the purchase of up to 8,000,000 shares of our common stock. We plan to use the shares repurchased for issuance under the company's employee stock option plans and other benefit plans. As of June 30, 2000, 75,000 shares had been purchased under this program at an aggregate cost of $3,745. We also purchased 4,648,000 shares of our common stock at an aggregate cost of $65,228 during fiscal year 1999 and 500,000 shares at an aggregate cost of $7,511 during fiscal year 1998. We have non-qualified and incentive stock option plans to provide key employees and directors with an increased incentive to work for the success of Scientific-Atlanta. Generally, the option price for stock options is the market value at the date of grant and thus, the plans are non-compensatory. The options expire 10 years after the dates of their respective grants. We account for the stock purchase and stock option plans under APB Opinion No. 25, which requires compensation costs for fixed awards to be recognized only when the option price differs from the market price at the grant date. SFAS No. 123 allows a company to follow APB Opinion No. 25 with the following additional disclosure that shows what our net income and earnings per share would have been using the compensation model under SFAS No. 123:
2000 1999 1998 -------- -------- ------- Net income As reported $155,808 $102,343 $80,793 Pro forma $ 95,070 $ 91,041 $71,947 Earnings per share: Basic As reported $ 0.99 $ 0.67 $ 0.51 Pro forma $ 0.60 $ 0.60 $ 0.46 Diluted As reported $ 0.94 $ 0.65 $ 0.50 Pro forma $ 0.58 $ 0.58 $ 0.45
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to July 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in fiscal years 2000, 1999 and 1998, respectively:
2000 1999 1998 ------- ------- ------- Risk free interest rate 6.44% 5.31% 6.01% Expected term 5 years 5 years 5 years Expected forfeiture rate 1% 1% 1% Volatility 61% 51% 45% Expected annual dividends $ 0.035 $ 0.030 $ 0.030
40 The following information pertains to options on Scientific-Atlanta's common stock for the years ended June 30, 2000 and July 2, 1999:
Number of Weighted Average 2000 Shares Exercise Price - ---- ---------- ---------------- Outstanding, beginning of year 11,306,062 $ 9.921 Granted 9,289,039 $43.498 Cancelled (612,365) $17.500 Exercised (4,691,436) $10.731 ---------- Outstanding, end of year 15,291,300 $27.730 ==========
Number of Weighted Average 1999 Shares Exercise Price - ---- ---------- ---------------- Outstanding, beginning of year 13,046,018 $ 8.882 Granted 3,863,700 $11.641 Cancelled (707,808) $10.841 Exercised (4,895,848) $ 8.394 ---------- Outstanding, end of year 11,306,062 $ 9.921 ==========
The following information pertains to options on Scientific-Atlanta's common stock at June 30, 2000:
Options Outstanding --------------------------------- Weighted Weighted Average Average Range of Remaining Exercise Exercise Prices Shares Life in Years Price - --------------- ---------- ------------- -------- $ 1.625 - $10.969 3,313,174 5.73 $ 8.737 $11.250 - $18.500 3,399,237 8.25 $11.995 $23.313 - $30.440 3,248,026 9.31 $23.581 $50.000 - $51.781 4,120,364 9.78 $51.778 $55.625 - $74.590 1,210,499 9.84 $56.675 ---------- 15,291,300 7.55 $28.007 ==========
Options Exercisable ------------------ Weighted Average Range of Exercise Exercise Prices Shares Price - --------------- --------- -------- $ 1.625 - $10.969 3,080,943 $ 8.735 $11.250 - $18.500 2,004,686 $11.897 $23.313 - $30.440 812,007 $23.581 $50.000 - $51.781 1,030,091 $51.778 $55.625 - $74.590 302,625 $56.675 --------- 7,230,352 $19.418 =========
At June 30, 2000, an additional 3,689,013 shares were reserved under employee and director stock option plans. We have an employee stock purchase plan whereby we provide certain purchase benefits for participating employees. At June 30, 2000, 1,881,676 shares were reserved for issuance to employees under the plan. We have a 401(k) plan whereby we match eligible employee contributions in Scientific-Atlanta stock, subject to certain limitations. Our expense to match contributions was $6,325, $6,416 and $6,450 in fiscal years 2000, 1999 and 1998, respectively. We have a stock plan for non-employee directors which provides for 500 shares of Scientific-Atlanta common stock to be granted to each director annually, which allows directors to elect to receive all or a portion of his or her quarterly compensation from us in the form of shares of Scientific-Atlanta common stock, and which also provides for a retirement award of 1,500 shares of Scientific-Atlanta common stock annually. At June 30, 2000, 690,428 shares were reserved for issuance to non-employee directors under the plan. We issue restricted stock awards and non-qualified stock option grants to certain officers and key employees under a long-term incentive plan. Compensation expense for restricted stock awards was $14,454, $3,304 and $2,670, in fiscal years 2000, 1999 and 1998, respectively. At June 30, 2000, 1,819,861 shares were reserved for issuance under this plan. At June 30, 2000, a total of 8,080,978 shares of authorized stock were reserved for the above purposes. We adopted a Rights Plan effective upon expiration of our previous Shareholder Rights Plan in April 1997, and pursuant to the Plan declared a dividend of one Right for each outstanding share of common stock. Pursuant to the terms of the Plan, following the March 2000 two-for-one stock split, one-half of a Right is attached to each share of common stock outstanding on or issued after, the date of such stock split. Each whole Right is to purchase 1/1000th share of preferred stock at an exercise price of $118. Separate Rights certificates will be distributed and the Rights will become exercisable if a person or 41 group (i) acquires beneficial ownership of 15 percent or more of Scientific- Atlanta's common stock, (ii) makes a tender offer to acquire 15 percent or more of Scientific-Atlanta's common stock, or (iii) is determined by the Board of Directors to be an "adverse person" as defined by the Plan. If a person or a group becomes a 15 percent holder (other than by offer for all shares approved by the Board of Directors) or is determined by the Board of Directors to be an "adverse person", each Right will entitle the holder thereof, other than the acquiring shareholder or adverse person, to acquire, upon payment of the exercise price, common stock of Scientific-Atlanta's having a value equal to twice the exercise price. If we engage in a merger or other business combination in which Scientific-Atlanta does not survive, and which is not approved by the Board of Directors, each Right entitles the holder to acquire common shares of the surviving company having a market value equal to twice the exercise price. Following the occurrence of any event described in either of the two preceding sentences, we are required by the Rights Plan to reserve sufficient shares of our common stock to permit the exercise in full of all outstanding Rights. At June 30, 2000, no shares of common stock were reserved for this purpose. The Rights may be redeemed by us at a price of $0.01 per Right at any time prior to 10 days after the announcement that a party acquired 15 percent or more of Scientific-Atlanta's common stock or prior to the date any person or group is determined by the Board of Directors to be an "adverse person". The Rights have no voting power and, until exercised, no dilutive effect on earnings per share. If not previously redeemed, the Rights will expire on April 13, 2007. In connection with adoption of the new Rights Plan, the Board of Directors designated 350,000 shares of Series A Junior Participating Preferred Stock from Scientific-Atlanta's 50,000,000 authorized shares of preferred stock for issuance under the Rights Plan. Upon issuance, each share of preferred stock is entitled to a quarterly dividend equal to the greater of $0.01 or 1,000 times the per share amount of all cash dividends, non-cash dividends, or other distributions, other than dividends payable in common stock, declared on Scientific-Atlanta's common stock. At June 30, 2000, there were 79,660 shares of preferred stock reserved for this purpose. 16. Earnings Per Share - -------------------------------------------------------------------------------- Basic and diluted earnings per share for the last three fiscal years are as follows:
Per Share 2000 Earnings Shares Amount - ---- -------- ------- --------- Basic earnings per common share: Net earnings $155,808 157,807 $ 0.99 ======== ======= ====== Diluted earnings per common share: Net earnings $155,808 164,895 $ 0.94 ======== ======= ====== Effect of dilutive stock options -- 7,088 $(0.05) ======== ======= ====== Per Share 1999 Earnings Shares Amount - ---- -------- ------- --------- Basic earnings per common share: Net earnings $102,343 153,630 $ 0.67 ======== ======= ====== Diluted earnings per common share: Net earnings $102,343 157,130 $ 0.65 ======== ======= ====== Effect of dilutive stock options $ -- 3,500 $(0.02) ======== ======= ====== Per Share 1998 Earnings Shares Amount - ---- -------- ------- --------- Basic earnings per common share: Net earnings $ 80,793 157,384 $ 0.51 ======== ======= ====== Diluted earnings per common share: Net earnings $80,793 160,006 $ 0.50 ======== ======= ====== Effect of dilutive stock options $ -- 2,622 $(0.01) ======== ======= ======
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 and inclusion of the options in the earnings per share calculation would have been anti-dilutive:
2000 1999 1998 ------ ------ --------- Number of options outstanding 52,700 78,100 4,247,590 Weighted average exercise price $68.64 $18.28 $ 11.42
42 Scientific-Atlanta, Inc. and Subsidiaries Schedule II -- Valuation and Qualifying Accounts For Each Of The Three Years In The Period Ended June 30, 2000 (In Thousands)
Col. A Col. B Col. C Col. D Col. E ------ ---------- --------------------------------- ---------- ---------- Additions Balance at --------------------------------- Balance at beginning Charged to Charged to end of Description of period costs and expenses other accounts Deductions period ----------- ---------- ------------------ -------------- ---------- ---------- Deducted on the balance sheet from asset to which it applies: June 30, 2000 -- Allowance for doubtful accounts.... $ 8,160 $(3,165)(1) $-- $ (861)(6) $ 4,134 ======= ======= ==== ======= ======= July 2, 1999 -- Allowance for doubtful accounts.... $10,052 $(1,615)(2) $-- $ (277)(6) $ 8,160 ======= ======= ==== ======= ======= June 26, 1998 -- Allowance for doubtful accounts.... $ 4,202 $ 6,231 (3) $ 2 $ (383)(6) $10,052 ======= ======= ==== ======= ======= June 30, 2000 -- Restructuring Reserves............. $ 1,600 $ -- (4) $-- $ (219)(7) $ 1,381 ======= ======= ==== ======= ======= July 2, 1999 -- Restructuring Reserves............. $ 9,677 $ -- (4) $-- $(8,077)(7) $ 1,600 ======= ======= ==== ======= ======= June 26, 1998 -- Restructuring Reserves............. $ -- $10,998 (5) $-- $(1,321)(7) $ 9,677 ======= ======= ==== ======= =======
Notes: (1) Includes the collection of $3,730 reserved in fiscal year 1998 for receivables from customers in the Asia-Pacific region. (2) Includes the collection of $1,439 reserved in fiscal year 1998 for receivables from customers in the Asia Pacific region. (3) Includes charges of $5,895 for receivables from customers in the Asia Pacific region which was experiencing currency and other economic crises. (4) There were no restructuring charges in fiscal year 2000 or 1999. (5) Scientific-Atlanta recorded a restructuring charge of $23,412 in fiscal year 1998 which included reserves of $10,998 and $12,414 for assets which were abandoned and the impairment of certain assets. (6) Amounts represent uncollectible accounts written off. In fiscal year 2000, includes $439 of allowance for doubtful accounts on receivables of the Satellite Networks business unit that was sold to ViaSat in April 2000. (7) Utilization of restructuring reserves for expenses incurred under obligations under cancelled leases, severance, and other miscellaneous expenses related to the restructuring. 43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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) /s/ James F. McDonald September 26, 2000 - ------------------------------------- ------------------ James F. McDonald Date President and Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ James F. McDonald September 26, 2000 - ------------------------------------- ------------------ James F. McDonald Date President and Chief Executive Officer and Director (Principal Executive Officer) /s/ Wallace G. Haislip September 26, 2000 - ------------------------------------- ------------------ Wallace G. Haislip Date Senior Vice President--Finance Chief Financial Officer and Treasurer (Principal Financial Officer) /s/ Julian W. Eidson September 26, 2000 - ------------------------------------- ------------------ Julian W. Eidson Date Vice President and Controller (Principal Accounting Officer) /s/ Marion H. Antonini September 26, 2000 - ------------------------------------- ------------------ Marion H. Antonini, Director Date /s/ David W. Dorman September 26, 2000 - ------------------------------------- ------------------ David W. Dorman, Director Date
[SIGNATURES CONTINUED ON FOLLOWING PAGE] 44 /s/ William E. Kassling September 26, 2000 - ------------------------------ ------------------ William E. Kassling, Director Date /s/ Mylle Bell Mangum September 26, 2000 - ------------------------------ ------------------ Mylle Bell Mangum, Director Date /s/ David J. McLaughlin September 26, 2000 - ------------------------------ ------------------ David J. McLaughlin, Director Date /s/ James V. Napier September 26, 2000 - ------------------------------ ------------------ James V. Napier, Director Date /s/ Sam Nunn September 26, 2000 - ------------------------------ ------------------ Sam Nunn, Director Date
45 EXHIBIT INDEX (3) (a) The Composite Statement of Amended and Restated Articles of Incorporation of Scientific-Atlanta is incorporated by reference to Scientific-Atlanta's report on Form 10-K for the fiscal year ended June 27, 1997. (b) The By-laws of Scientific-Atlanta, as amended, is incorporated by reference to Scientific-Atlanta's report on Form 10-K for the fiscal year ended July 2, 1999. (4) The following instrument defining the rights of security holders is incorporated by reference to Scientific-Atlanta's Form 8-A Registration Statement filed on April 7, 1997: (a) Rights Agreement, dated as of February 23, 1997, between Scientific- Atlanta and The Bank of New York, as Rights Agent, which includes as Exhibit A the Preferences and Rights of Series A Junior Participating Preferred Stock and as Exhibit B the Form of Rights Certificate. (10) Material Contracts: (a) The following material contracts are incorporated by reference to Scientific-Atlanta's report on Form 10-K for the fiscal year ended July 1, 1994: (i) Form of Severance Protection Agreement between Scientific-Atlanta and Certain Officers and Key Employees.* (b) The following material contract is incorporated by reference to Scientific-Atlanta's report on Form 10-K for the fiscal year ended June 30, 1995: (i) Credit Agreement, dated May 11, 1995, by and between Scientific- Atlanta and NationsBank of Georgia, National Association, for itself and as agent for other banks participating in the credit facility. (c) The following amendments to the Credit Agreement described in item (b) above are incorporated by reference to Scientific-Atlanta's report on Form 10-K for its fiscal year ended June 28, 1996: (i) First Amendment, dated as of December 29, 1995, to the Credit Agreement. (ii) Letter Amendment, dated as of April 5, 1996, to the Credit Agreement. (iii) Second Amendment, dated as of June 28, 1996, to the Credit Agreement. (d) The following material contract is incorporated by reference to Scientific-Atlanta's Form S-8 Registration Statement, filed on December 27, 1996: (i) Non-Qualified Stock Option Agreement between Scientific-Atlanta, Inc. and James F. McDonald.* (e) The following amendment to the Credit Agreement described in item (b) above is incorporated by reference to Scientific-Atlanta's report on Form 10-Q for the fiscal quarter ended March 28, 1997: (i) Third Amendment, dated as of January 27, 1997, to the Credit Agreement. (f) The following material contracts or amendments to material contracts are incorporated by reference to Scientific-Atlanta's report on Form 10-K for the fiscal year ended June 27, 1997: (i) Letter Amendment, dated as of April 23, 1997, to the Credit Agreement described in item (b) above. (ii) Credit and Investment Agreement, dated as of July 30, 1997, among Scientific-Atlanta, Wachovia Capital Markets, Inc., Wachovia Bank, N.A., as agent, and the lenders signatories thereto. (iii) Lease Agreement, dated as of July 30, 1997, between Wachovia Capital Markets, Inc. and Scientific-Atlanta. (iv) Acquisition, Agency, Indemnity and Support Agreement between Scientific-Atlanta and Wachovia Capital Markets, Inc., dated as of July 30, 1997. 46 (v) Ground Lease, dated as of July 30, 1997, between Scientific- Atlanta and Wachovia Capital Markets, Inc. (vi) Scientific-Atlanta, Inc. 1981 Incentive Stock Option Plan, as amended.* (vii) Scientific-Atlanta, Inc. 1978 Non-Qualified Stock Option Plan for Key Employees, as amended.* (g) The following material contracts or amendments to material contracts are incorporated by reference to Scientific-Atlanta's report on Form 10-K for the fiscal year ended June 26, 1998: (i) Scientific-Atlanta, Inc. Restoration Retirement Plan, as amended.* (ii) Letter Amendment, dated as of April 24, 1998, to the Credit Agreement described in item (b) above. (h) The following material contracts or amendments to material contracts are incorporated by reference to Scientific-Atlanta's report on Form 10-Q for the fiscal quarter ended April 2, 1999: (i) Form of First Amendment of Severance Protection Agreement by and between Scientific-Atlanta, Inc. and Certain Executives* (ii) Scientific-Atlanta, Inc. Retirement Plan for Non-Employee Directors* (iii) Scientific-Atlanta, Inc. Annual Incentive Plan for Key Employees as amended and restated* (iv) 1985 Executive Deferred Compensation Plan of Scientific-Atlanta, Inc., as amended and restated* (v) Letter Amendment to Credit and Investment Agreement among Scientific-Atlanta, Inc., Wachovia Bank, N.A. and Wachovia Capital Markets, Inc. (vi) Amendment to Credit and Investment Agreement among Scientific- Atlanta, Inc., Wachovia Bank, N.A. and Wachovia Capital Markets, Inc. (vii) Second Amendment to Credit and Investment Agreement among Scientific-Atlanta, Inc., Wachovia Bank, N.A. and Wachovia Capital Markets, Inc. (viii) Fourth Amendment to Credit Agreement between Scientific- Atlanta, Inc. and NationsBank, N.A. and other lenders (ix) First Amendment to Lease Agreement between Scientific-Atlanta, Inc. and Wachovia Capital Markets, Inc. (x) Second Amendment to Lease Agreement between Scientific-Atlanta, Inc. and Wachovia Capital Markets, Inc. (i) The following material contracts or amendments to material contracts are incorporated by reference to Scientific-Atlanta's annual report on Form 10-K for the fiscal year ended July 2, 1999: (i) Long-Term Incentive Plan of Scientific-Atlanta, Inc., as amended and restated.* (ii) Scientific-Atlanta, Inc. Senior Officer Annual Incentive Plan, as amended and restated.* (iii) Amended and Restated Credit Agreement, dated as of May 7, 1999, by and among Scientific-Atlanta and The Bank of New York and ABN Amro Bank N.V. as co-agents and NationsBank, N.A. as administrative agent for the participating lenders. (iv) Amendment No. 1 to the Amended and Restated Credit Agreement by and among Scientific-Atlanta and The Bank of New York and ABN Amro Bank N.V. as co-agent and NationsBank, N.A. as administrative agent for the participating lenders. 47 (j) Supplemental Executive Retirement Plan, as amended and restated.* (k) Stock Plan for Non-Employee Directors, as amended and restated.* (l) Non-Employee Directors Stock Option Plan, as amended and restated.* (m) Executive Deferred Compensation Plan, as amended and restated.* (n) 1996 Employee Stock Option Plan, as amended and restated.* (o) Deferred Compensation Plan for Non-Employee Directors, as amended and restated.* (p) Second Amendment to Amended and Restated Credit Agreement dated as of May 4, 2000 among Scientific-Atlanta and The Bank of New York and ABN Amro Bank N.V. as co-agents and Bank of America, N.A., successor to Nationsbank, N.A. (21) Significant Subsidiaries of Scientific-Atlanta. (23) Consent of Independent Public Accountants. (27) Financial Data Schedule. (99) Cautionary Statements. - -------- * Indicates management contract or compensatory plan or arrangement. 48 EX-10.(J) 2 0002.txt SUPPLEMENTAL EXEC. RETIREMENT PLAN EXHIBIT 10(J) SCIENTIFIC-ATLANTA, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Amended and Restated on June 14, 2000 SCIENTIFIC-ATLANTA, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN PREAMBLE -------- This Scientific-Atlanta, Inc. Supplemental Executive Retirement Plan is designed to provide supplemental retirement benefits to certain key executive employees of Scientific-Atlanta, Inc. and its subsidiaries (the "Company"). This Plan is not intended to qualify under Section 401(a) of the Internal Revenue Code, but is an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. The Plan constitutes an unfunded, unsecured contractual obligation of the Company to pay certain retirement benefits to Participants out of the general assets of the Company. ARTICLE I DEFINITIONS For purposes of this Plan, each term defined below, when capitalized, shall have the meaning specified below: 1.1 "Accrue" shall mean the rate at which the benefits under this Plan are credited to a Participant. Benefits which Accrue under this Plan do not Vest in the employee except as provided in Section 3.3 and Articles VII and VIII hereof. 1.2 "Accrued Benefit" shall mean that percentage of a Participant's Final Average Earnings which has Accrued pursuant to Section 3 hereof, as determined from time to time. Accrued Benefits are not earned by or payable to a Participant unless such Benefits have Vested as provided in Section 3.3 and Articles VII and VIII hereof. 1.3 "Cause" shall have the meaning set forth in Section 1.17. 1.4 "Change in Control" shall have the meaning set forth in Section 8.4 hereof. 1.5 "Committee" shall mean the Human Resources and Compensation Committee of the Board of Directors of Scientific-Atlanta, Inc. 1.6 "Company" shall mean Scientific-Atlanta, Inc. and any of its majority- owned subsidiaries. 1.7 "Compensation" shall mean a Participant's base salary and any bonus payments received by the Participant pursuant to the Scientific-Atlanta, Inc. Annual Incentive Plan and the Senior Officer Annual Incentive Plan. Compensation shall include any amounts deferred under 1 the Scientific-Atlanta, Inc. Executive Deferred Compensation Plan. The year that such deferred amounts will be included in compensation for purposes of this Plan will be the year in which the amount would have been paid but for the deferral election. 1.8 "Continuous Service" shall mean the period of time during which a Participant is continuously employed by the Company. A Participant shall be credited with a month of Continuous Service if he or she is employed by the Company on any day during a calendar month. In addition, if an employee is re- employed by the Company after a break in service, the employee's prior service shall be treated as Continuous Service if the break in service was less than twelve (12) months or if service prior to the break was of a longer duration than the break in service. 1.9 "Early Retirement Date" shall mean either (a) the first day of the calendar month in which a Participant is at least fifty-five (55) years of age and has completed ten (10) years of Continuous Service, or (b) the first day of the calendar month in which the Participant is at least sixty (60) years of age, regardless of years of service. 1.10 "Eligible Employee" shall have the meaning set forth in Section 2.1 1.11 (a) "Final Average Earnings" shall mean the average annual Compensation of a Participant for each of the three (3) calendar years in which such Compensation was the highest during each of the ten (10) calendar years preceding and including the calendar year in which the date of the Participant's retirement, death or termination of employment occurs. (b) If a Change of Control occurs (as defined in Article VIII), the following special rules shall apply to the calculation of "Final Average Earnings," but only if using these special rules results in a benefit to the Participant which is greater than the benefit calculated using the regular calculation set forth in 1.11(a) above. (i) Annual Compensation for any calendar year during which the Participant was employed for less than the full calendar year shall be the greater of: (A) the Participant's actual Compensation (as determined under Section 1.7) for such partial calendar year of employment, or (B) the Participant's annualized base salary and target incentive compensation, as determined by the Company, that is in effect during such partial calendar year of employment. (ii) For a Participant who has been re-employed for less than three (3) full calendar years after a break in service, Compensation shall be computed using the annual Compensation for only the full calendar years and partial calendar years (calculated in accordance with subsection (a) above) since re-employment, unless inclusion of Compensation for one or more full or partial calendar years from the period of prior employment that fall within the ten (10) calendar years preceding and including the calendar year in which the date of the 2 Participant's retirement, death or termination of employment occurs would result in a higher Final Average Earnings. 1.12 "Normal Retirement Date" shall mean the first day of the calendar month in which a Participant is at least sixty-five (65) years of age and has completed ten (10) years of Continuous Service. 1.13 "Participant" shall mean any Eligible Employee selected to participate in the Plan pursuant to Section 2.2 hereof. 1.14 "Plan" shall mean the Scientific-Atlanta, Inc. Supplemental Executive Retirement Plan, as it may be amended from time to time. 1.15 "Reduced Retirement Benefit" shall have the meaning set forth in Section 4.2. 1.16 "Reduced Service Period" shall mean, in the case of a Participant who is first employed by the Company after the first day of the month in which the Participant attains forty-five (45) years of age, the period between the first day of the calendar month during which the Participant's employment commences and the first day of the calendar month during which the Participant would attain age sixty-five (65), provided, however, that if the Participant is fifty- -------- ------- five years of age or older at the date of his employment, the Reduced Service Period shall mean the ten (10) year period commencing on the first day of the calendar month during which the Participant's employment commences. 1.17 "retire" or "retirement" shall include any voluntary termination of the Participant's employment by the Participant or any involuntary termination of the Participant's employment by the Company without "Cause." For purposes of this Plan, a termination for "Cause" is a termination evidenced by a resolution adopted in good faith by two-thirds (2/3) of the Board of Directors of the Company that the Participant (i) has been convicted of a felony, or (ii) has engaged in conduct which constitutes (A) willful neglect in carrying out his duties to the Company or (B) willful misconduct, in either case which is demonstrably and materially injurious to the Company, monetarily or otherwise; provided, however, that no termination of the Participant's employment shall be - -------- ------- for Cause as set forth in clause (ii) above until (x) there shall have been delivered to the Participant a copy of the written notice setting forth that the Participant was guilty of the conduct set forth in clause (ii) and specifying the particulars thereof in detail, and (y) the Participant shall have been provided an opportunity to be heard by the Board (with the assistance of the Participant's counsel if the Participant so desires). No act, or failure to act, on the Participant's part shall be considered "willful" unless he has acted, or failed to act, with an absence of good faith and without a reasonable belief that this action or failure to act was in the best interest of the Company. Notwithstanding anything contained in this Plan to the contrary, no benefits shall be paid under this Plan to any Participant when such Participant's employment is terminated by the Company for Cause. 3 1.18 "Vest" shall mean that the benefits Accrued under this Plan for a Participant are payable to the Participant at the times and in the amounts provided for herein. Benefits under this Plan Vest only as provided in Section 3.3 and Articles VII and VIII hereof. ARTICLE II PARTICIPATION 2.1 Eligible Employees. ------------------ The class of eligible employees from which Participants may be selected is limited to officers, both elected and appointed, and other key executives of the Company ("Eligible Employees"). 2.2 Selection of Participants. ------------------------- From time to time, the Committee shall select from among the class of Eligible Employees one or more individuals for admission to the Plan. The Committee's determinations shall be made in its sole discretion and shall be conclusive and binding on all persons. The Committee shall notify in writing each Participant of his or her selection as a Participant. ARTICLE III BENEFIT ACCRUALS AND VESTING 3.1 General. ------- Except as provided in Sections 3.2 and 4.2 hereof, benefits shall Accrue under this Plan at an annual rate of three and one-half percent (3 1/2%) of Final Average Earnings for each of the Participant's first ten (10) years (or partial years computed on a monthly basis (expressed in decimal form)) of Continuous Service and at an annual rate of one and one-half percent (1 1/2%) of Final Average Earnings for each of the next ten (10) years (or partial years computed on a monthly basis (expressed in decimal form)) of Continuous Service. The maximum Accrued Benefit to which a Participant may be entitled under the Plan shall be equal to fifty percent (50%) of the Participant's Final Average Earnings. 3.2 Reduced Service Period. ---------------------- In the event a Participant is first employed by the Company after the first day of the month in which the Participant attains the age of forty-five (45) years, benefits shall Accrue under this Plan over the Participant's Reduced Service Period as follows: (a) For each full or partial year of Continuous Service during the first half of the Reduced Service Period, benefits shall Accrue under this Plan at an annual rate determined by dividing thirty-five percent (35%) of Final Average Earnings by one-half ( 1/2) of the number of 4 years (including any partial year computed on a monthly basis (expressed in decimal form)) contained in the Reduced Service Period; and (b) For each full or partial year of Continuous Service during the second half of the Reduced Service Period, benefits shall Accrue under this Plan at an annual rate determined by dividing fifteen percent (15%) of Final Average Earnings by one-half ( 1/2) of the number of years (including any partial year computed on a monthly basis (expressed in decimal form)) contained in the Reduced Service Period. 3.3 Vesting. ------- A Participant shall Vest in his or her Accrued Benefit hereunder on the earlier of the completion of ten (10) years of Continuous Service or the attainment of age sixty (60), regardless of service, provided, however, that an Eligible Employee who is selected by the Committee to be a Participant in the Plan on or after August 1, 1999, and who has been re-employed after having a break in service, shall not Vest in his or her Accrued Benefit if he or she either voluntarily terminates employment or is involuntarily terminated for Cause within three (3) years after being re-employed, unless such Participant has attained age sixty (60) prior to voluntary termination. Notwithstanding the foregoing, nothing in this Article 3.3 shall override or supercede the vesting provisions set forth in Articles VII and VIII hereof. Also notwithstanding the foregoing, a Participant who (a) terminates employment with the Company prior to completing ten (10) years of Continuous Service and (b) has not vested in any of his or her Accrued Benefit as a result of a Change in Control, shall be vested in an amount equal to the benefit he or she would be entitled to receive if he or she had participated in the Scientific-Atlanta, Inc. Restoration Retirement Plan during the period he or she was a Participant in this Plan. ARTICLE IV RETIREMENT BENEFITS 4.1 Normal Retirement. ------------------ A Participant who retires from the Company on or after his or her Normal Retirement Date shall be entitled to receive an annual retirement benefit (the "Normal Retirement Benefit") for life, equal to the excess of: (a) the Participant's Accrued Benefits determined under Sections 3.1 or 3.2 hereof; over (b) the sum of: (i) the annual retirement benefits payable to the Participant as a life annuity pursuant to the defined benefit retirement plan of the Company (as such plan might be amended, supplemented or superseded from time to time) which is the actuarial equivalent (as 5 defined in Section 5.3) of such Participant's Pension Equity Account as defined in such plan; (ii) the annual retirement benefits payable to the Participant pursuant to any employer-funded defined benefit plan maintained by a prior employer of the Participant, assuming that such benefits are payable in the form of a single life annuity for the life of the Participant; and (iii) the Participant's annual primary insurance amount under the Federal Social Security Act as in effect on the Participant's Normal Retirement Date or, if applicable, his date of death. In determining such amount under Section 4.2 below for a Participant who severs from service prior to his Normal Retirement Date, it shall be assumed that the Participant will continue to receive, until his Normal Retirement Date, annual compensation (which would be treated as wages for purposes of the Federal Social Security Act) at the same rate which is in effect immediately prior to his termination of employment. 4.2 Early Retirement. ---------------- (a) A Participant who retires from the Company on or after his or her Early Retirement Date but prior to his or her Normal Retirement Date shall be entitled to receive his or her Normal Retirement Benefit commencing on the date of his or her retirement; provided, however, that such date of commencement may, -------- ------- at the election of the Participant pursuant to Section 4.3 (or, if the Participant has not made an election, at the election of the Committee), be deferred to the date that the Participant attains age sixty (60). If the Participant retires prior to age sixty (60) and begins to receive benefits under this Plan prior to age sixty (60), such Participant shall be entitled to receive only a Reduced Retirement Benefit (determined as hereinafter provided) commencing at his or her date of retirement. "Reduced Retirement Benefit" shall mean the amount equal to that percentage of the Participant's Normal Retirement Benefit determined by subtracting from one hundred percent (100%) the aggregate of 6.67% for each year (prorated over any partial year based on completed months of service) between the Participant's retirement date and the date on which the Participant would reach age sixty (60). If a Participant retires prior to age sixty (60) but does not begin receiving benefits under this Plan until he or she is at least age sixty (60), there shall be no reduction in the Participant's Normal Retirement Benefit. For purposes of determining the amount of the Normal Retirement Benefit or the Reduced Retirement Benefit, as the case may be, for a Participant who retires after August 1, 1996, and prior to age sixty-five (65), each of the offset amounts under paragraphs (i), (ii) and (iii) of Section 4.1(b) shall be calculated by: (i) determining the value of the projected amount such Participant would receive if he or she began receiving the benefits described in such paragraphs beginning on the earliest date such benefits become payable and (ii) converting this amount to an actuarially equivalent (determined in accordance with Section 5.3) single life annuity beginning on the date such Participant begins receiving benefits under this Plan. (b) If a Participant retires prior to his or her Early Retirement Date, the Participant shall be entitled to receive any of his or her Normal Retirement Benefit which is then Vested. Such Normal Retirement Benefit shall be payable, at the election of the Participant pursuant to Section 4.3 (or, if the Participant has not made an election, at the election of the 6 Committee), as follows: (1) beginning at the time the Participant becomes age fifty-five (55) (or at Participant's current age if he is age fifty-five (55) or older), with a Reduced Retirement Benefit determined as provided in subparagraph (a) above, or (2) beginning at the time the Participant becomes age sixty (60), with no reduction in the Normal Retirement Benefit, or (3) if Participant is under fifty-five (55) years of age when he or she retires, as a single lump sum payment at the time of retirement equal to the present value of his or her Normal Retirement Benefit, determined using the actuarial equivalent, as defined in Section 5.3. 4.3 Elections Related to Early Retirement. ------------------------------------- For a Participant retiring after his Early Retirement Date but prior to his Normal Retirement Date pursuant to Section 4.2(a), he may elect, by a written election delivered to the Corporate Secretary of the Company at least thirty (30) days prior to his retirement, whether he wishes to receive: (1) a Reduced Retirement Benefit which will begin being paid immediately pursuant to the payment terms of Article V (not applicable if Participant is age sixty (60) or older), or (2) a Normal Retirement Benefit that will not begin being paid until age sixty (60) (or his current age if he is age sixty (60) or older). For a Participant retiring prior to his Early Retirement Date pursuant to Section 4.2(b), he may elect, by a written election delivered to the Corporate Secretary of the Company at least thirty (30) days prior to his retirement, whether he wishes to receive: (1) a Reduced Retirement Benefit which will become payable, per the payment terms of Article V, at age fifty-five (55) (or his current age if he is age fifty-five (55) or older), or (2) a Normal Retirement Benefit which will become payable, per the payment terms of Article V, at age sixty (60), or (3) if a Participant is under age fifty-five (55), the actuarial equivalent, determined in accordance with Section 5.3, of his Normal Retirement Benefit, paid as a lump sum payment. For each Participant electing either option (1) or option (2) above, such Participant may elect an optional form of payment under the terms of Section 5.4. 4.4 Election to Receive Insurance Benefit. ------------------------------------- In lieu of receiving all or a portion of the retirement benefits provided under this Plan, a Participant may elect to receive an insurance benefit on the terms and conditions established by the Committee, which terms and conditions shall be set forth in an insurance agreement executed by such Participant and the Company. In the event that a Participant elects to receive an insurance benefit and forfeit all or a portion of the retirement benefits provided under this Plan, none of the provisions of this Plan shall apply to the insurance benefit, but the provisions of this Plan will continue to apply to the portion, if any, of the Participant's retirement benefits which the Participant did not forfeit in exchange for the insurance benefit. ARTICLE V FORM OF PAYMENT 5.1 Normal Form of Payment. ---------------------- Unless an optional form of payment is elected by the Participant in accordance 7 with Section 5.4 (or by the Committee in accordance with Section 4.2 or Section 5.2 hereof), all retirement benefits payable pursuant to this Plan will be paid in the form of a single life annuity, payable monthly, for the life of the Participant. Except as otherwise provided in this Plan, the first monthly payment shall be made on the first day of the calendar month following the Participant's retirement date. 5.2 Other Forms of Payment. ---------------------- Each Participant may elect, pursuant to Section 5.4, to receive payment of his retirement benefits via one of the following optional forms of payment, rather than via the form of payment described in Section 5.1: (a) A one hundred percent (100%) joint and survivor annuity, pursuant to which an annuity is payable for the life of the Participant with a survivor's annuity for the life of the Participant's spouse, which annuity is equal to one hundred percent (100%) of the amount of the annuity payable during the joint lives of the Participant and his or her spouse. (b) A fifty percent (50%) joint and survivor annuity, pursuant to which an annuity is payable for the life of the Participant with a survivor's annuity for the life of the Participant's spouse, which annuity is equal to fifty percent (50%) of the amount of the annuity payable during the joint lives of the Participant and his or her spouse. (c) A ten (10) year certain installment payment, pursuant to which a fixed monthly benefit is payable to the Participant for the lesser of ten (10) years or the life of the Participant, with the continuation of the same benefit to the Participant's designated beneficiary for any remaining portion of the ten (10) year certain period if the Participant dies prior to the end of such period. (d) A five (5) year certain installment payment, pursuant to which a fixed monthly benefit is payable to the Participant for the lesser of five (5) years or the life of the Participant, with the continuation of the same benefit to the Participant's designated beneficiary for any remaining portion of the five (5) year certain period if the Participant dies prior to the end of such period. (e) A single lump sum payment. If a Participant does not make a timely election to receive payment of his retirement benefits via one of the optional forms of payment described in Subsections (a) through (e) above, the Committee may elect one of the above- described optional forms of payment for such Participant, but only with his written consent. 5.3 Actuarial Equivalent. -------------------- Any optional form of payment described in Section 5.2 shall be the actuarial equivalent of the normal form of payment specified in Section 5.1 hereof. All determinations of 8 actuarial equivalency will be based on the 1983 Unloaded Group Annuity Mortality Table weighted fifty percent (50%) male and an interest rate of eight percent (8.0%). The lump sum amount will equal the present value of future payments under this Plan, assuming payment of benefits commenced immediately (or age fifty-five (55) for a Vested termination on or before the Participant's 55th birthday). 5.4 Election of Form of Payment. ---------------------------- If a Participant does not make a written election to the contrary at least thirty (30) days prior to his retirement, such Participant's retirement benefits under this Plan shall be payable in the form of a single life annuity, paid pursuant to the terms of Section 5.1, unless the Committee (with the consent of such Participant) elects to pay the retirement benefits pursuant to one of the other forms of payment set forth in Section 5.2. If a Participant makes a written election at least thirty (30) days prior to his retirement, he may elect one of the forms of payment described in Sections 5.2(a) through 5.2(e), and the Committee must comply with such payment election. Participant may modify his election at any time by making another written election, provided such written election is received by the Company's Corporate Secretary at least thirty (30) days prior to his retirement. For a written election to be validly made, Participant must deliver such a written election to the Corporate Secretary of the Company and such election shall be deemed made on the date on which the Corporate Secretary receives it. ARTICLE VI SPOUSAL BENEFIT In the event a Participant who is Vested shall die while actively employed, or after his or her Early Retirement Date but prior to the commencement of payment of retirement benefits, the Participant shall be deemed to have retired for purposes of this Plan on the later of (i) the day immediately preceding his or her death, or (ii) the first day of the first calendar month thereafter in which the Participant would have attained age fifty-five (55), and the Participant's surviving spouse, if any, shall be entitled to a benefit equal to fifty percent (50%) of the retirement benefit the Participant would have received if he or she had actually retired on such deemed retirement date. Such benefit shall be payable in the form of a single life annuity for the life of the surviving spouse. ARTICLE VII DISABILITY In the event a Participant becomes disabled and is eligible for benefits under the Scientific-Atlanta, Inc. Long Term Disability Plan, such Participant shall continue to receive credit, for Vesting purposes only, toward the Participant's years of Continuous Service during the period of such disability. 9 ARTICLE VIII CHANGE IN CONTROL 8.1 Immediate Vesting and Continued Vesting. --------------------------------------- In the event of a Change in Control of the Company, a Participant shall be immediately Vested in his Accrued Benefits hereunder as of the date of such Change in Control. Participant also shall be automatically vested in any Accrued Benefits that are accrued after a Change in Control, regardless of the terms of Section 3.3. 8.2 Termination Following Change in Control. --------------------------------------- If a Participant's employment with the Company is terminated by the Company or by the Participant following a Change in Control for any reason other than Cause, the Participant shall receive retirement benefits in accordance with the terms of Articles III, IV and V of this Plan. 8.3 Continuation of the Plan ------------------------ For a period of two (2) years following a Change in Control, the Plan shall not be terminated or amended in any way nor shall the manner in which the Plan is administered be changed in a way that adversely affects the level of retirement benefits received by a Participant under the Plan. 8.4 Definition of Change in Control. ------------------------------- For purposes of this Plan, a Change in Control shall mean any of the following events: (a) The acquisition in one or more transactions by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities (the "Voting Securities"); provided, however, that -------- ------- for purposes of this Section 8.4, the Voting Securities acquired directly from the Company by any Person shall be excluded from the determination of such Person's Beneficial Ownership of Voting Securities (but such Voting Securities shall be included in the calculation of the total number of Voting Securities then outstanding); or (b) The individuals who are members of the Incumbent Board (as defined below) cease for any reason to constitute at least two-thirds (2/3) of the Board. The "Incumbent Board" shall include the individuals who as of August 20, 1990, are members of the Board and any individual becoming a director subsequent to August 20, 1990, whose election, or nomination for election, by the Company stockholders was approved by a vote of at least two- 10 thirds (2/3) of the directors then comprising the Incumbent Board; provided, -------- however, that any individual who is not a member of the Incumbent Board at the - ------- time he or she becomes a member of the Board shall become a member of the Incumbent Board upon the completion of two (2) full years as a member of the board; provided, further, however, that notwithstanding the foregoing, no -------- ------- ------- individual shall be considered a member of the Incumbent Board if such individual initially assumed office (i) as a result of either an actual or threatened "election contest" (within the meaning of Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") or (ii) with the approval of the other Board members, but by reason of any agreement intended to avoid or settle a Proxy Contest; or (c) Approval by stockholders of the Company of (i) a merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation, do not own, directly or indirectly, immediately following such merger or consolidation, more than eight percent (80%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the Voting Securities immediately before such merger or consolidation or (ii) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because twenty percent (20%) or more of the then outstanding Voting Securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. Moreover, notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company, which acquisition, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if, after a Change in Control would occur (but for the -------- operation of this sentence) as a result of such acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities, which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. 11 ARTICLE IX PLAN ADMINISTRATION 9.1 Committee. --------- This Plan and all matters related to it shall be administered by the Committee. The Committee shall have the authority to interpret the provisions of this Plan and to resolve all questions arising in the administration, interpretation and application of this Plan. Any such determination by the Committee shall be conclusive and binding on all persons. 9.2 Claim Procedures. ---------------- Any Participant claiming a benefit, or requesting an interpretation, any information, or a ruling under this Plan, shall present the request, in writing, to the Committee, which shall respond in writing within thirty (30) days from the date on which it receives the claim or request. ARTICLE X MISCELLANEOUS 10.1 Termination or Amendment of the Plan. ------------------------------------ Except as provided in Section 8.3 hereof, the Committee may, at any time and from time to time, modify, amend, suspend or terminate the Plan in any respect; provided, however, that any modification, amendment, suspension, or -------- ------- termination of the Plan shall not reduce or otherwise adversely affect any Participant's Vested rights under any terms, provisions or conditions of the Plan on the date of any modification, amendment, suspension or termination, without the consent of the Participant. 10.2 Non-Assignability. ----------------- No benefit payable pursuant to this Plan, nor any other right under this Plan, shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void and shall not be recognized or given effect by the Company. 10.3 No Right to Employment. ---------------------- Nothing in the Plan shall confer upon any Participant the right to continue in the employment of the Company nor does participating in the Plan obligate the Participant to continue in the employ of the Company. 12 10.4 Effective Date. -------------- The Plan became effective on June 21, 1993, and Participants may be designated at any time on and after that date. 10.5 Governing Law. ------------- This Plan is made in accordance with and shall be governed in all respects by the laws of the state of Georgia, to the extent not preempted by federal law. The Company has caused the following officers to execute this Plan to evidence that this Plan, as amended and restated by the Board on June 14, 2000, accurately reflects the Plan approved by the Board. Scientific-Atlanta, Inc. By: /s/ Brian C. Koenig ------------------------------- Brian C. Koenig Senior Vice President- Human Resources By: /s/ William E. Eason, Jr. ------------------------------- William E. Eason, Jr. Senior Vice President, General Counsel & Corporate Secretary 13 EX-10.(K) 3 0003.txt STOCK PLAN FOR NON-EMPLOYEE DIRECTORS EXHIBIT 10(K) SCIENTIFIC-ATLANTA, INC. STOCK PLAN FOR NON-EMPLOYEE DIRECTORS As Amended and Restated June 14, 2000 1. Purposes The purposes of this Plan are to aid the Company in attracting and retaining highly qualified Non-employee Directors, to provide additional compensation as an incentive for Non-employee Directors to contribute their best efforts to the Company's success, and to emphasize and enhance the Company's policy of seeking to have Non-employee Directors maintain a significant investment in the stock of the Company and thus a strong commonality of interests with the shareholders. 2. Definitions As used in this Plan: (a) The term "Annual Meeting" means the annual meeting of shareholders of the Company. (b) The term "Award" means an Elective Grant, a Stock Award, a Retirement Award, or a Lump Sum Distribution awarded under this Plan. (c) The term "Board" means the Board of Directors of the Company. (d) The term "Board Approval" means approval by a majority of the directors present at a Board meeting at which a quorum is present. (e) The term "Company" means Scientific-Atlanta, Inc., a Georgia corporation. (f) The term "Committee" shall mean the Governance and Nominations Committee of the Board or any another committee comprised of directors of the Board which is vested by the Board with responsibility to administer this Plan. (g) The term "Elective Grant" shall mean the election by a Non-Employee Director pursuant to Section 3(a) hereof to receive a portion of his or her Quarterly Compensation in the form of Shares. (h) For the purposes of a Stock Award, the term "Eligible Directors" shall mean those Non-employee Directors who served on the Board for the six months immediately preceding the Annual Meeting at which a Stock Award is granted and will continue serving on the Board after such Annual Meeting. For the purposes of an Elective Grant, the term "Eligible Directors" shall mean all Non-employee Directors of the Board. For the purposes of a Retirement Award and for purposes of the Lump Sum Distribution, the term "Eligible Directors" shall mean (1) all Non-employee Directors who were not members of the Board prior to January 1, 1997 and who are serving on the Board on the date of the Annual Meeting at which the Retirement Award is granted, and (2) all Non-employee Directors who were members of the Board and Participants in the Retirement Plan for Non-employee Directors prior to January 1, 1997, and who elected on or before September 21, 1997, pursuant to the terms of paragraph 3 of the Retirement Plan for Non-employee Directors, as amended on June 17, 1997, to receive a Lump Sum Distribution and who are serving on the Board on the date of the Annual Meeting at which the Retirement Award is granted. (i) The term "Fair Market Value Per Share" means the closing sale price of a Share on the New York Stock Exchange on the date such value is determined or, if there is no trade on such Exchange on that date, then the closing sale price on the next preceding date on which there is trade of the Company's Common Stock on such Exchange. In the event that the Company's Common Stock is not listed on the New York Stock Exchange on the determination date, the Fair Market Value shall be determined as stated above but with reference to trades on the largest stock exchange or other public market on which the Company's Common Stock is then traded. (j) The term "Lump Sum Distribution" means an award to an Eligible Director consisting of a number of Shares having an aggregate fair market value, as of January 1, 1997, determined as provided in Section 2(i) above, equal to the greater of either (i) the present value, actuarially determined, as of ------ January 1, 1997, of the retirement benefits of such Eligible Director under the Retirement Plan for Non-employee Directors, as amended on June 17, 1997 (the "Retirement Plan"), reduced by the present value, actuarially determined by the ---------- Company, as of January 1, 1997, of the stream of annual Retirement Awards (granted under Section 5(a) hereof) through the electing participant's sixty- fifth birthday, or (ii) an amount equal to the value of 750 shares of the -- Company's Common Stock (at the closing price on January 1, 1997) multiplied by ------------- the Eligible Director's total years of service as a director, as of January 1, 1997, all as determined in accordance with paragraph 3 of the Retirement Plan. (k) The term "Non-employee Director" means any person who is elected to the Board and who has not been an employee of the Company or any of its subsidiaries at any time during the twelve (12) months preceding (i) any election by such person under Section 3 hereof, (ii) the receipt of a Stock Award by such person under Section 4 hereof, or (iii) the receipt of a Retirement Award by such person under Section 5 hereof. (l) The term "Plan" means this Scientific-Atlanta, Inc. Stock Plan for Non-employee Directors, as amended from time to time. (m) The term "Quarterly Compensation" means the sum of all meeting fees, annual retainer fees, and Committee and Board Chairmanship fees for service as a director earned by a Non-employee Director during a fiscal quarter. Compensation paid to Non-employee Directors for their service to the Company in any other capacity, shall be excluded from the calculation of Quarterly Compensation. 2 (n) The term "Retirement Award" means an award consisting of 1,500 Shares (subject to adjustment as herein provided) granted to an Eligible Director pursuant to Section 5 hereof, which Shares shall be either deferred or restricted for a period of at least two (2) years from the date of the grant, in accordance with the terms of Section 5 hereof. Depending on the election made by each Eligible Director under Section 5(a) hereof, each Retirement Award will be either a Deferred Retirement Award or a Restricted Retirement Award (as such terms are defined in Section 5(a) hereof). (o) The term "Share" means a share of the Company's Common Stock, $.50 par value. Shares delivered to the Eligible Directors under this Plan may be either authorized but previously Unicode shares or previously issued shares reacquired by the Company. (p) The term "Shareholder Approval" means the affirmative vote of a majority of the shares of Common Stock present or represented and entitled to vote at a meeting of the shareholders of the Company at which a quorum is present. (q) The term "Stock Award" means an award consisting of 500 Shares (subject to adjustment as herein provided) granted to an Eligible Director pursuant to Section 4(a) hereof. 3. Elective Grants (a) Each Non-employee Director may make an election to receive up to 100 percent (100%) of his or her Quarterly Compensation (in increments of 5%) in the form of Shares pursuant to an Elective Grant made in accordance with this Section 3(a). The election by the Non-employee Director to receive an Elective Grant of Shares must be in writing and must be delivered to the Secretary of the Company before the start of the fiscal quarter during which services are to be rendered by the Non-employee Director giving rise to the Quarterly Compensation. The election made by a Non-employee Director pursuant to this Section 3(a) shall be in effect as to Quarterly Compensation payable for services rendered during the fiscal quarter of the Company covered by the election. The Committee shall, prior to the receipt by a Non-employee Director of shares under an Elective Grant, approve the issuance of such shares by resolution; however, if the Committee fails to adopt such an approving resolution, such shares may be issued to the electing Non-employee Director, but such shares cannot be sold or otherwise transferred by such Non-employee Director prior to the date which is six (6) months after the date of such issuance of shares. (b) The number of Shares to be granted to a Non-employee Director who makes an Elective Grant shall equal (i) the amount of the Quarterly Compensation earned during the Company's fiscal quarter subject to the Elective Grant, divided by (ii) the Fair Market Value Per Share on the last day of such fiscal quarter. In no event shall the Company be required to issue fractional Shares. Any fractional Share will be rounded to the nearest whole Share. (c) As soon as practicable after each Non-employee Director's Elective Grant of Shares is determined, the Company shall cause to be issued and delivered to such Non-employee 3 Director a stock certificate registered in the name of the Non-employee Director evidencing his or her Elective Grant, less any Shares withheld by the Company pursuant to Section 8 below. (d) No right to an Elective Grant and no interest therein may be assigned, pledged, hypothecated, or otherwise transferred by a Non-employee Director except that, in the event of the death of a Non-employee Director prior to the issuance of a stock certificate evidencing an Elective Grant, such right to such Elective Grant may be transferred to the Non-employee Director's designated beneficiary or, in the absence of such designation, by will or the laws of descent and distribution. 4. Stock Awards (a) Beginning with the 1995 Annual Meeting and at the Annual Meeting every year thereafter through and including the Annual Meeting held in 2009, every Eligible Director shall be granted a Stock Award. (b) Subject to the provisions of Section 8 hereof, as soon as practicable after the applicable Annual Meeting, the Company shall cause to be issued and delivered to each Eligible Director receiving a Stock Award a stock certificate registered in the name of such Eligible Director evidencing the Stock Award, less any Shares withheld by the Company pursuant to Section 8 below. (c) Eligible Directors shall not be deemed for any purpose to be, or have any rights as, shareholders of the Company with respect to any Stock Award until the stock certificates are issued and then only from the date of the issuance of such stock certificates. Appropriate adjustments shall be made for dividends or distributions or other rights for which the record date is after an Annual Meeting and prior to the issuance of such stock certificates. (d) No right to a Stock Award and no interests therein may be assigned, pledged, hypothecated, or otherwise transferred by an Eligible Director except that, in the event of the death of a Non-employee Director prior to the issuance of a stock certificate evidencing a Stock Award, such right to such Stock Award may be transferred to the Non-employee Director's designated beneficiary or, in the absence of such designation, by will or the laws of descent and distribution. 5. Retirement Awards (a) Beginning with the 1997 Annual Meeting and at the Annual Meeting every year thereafter through and including the Annual Meeting held 2009, every Eligible Director shall be granted a Retirement Award. Each Eligible Director shall elect annually either (i) to defer his or her right to receive such Retirement Award, under the Deferred Compensation Plan for Non-employee Directors, for a minimum period of two (2) years after the date of the grant thereof (a "Deferred Retirement Award"), or (ii) to receive such Retirement Award as restricted stock that cannot be sold, assigned or otherwise disposed of by the Eligible Director for a period of two (2) years after the date of the grant thereof (a "Restricted Retirement Award"). 4 (b) Subject to the provisions of Section 8, as soon as practicable after the expiration of (i) the deferral period under the Deferred Compensation Plan for Non-employee Directors applicable to a Deferred Retirement Award, or (ii) the restriction period under this Plan applicable to a Restricted Retirement Award, as applicable, the Company shall cause to be issued to the pertinent Eligible Director a stock certificate registered in the name of such Eligible Director evidencing the Deferred Retirement Award or the Restricted Retirement Award, as applicable. (c) Eligible Directors shall not be deemed for any purpose to be, or have any rights as, shareholders of the Company with respect to any Retirement Award until the stock certificates are issued and then only from the date of the issuance of such stock certificates. Appropriate adjustments shall be made for dividends or distributions or other rights for which the record date is after an Annual Meeting and prior to the issuance of such stock certificates. (d) No right to a Retirement Award and no interests therein may be assigned, pledged, hypothecated, or otherwise transferred by an Eligible Director except that, in the event of the death of a Non-employee Director prior to the issuance of a stock certificate evidencing a Retirement Award, such right to such Retirement Award may be transferred to the Non-employee Director's designated beneficiary or, in the absence of such designation, by will or the laws of descent and distribution. (e) During the two (2) year restriction period applicable to a Restricted Retirement Award, Eligible Directors shall have all rights of a shareholder with respect to the Shares granted under the Retirement Award, including the right to vote such Shares and to receive dividends and other distributions paid with respect to such Shares, but they shall not have the right to sell, exchange, transfer, pledge, hypothecate or otherwise dispose of such Restricted Retirement Award, except that such Shares may be transferred upon the death of the Eligible Director to such of his legal representatives, heirs and legatees as may be entitled thereto by will or the laws of intestacy. 6. Lump Sum Distributions (a) As soon as practicable after the 1997 Annual Meeting, every Eligible Director who has elected to receive a Lump Sum Distribution, in accordance with paragraph 3 of the Retirement Plan for Non-employee Directors, shall be granted a Lump Sum Distribution under this Plan. Each Eligible Director shall elect to defer his or her right to receive such Lump Sum Distribution, under the Deferred Compensation Plan for Non-employee Directors, until not earlier than such Eligible Director's Retirement, Death or Total Disability (as such terms are defined in that plan). (b) Subject to the provisions of Section 8, as soon as practicable after the expiration of the deferral period under the Deferred Compensation Plan for Non-employee Directors applicable to such Lump Sum Distribution for an Eligible Director, the Company shall cause to be issued to such Eligible Director receiving a Lump Sum Distribution a stock certificate registered in the name of such Eligible Director evidencing the Lump Sum Distribution. 5 (c) Eligible Directors shall not be deemed for any purpose to be, or have any rights as, shareholders of the Company with respect to any Lump Sum Distribution until the stock certificates are issued and then only from the date of the issuance of such stock certificates. Appropriate adjustments shall be made for dividends or distributions or other rights for which the record date is after an Annual Meeting and prior to the issuance of such stock certificates. (d) No right to a Lump Sum Distribution and no interests therein may be assigned, pledged, hypothecated, or otherwise transferred by an Eligible Director except that, in the event of the death of a Non-employee Director prior to the issuance of a stock certificate evidencing a Lump Sum Distribution, such right to such Lump Sum Distribution may be transferred to the Non-employee Director's designated beneficiary or, in the absence of such designation, by will or the laws of descent and distribution. 7. Adjustment Upon Changes in Capitalization If a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure of the Company or the Shares occurs, then the number and/or kind of shares to be awarded under the Plan shall be automatically adjusted as required in order to prevent an unfavorable effect upon the value of the Awards to be made under this Plan. 8. Election for Tax Purposes/Tax Withholding/Deferral (a) All Awards made pursuant to this Plan shall be subject to the withholding of state and federal income taxes, FICA tax or other taxes to the extent required by applicable law. The Company shall, before delivery of a stock certificate evidencing an Award, require the recipient to make arrangements satisfactory to the Company to satisfy such withholding requirement, if any. An Eligible Director receiving an Award may satisfy such withholding requirement by having the Company withhold Shares otherwise issuable to the Eligible Director if such Director makes a written election to do so, which election must be delivered to the Secretary of the Company. Each Eligible Director receiving a Restricted Retirement Award shall have the right to make an election, under the terms of Section 83(b) of the U.S. tax code and related regulations, whereby such Eligible Director would treat such Restricted Retirement Award as creating income on the date of the grant thereof, rather than on the date upon which the restriction period expires. (b) The right to receive any Shares under this Plan, at the election of the Non-employee Director receiving an Award (without need for Committee approval), may be deferred under the provisions of the Company's Deferred Compensation Plan for Non-employee Directors. In the event of such a deferral, the Eligible Director will not have any rights of ownership, such as voting, selling or receipt of dividends, until the deferral period for such Award expires. 6 9. Administration The Plan shall be administered by the Committee. The Committee shall have full authority, consistent with the Plan, to interpret the Plan and to promulgate such rules and regulations with respect to the Plan as it deems desirable for the administration of the Plan. The Committee shall have authority to determine all matters relating to the administration and granting of Awards. All decisions, determinations and interpretations of the Committee shall be binding upon all persons. 10. Compliance with Applicable Legal Requirements The Plan, the Awards, and the obligation of the Company to deliver Shares under the Plan shall be subject to all applicable laws, regulations, and the requirements of the exchanges on which Shares may, at the time, be listed. In the event that the Shares to be issued under this Plan are not registered under the Securities Act of 1933 and/or any applicable state securities laws prior to the delivery of such Shares, the Company may require, as a condition to the issuance thereof, that each Eligible Director to whom such Shares are to be issued represent and warrant in writing to the Company that the Shares are being acquired by him or her for investment for his or her account and not for resale or with any intent of participating directly or indirectly in any distribution of such Shares and a legend to that effect may be placed on the stock certificates representing such Shares. 11. Amendments The Committee with Board Approval may amend this Plan or any provision thereof from time to time for the purpose of satisfying the requirements of any changes in applicable laws or regulations or for any other purpose which at the time may be permitted by law, provided that no amendment, except with shareholder Approval, shall: (i) change the calculation of the Awards so as to increase the value of the award to the Non-employee Directors; (ii) increase the frequency of the Awards, (iii) materially increase in any other way the benefits to the Non- employee Directors, (iv) materially modify the definitions of Non-employee Director or Eligible Directors as defined herein, or (v) disqualify a Non- employee Director from being a "Non-Employee Director" administrator (within the meaning of Rule 16b-3 or any successor rule of the Securities and Exchange Commission) of any stock-based plan of the Company. Notwithstanding the foregoing, in no case may the Plan provisions pertaining to the amount or determination of a Stock Award, Elective Grant, Retirement Award, or the determination of Eligible Directors be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. 12. Discontinuance The Board may suspend or discontinue this Plan in whole or in part, but any such suspension or discontinuance shall not affect Awards granted under this Plan prior thereto. 7 13. Governing Law This Plan is made in accordance with and shall be governed in all respects by the laws of the State of Georgia. 14. Effective Date This Plan was effective on August 24, 1995. 15. Term The term of this Plan shall be for the period commencing as of the date of Board Approval and ending with the Annual Meeting held in 2009. To record the adoption of the Plan by the Board and by the shareholders and to record the amendments of the Plan, most recently as of June 14, 2000, the Company has caused its authorized officers to execute this Plan and affix the corporate name and seal hereto. SCIENTIFIC-ATLANTA, INC. By: /s/ Brian C. Koenig ------------------------------------------ Name: Brian C. Koenig Title: Senior Vice President - Human Resources By: /s/ William E. Eason, Jr. ------------------------------------------ Name: William E. Eason, Jr. Title: Corporate Secretary [Corporate Seal] 8 EX-10.(L) 4 0004.txt AMENDED NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN EXHIBIT 10(L) NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN (AS AMENDED AND RESTATED ON JUNE 14, 2000) 1. PURPOSE. The purposes of the plan ("Plan") are to advance the interests of Scientific-Atlanta, Inc. ("Company") and its shareholders by (i) encouraging increased share ownership by members of the Board of Directors ("Board") of the Company who are not employees of the Company or any of its subsidiaries, (ii) enhancing the Company's ability to attract and retain the services of experienced, able and knowledgeable persons to serve as directors, and (iii) providing additional incentive for directors to contribute their best efforts to the Company's success. 2. ADMINISTRATION. The Plan shall be administered by the Board. The Board shall have full authority, consistent with the Plan, to interpret the Plan, to promulgate such rules and regulations with respect to the Plan as it deems desirable and to make all other determinations necessary or desirable for the administration of the Plan. All decisions, determinations and interpretations of the Board shall be binding upon all persons. 3. SHARES TO BE ISSUED. Shares of the Company's common stock ("Common Stock") delivered on the exercise of stock options ("Options") granted under the Plan may be authorized, but previously unissued, shares or previously issued shares reacquired by the Company. 4. GRANTING OF OPTIONS. (a) Eligible Directors. "Eligible Directors" are all members of the Board ------------------ who are not employees of the Company. (b) Initial Grant. Each Non-Employee Director will receive an initial ------------- grant of 40,000 shares upon approval by the Board of this Plan or upon his or her initial appointment or election to the Board. (c) Automatic Grants. An Option to purchase 5,000 shares of Common Stock ---------------- shall be granted at the annual meeting of the Board held on the date of the Annual Meeting of Shareholders beginning in 2000 and at each succeeding Board meeting held on that date, provided the Non-Employee Director continues in office after the Board meeting date on which the Option is granted. (d) Option Agreement. Each Option shall be evidenced by a written ---------------- instrument which shall state the terms and conditions of the grant, not inconsistent with the Plan, as the Board in its sole discretion shall determine and approve. (e) Option Price. The purchase price for each share of Common Stock ------------ subject to an Option shall be the fair market value of the Common Stock on the date the Option is granted. For this purpose, as well as other purposes under the Plan, fair market value shall be deemed to be the closing selling price of a share of Common Stock as reported on the New York Stock Exchange Composite on the date on which the Option is granted or, if there is no trade on such Exchange on that date, then on the next preceding date on which there was a trade of Common Stock on such Exchange. (In the event the Company's Common Stock is not listed on the New York Stock Exchange on the date of an Option grant, the fair market value shall be determined as stated above but with 1 reference to trades on the largest stock exchange on which the Common Stock is then traded.) (f) Transferability. An Option shall be nonassignable and nontransferable --------------- other than: (1) by an Eligible Director pursuant to a will or the laws of descent and distribution; or (2) by an Eligible Director to a Family Member by gift or pursuant to a domestic relations order (a "Permitted Transferee"). "Family Member" means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Eligible Director's household (other than a tenant or employee of the Eligible Director), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons (or the Eligible Director) control the management of assets, and any other entity in which these persons (or the Eligible Director) own more than fifty percent of the voting interests. Options may not be transferred for value. The following transactions are not prohibited transfers for value: (i) a transfer under a domestic relations order in settlement of marital property rights; and (ii) a transfer to an entity in which more than fifty percent (50%) of the voting interests are owned by Family Members (or the Eligible Director) in exchange for an interest in that entity. An Option shall be exercisable during the Eligible Director's lifetime only by him if he has not transferred his Option pursuant to the preceding sentence or, in the event of his incompetence or a Permitted Tranferee's incompetence, by a duly appointed guardian. If an Option has been transferred in accordance with this subsection (f), such Option may be exercised, in accordance with the terms of the Plan, by the transferee during the transferee's life (or existence if the transferee is a legal entity), provided the Option has not expired pursuant to the terms of the Plan. An Option may not be assigned or transferred by a Permitted Transferee, except by will or the laws of descent and distribution (collectively, "Inheritance"), but in the event of an assignment or transfer by Inheritance, the Option may only be assigned or transferred to a Family Member of the Eligible Director who transferred the Option to the Permitted Transferee, unless the Board consents to another person or entity receiving the Option pursuant to Inheritance. 5. OPTION EXERCISES. (a) Exercise Timing. Except as provided in Sections 5(c) and 6 below, --------------- each Option shall become exercisable for twenty-five percent (25%) of the shares of Common Stock covered by the Option after the expiration of one (1) year following the date of grant and for an additional twenty-five percent (25%) of the shares after the expiration of each of the succeeding three (3) years following the date of grant. (b) Method of Exercise. Options may be exercised by delivery of written ------------------ notice of exercise to the Secretary of the Company, accompanied by the full purchase price of the shares being purchased. The price shall be paid at the time of exercise (i) in cash, (ii) by the 2 transfer to the Company of shares of the Company's Common Stock acquired by the Optionholder prior to the exercise of the Option, or (iii) by any combination of cash or such shares of the Company's Common Stock. Each such share so transferred in full or part payment of the Option price shall be deemed to have a value equal to the closing price of a share of the Common Stock of the Company, as traded on the New York Stock Exchange (or the largest stock exchange on which it is then traded), on the date of transfer to the Company, or if there is no trade on such Exchange on that date, on the nearest date preceding the date of transfer on which a trade on such Exchange was made, and each such share at the time of such transfer shall be free and clear of any and all claims, pledges, liens and encumbrances, or any restrictions which would in any manner restrict the transfer of such shares to the Company in full or part payment of the Option price. (c) Effect of Change of Control. In the event of "Change of Control" of --------------------------- the Company, all Options held by Eligible Directors or by a Permitted Transferee on the date of Change of Control shall be immediately exercisable in full, irrespective of the amount of time that has elapsed from the date of grant. "Change of Control" means a change of twenty-five percent (25%) or more of the membership of the Board (excluding membership changes resulting from normal retirement of directors) within a twenty-four (24) month period following the acquisition of beneficial ownership by any person or entity, or group of persons or entities and their affiliates acting in concert, of twenty percent (20%) or more of the voting securities of the Company. "Affiliates" and "beneficial ownership" shall be defined in accordance with Rules 12b-2 and 13d-3 of the Securities and Exchange Commission, as the same may from time to time be amended. 6. EXPIRATION OF OPTIONS. Except as hereinafter provided, all Options shall expire on the earlier of (i) the last day of the tenth (10th) year after the date of grant or (ii) the date that an Eligible Director ceases to be a member of the Board; provided, however, that to the extent any unexpired Options are otherwise exercisable on the date that an Eligible Director ceases to be a member of the Board for any reason other than Cause (as defined below), death, Early Retirement (as defined below) or Mandatory Retirement (as defined below), such Options shall remain exercisable for one (1) year following the last day of the Eligible Director's Board membership and shall expire if not exercised within said one (1) year period. If Board membership ceases on account of death or Mandatory Retirement, all unexpired Options held by the Eligible Director or by a Permitted Transferee on the last day of the Eligible Director's Board membership, whether exercisable or not exercisable, shall be immediately exercisable and remain exercisable for three (3) years following the last day of the Eligible Director's Board membership and shall expire at the end of such three (3) year period if not exercised within said three (3) year period. If Board membership ceases on account of Early Retirement, all unexpired Options held by the Eligible Director or by a Permitted Transferee on the last day of the Eligible Director's Board membership, which are then exercisable or would have become exercisable had the Director continued as a member of the Board for one (1) additional year, whether exercisable or not exercisable, shall be immediately exercisable and remain exercisable for one (1) year following the last day of the Eligible Director's Board membership and shall expire if not exercised within said one (1) year period. To the extent any otherwise unexpired Options are not exercisable in accordance with the immediately preceding sentence, they shall expire as of the effective date of such Eligible Director's Early Retirement. If an Eligible Director's membership on the Board ends after the occurrence of Cause, all Options held by an Eligible Director or by a Permitted Transferee shall expire immediately on his or her last day of Board membership. "Cause," for the purposes of this Section 6, means any act or omission for which indemnification 3 of the Director is prohibited by the Georgia Business Corporation Code (Sections 14-2-171 of the Code until July 1, 1989 and Section 14-2-856, as amended, on and after July 1, 1989). "Mandatory Retirement," for the purposes of this Section 6, means an Eligible Director's ineligibility to be re-elected to the Board due to the terms of the retirement policy adopted by the Board (as amended from time to time), provided such ineligibility occurs after at least thirty-six (36) consecutive months of service on the Board. "Early Retirement," for the purposes of this Section 6, means an Eligible Director's voluntary resignation from the Board after at least thirty-six (36) consecutive months of service on the Board. 7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. If a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure or shares of Common Stock of the Company occurs, the number and kind of shares authorized by this Plan, and the number, Option price and kind of shares covered by the Options granted hereunder, shall be automatically adjusted as required in order to prevent an unfavorable effect upon the value of the shares covered by then outstanding Options and shares covered by Options subsequently granted. 8. TAX WITHHOLDING. Any exercise of an Option pursuant to the Plan shall be subject to withholding of state and federal income taxes, FICA tax or other taxes to the extent required by applicable law. 9. LAWS AND REGULATIONS. The Plan, the grant and exercise of Options, and the obligation of the Company to sell or deliver shares of Common Stock under the Plan shall be subject to all applicable laws, regulations and rules. In the event that the shares of Common Stock to be issued under this Plan are not registered under the Securities Act of 1933 and any applicable state securities laws prior to the delivery of such shares, the Company may require, as a condition to the issuance thereof, that the persons to whom such shares are to be issued represent and warrant in writing to the Company that the shares are being acquired by him or her for investment for his or her own account and not with a view to, for resale in connection with, or with an intent of participating directly or indirectly in, any distribution of such shares within the meaning of that Act, and a legend to that effect may be placed on the certificates representing such shares. 10. TERMINATION AND AMENDMENT OF THE PLAN. The Board may at any time terminate the Plan or may at any time or times amend the Plan or amend any outstanding Options for the purpose of satisfying the requirements of any changes in applicable laws or regulations or for any other purpose which at the time may be permitted by law, provided that: (i) no amendment of any outstanding Option shall contain terms or conditions that negatively impact any rights of an Eligible Director under such Option, unless such Eligible Director consents to such terms or conditions; and (ii) except as provided in Section 7, no such amendment shall, without the approval of the shareholders of the Company: (a) increase the number of shares of Common Stock for which each Option may be granted under the Plan; (b) increase the frequency of Option grants; (c) reduce the price at which Options may be granted or exercised below the price provided for in Section 4(e); (d) extend the period during which any outstanding Option may be exercised; (e) materially increase in any other way the benefits accruing to Eligible Directors; (f) expand Plan eligibility beyond Eligible Directors as defined herein, or (g) disqualify an Eligible Director from being a "disinterested" administrator, 4 within the meaning of Rule 16b-3 (or any successor rule) of the Securities and Exchange Commission, of any stock option plan or other stock-based plan of the Company. 11. EFFECTIVE DATE. The Plan shall become effective on the date of approval by the Board; provided, however, that the Plan shall be submitted to the shareholders of the Company for approval, and if not approved by the shareholders within one (1) year from the date of approval by the Board, the Plan shall be of no force and effect. Options granted under the Plan before approval of the Plan by the shareholders shall be granted subject to such approval and shall not be exercisable before such approval. To record the adoption of this Plan (as amended and restated) by the Board as of June 14, 2000, the Company has caused its authorized officers to execute this Plan in the space below. SCIENTIFIC-ATLANTA, INC. By: /s/ Brian C. Koenig ----------------------------------- Name: Brian C. Koenig Title: Senior Vice President - Human Resources By: /s/ William E. Eason, Jr. ----------------------------------- Name: William E. Eason, Jr. Title: Senior Vice President, General Counsel and Corporate Secretary [ Corporate Seal] 5 EX-10.(M) 5 0005.txt EXECUTIVE DEFERRED COMPENSATION PLAN EXHIBIT 10(m) SCIENTIFIC-ATLANTA EXECUTIVE DEFERRED COMPENSATION PLAN AMENDED AND RESTATED MAY 1, 2000 Article I - Introduction ------------------------ 1.1 Name of the Plan ---------------- This Plan shall be known as the Scientific-Atlanta Executive Deferred Compensation Plan. 1.2 Purpose of Plan --------------- The purpose of the Plan is to provide eligible executives of Scientific- Atlanta, Inc., a Georgia corporation, and its subsidiaries the opportunity to defer cash compensation payable to them for services to Scientific-Atlanta, Inc. and its subsidiaries. 1.3 Date of Plan ------------ This Scientific-Atlanta Executive Deferred Compensation Plan was originally made at Norcross, Georgia, on the 19th day of May, 1993, for the benefit of certain employees of Scientific-Atlanta, Inc. and its subsidiaries. Article II - Definitions ------------------------ For purposes of this Plan, the following words and phrases shall have the meanings and applications set forth below: 2.1 Annual Incentive Plan Payment ----------------------------- The short-term executive incentive payment, if any, earned by a Participant in the year preceding a Plan Year and payable by the Employer to the Participant in the Plan Year. 2.2 Beneficiary ----------- A person or entity designated in accordance with the terms and conditions of this Plan to receive benefits upon the death of a Participant. 2.3 Compensation Deferral Election ------------------------------ Each election made by a Participant to defer a portion of his or her Compensation by executing and submitting an Election Form. 1 2.4 Compensation ------------ The total of a Participant's Salary, Annual Incentive Plan Payment, Long- Term Incentive Plan ("LTIP") Payments, any other incentive payments (including the cash value of restricted stock awards vesting under the LTIP) approved by the Plan Committee ("Other Incentive Compensation"), amounts to be received by the Participant under the Executive Deferred Compensation Plan of Scientific- Atlanta, Inc. originally adopted on December 1, 1985 ("1985 Plan Payments"), any amounts to be received by the Participant under any Severance Protection Agreement with, or Severance Protection Plan of, Scientific-Atlanta, Inc. ("Severance Payments") and any amounts to be received by the Participant under the Scientific-Atlanta, Inc. Supplemental Executive Retirement Plan ("SERP Payments"), which are payable to the Participant by the Employer during a Plan Year. Compensation shall be calculated before reduction for taxes or for compensation deferred pursuant to this Plan. 2.5 Deferred Benefit Account ------------------------ An account maintained pursuant to and in accordance with the terms and conditions set forth in Article V hereof by or on behalf of the Employer for each Compensation Deferral Election made by a Participant under this Plan. 2.6 Deferred Benefit Commencement Date ---------------------------------- The date irrevocably designated by a Participant with respect to each Compensation Deferral Election as the date on which the payment of the Deferred Benefits that accumulate as a result of such elections are to begin. 2.7 Deferred Benefits ----------------- The amounts payable pursuant to this Plan to a Participant or to his or her Beneficiary or estate following the Participant's termination of employment, the Deferred Benefit Commencement Date, determination of Total Disability, or death. 2.8 Determination Date ------------------ The last day of each Plan Year. 2.9 Election Amount --------------- The amount of Salary, Annual Incentive Plan Payment, Long-Term Incentive Plan Payment, Other Incentive Compensation, 1985 Plan Payments, Severance Payments or SERP Payments to be deferred pursuant to a single Compensation Deferral Election. 2.10 Election Form ------------- The form completed by a Participant in order to make one or more Compensation Deferral Elections, as the same may be amended or revised as herein permitted. 2 2.11 Eligible Compensation --------------------- The total of a Participant's Salary and Annual Incentive Plan Payment, payable by the Employer to a Participant during a calendar year. 2.12 Employer -------- Scientific-Atlanta, Inc. or any of its majority owned subsidiaries. 2.13 Employment Termination Date --------------------------- The date of a Participant's termination of employment, determination of Total Disability, or death, whichever is applicable. 2.14 Fixed Income Fund ----------------- The Fixed Income Fund provides an annual rate of interest equal to the average of Moody's Long Term Industrial Bond Rate for the ninety (90) day period ending on the March 1/st/ preceding the commencement of each Plan Year (rounded to the next highest one-half (1/2) percentage point), plus 1%, which shall be credited to that portion of a Participant's Deferred Benefit Account invested in the Fixed Income Fund during the Plan Year. Provided, however, that with respect to any 1985 Plan Payments deferred under this Plan, the interest rate to be credited to each Deferred Benefit Account established for any such deferral shall be 14% per annum. Except as otherwise provided by Section 6.2(b) hereof, interest shall accrue, at the interest rate in effect from time to time, on any amounts credited to the Fixed Income Fund from the date on which the amount is credited until it is paid to the Participant. 2.15 Insurance Fund -------------- The fund available to eligible Participants for use in purchasing life insurance. Amounts credited to an Insurance Fund shall be used to pay premiums on life insurance insuring the life of the Participant, or, at the Participant's election, the lives of the Participant and his or her spouse on a joint and survivor basis, pursuant to such policies of insurance, and with such insurers, as the Plan Committee may determine from time to time. The Company shall be the owner of such insurance policy or policies, and the proceeds thereof shall be payable as provided in an insurance payment proceeds agreement to be entered into between the Participant and the Company. 2.16 Long-Term Incentive Plan Payment -------------------------------- The long-term performance payment, if any, earned by a Participant during the performance period immediately preceding the Plan Year and payable by the Employer to the Participant in the Plan Year. 3 2.17 Other Incentive Compensation ---------------------------- This term is defined in Section 2.4. 2.18 Participant ----------- An employee of the Employer who is eligible to participate in this Plan according to the criteria adopted from time to time by the Plan Committee and who elects to participate in this Plan. 2.19 Plan ---- This Scientific-Atlanta Executive Deferred Compensation Plan, as amended from time to time. 2.20 Plan Committee -------------- The Human Resources and Compensation Committee of the Board of Directors of Scientific-Atlanta, Inc. or such other committee as shall be designated by the Board of Directors from time to time. 2.21 Plan Year --------- The period beginning on the first day of July of each calendar year and ending on and including the last day of June of the next calendar year. 2.22 Salary ------ The base salary, including any raises in salary, earned by a Participant in connection with his or her employment with the Employer and payable to a Participant by the Employer in a Plan Year. 2.23 Savings Match ------------- This term is defined in Section 5.3. 2.24 Savings Match Account --------------------- An account maintained pursuant to and in accordance with the terms and conditions set forth in Article V hereof. 2.25 SERP Payments ------------- This term is defined in Section 2.4. 4 2.26 Severance Payments ------------------ This term is defined in Section 2.4. 2.27 Total Disability ---------------- A physical or mental condition which is expected to be totally and permanently disabling as determined in accordance with the terms and conditions of the long-term disability insurance plan currently or most recently maintained by the Employer for the benefit of the Participant claiming to be totally disabled. 2.28 1985 Plan Payments ------------------ This term is defined in Section 2.4. 2.29 401(k) Plan ----------- This term is defined in Section 5.3. Article III - Eligibility and Participation ------------------------------------------- 3.1 Eligibility ----------- Employees who are eligible to participate in this Plan will be identified by the Plan Committee according to criteria adopted from time to time by the Plan Committee. Only Employees designated by the Plan Committee as eligible to participate in the Insurance Fund will be eligible to defer Election Amounts into the Insurance Fund. Such identification shall be conclusive and binding upon all persons. 3.2 Participation ------------- The Plan Committee shall notify in writing each employee who becomes eligible to participate in this Plan of his or her eligibility. Eligible employees may participate in this Plan by submitting an Election Form in accordance with Section 4.1 hereof. Such election to participate shall be effective upon the receipt and acceptance by the Plan Committee of such Election Form. 3.3 Additional Compensation ----------------------- A Participant shall receive the Deferred Benefits provided for herein in addition to any compensation or other benefits paid or provided to the Participant by the Employer. In the event that a Participant's participation in this Plan shall cause the Participant to receive a reduced benefit under any pension plan maintained by the Employer for the benefit of the Participant, then the Employer shall pay the Participant, at the same time and in the same manner as would have been paid under such pension plan, the additional pension benefits that the Participant would have received under such pension plan if the Participant had not participated in this Plan, 5 unless the Participant is entitled to receive such additional pension benefits under some other plan maintained by the Employer for the benefit of the Participant. Article IV - Compensation Deferral ---------------------------------- 4.1 Compensation Deferral Election ------------------------------ A Participant shall make a Compensation Deferral Election by executing and submitting to the Plan Committee an Election Form. The Election Form shall specify the Election Amount, the Deferred Benefit Commencement Date, the method of payment of the Deferred Benefits attributable to the election, the Beneficiary selected by the Participant to receive such Deferred Benefits in the event of the Participant's death, the investment option(s) selected pursuant to Section 5.4, and any optional payment instructions for involuntary termination of employment, disability and death. An election to defer future Salary may be made either before or during the Plan Year, provided, however, that any such election must be submitted to the Plan Committee at least thirty (30) days prior to the applicable fiscal quarter and must apply to at least the entire fiscal quarter. An election to defer all or a portion of the payment of any Annual Incentive Plan Payment, a Long-Term Incentive Plan Payment, Other Incentive Compensation, 1985 Plan Payments, Severance Payments or SERP Payments must be made at least ninety (90) days prior to the date the Participant is entitled to receive such payment. Subject to the limitations in Section 5.4 relating to changing investment options, a Participant may revise or change any election or instruction contained in any Election Form, other than the Election Amount, by submitting to the Plan Committee a revised Election Form at least ninety (90) days prior to the effective date of such revision or change. 4.2 Election Amounts ---------------- Each Election Amount shall be selected as follows: (a) With respect to Salary, a participant may defer a specified percentage of the Salary which the Participant will earn and receive during the balance of the Plan Year. Percentage deferrals must be in increments of five percentage points. A Participant may elect to defer up to 100% of his/her Salary, provided that such deferral will be reduced by amounts necessary to pay the Participant's portion of applicable taxes and other deductions which the Participant may have authorized. (b) With respect to an Annual Incentive Plan Payment, a Long-Term Incentive Plan Payment, Other Incentive Compensation, 1985 Plan Payments, Severance Payments or SERP Payments, a Participant may defer either a specified percentage of the entire payment or a specified percentage of the payment above a stated dollar amount; provided, however, that any such percentage must be an increment of five percentage points. 6 4.3 Investment Election ------------------- A Participant shall specify in his or her Compensation Deferral Election the percentage of the Election Amount to be credited to the investment options listed in Section 5.4(d), as modified from time to time by the Plan Committee. 4.4 Reduction of Compensation ------------------------- The Employer shall deduct Election Amounts deferred from a Participant's Salary ratably over each remaining pay period in the Plan Year. The Employer shall deduct Election Amounts deferred from an Annual Incentive Plan Payment, a Long-Term Incentive Plan Payment, Other Incentive Compensation, 1985 Plan Payments, Severance Payments or SERP Payments at the time such payment is otherwise payable. 4.5 Deferred Benefit Commencement Date ---------------------------------- Except as otherwise provided in Article VI hereof, and except for amounts deposited into the Insurance Fund, a Participant shall specify in his or her Compensation Deferral Election a Deferred Benefit Commencement Date for the Election Amount to be deferred pursuant to such Compensation Deferral Election. The permissible Deferred Benefit Commencement Dates are (i) a set date which is no earlier than July 1 of the calendar year following the end of the Plan Year in which the Election Amount is deferred; (ii) the Participant's Employment Termination Date, or (iii) a date which is either the fifth or tenth anniversary of the Participant's Employment Termination Date. The term "Retirement" used as a designation on any Election Form for a Deferred Benefit Commencement Date shall mean the Participant's Employment Termination Date. 4.6 Deferred Benefit Commencement Date; Method of Payment ----------------------------------------------------- (a) Except as otherwise provided in Article VI hereof, the Election Amounts that accumulate in a Deferred Benefit Account as a result of a Participant's making a Compensation Deferral Election will be paid by the Company to the Participant in the manner and commencing on the Deferred Benefit Commencement Date designated with respect to the Compensation Deferral Election in an Election Form. (b) Except as otherwise provided in Article VI hereof, the Participant may elect to receive payment of the Deferred Benefits held in the form of cash, which Deferred Benefits are attributable to a Compensation Deferral Election and which are held in any investment option (other than the Insurance Fund), pursuant to one of the following methods: (1) Annual, semi-annual or quarterly installments payable over a five, ten or fifteen year period, and commencing on the respective Deferred Benefit Commencement Date; or 7 (2) A single lump sum payment of the entire balance of the respective Deferred Benefit Account, determined as of the Deferred Benefit Commencement Date and payable as soon as administratively practicable thereafter. 4.7 Designation of Beneficiaries ---------------------------- A Participant shall designate a Beneficiary with respect to each Compensation Deferral Election and may change the Beneficiary designation with respect to any Compensation Deferral Election at any time by submitting to the Plan Committee a revised Beneficiary designation in writing reflecting the change. Article V - Deferred Benefit Accounts ------------------------------------- 5.1 Deferred Benefit Accounts ------------------------- The Employer shall cause to be established and maintained a separate Deferred Benefit Account for each Compensation Deferral Election. The Employer shall credit the Election Amount (less any amount that the Employer may be required from time to time to withhold pursuant to federal, state or local law) deferred pursuant to each such Election Form to the Participant's appropriate Deferred Benefit Account, and to the investment option selected by the Participant pursuant to Section 5.4(d), as of the date deferred from Participant's Compensation as provided in Section 4.1 hereof. 5.2 Determination of Deferred Benefit Account ----------------------------------------- As of each Determination Date, the current balance of a Participant's Deferred Benefit Account shall be the sum of (i) the value of all investment options selected by the Participant under Section 5.4(d) as of the Determination Date, plus (ii) the value, as of the Determination Date, of Participant's ---- Savings Match Account (as defined below). 5.3 Determination of Savings Match Account Balance ---------------------------------------------- Beginning January 1, 2001, the Employer shall cause to be established and maintained a separate Savings Match Account for each Participant who contributed either (a) 6% of his Eligible Compensation for the preceding calendar year (where such Eligible Compensation does not exceed $170,000, as adjusted by 401(a)(17)) or (b) $10,500 (as adjusted by 402(g)) of his Eligible Compensation in the preceding calendar year, to the Scientific-Atlanta, Inc. Voluntary Employee Retirement and Investment Plan (the "401(k) Plan"). On or before January 31 of each calendar year, the Plan Committee shall credit to the Participant's Savings Match Account an amount equal to the additional matching contribution that would have been made under the 401(k) Plan had the amount(s) of the Compensation Deferral Election(s) for the preceding calendar year been contributed to the 401(k) Plan and the compensation or deferral limits under Sections 401(a)(17) and 402(g) of the Code had not applied to the 401(k) Plan (the "Savings Match"); provided, however, for calendar year 2000, only the amounts deferred after July 1, 2000, shall be eligible for any Savings Match. The Plan Committee shall credit the Savings Match to the investment options in the same proportion as the Compensation Deferral Election(s) 8 that were made throughout the preceding calendar year, except that the Savings Match attributable to the Insurance Fund for the Participant shall be placed in the Fixed Income Fund for such Participant. The Plan Committee shall provide a retroactive credit to the Savings Match Account in an amount equal to earnings attributable to the Savings Match based on the investment options that the Participant selected under the Plan. 5.4 Investment Options ------------------ (a) Beginning July 1, 2000, subject to the limitations of Section 3.1, a Participant may select one or more investment options listed in 5.4(d) for each Compensation Deferral Election relating to Compensation deferred under the Plan on or after July 1, 2000. Any investment option selection must specify the percentage of the amount specified in the Compensation Deferral Election to be invested in each investment option in 1% increments. All deferrals made to the Plan prior to July 1, 2000 shall remain in the Fixed Income Fund, except that Insurance Fund Participants may transfer all or a portion of the pre-July 1, 2000 Fixed Income Fund balance to the Insurance Fund at any time. (b) Any investment option selection made by a Participant for the investment of his Account shall be made in accordance with this section. The Participant shall make the initial investment option selection on a form provided by the Plan Committee. Thereafter the Participant may modify his initial investment option selection for past amounts deferred and/or for future deferrals by notifying the Plan Committee or its designated agent of the modification in the manner permitted under the Plan Committee's guidelines. A Participant may modify his investment option selection during the ten-day period commencing on July 1 of each year, except that Participants eligible to participate in the Insurance Fund may modify their investment option from any investment option to the Insurance Fund at any time. Any investment option modification shall be implemented as soon as administratively practicable following the Plan Committee's receipt of a written investment option selection modification. An investment option selection for a Compensation Deferral Election shall remain in effect until superseded by a subsequent investment option selection modification, or until the complete distribution of the Participant's Deferred Benefits related to that Compensation Deferral Election. (c) If a Participant fails to submit an investment option selection for a Compensation Deferral Election, or if a Participant's investment option selection does not equal 100%, the portion of the Participant's Compensation Deferral Election that is not subject to an investment option selection shall be invested in the Fixed Income Fund. (d) The investment options offered by the Plan are: (i) Fixed Income Fund (defined in Section 2.13); (ii) Insurance Fund (defined in Section 2.15); and (iii) Such other investment options as are made available under the Plan by the Plan Committee from time to time. 9 5.5 Statement of Accounts --------------------- Within ninety (90) days after each Determination Date, the Plan Committee shall submit to each Participant a statement in such form as the Plan Committee shall deem desirable, setting forth a summary of the Compensation Deferral Elections made, the current balances of the Deferred Benefit Accounts maintained for the Participant as of the Determination Date, and the current balance of the Savings Match Account maintained for the Participant as of the Determination Date. Article VI - Payment of Deferred Benefits ----------------------------------------- 6.1 General ------- Except as otherwise provided herein, Deferred Benefits in each Deferred Benefit Account shall be payable to a Participant upon the Deferred Benefit Commencement Date for such Account and pursuant to the manner of payment selected by the Participant on the applicable Election Form or any permitted modification thereof. If the Participant has elected to receive such Deferred Benefits in installments, the amount payable in the first year of such installments shall be an amount that will fully amortize the balance in the Participant's Deferred Benefit Account determined as of the Deferred Benefit Commencement Date over the five, ten, or fifteen year period. Thereafter, the amount payable in each succeeding year shall be adjusted to an amount that will fully amortize the remaining balance in such Deferred Benefit Account over the remaining years in the aforesaid five, ten, or fifteen year installment period. Proceeds of life insurance purchased with amounts credited to the Insurance Fund shall be payable as provided in the respective policy or policies and the applicable insurance proceeds payment agreement. 6.2 Termination of Employment ------------------------- Except for amounts deferred into a Insurance Fund, Deferred Benefits shall be paid to a Participant upon his or her termination of employment, as follows: (a) Upon the involuntary termination of a Participant's employment by the Employer, the amount in each Deferred Benefit Account shall be payable to the Participant either (i) in the manner specified by the Participant in his or her Election Form to apply in the event of his or her involuntary termination by the Employer; or (ii) if no such specification is made, on the Deferred Benefit Commencement Date that applies to such Deferred Benefit Account, pursuant to the method requested by the Participant in his or her Election Form. (b) Upon the voluntary termination of employment by a Participant prior to attaining fifty-five years of age: (1) the amounts in each of the Participant's Deferred Benefit Accounts shall cease to earn interest and the balance of each Deferred Benefit Account shall be determined as of the nearest pay date following the Participant's Employment Termination Date determined in accordance with Article V hereof; and 10 (2) the Employer shall pay the Participant the balance of each such Deferred Benefit Account not according to the Participant's elections as specified in his or her Election Forms but in a lump sum, to be paid within sixty (60) days of the Participant's voluntary termination. (c) Upon the voluntary termination of employment with the Employer by a Participant who is fifty-five years or older the Employer will pay out to such Participant all amounts in his or her Deferred Benefit Account in accordance with the instructions in the applicable Election Form. (d) Other provisions of this Plan to the contrary notwithstanding, in the event that a Participant's employment with the Employer is terminated for any reason, voluntarily or involuntarily, within two (2) years after a "Change in Control" of Scientific-Atlanta, Inc., the Employer shall pay the Participant the amounts in the Participant's Deferred Benefit Accounts according to the terms of Section 6.2(a) hereof as if the Participant had been terminated involuntarily. For purposes of this Plan, a "Change in Control" shall mean any of the following events: (1) The acquisition in one or more transactions by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act") of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities (the "Voting Securities"), provided, however, that for purposes of this Section 6.2(d)(1), the Voting Securities acquired directly from the Company by any Person shall be excluded from the determination of such Person's Beneficial Ownership of Voting Securities (but such Voting Securities shall be included in the calculation of the total number of Voting Securities then outstanding); or (2) The individuals who are members of the Incumbent Board (as defined below), cease for any reason to constitute at least two-thirds of the Board. The "Incumbent Board" shall include the individuals who as of August 20, 1990 are members of the Board and any individual becoming a director subsequent to August 20, 1990 whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board; provided, however, that any individual who is not a member of the Incumbent Board at the time he or she becomes a member of the Board shall become a member of the Incumbent Board upon the completion of two full years as a member of the Board; provided, further, however, that notwithstanding the foregoing, no individual shall be considered a member of the Incumbent Board if such individual initially assumed office (i) as a result of either an actual or threatened "election contest" (within the meaning of Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") or 11 (ii) with the approval of the other Board members, but by reason of any agreement intended to avoid or settle a Proxy Contest; or (3) Approval by stockholders of the Company of (i) a merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation, do not own, directly or indirectly, immediately following such merger or consolidation, more than eighty percent (80%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the Voting Securities immediately before such merger or consolidation or (ii) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because twenty percent (20%) or more of the then outstanding Voting Securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. Moreover, notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided, that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall be deemed to have occurred. (e) Other provisions of this Plan to the contrary notwithstanding, this Plan may not be modified, amended or terminated within two (2) years after a Change in Control. 6.3 Total Disability ---------------- Except for amounts deferred into a Insurance Fund, Deferred Benefits shall be paid to a Participant upon his or her becoming Totally Disabled, as follows: (a) Upon the determination that a Participant is Totally Disabled. (1) No further deferrals will be made from his or her Compensation: and (2) the Employer shall pay the Participant the balance in each of the Participant's Deferred Benefit Accounts as if the Participant had been terminated involuntarily, as set forth in Section 6.2(a), unless the Participant has specified in his or her Election Form a different manner of payment. 12 (b) For purposes of this Plan, once a Participant is determined to be Totally Disabled, he or she will continue to be deemed Totally Disabled irrespective of the Participant's ceasing to be considered Totally Disabled for purposes of any other plan maintained by the Employer. (c) In the event that a Totally Disabled Participant recovers and resumes active employment with the Employer such Totally Disabled Participant may resume participation in this Plan at the discretion of the Plan Committee; provided, however, that in any event the Totally Disabled Participant shall continue to receive payments of Deferred Benefits that are then being paid pursuant to the terms of this Plan. 6.4 Death ----- Except for amounts deferred into a Insurance Fund, Deferred Benefits shall be paid upon the death of a Participant, as follows: (a) Upon the death of a Participant, the Employer shall pay the amounts in each of the Participant's Deferred Benefit Accounts to the Beneficiary designated by the Participant with respect to each Compensation Deferral Election in each of his or her respective Election Forms, or, if the Participant fails to so designate a Beneficiary, to his or her estate. (b) If the Participant dies prior to his or her Employment Termination Date, the Employer shall pay to each respective Beneficiary or to the Participant's estate, as the case may be, the amounts in each of the Participant's respective Deferred Benefit Accounts, in the same manner as for the Participant who has been terminated involuntarily, as set forth in Section 6.2(a). (c) If the Participant dies following his or her Employment Termination Date but prior to his or her receiving the full payment of all Deferred Benefits payable to him or her, the Employer shall pay to each of the respective Beneficiaries or to the Participant's estate, as the case may be, the same Deferred Benefit in the same manner as it otherwise would have paid to the Participant as if the Participant had not died, unless the Participant has specified in his or her Election Form a different manner of payment to a Beneficiary. (d) Notwithstanding the other provisions of Section 6.4, a Beneficiary may request a different payment schedule than what has been elected by the Participant, if such change does not further defer the scheduled payout, by submitting a request in writing to the Plan Committee. The granting of any such request shall be within the discretion of the Plan Committee. (e) If a Beneficiary who is receiving Deferred Benefits pursuant to this Plan dies, the remainder of the Deferred Benefits to which such Beneficiary was entitled at the time of his or her death shall continue to be payable to the beneficiary or beneficiaries designated by such Beneficiary in writing to the Plan Committee (or to the Beneficiary's estate or heirs if he or she fails to designate a beneficiary or beneficiaries). 13 Article VII - Hardship Withdrawals ---------------------------------- 7.1 Hardship Withdrawals. A Participant may request a Hardship Withdrawal --------------------- of all or a portion of his or her Deferred Benefits (excluding amounts deferred into a Insurance Fund) before the Deferred Benefit Commencement Date, as follows: (a) The request for withdrawal must be to meet an "unforeseeable emergency." (b) For purposes of this Article VII, an unforeseeable emergency is a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, loss of Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that will constitute an unforeseeable emergency will depend upon the facts of each case, but, in any case, a hardship withdrawal may not be made to the extent that such hardship is or may be relieved: (1) Through reimbursement or compensation by insurance or otherwise, (2) By liquidation of the participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (3) By cessation of deferrals under the Plan. (c) The request for a Hardship Withdrawal must be made in writing to the Plan Committee and shall state the amount requested, the unforeseeable emergency to which the amount will be applied and shall also affirm that no other assets are reasonably available to meet the emergency. (d) The Plan Committee shall consider applicable regulatory standards in assessing whether to grant a request for a Hardship Withdrawal. Article VIII - Plan Administration ---------------------------------- 8.1 Plan Committee -------------- This Plan and all matters related to it shall be administered by the Plan Committee. The Plan Committee shall have the authority to interpret the provisions of this Plan and to resolve all questions arising in the administration, interpretation and application of this Plan. Any such determination by the Plan Committee shall be conclusive and binding on all persons. 8.2 Claim Procedures ---------------- Any Participant or Beneficiary claiming a benefit, or requesting an interpretation, any information, or a ruling under this Pan shall present the request, in writing, to the Plan Committee, which shall respond in writing within thirty (30) days from the date on which it receives the claim or request. 14 Article IX - Participant's Rights --------------------------------- 9.1 Ineligibility to Participate in Plan ------------------------------------ In the event that the Plan Committee determines that a Participant has become ineligible to continue to participate in this Plan, the Plan Committee may terminate Participant's participation in this Plan upon ten (10) days' prior written notice to the Participant. In such event, the Participant will not be entitled to make further Compensation Deferral Elections, but all current Compensation Deferral Elections shall continue in effect. All Deferred Benefit Accounts shall be payable as otherwise provided in Article VI hereof. 9.2 Termination of Plan ------------------- Subject to the provisions of Section 6.2(e) of this Plan, the Board of Directors of Scientific-Atlanta, Inc. may terminate this Plan at any time, and termination of this Plan shall be effective upon ten (10) days' written notice to all Participants in the Plan. Upon such termination of this Plan, the Employer shall pay all active Participants their Deferred Benefits as provided in Section 6.2(a) as if the employment of the Participant by the Company had been involuntarily terminated. Upon termination of the Plan, amounts credited to the Deferred Benefit Accounts of each Participant shall earn interest at the interest rate provided by the Fixed Income Fund until such amounts are paid to the Participant. 9.3 Participant's Rights -------------------- The right of a Participant or his or her Beneficiary or estate to receive any benefits under this Plan shall be solely that of an unsecured creditor of the Employer. Any asset acquired or held by the Employer or funds allocated by the Employer in connection with the liabilities assumed by the Employer pursuant to this Plan shall not be deemed to be held under any trust for the benefit of any Participant or of any of Participant's Beneficiaries or to be security for the performance of the Employer's obligations hereunder but shall be and remain a general asset of the Employer. Provided, however, that nothing herein shall affect the rights of the Participant with regard to this Plan under that certain Benefits Protection Trust, between Scientific-Atlanta, Inc. and Wachovia Bank & Trust Co., N.A., dated February 13, 1991, as amended from time to time. 9.4 Spendthrift Provision --------------------- Neither a Participant nor any person claiming through a Participant shall have the right to commute, sell, assign, transfer, pledge, mortgage or otherwise encumber, transfer, hypothecate or convey any Deferred Benefit payable hereunder or any part thereof in advance of it actually having been received by a Participant or other appropriate recipient under this Plan, and the right to receive all such Deferred Benefits is expressly declared to be non-assignable and non-transferable. Prior to the actual payment thereof, no part of the Deferred Benefits payable hereunder shall be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any person claiming through a 15 Participant or be transferable by operation of law in the event of a Participant's or any such other person's bankruptcy or insolvency. 9.5 Plan Not An Employment Agreement -------------------------------- This Plan shall not be deemed to constitute an employment agreement between the Employer and any Participant, and no provision hereof shall restrict the right of the Employer to discharge a Participant as an employee of the Employer or the right of a Participant to voluntarily terminate his or her employment with the Employer. 9.6 Cooperation ----------- Each Participant will cooperate with the Employer by furnishing any and all information reasonably requested by the Employer in order to facilitate the payment of Deferred Benefits hereunder and by taking any such other actions as the Employer or the Plan Committee may reasonably request. 9.7 Offset ------ If a Participant or his or her Beneficiary, as the case may be, shall be indebted to the Employer at any time that Deferred Benefits are to be paid to a Participant or his or her Beneficiary under this Plan, then the Employer may reduce such Deferred Benefits by the amount of such indebtedness prior to the payment of the Deferred Benefits. Article X - Miscellaneous ------------------------- 10.1 Amendments and Modifications ---------------------------- Subject to the provisions of Section 6.2(e) of this Plan, the Board of Directors of Scientific-Atlanta, Inc. may amend this Plan in any respect at any time, provided, however, that any amendment that does not involve a material change in the nature of the Plan or a material increase in the cost of the Plan may be adopted in writing, without approval of the Board of Directors, by the Plan Committee. 10.2 Inurement --------- This Plan shall be binding upon and shall inure to the benefit of the Employer and each Participant hereto, and their respective beneficiaries, heirs, executors, administrators, successors and assigns. 10.3 Governing Law ------------- This Plan shall be interpreted and administered in accordance with the Employee Retirement Income Security Act of 1974, as amended. To the extent that state law is applicable, however, the laws of the State of Georgia shall apply. 16 10.4 Tax Withholding --------------- All payments made pursuant to this Plan shall be subject to the withholding of state and federal taxes, FICA tax or other taxes to the extent required by applicable law. The Plan Committee shall, before delivery of a cash payment require the Participant to make arrangements satisfactory to the Plan Committee to satisfy such withholding requirements. To record the adoption of the Plan (as amended and restated) by the Board on May 1, 2000, the Company has caused its authorized officers to execute this Plan. SCIENTIFIC-ATLANTA, INC. By: /s/ Brian C. Koenig ------------------------------- Brian C. Koenig Title: Senior Vice President -- Human Resources By: /s/ William E. Eason, Jr. ------------------------------ William E. Eason, Jr. Title: Senior Vice President, General Counsel and Corporate Secretary 17 EX-10.(N) 6 0006.txt 1996 EMPLOYEE STOCK OPTION PLAN EXHIBIT 10(N) SCIENTIFIC-ATLANTA, INC. 1996 EMPLOYEE STOCK OPTION PLAN As amended by the Board of Directors on April 17, 2000 1 SCIENTIFIC-ATLANTA, INC. ------------------------ 1996 EMPLOYEE STOCK OPTION PLAN ------------------------------- (As amended and restated on April 17, 2000) 1. PURPOSE. ------- This Plan is intended to provide incentive to key Employees of the Corporation and its Subsidiaries, to encourage proprietary interest in the Corporation by its Employees, to encourage such key Employees to remain in the employ of the Corporation and its Subsidiaries, and to attract new Employees with outstanding qualifications. 2. DEFINITIONS. ----------- Unless otherwise defined herein or the context otherwise requires, the capitalized terms used herein shall have the following meanings: (a) "Administrator" shall mean the officer of the Corporation ------------- appointed by the Committee pursuant to Section 4 hereof. (b) "Board" shall mean the Board of Directors of the Corporation. ----- (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- (d) "Committee" shall mean the Human Resources and Compensation --------- Committee, a committee appointed by the Board. (e) "Common Stock" shall mean, unless otherwise specifically ------------ provided, the common stock of the Corporation and any class of common shares of the Corporation into which such common stock may hereafter be converted, exchanged or reclassified. (f) "Corporation" shall mean Scientific-Atlanta, Inc., a Georgia ----------- corporation. (g) "Disability" shall mean the condition of an individual who is ---------- unable to engage in any substantial gainful activity by reason of any physical or mental impairment which is classified as a disability in the Corporation's Long Term Disability Plan. (h) "Employee" shall mean an individual who is employed (within the -------- meaning of Section 3401 of the Code and the regulations thereunder) by the Corporation or a Subsidiary (i.e., an individual with respect to whom ---- income taxes must be withheld from compensation). (i) "Exercise Price" shall mean the price per Share of Common Stock, -------------- determined by the Committee, at which an Option may be exercised. (j) "Fair Market Value" shall mean the value of one (1) Share of ----------------- Common Stock, and shall be equal to the closing sale price as reported on the New York Stock Exchange Composite on the date of valuation or, if no sale occurred on that date, then the mean between the closing bid and asked prices on such exchange on such date. If the Common Stock ceases to be listed on the New York Stock Exchange, then the Fair Market Value on the date of valuation shall be determined in good faith by the Committee, and such determination shall be conclusive and binding on all persons. If the date of valuation is not a business day, the closing price as reported on the New York Stock Exchange Composite on the last business day preceding the date of valuation shall be utilized. (k) "Option" shall mean any stock option granted pursuant to this ------ Plan. All Options shall be granted on the date the Committee takes the necessary action to approve the grant. However, if the minutes or other action of the Committee provide that an Option is to be granted as of another date, the date of grant shall be such other date. (l) "Option Agreement" shall mean a written stock option agreement ---------------- evidencing a particular Option. (m) "Optionee" shall mean an Employee who has received an Option. -------- (n) "Plan" shall mean this Scientific-Atlanta, Inc. 1996 Employee ---- Stock Option Plan, as it may be amended from time to time. (o) "Purchase Price" shall mean the Exercise Price times the number -------------- of Shares with respect to which an Option is exercised. (p) "Retirement" shall mean voluntary termination of employment ---------- after the date on which the Employee (i) has completed five (5) years of service with the Corporation, and (ii) the sum of the Employee's age and years of service with the Corporation is equal to sixty-five (65). (q) "Share" shall mean one (1) share of Common Stock, adjusted in ----- accordance with Section 9 of this Plan (if applicable). (r) "Subsidiary" shall mean any corporation at least fifty percent ---------- (50%) of the total combined voting power of which is owned by the Corporation or by another Subsidiary. 3. EFFECTIVE DATE. -------------- This Plan was adopted by the Board effective November 13, 1996. This Plan shall terminate as provided in Section 8 below. 4. ADMINISTRATION. -------------- (a) Committee. Unless otherwise determined by the Board from time --------- to time, Option grants under this Plan shall be made by the Committee. Acts of a majority of the Committee at a meeting at which a quorum is present, or acts reduced to or approved in writing by the unanimous consent of the members of the Committee, shall be the valid acts of the Committee. The Committee shall from time to time at its discretion select the Employees who are to be granted Options, determine the number of Shares to be optioned to each Optionee and set the terms of the Options. No member of the Committee shall be liable for any action or determination made in good faith with respect to this Plan or any Option granted hereunder. (b) Administrator. The Committee shall appoint an officer of the ------------- Corporation as the Administrator of the Plan. The Administrator shall have full authority to construe, interpret and administer the Plan, and, except as to matters which are expressly reserved herein for determination by the Board or the Committee, the Administrator's decisions and determinations in the administration of the Plan shall be final, conclusive and binding on all persons, including, without limitation, the Corporation, the shareholders and directors of the Corporation and any persons having any interests in any Options granted under this Plan. 5. PARTICIPATION. ------------- The Optionees shall be those key Employees of the Corporation or the Subsidiaries to whom Options may be granted from time to time by the Committee. 6. STOCK. ----- The stock subject to Options granted under this Plan shall be Shares of the Corporation's authorized but unissued or reacquired Common Stock. The aggregate number of Shares which may be issued upon exercise of Options under this Plan shall not exceed Five Million (5,000,000). The number of Shares subject to Options outstanding at any time shall not exceed the number of Shares remaining available for issuance under this Plan. Whenever an Optionee's rights to exercise an Option as to any Shares shall cease for any reason before he or she has exercised such Option as to such Shares, the Option shall be deemed terminated to that extent and such Shares shall again be available for issuance under this Plan. The limitations established by this Section 6 shall be subject to adjustment in the manner provided in Section 9 hereof upon the occurrence of an event specified in Section 9. 7. TERMS AND CONDITIONS OF OPTIONS. ------------------------------- (a) Stock Option Agreements. Options shall be evidenced by written ----------------------- Option Agreements in such form as the Committee shall from time to time determine. Such Option Agreements shall comply with and be subject to the terms and conditions set forth herein. (b) Option Exercisable. Except as otherwise provided in this Plan, ------------------ Options held by an Optionee may be exercised only while the Optionee is employed by the Corporation or a Subsidiary. (c) Number of Shares. Each Option shall state the number of Shares ---------------- to which it pertains. (d) Exercise Price. Each Option shall state the Exercise Price, -------------- which shall not be less than the Fair Market Value on the date of grant. The Exercise Price shall be subject to adjustment as provided in Section 9 hereof. (e) Medium and Time of Payment. Upon the exercise of any Option, -------------------------- the Purchase Price shall be paid in full in United States dollars by certified check or other form of payment acceptable to the Administrator; provided, however, that if the applicable Option Agreement so provides, or the Committee, in its sole discretion otherwise approves thereof, the Purchase Price may be paid, (i) by the surrender of Shares, in good form for transfer, owned by the person exercising the Option and having a Fair Market Value on the date of exercise equal to the Purchase Price, or (ii) in any combination of cash and Shares, as long as the sum of the cash so paid and the Fair Market Value of the Shares so surrendered equals the Purchase Price. In the event the Corporation determines that it is required to withhold state or Federal income tax as a result of the exercise of an Option, as a condition to the exercise thereof an Optionee must make arrangements satisfactory to the Administrator to enable it to satisfy such withholding requirements. Payment of such withholding requirements may be made, at the election of the Optionee, (i) in cash, (ii) by delivery of Shares registered in the name of Optionee, which Shares have a Fair Market Value at the time of exercise equal to the amount to be withheld, (iii) by the Corporation withholding Shares subject to the Option, which Shares have a Fair Market Value at the time of exercise equal to the amount to be withheld, or (iv) any combination of (i), (ii) and (iii) above. (f) Term and Time for Exercise. Each Option shall state the time or -------------------------- times when all or part thereof becomes exercisable. No Option shall be exercisable more than ten (10) years (or less, in the discretion of the Committee) from the date it was granted. If the Committee does not determine otherwise, any Option granted under this Plan: (1) Shall be exercisable as to not more than 25% of the total number of Shares covered by the Option immediately upon, and during the year following, the date of the grant; (2) Shall be exercisable as to not more than 50% of the total number of Shares covered by the Option on, and during the year following, the first anniversary of the date of grant; (3) Shall be exercisable as to not more than 75% of the total number of Shares covered by the Option on, and during the year following, the second anniversary of the date of grant; and (4) Shall be fully exercisable on the third anniversary of the date of grant and thereafter prior to expiration of the Option. If the Committee does not determine otherwise with respect to any Option granted hereunder, in the event that the employment of the Optionee by the Corporation or any Subsidiary of the Corporation terminates for any reason whatsoever, other than death or Retirement, prior to the Option(s) held by that person becoming fully exercisable as provided above, such Option(s) shall automatically expire with respect to the unexercisable portion on the date of termination of employment without any further action or documentation. (g) Non-transferability of Options. During the lifetime of the ------------------------------ Optionee, the Option shall be exercisable only by the Optionee and shall not be assignable or transferable. In the event of the Optionee's death, the Option shall not be transferable by the Optionee other than by will or the laws of descent and distribution. Any other attempted alienation, assignment, pledge, hypothecation, attachment, execution or similar process, whether voluntary or involuntary, with respect to all or any part of any Option or right hereunder, shall be null and void and, at the Corporation's option, shall cause all of the Optionee's rights under the Option to terminate. (h) Change in Control of the Corporation. ------------------------------------ (1) Contrary Provisions. Notwithstanding anything contained in ------------------- this Plan to the contrary, in the event of a Change in Control, the provisions of this Subsection 7(h) shall govern and supersede any inconsistent terms or provisions of this Plan. (2) Change in Control. For purposes of this Plan, a "Change in ----------------- Control" shall mean any of the following events: (a) The acquisition in one or more transactions by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")), of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the Corporation's then outstanding voting securities (the "Voting Securities"), provided, however, that for purposes of this -------- ------- Subsection 7(h)(2)(a), the Voting Securities acquired directly from the Corporation by any Person shall be excluded from the determination of such Person's Beneficial Ownership of Voting Securities (but such Voting Securities shall be included in the calculation of the total number of Voting Securities then outstanding); or (b) The individuals who are members of the Incumbent Board (as hereinafter defined), cease for any reason to constitute at least two-thirds of the Board for purposes of this Subsection 7(h)(2)(b). The "Incumbent Board" shall include the individuals who as of August 20, 1990 are members of the Board and any individual becoming a director subsequent to August 20, 1990 whose election, or nomination for election by the Corporation's stockholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board; provided, however, that any individual who is not a member of -------- ------- the Incumbent Board at the time he or she becomes a member of the Board shall become a member of the Incumbent Board upon the completion of two full years as a member of the Board; provided, -------- further, however, that notwithstanding the foregoing, no ------- ------- individual shall be considered a member of the Incumbent Board if such individual initially assumed office (i) as a result of either an actual or threatened "election contest" (within the meaning of Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest"), or (ii) with the approval of the other Board members, but by reason of any agreement intended to avoid or settle a Proxy Contest; or (c) Approval by stockholders of the Corporation of (i) a merger or consolidation involving the Corporation if the stockholders of the Corporation immediately before such merger or consolidation do not own, directly or indirectly, immediately following such merger or consolidation, more than eighty percent (80%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the Voting Securities immediately before such merger or consolidation, or (ii) a complete liquidation or dissolution of the Corporation or an agreement for the sale or other disposition of all or substantially all of the assets of the Corporation. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because twenty percent (20%) or more of the then outstanding Voting Securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Corporation or any of its subsidiaries, or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Corporation in the same proportion as their ownership of stock in the Corporation immediately prior to such acquisition. Moreover, notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Corporation which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided, that -------- if a Change in Control would occur (but for the operation of this by the Corporation, and after such share acquisition by the Corporation, the Subject Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur. Notwithstanding anything contained in this Plan to the contrary, if a Change in Control takes place and an Optionee's employment is terminated prior to the completed Change in Control and the Optionee reasonably demonstrates that such termination (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control and who effectuates a Change in Control or (ii) otherwise occurred in connection with or in anticipation of a Change in Control which actually occurs, then for all purposes of this Plan, the date of a Change in Control in respect of such Optionee shall mean the date immediately prior to the date of termination of such Optionee's employment. (3) Time for Exercise Upon a Change in Control. Upon a Change ------------------------------------------ in Control, all options granted under this Plan that are held by Employees at the time of such Change in Control shall become immediately exercisable in full, without regard to the years that have elapsed from the date of grant. (4) Termination of Employment Following Change in Control. If ----------------------------------------------------- an Optionee's employment terminates following a Change in Control other than for "cause" (as hereinafter defined), the applicable provisions of Subsection 7(i) of this Plan shall apply except that as of and after the date of the Change in Control, the Administrator shall not make any determination or take any action in connection with an Optionee's termination of employment which would cause any option granted under this Plan (i) to not be exercisable in full or (ii) to expire earlier than the latest date allowable under Subsection 7(i) as applicable. (5) Amendment or Termination. ------------------------ (a) Subsection 7(h) of this Plan shall not be amended or terminated at any time. (b) Any amendment or termination of this Plan prior to a Change in Control which (1) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control, or (2) otherwise arose in connection with or in anticipation of a Change in Control, shall be null and void and shall have no effect whatsoever. (i) Cessation of Employment; etc. After an Optionee ceases to be an ---------------------------- Employee, his or her rights to exercise any unexercised Option then held by the Optionee shall be determined as provided in this Subsection 7(i). No Option may be exercised after its term expires or the Option is otherwise canceled. (1) Retirement. ---------- (a) For Options granted prior to August 18, 1999, if an Optionee ceases to be an Employee because of Retirement (and not on account of termination for "cause" (as hereinafter defined)), such Optionee may exercise the Option immediately with respect to (i) the Shares which he or she could have purchased at the time of Retirement, and (ii) any Shares which would have become available for purchase under the Option if the Optionee's employment had continued for one year after the date of Retirement. To the extent unexercised, such Option, granted prior to August 18, 1999, shall expire two (2) years after the date of Retirement or the date of expiration of the Option as shown in the applicable Option Agreement, whichever shall occur first. (b) For Options granted on or after August 18, 1999, if an Optionee ceases to be an Employee because of Retirement (and not on account of termination for "cause" (as hereinafter defined)), such Optionee may exercise the Option immediately with respect to the Shares which he or she could have purchased at the time of Retirement. Additionally, if the Committee does not determine otherwise with respect to any Option, the right to exercise such Option shall continue to vest for a period of three (3) years after the Optionee's Retirement. To the extent unexercised, if the Committee does not determine otherwise with respect to any Option, such Option, granted on or after August 18, 1999, shall expire three (3) years after the date of Retirement or the date of expiration of the Option as shown in the applicable Option Agreement, whichever shall occur first. (2) Death. If the Committee does not determine otherwise with ----- respect to any Option, upon the death of an Employee who at the time of his or her death holds an Option, the Option shall be exercisable (by the executor or the administrator of the deceased Optionee's estate or by a person who acquired the right to exercise the option by bequest or inheritance or by reason of such death) for a period of three (3) years after such Employee's death, with respect to all Shares covered by the Option, regardless of whether the Option was exercisable as to such Shares prior to the Optionee's death. Notwithstanding the foregoing, the Committee may, in a special case, permit a longer period for exercise of an Option after death of an Optionee, but in no event shall such period extend beyond the date of expiration of the Option as set forth in the Option Agreement. (3) Disability. If the Committee does not determine otherwise ---------- with respect to any Option, if an Optionee ceases active service as an Employee by reason of Disability, such Optionee shall have the right to exercise the Option at any time within twelve (12) months after such cessation of employment, but except as provided in the applicable Option Agreement, only to the extent that, at the date of such cessation of employment, the Optionee's right to exercise such Option had accrued pursuant to the terms of the applicable Option Agreement and had not previously been exercised. (4) Termination for Cause. If the Committee does not determine --------------------- otherwise with respect to any Option, if an Optionee's employment is terminated for "cause" (as hereinafter defined), such Optionee's Option(s) shall expire immediately upon the giving to such Optionee of the notice of such termination. "Cause," for purposes of this Subsection 7(i), shall mean dishonest or fraudulent conduct which would normally be considered as sufficient basis for discharging an employee from a management and/or a supervisory position, or negligence, inaction or misconduct which constitutes failure by the Optionee to meet such Optionee's obligations and perform such Optionee's duties of employment. (5) Other Reasons. If the Committee does not determine ------------- otherwise with respect to any Option, if an Optionee ceases to be an Employee for any reason other than those mentioned above in Subsections (1), (2), (3) or (4), the Optionee shall have the right to exercise the Option at any time within thirty (30) days following such cessation, discharge or termination, but, except as otherwise provided in the applicable Option Agreement, only to the extent that, at the date of cessation, discharge or termination, the Optionee's right to exercise such Option had accrued pursuant to the terms of the applicable Option Agreement and had not previously been exercised. (6) Leave of Absence. An Optionee's employment with the ---------------- Corporation shall not be considered as having been terminated while the Optionee is on military or sick leave or other bona fide leave of absence (such as temporary employment by the Government) if the period of such leave does not exceed ninety (90) days, or, if longer, so long as the Optionee's right to re-employment with the Corporation is guaranteed either by statute or by contract. Where the period of such leave exceeds ninety (90) days and where the Optionee's rights to re-employment is not guaranteed either by statute or by contract, the Optionee's employment will be deemed to have terminated on the ninety-first (91st) day of such leave. (j) Rights as a Stockholder. No one shall have rights as a ----------------------- stockholder with respect to any Shares covered by his or her Option until the date of the issuance of a stock certificate for such Shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 9 hereof. (k) Modification, Extension and Renewal of Options. Within the ---------------------------------------------- limitations of this Plan, the Committee may modify, extend or renew outstanding Options or accept the cancellation of outstanding Options (to the extent not previously exercised) for the granting of new Options in substitution therefor. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option previously granted. (l) Other Provisions. The Option Agreements authorized under this ---------------- Plan may contain such other provisions not inconsistent with the terms of this Plan as the Committee shall deem advisable (including, without limitation, restrictions upon the exercise of the Option or subjecting the Shares issued pursuant to the exercise of an Option to rights of repurchase by the Corporation). (m) Substitution of Option. Notwithstanding any inconsistent ---------------------- provisions or limits under this Plan, in the event the Corporation acquires (whether by purchase, merger or otherwise) all or substantially all of the outstanding capital stock or assets of another corporation by any reorganization or other transaction qualifying under Section 425 of the Code, the Committee may, in accordance with the provisions of that Section, substitute options under this Plan for options under the plan of the acquired company provided (i) the excess of the aggregate Fair Market Value of the Shares subject to an Option immediately after the substitution over the aggregate Option Price of such Shares is not more than the similar excess immediately before such substitution and (ii) the new Option does not give persons additional benefits, including any extension of the exercise period. 8. TERM OF PLAN. ------------ Options may be granted pursuant to this Plan until the expiration of this Plan on November 13, 2005. 9. RECAPITALIZATIONS. ----------------- The number of Shares covered by this Plan as provided in Section 6 hereof, the number of Shares covered by each outstanding Option and the Exercise Price thereof shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a subdivision or consolidation of Shares or the payment of a stock dividend (but only of Common Stock) or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Corporation. Unless provisions are made for the continuance of this Plan or the assumption by, or the substitution for outstanding Options of new options covering the stock of, a successor employer corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices, in the event of any merger, consolidation, reorganization, liquidation or dissolution of the Corporation, or any exchange of Shares, each outstanding Option shall automatically be deemed to pertain to the securities and other property to which a holder of the number of Shares covered by the Option would have been entitled to receive in connection with any such event, and shall no longer pertain to the Shares. A dissolution or liquidation of the Corporation shall cause each outstanding Option to terminate. To the extent that the foregoing adjustments relate to securities of the Corporation, such adjustments shall be made by the Committee, whose determination shall be conclusive and binding on all persons. Except as expressly provided in this Section 9, the Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or stock of another corporation, and any issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option. The grant of an Option pursuant to this Plan shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. 10. SECURITIES LAW REQUIREMENTS. --------------------------- (a) Securities Act Requirements. No Option granted pursuant to this --------------------------- Plan shall be exercisable in whole or in part, and the Corporation shall not be obligated to sell any Shares subject to any such Option, if such exercise and sale would, in the opinion of counsel for the Corporation, violate the Securities Act of 1933 (or other Federal or State statutes having similar requirements) as it may be in effect at that time. As a condition to the issuance of any Shares upon exercise of an Option under this Plan, the Administrator may require the Optionee to furnish a written representation that he is acquiring the shares for investment and not with a view to distribution to the public. Such representations shall be required in cases where, in the opinion of the Administrator, they are necessary to enable the Corporation to comply with the provisions of the Securities Act of 1933, and any shareholder who gives such representation shall be released from it at such a time as the shares to which it applies are registered pursuant to the Securities Act of 1933. (b) Listing and Regulatory Requirements. Each Option shall be ----------------------------------- subject to the further requirements that if at any time the Committee shall determine in its discretion that the listing or qualification of the shares of stock subject to such Option under any securities exchange requirements or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option or the issue of Shares thereunder, such Option may not be exercised in whole or in part unless and until such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. 11. AMENDMENT OF THIS PLAN. ---------------------- The Board may from time to time, with respect to any Shares at the time not subject to Options, suspend or discontinue this Plan or revise or amend it in any respect whatsoever. 12. APPLICATION OF FUNDS. -------------------- The proceeds received by the Corporation from the sale of Common Stock pursuant to the exercise of an Option will be used for general corporate purposes. 13. EXECUTION. --------- To record the adoption of this Plan as amended and restated by the Board on April 17, 2000, the Corporation has caused this Plan to be executed by its authorized officers. SCIENTIFIC-ATLANTA, INC. By: /s/ Brian C. Koenig ----------------------------------------- Brian C. Koenig, Senior Vice President - Human Resources By: /s/ William E. Eason, Jr. ----------------------------------------- William E. Eason, Jr. William E. Eason, Jr. Senior Vice President, General Counsel and Corporate Secretary EX-10.(O) 7 0007.txt DEFERRED COMP. PLAN FOR NON-EMPLOYEE DIRECTORS EXHIBIT 10(o) [LOGO] Scientific DEFERRED COMPENSATION PLAN FOR Atlanta NON-EMPLOYEE DIRECTORS OF SCIENTIFIC-ATLANTA, INC. -------------------------------------------------- As Amended and Restated, Effective August 16, 2000 ARTICLE I - INTRODUCTION - ------------------------ 1.1 Name of the Plan ---------------- This Plan shall be known as the Deferred Compensation Plan for Non-Employee Directors of Scientific-Atlanta, Inc. ("the Company"). 1.2 Purpose of Plan --------------- The purpose of the Plan is to provide non-employee directors of the Company the opportunity to defer receipt of cash compensation and compensation in the form of stock payable to them for services to the Company as directors. 1.3 Restatement of Plan ------------------- This document amends and restates the Plan effective as of August 16, 2000. All deferral elections made before or after August 16, 2000, shall be governed by the terms of the Plan as amended and restated herein. ARTICLE II - DEFINITIONS - ------------------------ For purposes of this Plan the following words and phrases shall have the meanings and applications set forth below: 2.1 Annual Retainer --------------- The amount paid each year, in quarterly payments, to non-employee members of the Board of Directors of the Company. 2.2 Award Sub-Account ----------------- The sub-account described in Section 5.4 of this Plan. 1 2.3 Awards ------ The right to receive shares of Scientific-Atlanta Common Stock, granted under a Stock Award, an Elective Grant, a Retirement Award, or a Lump Sum Distribution made pursuant to the Stock Plan for Non-Employee Directors, as such terms are defined in that plan. 2.4 Beneficiary ----------- A person or entity designated in accordance with the terms and conditions of this Plan to receive benefits upon the death of a Participant. 2.5 Committee Chair Retainer ------------------------ The amount paid each year, in quarterly payments to a non-employee director who chairs a standing or special committee of the Board of Directors. 2.6 Compensation ------------ The total of a Participant's Annual Retainer, Meeting Fees, and Committee Chair Retainer payments paid to the Participant, by the Company during a Plan Year. 2.7 Conversion Date --------------- August 16, 2000. 2.8 Deferral Election ----------------- Each election made by a Participant to defer a portion of his or her Compensation and/or Awards by executing and submitting an Election Form. 2.9 Deferral Period --------------- The period commencing on the date that an Election Form becomes effective for a Deferral Election and continuing until the Deferred Benefit Commencement Date. 2.10 Deferred Benefit Account ------------------------ An account maintained pursuant to and in accordance with the terms and conditions set forth in Article V hereof by or on behalf of the Company for each Deferral Election made by a Participant under this Plan. 2 2.11 Deferred Benefit Commencement Date ---------------------------------- The date designated by a Participant with respect to each Deferral Election entered on an Election Form as the date on which the payment of the Deferred Benefits that accumulate as a result of each respective election is to begin. 2.12 Deferred Benefits ----------------- The amounts (and number of shares of Scientific-Atlanta Common Stock, if applicable) payable to a Participant or to his or her Beneficiary or estate beginning on the Deferred Benefit Commencement Date under this Plan. 2.13 Determination Date ------------------ The last day of each Plan Year. 2.14 Election Amount --------------- The amount of Compensation (and right to a certain number of shares of Scientific-Atlanta Common Stock under an Award, if applicable) to be deferred pursuant to a single Deferral Election. 2.15 Election Form ------------- The form completed by a Participant in order to make one or more Deferral Elections for the next Plan Year, as the same may be amended or revised as herein permitted. 2.16 Interest Sub-Account -------------------- The sub-account described in Section 5.2 of this Plan. 2.17 Meeting Fees ------------ The amounts paid to a non-employee member of the Board of Directors of the Company for each meeting of the Board and each meeting of a standing or special committee he or she attends. 2.18 Participant ----------- A non-employee member of the Board of Directors of the Company who elects to participate in this Plan. 2.19 Phantom Stock ------------- The hypothetical shares of Scientific-Atlanta Common Stock credited to the Phantom Stock Sub-Account prior to the Conversion Date. 3 2.20 Phantom Stock Sub-Account ------------------------- Prior to the Conversion Date, the sub-account into which Compensation could be deferred and converted into values based upon hypothetical shares of Scientific-Atlanta Common Stock. 2.21 Plan ---- This Deferred Compensation Plan for Non-Employee Directors of Scientific- Atlanta, Inc., as amended from time to time. 2.22 Plan Committee -------------- The Human Resources and Compensation Committee of the Board of Directors of the Company. 2.23 Plan Interest Rate ------------------ An annual rate of interest equal to the average of Moody's Long Term Industrial Bond Rate for the ninety (90) day period ending on the March 1st preceding the commencement of each Plan Year (rounded to the next highest one- half (1/2) percentage point), plus 1%, which shall be credited to a Participant's Deferred Benefit Accounts during such Plan Year. 2.24 Plan Year --------- The period beginning on the first day of July of each calendar year and ending on and including the last day of June of the next calendar year. 2.25 Retirement ---------- The discontinuation of service on the Board of Directors by a Participant who is fifty-five years of age or older with at least three years of Board service. 2.26 Scientific-Atlanta Common Stock ------------------------------- The $.50 par value per share common stock of the Company. 2.27 Service Termination Date ------------------------ The last day of the month immediately preceding the date of a Participant's Retirement, termination of service, determination of Total Disability, or death, whichever is applicable. 2.28 Split-Dollar Insurance Sub-Account ---------------------------------- The sub-account described in Section 5.5 of this Plan. 4 2.29 Stock Sub-Account ----------------- The sub-account described in Section 5.3 of this Plan. 2.30 Total Disability ---------------- A physical or mental condition which is expected to be totally and permanently disabling as determined in accordance with the terms and conditions of the long-term disability plan currently or most recently maintained by the Company for the benefit of its employees who are totally disabled. ARTICLE III - ELIGIBILITY AND PARTICIPATION - ------------------------------------------- 3.1 Eligibility ----------- Directors who are not employees of the Company and who are actively serving on the Board of Directors of the Company shall be eligible to participate in this Plan. 3.2 Participation ------------- The Plan Committee shall notify in writing each director who becomes eligible to participate in this Plan of his or her eligibility. Eligible directors may participate in this Plan by completing an Election Form on or before the end of the quarter immediately preceding the quarter in which he or she wants to begin deferring Compensation or Awards. If timely received, such election to participate shall be effective on the first day of the succeeding quarter. ARTICLE IV - COMPENSATION DEFERRAL - ---------------------------------- 4.1 Deferral Election ----------------- (a) A Participant shall effect a Deferral Election by executing and submitting to the Plan Committee an Election Form. Subsequently, the Company shall defer Election Amounts deferred from the Participant's Compensation and Awards at the time Compensation would have been paid or at the time the right to receive shares of Scientific-Atlanta Common Stock was granted, as applicable. (b) Each Election Amount shall be deferred for the Deferral Period specified with respect to the particular Deferral Election in the Election Form, provided, however, that the Participants shall not be entitled to defer Retirement Awards or Lump Sum Distributions (as such terms are defined in the Stock Plan for Non-Employee Directors) for Deferral Periods that are shorter than the minimum Deferral Periods for such Awards that are set forth in the Stock Plan for Non-Employee Directors. 5 (c) All Deferral Elections shall apply solely to Compensation and/or Awards which will be paid (or granted) to a Participant beginning with the first day of the calendar quarter commencing subsequent to the calendar quarter in which the Deferral Election is received; provided, however, the -------- ------- Participant must submit the Election Form at least thirty (30) days prior to the quarter in which the Participant desires to commence a deferral. Any Deferral Election will apply only to Compensation and/or Awards paid (or granted) during the Plan Year in which the election becomes effective. A Participant may revise or change any election contained in any Election Form, other than the Election Amount, by submitting to the Plan Committee a request for such a revision or change and obtaining the Plan Committee's approval of such revision or change at least ninety (90) days prior to the effective date of such revision or change. 4.2 Election Amounts ---------------- Each Election Amount specified by a Participant on an Election Form with respect to any Plan Year shall state in percentages the amount (and, to the extent applicable, the right to receive a specific number of shares of Scientific-Atlanta Common Stock), if any, which the Participant wishes to defer. An election to defer Compensation must equal a minimum of five percent up to a maximum of one hundred percent, in increments of five percentage points, of the Compensation which the Participant may be paid during the Plan Year. As to Awards, the election must be in whole shares, with no right to receive fractional shares being deferred. 4.3 Investment Election ------------------- (a) A Participant shall specify in his or her Deferral Election the percentage of the Election Amount to be credited to an Interest Sub- Account, a Stock Sub-Account or a Split-Dollar Insurance Sub-Account, and the number of shares from Awards to be credited to an Award Sub-Account. (b) Compensation may be credited into an Interest Sub-Account, a Stock Sub-Account or a Split-Dollar Insurance Sub-Account, but Awards may only be credited into an Award Sub-Account. 4.4 Deferral Period --------------- With the exception of any amounts deposited into a Split-Dollar Insurance Sub-Account, a Participant shall irrevocably specify in his or her Deferral Election a Deferred Benefit Commencement Date for all of the Election Amount to be deferred pursuant to such Deferral Election, which date shall be (i) a set date which is no earlier than July 1 of the calendar year following the end of the Plan Year in which the Election Amount is deferred; (ii) the Participant's Retirement; or (iii) a date which is either the fifth or the tenth anniversary following the date of the Participant's Retirement. In the case of Awards which have minimum Deferral Periods that are required under the terms of the Stock Plan for Non-Employee Directors, the above limitations shall apply, and the Participant shall also be required to elect a Deferral Period that complies with the minimum Deferral Periods required under the Stock Plan for Non-Employee Directors. 6 4.5 Deferred Benefit Commencement Date; Manner of Payment and Issuance ------------------------------------------------------------------ Except as otherwise provided in Article VI hereof, the Election Amounts that accumulate in a Deferred Benefit Account as a result of a Participant's making a Deferral Election will be paid (or issued, as applicable) by the Company to the Participant in the manner and commencing on the Deferred Benefit Commencement Date designated with respect to the Deferral Election in an Election Form. (a) Manner of Cash Payments: Except as otherwise provided in Article VI ----------------------- hereof, the Participant may elect to receive payment of the Deferred Benefits held in the form of cash, which Deferred Benefits are held in an Interest Sub-Account, pursuant to one of the following methods: (1) Annual, semi-annual or quarterly installments payable over a five, ten or fifteen year period, and commencing on the respective Deferred Benefit Commencement Date; or (2) A single lump sum payment of the entire balance of the respective Deferred Benefit Account, determined as of and payable on the Deferred Benefit Commencement Date. (b) Manner of Issuance of Shares: Except as otherwise provided in Article ---------------------------- VI hereof, the Participant may elect to receive issuance of the Deferred Benefits held in the form of shares of Scientific-Atlanta Common Stock held in a Stock Sub-Account or an Award Sub-Account, pursuant to one of the following methods: (1) Annual, semi-annual or quarterly issuance of shares of Scientific-Atlanta Common Stock from an Award Sub-Account or a Stock Sub-Account over a five, ten or fifteen year period, and commencing on the respective Deferred Benefit Commencement Date; provided, however, -------- ------- that no fractional shares of Scientific-Atlanta Common Stock will be issued; or (2) A single issuance of all shares subject to the specific Award Sub-Account or Stock Sub-Account, determined as of and payable on the Deferred Benefit Commencement Date. (c) Stock. The shares of Scientific-Atlanta Common Stock issued under the ----- Stock Sub-Account of this Plan may be authorized, but previously unissued, shares or previously issued shares reacquired by the Company. The aggregate number of shares which may be issued under the Stock Sub-Account of this Plan shall not exceed 750,000 shares. (d) Change in Payment or Issuance Method. A Participant may change the ------------------------------------ method of payment (or method of issuance of shares) selected, which method was selected pursuant 7 to the terms of subsection (a) or subsection (b) above, as applicable, with respect to a Deferral Election by submitting a request in writing to the Plan Committee. Prior to a change in the method of payment or a change in the method of issuance of shares becoming effective, the Plan Committee must approve such change. Participants may not move Deferred Benefits from one sub-account to another sub-account, except that Participants may move Deferred Benefits from an Interest Sub-Account to a Split-Dollar Insurance Sub-Account by notifying the Plan Committee in writing and designating in such notification the date upon which such Deferred Benefits are to be moved. 4.6 Designation of Beneficiaries ---------------------------- A Participant shall designate a Beneficiary with respect to each Deferral Election and may change the Beneficiary designation with respect to any Deferral Election at any time by submitting to the Plan Committee a revised Beneficiary designation in writing reflecting the change. ARTICLE V - DEFERRED BENEFIT ACCOUNTS - ------------------------------------- 5.1 Deferred Benefit Accounts ------------------------- The Company shall cause to be established and maintained for each Participant a separate Deferred Benefit Account, and within each such Deferred Benefit Account an Interest Sub-Account, a Stock Sub-Account, an Award Sub- Account and Split-Dollar Insurance Sub-Account with respect to each Deferral Election. The Company shall credit the Election Amount deferred pursuant to each such election to the Participant's appropriate Deferred Benefit Account, and to the Interest Sub-Account, the Stock Sub-Account, the Award Sub-Account and the Split-Dollar Insurance Sub-Account as specified in the Election, as of the date deferred from Participant's Compensation as provided in Section 4.1 hereof. 5.2 Interest Sub-Account -------------------- Except as otherwise provided by Section 6.2(a) hereof, interest shall accrue at the Plan Interest Rate on any amounts credited to an Interest Sub- Account from the date on which the amount is credited until it is paid to the Participant, and shall be credited and compounded weekly. 5.3 Stock Sub-Account ----------------- If a Participant elects all or a portion of the Election Amount to be credited to the Stock Sub-Account, the amount so credited shall be deemed to be the right to receive a number of shares of Scientific-Atlanta Common Stock determined as follows: (a) Conversion into Scientific-Atlanta Common Stock: The amount credited ----------------------------------------------- to the Stock Sub-Account shall be converted on the date of such credit into the right to receive a number of shares of Scientific-Atlanta Common Stock determined by dividing the amount credited by the average closing price of Scientific-Atlanta Common Stock, as 8 reported on the composite tape of the New York Stock Exchange, for the 20 business days immediately preceding the last day of the month prior to the month in which such amount is credited (the "Conversion Price"). (b) Conversion of Phantom Stock: Effective as of the Conversion Date, all --------------------------- hypothetical shares of Scientific-Atlanta Common Stock credited to a Participant's Phantom Stock Sub-Account shall be converted into the right to receive the same number of the shares of Scientific-Atlanta Common Stock under the Stock Sub-Account. (c) Fractional Shares: No fractional shares will be credited to a Stock ----------------- Sub-Account. In lieu of fractional shares, an amount equal to the fractional share multiplied by the Conversion Price shall be credited to the Interest Sub-Account. (d) Dividends: No interest will accrue on the amounts held in a Stock Sub- --------- Account, but amounts equivalent to the cash dividends that would have been paid if the underlying shares had been issued will be placed in an Interest Sub-Account. (e) No Rights as Shareholder: A Participant shall not have any rights as a ------------------------ shareholder of the Company with respect to any amounts credited to the Stock Sub-Account or the right to receive shares of Scientific-Atlanta Common Stock represented by such amounts until such shares are actually issued as hereinafter provided. 5.4 Award Sub-Account ----------------- If a Participant elects that an Award be deferred and credited to an Award Sub-Account, such Award will remain in such Award Sub-Account until the Deferred Benefit Commencement Date related to such Award Sub-Account occurs. No interest will accrue on the Award in such Award Sub-Account, but Accrued Dividends will accrue and will be placed in an Interest Sub-Account. A Participant shall not have any rights as a shareholder of the Company while an Award is held in an Award Sub-Account. 5.5 Split-Dollar Insurance Sub-Account ---------------------------------- Amounts credited to a Split-Dollar Insurance Sub-Account shall be used to pay premiums on life insurance insuring the life of the Participant, or, at the Participant's election, the lives of the Participant and his or her spouse on a joint and survivor basis, pursuant to such policies of insurance, and with such insurers, as the Plan Committee may determine from time to time. The Company shall be the owner of such insurance policy or policies, and the proceeds thereof shall be payable as provided in an Endorsement Split-Dollar Agreement to be entered into between the Participant and the Company. 5.6 Statement of Accounts --------------------- Within ninety (90) days after each Determination Date, the Plan Committee shall submit to each Participant a statement in such form as the Plan Committee shall deem desirable, setting 9 forth a summary of the Deferral Elections made and the current balances of the Deferred Benefit Accounts and related sub-accounts maintained for the Participant as of the Determination Date. ARTICLE VI - PAYMENT (AND ISSUANCE) OF DEFERRED BENEFITS - -------------------------------------------------------- 6.1 General ------- Except as otherwise provided herein, Deferred Benefits credited to the Interest Sub-Account, the Stock Sub-Account or the Award Sub-Account shall be payable (and issued, if applicable) to a Participant upon the Deferred Benefit Commencement Date and pursuant to the manner of payment (or issuance, if applicable) selected by the Participant on the applicable Deferral Election or any permitted modification thereof, pursuant to Section 4.5(d) hereof. If the Participant has elected to receive such Deferred Benefits in installments, the amount payable in the first year of such installments shall be an amount that will fully amortize the balance in the Participant's Deferred Benefit Account determined as of the Deferred Benefit Commencement Date over the five, ten or fifteen year period, based on assumed interest earnings at the Plan Interest Rate (to the extent applicable) in effect for such first year. Thereafter, the amount payable (or to be issued) in each succeeding year shall be adjusted to an amount that will fully amortize the remaining balance in such Deferred Benefit Account over the remaining years in the aforesaid five, ten, or fifteen year installment period based on the Plan Interest Rate (to the extent applicable) for such succeeding year. Proceeds of life insurance purchased with amounts credited to the Split-Dollar Insurance Sub-Account shall be payable as provided in the respective policy or policies and the applicable Endorsement Split-Dollar Agreement. 6.2 Service Termination ------------------- Deferred Benefits shall be paid (or issued, as appropriate) to a Participant after his or her termination, as follows: (a) Upon termination of service as a director prior to the Participant's Retirement: (1) the amounts in each of the Participant's Deferred Benefit Accounts shall cease to earn interest (to the extent applicable) and the balance of each Deferred Benefit Account shall be determined in accordance with Article V hereof, and (2) the Company shall pay (or issue, as appropriate) to the Participant the balance of each of the Participant's Deferred Benefit Accounts not according to the Participant's elections as specified in his or her Election Forms but in a lump sum, to be paid within sixty days of the termination. (b) Upon termination of service as a director on the date of the Participant's Retirement, the Company will pay (or issue) to such a Participant all amounts in his or her Deferred Benefit Accounts in accordance with Section 6.1 hereof. 10 6.3 Total Disability ---------------- Deferred Benefits shall be paid (or issued, as appropriate) to a Participant after his or her becoming Totally Disabled, as follows: (a) Upon the determination that a Participant is Totally Disabled, no further deferrals will be made from his or her Compensation, and the Company shall pay (or issue, as appropriate) to the Participant all amounts in his or her Deferred Benefit Accounts in accordance with Section 6.2 hereof unless the Participant has specified in his or her Election Form a different manner of payment. (b) For purposes of this Plan, once a Participant is determined to be Totally Disabled, he or she will continue to be deemed Totally Disabled irrespective of the Participant's ceasing to be considered Totally Disabled for purposes of any other plan maintained by the Company. (c) In the event that a Totally Disabled Participant recovers and resumes service with the Board, such Totally Disabled Participant may resume participation in this Plan at the discretion of the Plan Committee; provided, however, that in any event the Totally Disabled Participant shall -------- ------- continue to receive payments of Deferred Benefits that are then being paid pursuant to the terms of this Plan. 6.4 Death ----- Deferred Benefits shall be paid (or issued, as appropriate) after the death of a Participant, as follows: (a) After the death of a Participant, the Company shall pay the amounts (or issue shares of Scientific-Atlanta Common Stock, if applicable) in each of the Participant's Deferred Benefit Accounts to the Beneficiary designated by the Participant with respect to each Deferral Election in each of his or her respective Election Forms, or, if the Participant fails to so designate a Beneficiary, to his or her estate. (b) If the Participant dies prior to Retirement, the Company shall pay to each respective Beneficiary or to the Participant's estate, as the case may be, the amounts in each of the Participant's respective Deferred Benefit Accounts (or issue the shares held in the Stock Sub-Account or the Award Sub-Account), in the same manner as set forth in Section 6.2(a). (c) If the Participant dies following Retirement or being determined to be Totally Disabled but prior to his or her receiving the full payment of all Deferred Benefits payable to him or her, the Company shall pay (or issue, if appropriate) to the respective Beneficiaries or to the Participant's estate, as the case may be, the same Deferred Benefits in the same manner as it otherwise would have paid (or issued) to the Participant as if the 11 Participant had not died, unless the Participant has specified in his or her Election Form a different manner of payment to a Beneficiary. (d) Notwithstanding the other provisions of Section 6.4, a Beneficiary may request a different payment schedule than what has been elected by the Participant, if such change does not further defer the scheduled payout, by submitting a request in writing to the Plan Committee. The granting of any such request shall be within the discretion of the Plan Committee. (e) If a Beneficiary who is receiving Deferred Benefits pursuant to this Plan dies, the remainder of the Deferred Benefits to which such Beneficiary was entitled at the time of his or her death shall continue to be payable to the Beneficiary or to beneficiaries designated by such Beneficiary in writing to the Plan Committee (or to the Beneficiary's estate or heirs if he or she fails to designate a beneficiary or beneficiaries). ARTICLE VII - PLAN ADMINISTRATION - --------------------------------- 7.1 Plan Committee -------------- This Plan and all matters related to it shall be administered by the Plan Committee. The Plan Committee shall have the authority to interpret the provisions of this Plan and to determine all questions arising in the administration, interpretation and application of this Plan. ARTICLE VIII - PARTICIPANT'S RIGHTS - ----------------------------------- 8.1 Ineligibility to Participate in Plan ------------------------------------ In the event that the Plan Committee determines that a Participant has become ineligible to continue to participate in this Plan, the Plan Committee may terminate Participant's participation in this Plan upon ten (10) days' prior written notice to the Participant. In such event, the Participant will not be entitled to make further Deferral Elections, but all current Deferral Elections shall continue in effect. All Deferred Benefit Accounts shall be payable as otherwise provided in Article VI hereof. 8.2 Termination of Plan ------------------- The Board of Directors of the Company may terminate this Plan at any time, and termination of this Plan shall be effective upon ten (10) days' written notice to all Participants in the Plan. Upon such termination of this Plan, the Company shall pay all Participants their Deferred Benefits as provided in Section 6.1 and in the Participant's Election Form; provided, however, if this -------- ------- Plan is terminated within two (2) years after a Change in Control (as defined in Section 9.4 hereof), each Participant's Deferred Benefits shall be paid in accordance with either (a) each Participant's "Change in Control Election Form" (as defined in Section 9.3 hereof), provided such Participant has completed and submitted such Change in Control Election Form, as required by Section 9.3 hereof, or (b) Participant's original Election Form and in accordance 12 with Section 6.1 hereof, but only if a Participant has not validly completed and submitted a Change in Control Election Form. Upon termination of the Plan, amounts credited to the Deferred Benefit Accounts of each Participant shall continue to earn interest at the Plan Interest Rate until such amounts are paid to the Participant. 8.3 Participant's Rights -------------------- The right of a Participant or his or her Beneficiary or estate to receive any benefits under this Plan shall be solely that of an unsecured creditor of the Company. Any asset acquired or held by the Company or funds allocated by the Company in connection with the liabilities assumed by the Company pursuant to this Plan shall not be deemed to be held under any trust for the benefit of any Participant or of any of Participant's Beneficiaries or to be security for the performance of the Company's obligations hereunder but shall be and remain a general asset of the Company. 8.4 Spendthrift Provision --------------------- Neither a Participant nor any person claiming through a Participant shall have the right to commute, sell, assign, transfer, pledge, mortgage or otherwise encumber, transfer, hypothecate or convey any Deferred Benefit payable hereunder or any part thereof in advance of its actually having been received by a Participant or other appropriate recipient under this Plan, and the right to receive all such Deferred Benefits is expressly declared to be non-assignable and non-transferable. Prior to the actual payment (or issuance, if appropriate) thereof, no part of the Deferred Benefits payable hereunder shall be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any person claiming through a Participant or be transferable by operation of law in the event of a Participant's or any such other person's bankruptcy or insolvency. 8.5 Cooperation ----------- Each Participant will cooperate with the Company by furnishing any and all information reasonably requested by the Company in order to facilitate the payment of Deferred Benefits hereunder and by taking any such other actions as the Company or the Plan Committee may reasonably request. ARTICLE IX - CHANGE IN CONTROL - ------------------------------ 9.1 Applicability ------------- Notwithstanding any provision in this Plan to the contrary, the terms of this Article IX shall apply to any Participant, whether active or inactive. 13 9.2 Effect of Change in Control --------------------------- Upon a Change in Control the following shall immediately occur: (a) The Company shall contribute to the trust maintained pursuant to the Scientific-Atlanta, Inc. Benefits Protection Trust Agreement a lump sum amount equal to each Participant's Deferred Benefit Accounts. The Company shall assign to such trust (i) any split-dollar life insurance policies held by the Company, pursuant to Section 5.5 hereof, for the benefit of a Participant's beneficiaries; and (ii) any Endorsement Split-Dollar Agreements between the Company and a Participant. (b) All Participants shall be deemed to have satisfied the age and service requirements in the definition of Retirement in this Plan. (c) For any Participant who is a member of the Board on the date that a Change in Control occurs and who ceases, within twenty-four (24) months after a Change in Control, to be a member of the Board for any reason, the Company shall pay such Participant his or her Deferred Benefits in accordance with such Participant's Change in Control Election Form, if completed and returned pursuant to Section 9.3. If a Participant has not completed and returned such Change in Control Election Form, such Participant's Deferred Benefits shall be paid in accordance with his original Election Form and Article VI hereof. (d) All amounts held in an Interest Sub-Account shall remain in such Interest Sub-Account and shall earn interest at the Plan Interest Rate until all amounts in such Interest Sub-Account are fully paid. (e) The rights to receive shares under all Stock Sub-Accounts and all Awards held in an Award Sub-Account shall be automatically converted into the cash value of such shares on the date of the Change in Control and such cash value shall be automatically transferred to the Interest Sub-Account (and earn interest in accordance with Section 9.2(d)). The cash value of such shares on the date of the Change in Control shall be determined by multiplying the closing price of one (1) share of Scientific-Atlanta Common Stock on the business day immediately prior to the date of the Change in Control times the number of shares of Scientific-Atlanta Common Stock that ----- the Participant has a deferred right to receive under his Stock Sub-Account or his Award Stock-Sub-Account. (f) All amounts, if any, held in a Participant's Split-Dollar Insurance Sub-Account shall be automatically transferred to an Interest Sub-Account for such Participant (and shall earn interest in accordance with Section 9.2(d)). The trust described in Section 9.2(a) shall withdraw from a Participant's Interest Sub-Account the amounts required to pay the premiums for the split-dollar life insurance held by the trust (pursuant to Section 9.2(a)) for the benefit of such Participant's beneficiaries. 14 9.3 Change in Control Election Form ------------------------------- At any time at least ninety (90) days prior to a Change in Control, each Participant may elect to have his Deferred Benefits paid out after a Change in Control in a manner different from the manner he previously elected in his original Election Form. Each Participant may complete and submit a Change in Control Election Form and thereby elect to have his or her Deferred Benefits paid as follows if the Plan is terminated or a Participant's service on the Board is terminated, within twenty-four (24) months after a Change in Control: (a) have his Deferred Benefits paid as a lump sum payment, payable within five (5) days after the date of termination of the Plan or the date of Participant's termination of service on the Board (whichever occurs first); or (b) have his Deferred Benefits paid as though his Deferred Benefit Commencement Date were the date of termination of the plan or the date of Participant's termination of service on the Board (whichever occurs first); or (c) have his Deferred Benefits paid as of a specified date (the "Change in Control Election Form"). As with the original Election Form, Participant may elect, in his Change in Control Election Form, to have his Deferred Benefits paid in a lump sum, or in installments over a 5-year period, a 10-year period, or a 15-year period. For a Change in Control Election Form to be validly submitted by a Participant, it must be received by the Corporate Secretary of the Company prior to the deadline specified in the first sentence of this Section 9.3. 9.4 Definition of Change in Control ------------------------------- For purposes of this Plan, a Change in Control shall mean any of the following events: (a) The acquisition in one or more transactions by any "Person" (as the term person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) of "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of the combined voting power of the Company's then outstanding voting securities (the "Voting Securities"); provided, however, that for purposes of this Section 9.4, the -------- ------- Voting Securities acquired directly from the Company by any Person shall be excluded from the determination of such Person's Beneficial Ownership of Voting Securities (but such Voting Securities shall be included in the calculation of the total number of Voting Securities then outstanding); or (b) The individuals who are members of the Incumbent Board (as defined below) cease for any reason to constitute at least two-thirds (2/3) of the Board. The "Incumbent Board" shall include the individuals who as of August 20, 1990, are members of the Board and any individual becoming a director subsequent to August 20, 1990, whose election, or nomination for election, by the Company stockholders was approved by a vote of at least two-thirds (2/3) of the directors then comprising the Incumbent Board; provided, however, that any individual who is not a member of the Incumbent -------- ------- Board at the time he or she becomes a member of the Board shall become a member of the Incumbent Board upon the completion of two (2) full years as a member of the Board; provided, further, however, that notwithstanding the -------- -------- ------- foregoing, no individual shall be 15 considered a member of the Incumbent Board if such individual initially assumed office (i) as a result of either an actual or threatened "election contest" (within the meaning of Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") or (ii) with the approval of the other Board members, but by reason of any agreement intended to avoid or settle a Proxy Contest; or (c) Approval by stockholders of the Company of (i) a merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation, do not own, directly or indirectly, immediately following such merger or consolidation, more than eight percent (80%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the Voting Securities immediately before such merger or consolidation or (ii) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because twenty percent (20%) or more of the then outstanding Voting Securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. Moreover, notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the outstanding Voting Securities as a result of the acquisition of Voting Securities by the Company, which acquisition, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person, provided that if a Change in Control would occur (but for the operation -------- of this sentence) as a result of such acquisition of Voting Securities by the Company, and after such share acquisition of Voting Securities by the Company, the Subject Person becomes the Beneficial Owner of any additional Voting Securities, which increases the percentage of the then outstanding Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall be deemed to have occurred. ARTICLE X - MISCELLANEOUS - ------------------------- 10.1 Amendments and Modifications ---------------------------- The Board of Directors of the Company may amend this Plan in any respect at any time, except that the Board of Directors may not amend this Plan for the two (2) year period commencing on the date of a Change in Control; provided however, that shareholder approval is required for Plan amendments that require shareholder approval under applicable rules of the 16 New York Stock Exchange. In addition, the Plan Committee may authorize the following types of amendments to the Plan without Board approval: (a) amendments required by law; (b) amendments that relate to the administration of the Plan and that do not materially increase the cost of the Plan; and (c) amendments that are designed to resolve possible ambiguities, inconsistencies or omissions in the Plan and that do not materially increase the cost of the Plan. All authorized amendments shall be effective upon ten (10) days' written notice to the Participants. If any such amendment affects a Participant's Deferred Benefits, such affected Participant may, within ninety (90) days after the effective date of such amendment, elect to terminate his or her participation in the Plan pursuant to this Section 10.1, in which event the date of such election shall be deemed to be such Participant's Deferred Benefit Commencement Date. 10.2 Inurement --------- This Plan shall be binding upon and shall inure to the benefit of the Company and each Participant hereto, and their respective beneficiaries, heirs, executors, administrators, successors and assigns. 10.3 Governing Law ------------- This Plan is made in accordance with and shall be governed in all respects by the laws of the state of Georgia. 10.4 Tax Withholding --------------- All payments (and issuances of shares) made pursuant to this Plan shall be subject to the withholding of state and federal income taxes, FICA tax or other taxes to the extent required by applicable law. The Plan Committee shall, before delivery of a cash payment or a stock certificate, require the Participant to make arrangements satisfactory to the Plan Committee to satisfy such withholding requirements. A Participant receiving shares of Scientific- Atlanta Common Stock may elect to satisfy such withholding requirements by having the Plan Committee withhold shares otherwise issuable to the Participant, with the Participant's election being made by delivering to the Plan Committee a written election stating his or her desire to so satisfy such withholding requirements. 10.5 Fractional Shares ----------------- No fractional shares will be issued under this Plan. Except to the extent that the provision for fractional shares is expressly set forth in this Plan, the Plan Committee shall determine the manner for treating fractional shares. 10.6 Antidilution ------------ If a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, or any other change in the corporate structure of the 17 Company or the shares of Scientific-Atlanta Common Stock occurs, then the aggregate number of shares reserved under this Plan and all other share (or share equivalent) numbers set forth in or calculated under this Plan shall be equitably adjusted by the Plan Committee. 10.7 Delivery of Shares ------------------ The obligation of the Company to issue shares under this Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Plan Committee. 10.8 Securities Act Requirements --------------------------- No certificates for shares shall be delivered pursuant to this Plan if the delivery would, in the opinion of counsel for the Company, violate the Securities Act of 1933, as amended (the "Securities Act") or any other Federal or state statutes having similar requirements as may be in effect at that time. As a condition of the issuance of any shares under this Plan, the Plan Committee may require the recipient to furnish a written representation that he or she is acquiring the shares for investment and not with a view to distribution to the public. In the event that the disposition of shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act and is not otherwise exempt from such registration, such shares shall be restricted against transfer to the extent required by the Securities Act and Rule 144 of the Securities Act or the regulations hereunder. 10.9 Listing and Regulatory Requirements ----------------------------------- If at any time the Plan Committee shall determine, in its discretion, that the listing, registration or qualification of the shares to be delivered pursuant to this Plan is required by any securities exchange or under any applicable law or the rule of any regulatory body, or is necessary or desirable as a condition of, or in connection with, the issuance of shares thereunder, such shares may not be issued unless and until such listing, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Plan Committee. 10.10 Section 16 ---------- The transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Securities Exchange Act of 1934, as amended. To the extent any provision under the Plan or action by the Plan Committee fails to so comply, it shall be deemed null and void to the extent permitted by law and deemed advisable by the Plan Committee. 18 To record the adoption of the Plan (as amended and restated) by the Board on August 16, 2000, the Company has caused its authorized officers to execute this Plan. SCIENTIFIC-ATLANTA, INC. By: /s/ Brian C. Koenig ------------------------------------- Name: Brian C. Koenig Title: Senior Vice President - Human Resources By: /s/ William E. Eason, Jr. ------------------------------------- Name: William E. Eason, Jr. Title: Senior Vice President, General Counsel and Corporate Secretary 19 EX-10.(P) 8 0008.txt SECOND AMEND. TO AMENDED & RESTATED CREDIT AGR'MNT Exhibit 10(p) SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 4, 2000, by and among SCIENTIFIC-ATLANTA, INC. (the "Borrower"), each of the financial institutions party hereto as "Lenders", THE BANK OF NEW YORK and ABN AMRO BANK N.V., acting through its Atlanta Agency, as Co-Agents (the "Co- Agents"), and BANK OF AMERICA, N.A., successor to NationsBank, N.A., successor to NationsBank, N.A. (South), formerly known as NationsBank of Georgia, National Association, as Agent (the "Agent"). WHEREAS, the Borrower, the financial institutions party thereto as "Lenders", the Co-Agents and the Agent are parties to that certain Amended and Restated Credit Agreement dated as of May 7, 1999, as amended as of June 22, 1999 (as amended and in effect immediately prior to the date hereof, the "Credit Agreement"); and WHEREAS, the parties hereto desire to amend certain provisions of the Credit Agreement on the terms and conditions contained herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto hereby agree as follows: Section 1. Specific Amendments to Credit Agreement. The parties hereto --------------------------------------- agree that the Credit Agreement is amended as follows: (a) The definition of the term "Facility B Termination Date" contained in Section 1.1 of the Credit Agreement is hereby deleted in its entirety and the following substituted in its place: "Facility B Termination Date" means May 4, 2001, or such later date to --------------------------- which such date may be extended under Section 2.12. (b) Annex I to the Credit Agreement is deleted in its entirety and Annex I hereto is substituted in its place. Section 2. Representations of Borrower. The Borrower represents and --------------------------- warrants to the Agent and the Lenders that: (a) Authorization. The Borrower has the right and power, and has taken all ------------- necessary action to authorize it, to execute and deliver this Amendment and to perform its obligations hereunder and under the Credit Agreement as amended by this Amendment, in accordance with their respective terms. This Amendment has been duly executed and delivered by a duly authorized officer of the Borrower, and this Amendment and the Credit Agreement as amended by this Amendment, are each a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with their respective terms. (b) Compliance with Laws, Etc. The execution and delivery by the Borrower ------------------------- of this Amendment and the performance by the Borrower of this Amendment and the Credit Agreement as amended by this Amendment, each in accordance with its terms, do not and will not, by the passage of time, the giving of notice or otherwise: (i) require any Governmental Approval or violate any Applicable Law relating to the Borrower or any other Loan Party; (ii) conflict with, result in a breach of or constitute a default under the articles of incorporation or the bylaws of the Borrower or the organizational documents of any other Loan Party; (iii) conflict with, result in a breach of or constitute a default under any indenture, agreement or other instrument to which the Borrower or any other Loan Party is a party or by which it or any of its properties may be bound, which conflict, breach or default would have a Material Adverse Effect; or (iv) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by the Borrower or any other Loan Party other than in favor of the Agent for the benefit of the Lenders. (c) No Default. No Default or Event of Default has occurred and is ---------- continuing as of the date hereof nor will exist immediately after giving effect to this Amendment. Section 3. Reaffirmation of Representations by Borrower. The Borrower -------------------------------------------- hereby repeats and reaffirms all representations and warranties made by the Borrower to the Agent and the Lenders in the Credit Agreement as amended by this Amendment and the other Loan Documents to which the Borrower is a party on and as of the date hereof, except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate on and as of such earlier date) and except for changes in factual circumstances specifically permitted under the Credit Agreement. Section 4. Certain References. Each reference to the Credit Agreement in ------------------ any of the Loan Documents shall be deemed to be a reference to the Credit Agreement as amended by this Amendment. Section 5. Benefits. This Amendment shall be binding upon and shall inure -------- to the benefit of the parties hereto and their respective successors and assigns. Section 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND ------------- CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA. Section 7. Expenses. The Borrower shall reimburse the Agent upon demand -------- for all costs and expenses (including attorneys' fees) incurred by the Agent in connection with the preparation, negotiation and execution of this Amendment and the other agreements and documents executed and delivered in connection herewith. Section 8. Effect. Except as expressly herein amended, the terms and ------ conditions of the Credit Agreement shall remain in full force and effect. The amendments contained herein shall be deemed to have prospective application only, unless otherwise specifically stated herein. -2- Section 9. Effectiveness of Amendment. This Amendment shall not be -------------------------- effective until its execution and delivery by all of the parties hereto whereupon it shall be deemed effective as of May 5, 2000. Section 11. Counterparts. This Amendment may be executed in any number of ------------ counterparts, each of which shall be deemed to be an original and shall be binding upon all parties, their successors and assigns. Section 12. Definitions. All capitalized terms not otherwise defined ----------- herein are used herein with the respective definitions given them in the Credit Agreement. [Signatures on Next Page] -3- IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to Amended and Restated Credit Agreement to be executed as of the date first above written. SCIENTIFIC-ATLANTA, INC. By: /s/ Wallace G. Haislip ---------------------------------- Name: Wallace G. Haislip Title: Sr. Vice President-Finance, CFO & Treasurer BANK OF AMERICA, N.A., individually and as Agent By: /s/ Pamela S. Kurtzman ---------------------------------- Name: Pamela S. Kurtzman Title: Principal THE BANK OF NEW YORK, individually and as Co-Agent By: /s/ Ronald R. Reedy ---------------------------------- Name: Ronald R. Reedy Title: Vice President ABN AMRO BANK N.V., acting through its Atlanta Agency, individually and as Co-Agent By: /s/ Jerold M. Sniderman ---------------------------------- Name: Jerold M. Sniderman Title: Senior Vice President By: /s/ Steven L. Hipsman ---------------------------------- Name: Steven L. Hipsman Title: Vice President [Signatures Continued on Next Page] -4- [Signature Page to Second Amendment to Amended and Restated Credit Agreement dated as of May 4, 2000 with Scientific-Atlanta, Inc.] WACHOVIA BANK, N.A. By: /s/ J. Timothy Toler ---------------------------------- Name: J. Timothy Toler Title: Senior Vice President THE BANK OF TOKYO-MITSUBISHI LIMITED By: /s/ G. England ---------------------------------- Name: G. England Title: VP & Manager FIRST UNION NATIONAL BANK By: /s/ Robert Sevin ---------------------------------- Name: Robert Sevin Title: Vice President -5- ANNEX I ------- LIST OF LENDERS, COMMITMENT AMOUNTS AND LENDING OFFICES ------------------------------------------------------- Bank of America, N.A. Lending Office (all Types of Loans): Initial Facility A Commitment Amount: - -------------- ------------------------------------ 901 Main Street, 64/th/ Floor $42,500,000 Dallas, Texas 75202 Initial Facility B Commitment Amount: ------------------------------------ $45,000,000 Wiring Instructions: To: Bank of America, N.A. Attention: Corporate Credit Support ABA #111000012 Reference: Scientific-Atlanta, Inc. Account: 1292000883 The Bank of New York Lending Office (all Types of Loans): Initial Facility A Commitment Amount: - -------------- ------------------------------------ 1 Wall Street $27,500,000 New York, New York 10286 Attention: Ronald Reedy Initial Facility B Commitment Amount: Telecopier: (212) 635-6434 ------------------------------------ Telephone: (212) 635-6724 $27,500,000 Wiring Instructions: To: The Bank of New York 1 Wall Street (22N) New York, New York 10286 ABA #021000018 Account No.: GLA 111-556 Attention: Lorna O. Alleyne, AVP
I-1 ABN AMRO Bank N.V., acting through its Atlanta Agency Lending Office (all Types of Loans): Initial Facility A Commitment Amount: - -------------- ------------------------------------ Suite 1200, One Ravinia Drive $25,000,000 Atlanta, Georgia 30346 Attention: Steven L. Hipsman Initial Facility B Commitment Amount: Telecopier: (770) 352-1267 ------------------------------------ Telephone: (770) 396-5092 $27,000,000 Wiring Instructions: To: Federal Reserve Bank, NY, NY Favor of: ABN*AMRO Bank N.V. ABA #0260-09580 Account: 650-001-1789-41 Reference: Scientific Atlanta Wachovia Bank, N.A. Lending Office (all Types of Loans): Initial Facility A Commitment Amount: - -------------- ------------------------------------ 191 Peachtree Street, 29th Floor $17,500,000 Atlanta, Georgia 30303 Attention: Karen H. McClain Initial Facility B Commitment Amount: Telecopier: (404) 332-5016 ------------------------------------ Telephone: (404) 332-6555 $21,500,000 Wiring Instructions: To: Wachovia Bank, N.A. 191 Peachtree Street Atlanta, Georgia 30303 ABA #061-000-010 Account: 18-171-498 Attention (Interest & Fees on Loans): Adrienne Durham or Karen McClain Attention (Documentary Letter of Credit Fees): Marilyn Hare Attention: (Standby Letter of Credit Fees): Rhonda Sulier
I-2 The Bank of Tokyo-Mitsubishi Limited Lending Office (all Types of Loans): Initial Facility A Commitment Amount: - -------------- ------------------------------------ 133 Peachtree Street, NE, #4970 $12,500,000 Atlanta, Georgia 30303-1808 Attention: Gary England Initial Facility B Commitment Amount: Telecopier: (404) 577-1155 ------------------------------------ Telephone: (404) 222-4205 $12,500,000 Wiring Instructions: To: Bank of Tokyo-Mitsubishi, Ltd. N.Y. Br. 1251 Avenue of the Americas New York, New York 10020-1104 ABA #0260-0963-2 Account 97770191 Attention: Loan Operations Dept. First Union National Bank Lending Office (all Types of Loans): Initial Facility A Commitment Amount: - -------------- ------------------------------------ 999 Peachtree Street GA9084 $12,500,000 Atlanta, Georgia 30309 Attention: Daniel Evans Initial Facility B Commitment Amount: Mail Code: GA9030 ------------------------------------ Telecopier: (404) 827-7199 Telephone: (404) 225-4037 $16,500,000 Wiring Instructions: To: First Union National Bank 214 N. Hogan Street, 9th Floor Jacksonville, Florida ABA #063000021 Account: 1459162008 Attention: Commercial Loans
I-3 Australia and New Zealand Banking Group Limited Lending Office (all Types of Loans): Initial Facility A Commitment Amount: - -------------- ------------------------------------ 1177 Avenue of the Americas $12,500,000 New York, New York 10036 Attention: Orlando Diaz Initial Facility B Commitment Amount: Telecopier: (212) 801-9131 ------------------------------------ Telephone: (212) 801-9740 $0 Wiring Instructions: To: HSBC Financial Institutions For: Australia and New Zealand Banking Group Ltd. ABA #021-001-0888 Account: 000107484 Attention: Ms. Tessie Amante
I-4 EX-21 9 0009.txt SUBSIDIARIES EXHIBIT 21 Significant Subsidiaries of Scientific-Atlanta
Name State of Organization Names Under which Subsidiary Does Business ---- --------------------- ------------------------------------------ Scientific- Georgia Scientific-Atlanta Financial Enterprises, L.L.C. Atlanta Financial Enterprises, L.L.C. SAMMEX, Inc. Texas SAMMEX, Inc.
EX-23 10 0010.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report appearing on page 14 of this Form 10-K, into Scientific-Atlanta's previously filed registration statements as listed below. 1. Registration Statements on Form S-8 covering the Scientific-Atlanta, Inc. 1978 Non-Qualified Stock Option Plan for Key Employees, as amended (File Nos. 2-72029, 33-5623, 33-20858, and 33-36926); 2. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. 1981 Incentive Stock Option Plan (File Nos. 2-99889 and 33-781); 3. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. Non-Employee Directors Stock Option Plan (File No. 33- 35313 and 33-54696); 4. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. Voluntary Employee Retirement and Investment Plan (File Nos. 33- 69827 and 333-64971); 5. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. 1992 Employee Stock Option Plan (File No. 33-69218); 6. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. 1993 Restricted Stock Awards (File No. 33-52135); 7. Registration Statement on Form S-8 covering the Long-Term Incentive Plan of Scientific-Atlanta, Inc. (File Nos. 33-56449 and 333-67931); 8. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. Stock Plan for Non-Employee Directors (File Nos. 33-64065 and 333-40217); 9. Registration Statement on Form S-8 covering the 1996 Employee Stock Option Plan (File Nos. 333-18893, 333-67471 and 333-31968); 10. Registration Statement on Form S-8 covering the Non-Qualified Stock Option Agreement with Employee (File No. 333-18891); 11. Registration Statement on Form S-8 covering the Non-Qualified Stock Option Agreement with Employee (File No. 333-23083); and 12. Registration Statement on Form S-8 covering the 1998 Employee Stock Purchase Plan (File No. 333-62883). Arthur Andersen LLP Atlanta, Georgia September 26, 2000 EX-27 11 0011.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Form 10-K for the year ended June 30, 2000, and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS JUN-30-2000 JUL-03-1999 JUN-30-2000 462,496 60,628 337,376 4,134 209,916 1,150,634 275,458 96,209 1,779,460 380,163 386 0 0 79,986 1,134,974 1,779,460 1,715,410 1,715,410 1,212,655 1,212,655 122,403 (3,165) 564 222,583 66,775 155,808 0 0 0 155,808 0.99 0.94
EX-99 12 0012.txt CAUTIONARY STATEMENTS EXHIBIT 99 CAUTIONARY STATEMENTS General From time to time, Scientific-Atlanta 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 Exchange Act) may contain forward-looking statements reflecting our current views concerning potential future events or developments. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. These Cautionary Statements are being made pursuant to the provisions of the Private Securities Litigation Reform 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," we caution investors that any forward-looking statements made by us are not guarantees of future performance and that a variety of factors could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. The risks and uncertainties which may affect the operations, performance, development and results of our 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 Scientific-Atlanta 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 our major customers; . changes in customer order patterns; . our 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 we operate; . the entry of new, well-capitalized competitors into our markets as both competitors and customers; . in the financial markets relating to our capital structure and cost of capital; . the impact of a major earthquake on our operations; and . 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 Scientific-Atlanta on the Cable Television Industry and Cable Television Capital Spending. The majority of our revenues come from sales of systems and equipment to the cable television industry. 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, our 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 23 percent of our total sales in fiscal year 2000 and were 16 percent and 11 percent of total sales in fiscal years 1999 and 1998, respectively. Sales of products to AT&T, which merged with MediaOne during fiscal year 2000, and its affiliates were 10 percent of our total sales in fiscal year 2000, were 16 percent of total sales in fiscal year 1999 and 12 percent of total sales in 1998. Sales of products to Charter Communications, Inc. and its affiliates were 14 percent, 7 percent and 2 percent of sales in fiscal years 2000, 1999 and 1998, respectively. The loss of business from a significant MSO could have a material adverse effect on our business. International. We have and expect to continue to make significant sales to customers outside the United States. In addition, a portion of our product manufacturing is located outside the United States. Accordingly, our 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 our 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 our 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 our competitors and market acceptance of these products. There can be no assurance that we 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. Our future operating results may be adversely affected if we are 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 our new high technology products is inherently complex and uncertain. We have in the past experienced delays in product development and introduction, and there can be no assurance that we will not experience further delays in connection with its current product development or future development activities. Competition. Our products compete with those of a substantial number of foreign and domestic companies, some with greater resources, financial or otherwise, than us, and the rapid technological changes occurring in our markets are expected to lead to the entry of new competitors. Our ability to anticipate technological changes and to introduce enhanced products on a timely basis will be a significant factor in our ability to anticipate technological changes and to introduce enhanced products on a timely basis will be a significant factor in our ability to expand and remain competitive. The changing competitive environment for our broadband products may be a primary factor which may influence our future operations, structure and profitability. Changes in the industry may include the commoditization of set- tops and the entry of retail competitors into our markets. Commoditization of our products would produce lower margins from such products. Certain of the retail competitors who may enter into our markets may have greater resources than us. Intellectual Property. We generally rely upon patent, copyright, trademark and trade secret laws to establish and maintain our proprietary rights in its technology and products. However, there can be no assurance that any of our 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 we have 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 us to enter into royalty or licensing agreements, any of which could seriously harm our 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 us, if at all. Additionally, there can be no assurance that we 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 us was successful and we could not obtain a license on acceptable terms or license a substitute technology or redesign to avoid infringement, our business, financial condition and results of operations would be seriously harmed. Even if we prevail in litigation, the expense of litigation could be significant and could seriously harm our business, financial condition and results of operation. Reliance on Suppliers. Our growth and ability to meet customer demands also depend in part on its ability to obtain timely deliveries of parts from our suppliers. Certain components of our 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 our business, operating results and financial condition and could materially damage customer relationships. From time to time, we experience shortages of certain electronic components from our suppliers. Recently, we have experienced substantial shortages of certain electronic components from our suppliers and expect that such shortages will continue to be substantial. These shortages have not had, and are not expected to have, a material effect on our operations. Industry Consolidation and Acquisitions. There has been a recent trend toward industry consolidation. Our 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. We believe that this trend toward industry consolidation will continue as companies attempt to strengthen or hold their market positions in an evolving industry. In addition, our industry is highly competitive, and as such, our growth is dependent upon market growth and its ability to enhance its existing products and services. Accordingly, one of the ways we 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 us could materially harm our business and operating results. Volatility of Stock Price. The trading price of our 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 our common stock, regardless of its actual operating performance. The trading price of our common stock could be affected by a number of factors, including: changes in expectations of our future financial performance; changes in securities analysts' estimates (or the failure to meet such estimates); announcements of technological innovations; customer relationship developments; conditions affecting our targeted markets in general; and quarterly fluctuations in our 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 us, such litigation would be expensive and would divert management's attention. -----END PRIVACY-ENHANCED MESSAGE-----