-----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, D9E+XGAsErv0yEpdfE4dUJzZ0GbFhq9r+tDaT233TqYD+YfmuuRczHoLeMb5pMwd PAHeTIcxjfVQ0azPTrjoCg== 0000931763-01-000152.txt : 20010212 0000931763-01-000152.hdr.sgml : 20010212 ACCESSION NUMBER: 0000931763-01-000152 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001229 FILED AS OF DATE: 20010209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCIENTIFIC ATLANTA INC CENTRAL INDEX KEY: 0000087777 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 580612397 STATE OF INCORPORATION: GA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05517 FILM NUMBER: 1529757 BUSINESS ADDRESS: STREET 1: ONE TECHNOLOGY PKWY S CITY: NORCROSS STATE: GA ZIP: 30092-2967 BUSINESS PHONE: 7709035000 MAIL ADDRESS: STREET 1: ONE TECHNOLOGY PKWY S CITY: NORCROSS STATE: GA ZIP: 30092-2967 FORMER COMPANY: FORMER CONFORMED NAME: SCIENTIFIC ASSOCIATES INC DATE OF NAME CHANGE: 19671024 10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 29, 2000 ------------------------------------------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to ________________________ Commission file number 1-5517 SCIENTIFIC-ATLANTA, INC. (Exact name of Registrant as specified in its charter) Georgia 58-0612397 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 5030 Sugarloaf Parkway Lawrenceville, Georgia 30042-5447 (Address of principal executive offices) (Zip Code) 770-236-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of January 26, 2001, Scientific-Atlanta, Inc. had outstanding 161,420,386 shares of common stock. PART I - FINANCIAL INFORMATION SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Ended Six Months Ended ---------------------------------- ----------------------------------- December 29, December 31, December 29, December 31, 2000 1999 2000 1999 ---------------- --------------- --------------- ---------------- SALES $ 631,430 $ 372,721 $ 1,228,670 $ 722,040 --------- ---------- ----------- --------- COSTS AND EXPENSES Cost of sales 436,984 263,512 857,075 512,883 Sales and administrative 57,170 42,260 108,409 81,366 Research and development 38,600 29,508 73,309 57,840 Interest expense 87 - 194 286 Interest income (10,350) (4,117) (19,343) (7,750) Other (income) expense, net 1,752 (6,117) (74,679) (6,337) --------- ---------- ----------- --------- Total costs and expenses 524,243 325,046 944,965 638,288 --------- ---------- ----------- --------- EARNINGS BEFORE MINORITY INTEREST AND INCOME TAXES 107,187 47,675 283,705 83,752 MINORITY INTEREST 89 - 48 - --------- ---------- ----------- --------- EARNINGS BEFORE INCOME TAXES 107,276 47,675 283,753 83,752 PROVISION (BENEFIT) FOR INCOME TAXES Current 44,368 16,185 109,595 20,781 Deferred (7,894) (1,882) (9,927) 4,345 --------- ---------- ----------- --------- NET EARNINGS $ 70,802 $ 33,372 $ 184,085 $ 58,626 ========= ========== =========== ========= EARNINGS PER COMMON SHARE BASIC $ 0.44 $ 0.21 $ 1.15 $ 0.37 ========= ========== =========== ========= DILUTED $ 0.42 $ 0.20 $ 1.09 $ 0.36 ========= ========== =========== ========= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC 161,167 157,506 160,731 156,618 ========= ========== =========== ========= DILUTED 167,247 163,616 168,115 162,474 ========= ========== =========== ========= DIVIDENDS PER SHARE PAID $ 0.01 $ 0.0075 $ 0.02 $ 0.015 ========= ========== =========== =========
SEE ACCOMPANYING NOTES 2 of 11 SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
In Thousands ---------------------------------------- December 29, June 30, 2000 2000 --------------- --------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 447,560 $ 462,496 Short-term investments 130,395 60,628 Receivables, less allowance for doubtful accounts of $5,334,000 at December 29 and $4,134,000 at June 30 498,852 333,242 Inventories 234,514 209,916 Deferred income taxes 49,489 49,681 Other current assets 61,155 34,671 ---------- ---------- TOTAL CURRENT ASSETS 1,421,965 1,150,634 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT, at cost Land and improvements 20,677 20,248 Buildings and improvements 64,118 40,915 Machinery and equipment 250,520 214,295 ---------- ---------- 335,315 275,458 Less - Accumulated depreciation and amortization 114,845 96,209 ---------- ---------- 220,470 179,249 ---------- ---------- GOODWILL AND OTHER INTANGIBLE ASSETS 33,684 7,475 ---------- ---------- NON-CURRENT MARKETABLE SECURITIES 61,813 381,983 ---------- ---------- OTHER ASSETS 76,479 60,119 ---------- ---------- TOTAL ASSETS $1,814,411 $1,779,460 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 298 $ 386 Accounts payable 229,594 212,111 Accrued liabilities 144,453 149,402 Income taxes currently payable 44,667 18,264 ---------- ---------- TOTAL CURRENT LIABILITIES 419,012 380,163 ---------- ---------- LONG-TERM DEBT, less current maturities - 102 ---------- ---------- DEFERRED INCOME TAXES - 114,428 OTHER LIABILITIES 86,644 69,807 ---------- ---------- MINORITY INTEREST 5,697 - ---------- ---------- STOCKHOLDERS' EQUITY Preferred stock, authorized 50,000,000 shares; no shares issued - - Common stock, $0.50 par value, authorized 350,000,000 shares; issued 167,057,280 shares at December 29 and 159,971,077 shares at June 30 81,029 79,986 Additional paid-in capital 455,562 339,649 Retained earnings 788,688 607,822 Accumulated other comprehensive income, net of taxes of $15,106,000 at December 29 and $135,538,000 at June 30 24,648 221,141 ---------- ---------- 1,349,927 1,248,598 Less - Treasury stock, at cost (837,118 shares at December 29 and 651,805 shares at June 30) 46,869 33,638 ---------- ---------- 1,303,058 1,214,960 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,814,411 $1,779,460 ========== ==========
SEE ACCOMPANYING NOTES 3 of 11 SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Six Months Ended ---------------- December 29, December 31, 2000 1999 -------------- -------------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (51,245) $ 58,780 ----------- ---------- INVESTING ACTIVITIES: Proceeds from the sale of investments 84,158 8,719 Purchases of property, plant, and equipment (66,831) (28,607) Investments (9,000) (13,100) Acquisition of businesses (2,529) (7,697) Proceeds from the sale of certain assets of a business unit - 3,259 Other 62 175 ----------- ---------- Net cash provided (used) by investing activities 5,860 (37,251) ----------- ---------- FINANCING ACTIVITIES: Issuance of common stock 33,858 28,437 Dividends paid (3,219) (2,356) Principal payments on long-term debt (190) (111) ----------- ---------- Net cash provided by financing activities 30,449 25,970 ----------- ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (14,936) 47,499 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 462,496 300,454 ----------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 447,560 $ 347,953 =========== ========== SUPPLEMENTAL CASH FLOW DISCLOSURES Cash paid during the period for: Interest $ 164 $ 246 =========== ========== Income taxes, net $ 26,551 $ 8,977 =========== ========== Non-cash investing activities: Net assets of business acquired for subsidiary stock: Fair value of assets, including goodwill $ 30,024 $ - Liabilities assumed $ 8,086 $ -
SEE ACCOMPANYING NOTES 4 of 11 SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS) (UNAUDITED)
Three Months Ended Six Months Ended ------------------ ---------------- December 29, December 31, December 29, December 31, 2000 1999 2000 1999 -------------- -------------- ------------ ------------- NET EARNINGS $ 70,802 $ 33,372 $ 184,085 $ 58,626 OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX/(1)/ Unrealized gains (losses) on marketable securities, net (80,368) 6,949 (195,847) 16,673 Retirement plans minimum liability adjustment - - (416) (828) Foreign currency translation adjustments 809 (670) (230) (907) ---------- ---------- ----------- ---------- COMPREHENSIVE INCOME (LOSS) $ (8,757) $ 39,651 $ (12,408) $ 73,564 ========== ========== =========== ==========
/(1)/Assumed 38 percent tax rate in fiscal years 2001 and 2000. SEE ACCOMPANYING NOTES 5 of 11 NOTES: (Amounts in thousands, except share data). A. The accompanying consolidated financial statements include the accounts of Scientific-Atlanta and all subsidiaries after elimination of all material intercompany accounts and transactions. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These condensed financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our fiscal year 2000 Annual Report on Form 10-K. The financial information presented in the accompanying statements reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the periods indicated. All such adjustments are of a normal recurring nature. B. Basic earnings per share were computed based on the weighted average number of shares 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 for fiscal year 2000 have been restated to reflect the 2- for-1 stock split in March 2000. Basic and diluted earnings per share are as follows:
Three Months Ended December 29, 2000 Three Months Ended December 31, 1999 ------------------------------------ ------------------------------------ Net Per Share Net Per Share Earnings Shares Amount Earnings Shares Amount -------- ------ ------ -------- ------ ------ Basic earnings per common share: Net earnings $ 70,802 161,167 $ 0.44 $ 33,372 157,506 $ 0.21 Diluted earnings per common share: Net earnings $ 70,802 167,247 $ 0.42 $ 33,372 163,616 $ 0.20 -------- ------- ------- -------- ------- ------- Effect of dilutive stock options $ - 6,080 $ (0.02) $ - 6,110 $ (0.01) ======== ======= ======= ======== ======= ======= Six Months Ended December 29, 2000 Six Months Ended December 31, 1999 ---------------------------------- ---------------------------------- Net Per Share Net Per Share Earnings Shares Amount Earnings Shares Amount -------- ------ ------ -------- ------ ------ Basic earnings per common share: Net earnings $184,085 160,731 $ 1.15 $ 58,626 156,618 $ 0.37 Diluted earnings per common share: Net earnings $184,085 168,115 $ 1.09 $ 58,626 162,474 $ 0.36 -------- ------- ------- -------- ------- ------- Effect of dilutive stock options $ - 7,384 $ (0.06) $ - 5,856 $ (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: December 29, December 31, 2000 1999 ------------ ------------ Number of options outstanding 2,018 122 Weighted average exercise price $ 63.570 $ 30.226 6 of 11 C. Inventories consist of the following: December 29, June 30, 2000 2000 ------------ -------- Raw materials and work-in-process $ 182,793 $ 163,969 Finished goods 51,721 45,947 --------- --------- Total inventory $ 234,514 $ 209,916 ========= ========= D. We acquired 42,770 and 17,397 shares of our common stock during the six months ended December 29, 2000 and December 31, 1999, respectively, from the payment in stock rather than cash by employees of tax withholdings on restricted stock which vested. During the six months ended December 29, 2000, we also acquired an additional 138,188 shares of common stock from the deferral of the payment of restricted stock which vested. E. Other (income) expense of $1,752 for the quarter ended December 29, 2000 was comprised primarily of losses related to foreign currency translation and the disposition of assets. Other (income) expense for the six months ended December 29, 2000 included a gain of $78,757 from the sale of a portion of our investment in Bookham Technology plc, formerly Bookham Technology Limited, a UK-based developer and supplier of optical components. This gain was partially offset by other miscellaneous expenses. Other (income) expense for the quarter ended December 31, 1999 included a $5,780 gain from the sale of a portion of our investment in WorldGate Communications, Inc, partially offset by other miscellaneous expenses. Included in other (income) expense for the six months ended December 31, 1999 was a $1,500 gain realized upon the sale of certain assets from our former Control Systems business unit. F. During the six months ended December 29, 2000 Scientific-Atlanta invested $7,000 in Alloptic, Inc., a US-based developer of high speed fiber optic solutions for access networks. During the six months ended December 31, 1999 we invested $13,100 in Bookham Technology plc, as well as in certain assets of an optics business for a cash payment of $7,697. G. In July 2000, PowerTV, Inc., a majority-owned subsidiary of Scientific-Atlanta, acquired 100 percent of the outstanding stock of PRASARA Technologies, Inc. for shares of PowerTV common stock and $2,609 in cash. PRASARA provides business and technical solutions to the telecommunications industry, including development, installation, maintenance, and operation of interactive television technology. The acquisition was accounted for under the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their estimated fair value at the date of acquisition. The purchase price has been allocated to the assets acquired and liabilities assumed, including $30,024 of goodwill and other intangibles. H. During fiscal year 2000, we operated 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, which is now known as the Media Networks business of Scientific-Atlanta. On April 25, 2000, ViaSat, Inc. acquired our satellite network business, which constituted a substantial part of our satellite business. We retained our Media Networks business, which provides content distribution networks and is now part of our Broadband segment. We now operate only in the Broadband segment. I. We adopted the Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" in the first quarter of fiscal year 2001. Under Statement 133, as amended by Statement 138, 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. The adoption of this statement has not had a material impact on our results of operations or financial condition. 7 of 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION - ------------------- Scientific-Atlanta had stockholders' equity of $1.3 billion and cash on hand was $447.5 million at December 29, 2000. Cash decreased $14.9 million from June 30, 2000 as increases in accounts receivable and inventory and expenditures for buildings and equipment exceeded cash generated from earnings, the sale of a portion of our investment in Bookham Technology plc and the proceeds from stock option exercises. The increase in accounts receivable is primarily due to a higher mix of customers at December 29, 2000 with payment terms in excess of our average as compared to prior periods. Inventory turns improved to 7.5 for the quarter ended December 29, 2000 from 5.7 for fiscal year 2000. In July 2000, PowerTV, Inc., a majority-owned subsidiary of Scientific- Atlanta, acquired 100 percent of the outstanding stock of PRASARA Technologies Inc. for shares of PowerTV common stock and $2.6 million in cash. PRASARA provides business and technical solutions to the telecommunications industry including development, installation, maintenance, and operation of interactive television technology. The acquisition was accounted for under the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their estimated fair value at the date of acquisition. The purchase price has been allocated to the assets acquired and liabilities assumed, including $30.0 million of goodwill and other tangibles. The current ratio of Scientific-Atlanta was 3.4:1 at December 29, 2000, up from 3.0:1 at June 30, 2000. At December 29, 2000, total debt was $0.3 million or less than one percent of total capital invested. 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. RESULTS OF OPERATIONS - --------------------- Sales for the quarter ended December 29, 2000 were $631.4 million, up 69 percent over the prior year, driven by the rapid acceleration in the deployment of digital interactive systems by our customers. We shipped over 1.1 million digital interactive set-tops during the quarter as compared to 0.3 million in the prior year. Sales of transmission products increased by 10 percent with growth across most product areas, particularly opto-electronics and analog headend products which increased 61 percent and 46 percent year-over-year, respectively. International sales in the quarter ended December 29, 2000 decreased 10 percent over the prior year. The decrease in international sales was primarily the result of the sale of our satellite network business, which relied significantly on international markets, in the fourth quarter of fiscal year 2000. International sales excluding satellite networks were flat year-over- year. Sales for the six months ended December 29, 2000 were $1.2 billion, up 70 percent over the prior year, driven by the rapid acceleration in the deployment of digital interactive systems by our customers. We shipped over 2.1 million digital interactive set-tops during the six months ended December 29, 2000 versus 0.5 million in the same period a year ago. The increase in shipments year-over-year is a reflection of the strong demand for our digital set-top products and our increase in manufacturing capacity for such products. Sales of our transmission products increased by 18 percent for the six months ended December 29, 2000, driven by growth across most product areas, particularly opto-electronics and analog headend products. We recently announced plans to increase production capacity of the Explorer(R) digital interactive set-tops to 6 million per year, 1.5 million per quarter, by the end of the third fiscal quarter. During fiscal year 2000, we operated 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, which is now known as the Media Networks business of Scientific-Atlanta. On April 25, 2000, ViaSat, Inc. acquired our satellite network business, which constituted a substantial part of our satellite business. We retained our Media Networks business, which provides content distribution networks and is now part of our Broadband segment. We now operate only in the Broadband segment. Gross margins were 30.8 percent and 30.2 percent for the quarter and six months ended December 29, 2000, 1.5 percentage points and 1.2 percentage points, respectively, higher than the comparable periods for the prior year, reflecting the benefit of continuing negotiated procurement savings and manufacturing efficiencies. In addition, revenue from manufacturing licenses and digital headend equipment, which have a higher gross margins than Scientific-Atlanta's average, increased. 8 of 11 Research and development costs were $38.6 million and $73.3 million for the quarter and six months ended December 29, 2000, respectively, or 6 percent of sales in each period. Research development costs increased 31 percent and 27 percent respectively, over the comparable quarter and six month period of the prior year. This reflects our continued investment in research and development programs which are focused on the development of applications and enhancements to our interactive broadband networks. Scientific-Atlanta continues to invest in research and development programs to support existing products as well as future potential products for our customer base. Selling and administrative expenses were $57.2 million and $108.4 million for the quarter and six months ended December 29, 2000, respectively, an increase of 35 percent and 33 percent, respectively, over the comparable periods for the prior year. The increase in expenses is related to the high volume of sales, improved profitability, higher professional fees, increase in headcount and the increase in the amortization expense of intangible assets related to the acquisition of PRASARA. Other (income) expense of $1.8 million for the quarter ended December 29, 2000 was comprised primarily of losses related to foreign currency translation and the disposition of assets. Other (income) expense for the six months ended December 29, 2000 included a gain of $78.8 million from the sale of a portion of our investment in Bookham Technology plc. This gain was partially offset by other miscellaneous expenses. Other (income) expense for the quarter ended December 31, 1999 included a $5.8 million gain from the sale of a portion of our investment in WorldGate Communications, Inc., partially offset by other miscellaneous expenses. Included in other (income) expense for the six months ended December 31, 1999 was a $1.5 million gain realized upon the sale of certain assets from our former Control Systems business unit. Earnings before income taxes were $107.3 million and $283.8 million for the quarter and six months ended December 29, 2000, respectively, up $59.6 million or 125 percent and $200 million or 239 percent, respectively, over the comparable periods for the prior year. Significantly higher sales volumes, improved gross margins, slower operating expense growth as a percent of sales and the $78.8 million gain from the sale of a portion of our investment in Bookham were the primary factors in the year-over-year increase. Our effective income tax rate was 34.0 percent and 35.1 percent for the quarter and six months ended December 29, 2000, respectively, up from 30 percent in the comparable periods of the prior year. The increase is due to the impact on the tax rate from research and development credits which has been diminished with higher levels of pretax earnings, as well as higher taxes to be paid on the gains from the sale of investments. Net earnings for the quarter and six months ended December 29, 2000 were $70.8 million and $184.1 million, respectively, compared to $33.4 million and $58.6 million, respectively, in the comparable periods for the prior year. Higher sales volume, higher gross margins as a percent of sales, lower operating expenses as a percent of sales and a gain from the sale of a portion of our investment in Bookham were the primary factors in the year-over-year increase. *** Shipments of the WebSTAR(TM) cable modem began in January, and will continue during the quarter. Shipments are proceeding prior to final DOCSIS certification because no operational or interoperability issues were identified by the CableLabs DOCSIS testing process. With a simple software change, we were able to correct the feature discrepancy reported to us by the DOCSIS Certification Board. We submitted the WebSTAR cable modem with this software change to CableLabs in January 2001 for the next full wave of DOCSIS certification testing. We previously announced that we expected the trials of the new Kodak Picture channel service to begin during the first quarter of calendar year 2001. We now expect that such trials will begin during the second quarter of calendar year 2001. The Explorer 6000 Digital Home Communications Terminal ("DHCT") was designed to accommodate Windows CE, a second operating system being developed by Microsoft Corporation. Shipments of the Explorer 6000 DHCT are highly dependent on the availability and demand for Windows CE. In addition, although personal video recorder ("PVR") hardware was originally planned for inclusion in the Explorer 6000 DHCT, we have not included it in the Explorer 6000 DHCT due to the lack of customer interest in having such technology in the Explorer 6000 DHCT. However, we are including PVR technology in the Explorer 8000 DHCT, which is currently under development. Explorer is a registered trademark of Scientific-Atlanta, Inc. WebSTAR is a trademark of Scientific-Atlanta, Inc. 9 of 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS - ------- ----------------------------------------------------------- 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. 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 and related derivative contracts through October 2001 are as follows: Canadian Dollar --------------------- (In thousands, except per dollar amounts) Firmly committed purchases contracts 16,850 Notional amount of forward exchange contracts 16,850 Average contract amount (Foreign currency/ United States dollar) 1.51 Scientific-Atlanta has no derivative exposure beyond October 2001. 10 of 11 PART II - OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders - ------ --------------------------------------------------- The following information is furnished with respect to matters submitted to a vote of security holders through the solicitation of proxies: (a) The matters described below were submitted to a vote of security holders at the Annual Meeting of Shareholders held on November 8, 2000. (b) Election of directors: Votes For Withhold Authority ----------- ------------------ James V. Napier 133,834,530 1,559,255 David J. McLaughlin 133,849,738 1,544,047 Sam Nunn 133,679,715 1,714,070 Marion H. Antonini, David W. Dorman, James F. McDonald, William E. Kassling and Mylle Bell Mangum continue as directors. (c)(i) Approval of the amended and restated Deferred Compensation Plan for Non Employee Directors Votes For Votes Against Abstain ------------------- ------------------ ------------------ 132,656,864 1,890,164 846,756 (ii) Ratification of the selection of Arthur Andersen LLP as independent auditors for fiscal year ending June 29, 2001 Votes For Votes Against Abstain ------------------- ------------------ ------------------ 134,713,698 180,691 499,395 Item 6. Exhibits and Reports on Form 8-K. - ------ (a) Exhibits. Exhibit No. Description ---------- ----------- 99 Cautionary Statements (b) No reports on Form 8-K were filed during the quarter ended December 29, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SCIENTIFIC-ATLANTA, INC. ------------------------ (Registrant) Date: February 9, 2001 By: /s/ Wallace G. Haislip ---------------------- ----------------------- Wallace G. Haislip Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and duly authorized signatory of the Registrant) 11 of 11 SCIENTIFIC-ATLANTA, INC EXHIBIT INDEX Exhibit No. Description 99 Cautionary Statements EX-99 2 0002.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, manufacturing capacity and similar matters. In fact, this Form 10-Q (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; . 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. No other customers accounted for 10 percent or more of our sales in any of the three years. 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 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 our 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 our 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 our ability to enhance our 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 our 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-----