-----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, JpHp4Rut0RociDr29G5NdmLfhfyd9T8Svlh2n9hUG+tBr4pbJ6bavX72zPlgbp4s F2Mjono7WmaP98jbYRVcyw== 0000931763-01-501514.txt : 20010820 0000931763-01-501514.hdr.sgml : 20010820 ACCESSION NUMBER: 0000931763-01-501514 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20010629 FILED AS OF DATE: 20010816 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05517 FILM NUMBER: 1717273 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 d10k.txt ANNUAL REPORT FOR PERIOD ENDING 6-29-01 ================================================================================ 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 29, 2001 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 or organization) Identification Number) 5030 Sugarloaf Parkway 30044 Lawrenceville, 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 $0.50 per share New York Stock Exchange 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 July 27, 2001 was approximately $3,848,764,181. As of July 27, 2001, the Registrant had outstanding 156,486,611 shares of common stock. Documents Incorporated By Reference: Specified portions of the Proxy Statement for the Registrant's 2001 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 1999 refers to our fiscal year ended July 2, 1999, fiscal year 2000 refers to our fiscal year ended June 30, 2000 and fiscal year 2001 refers to our fiscal year ended June 29, 2001. This Form 10-K includes "forward-looking statements." The words "may," "will," "should," "continue," "future," "potential," "believe," "expect," "anticipate," "project," "plan," "intend," "seek," "estimate" and similar expressions identify forward-looking statements. We caution investors that any forward-looking statements made by us are not guarantees of future performance and that a variety of factors, including those discussed below, could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in our 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 1. Business General Scientific-Atlanta, Inc. provides its customers with broadband transmission networks, digital interactive subscriber systems, content distribution networks and worldwide customer service and support. Established as a Georgia corporation in 1951, we have evolved from a manufacturer of electronic test equipment for antennas and electronics to a producer of a wide variety of products for the cable television industry, including digital video, voice and data communications products. 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. We are one of the leading providers of end-to-end networks used by programmers and cable operators to provide video, data, and voice services to their customers. These networks are comprised of equipment and software that reside at the programmer's facility, at the cable operator's headend (or "central office"), in the outside transmission plant (whether underground or aerial), and in the consumer's home. Our products include satellite communications equipment that transports programming from its source to geographically distributed headends, optical communications products that transport information within metropolitan areas to individual neighborhoods, and radio frequency electronics products that provide connectivity within the neighborhoods to each consumer's home. Increasingly, as these networks have transitioned to digital technology, our products have included integrated computer systems and software at the cable operators' headends. These systems manage video and data services to large networks, often comprising hundreds of thousands of consumers. Our products that reside in the consumer's home include digital interactive set-tops and high-speed cable modems. Our Explorer(R) digital set-tops, digital headends and cable modems are designed to enable subscribers to access new interactive television services to be developed by us and third parties, such as e-mail through cable television service, video-on-demand (VOD), Web browsing, various types of electronic commerce and other Internet Protocol (IP) services. Several of these advanced services, including e-mail, VOD, electronic commerce and Web browsing, have already been deployed on our networks. Sales of our Explorer digital set-tops constituted approximately 57 percent, 34 percent and 15 percent of Scientific-Atlanta's total sales in fiscal years 2001, 2000 and 1999, respectively. 1 In November 2000, we announced development of our Explorer 8000 home media server set-top, which is expected to provide personal video recording (PVR) capabilities together with a suite of bundled interactive applications. We had also announced that we expected to have the Explorer 8000 set-top in production in calendar year 2001. Due to delays by one of our suppliers in the development and supply of a chip for incorporation in the Explorer 8000 set- top, we now expect to produce the Explorer 8000 in commercial quantities in the spring of 2002. In addition, we have announced development of our home gateway set-top, which is designed to serve the in-home network or gateway market with two tuners and a built-in DOCSIS modem. We had previously described our home gateway set-top for the United States market as both an Explorer 4000 set-top and as an Explorer 4100 set-top. There is only one domestic home gateway set- top being developed and it will be referred to as the Explorer 4100 home gateway set-top. In addition to the Explorer 4100 set-top, which is being developed for the U.S. market, we are also currently developing the Explorer 4000 DVB set-top, which is designed to satisfy the market requirements for Europe. In January 2001, we began shipments of our WebSTAR(TM) cable modem. Our WebSTAR cable modem product line has received DOCSIS, Euro-DOCSIS, CE and @Home certifications. We previously announced that Telewest would purchase at least 25,000 WebSTAR cable modems for delivery by the end of calendar year 2001. We shipped these cable modems to Telewest during the fourth quarter of fiscal year 2001. 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 products are the PowerTV(R) Operating System, which it has licensed to Pace Micro Technology plc, Pioneer Corporation and Panasonic, and an HTML engine. In April 2001, we concluded a tender offer for the PowerTV outstanding shares not held by Scientific-Atlanta. We now own approximately 98 percent of the outstanding shares of PowerTV. Scientific-Atlanta, PowerTV and PowerTV's wholly-owned subsidiary, PRASARA Technologies, Inc., have developed a number of applications for interactive television, such as Internet TV applications (e.g., Email, Web browsing and Chat), Customer Care and Education, Video On Demand and Food Service. Additionally, PowerTV and PRASARA have developed and offer Business Management Tools, a back office system for managing interactive applications. Scientific-Atlanta and PowerTV both actively conduct third party developer support programs for the Explorer network. We also support several VOD providers. Based on our belief at the time, we previously had announced that we expected 30-40 major multiple systems operator (MSO) sites to deploy VOD by July 2001. As of July 2001, approximately 18 sites had launched VOD services. Transmission products 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, data and voice over the same network, with a reverse path for customers to communicate back to the operator. Sales of RF distribution products constituted approximately 10 percent, 18 percent and 16 percent of our total sales for fiscal years 2001, 2000 and 1999, respectively. We are currently developing the Compact Node Type 90071, which is a dual high level output node that allows operators to considerably reduce the number of amplifiers needed per node, and the Compact Fiber Deeper Node Type 90090, which is designed to eliminate the need for amplifiers after the node and to help operators plan for their future network speed needs. Based on our belief at the time, we previously announced that Compact Distribution Node Type 90071 and Compact Fiber Deeper Node Type 90090 would be available during the spring 2001. Although the 90071 node shipped in June 2001, it is expected that the 90090 node will not ship before October 2001. In addition, based on our belief at the time, we previously announced that the new Surge-Gap(TM) Power Distribution Unit product and the new Surge-Gap Tap product were scheduled for availability in June 2001 and July 2001, respectively. It is now expected that they will become available in August 2001. 2 Our satellite television networks business (the Media Networks 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. Services We have consolidated most of our service functions into a single professional services organization, SciCare(TM) Broadband Services, with its goal being to ensure effective post-sale service for customers using our 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 software and systems integration, installation, management and consulting 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 15 percent, 21 percent and 22 percent of our total sales for fiscal years 2001, 2000 and 1999, 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 AOL Time Warner, Inc. and its affiliates were 22 percent, 23 percent and 16 percent of our total sales in fiscal years 2001, 2000 and 1999, respectively. Sales of products to Charter Communications, Inc. and its affiliates were 20 percent, 14 percent and 7 percent of sales in fiscal years 2001, 2000 and 1999, respectively. Sales of products to Adelphia and its affiliates were 18 percent, 2 percent and 2 percent of sales in fiscal years 2001, 2000 and 1999, respectively. Sales of products to AT&T and its affiliates were 2 percent, 10 percent and 16 percent of our total sales in fiscal years 2001, 2000 and 1999, respectively. Sales to these four customers were principally broadband products. No other customer accounted for 10 percent or more of our sales in any of the last three fiscal years. Backlog Our backlog consists of unfilled customer orders believed to be firm and long-term contracts that have not been completed. Scientific-Atlanta's backlog as of June 29, 2001 and June 30, 2000 was $900,926,000 and $811,689,000, respectively. We believe that approximately 90 percent of the backlog existing at June 29, 2001 will be shipped within the succeeding fiscal year. Our policy is to include in our backlog firm orders for product scheduled for shipment within six months from the date entered into backlog. 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 large markets and to 3 allocate a greater share of our 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 in fiscal years 2001, 2000 and 1999 were principally for development of digital set-top, digital network and cable modem products, opto- electronic and RF transmission products, and introduction of our PowerVu(R) products. In fiscal years 2001, 2000 and 1999, our research and development expenses were approximately $165.1 million (including a $10.8 million stock compensation charge related to the PowerTV tender offer), $122.4 million and $117.3 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 business. 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. We conduct the following operations at the following manufacturing facilities: . We manufacture a variety of products, including our Explorer digital set-top and RF amplifier product lines, at our Juarez, Mexico facility. . We manufacture a variety of broadband products, including digital headend products, Prisma(R) DT products and analog headend products, at our Atlanta, Georgia manufacturing facility. . We manufacture transmission equipment, including RF, opto-electronics and headend equipment, at our Arcodan operations in Sonderborg, Denmark. . We manufacture opto-electronics equipment at our Chicago, Illinois manufacturing facility. . We perform final test and assembly of Media Networks products at our Toronto, Ontario facility. 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. Materials and Supplies Except for certain Application Specific Integrated Circuits (ASICs), the materials and supplies we purchase generally 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. We also purchase aluminum die castings, steel enclosures and other semi-fabricated items, which are produced by a variety of sources. We consider our sources of supply to be adequate and are not dependent upon a single supplier, except for STMicroelectronics (and its affiliates), Micron Semiconductor Products, Inc., Phillips Semiconductors, Inc., Matsushita Electronics Components Corporation of America (and its affiliates), Cablevision Electronics Co., Ltd., Zinwell Corporation, JDS Uniphase, Premiere Die Casting, Inc., and Anadigics, Inc. for any significant portion of the materials used in the products we manufacture or the products we sell. These suppliers provide us with the following materials and supplies: . STMicroelectronics, Micron Semiconductor Products, Inc. and Phillips Semiconductors, Inc. are our primary suppliers of a variety of semiconductor products, which are used as components in an array of products, including set-tops. . Matsushita Electronics Components Corporation of America and its affiliates manufacture analog set-tops for us and are a primary supplier of those set-tops. 4 . Cablevision Electronics Co., Ltd. and Zinwell Corporation, Taiwanese companies, are our primary suppliers of taps. We also are part of a joint venture in Shanghai, China that provides us with taps. . JDS Uniphase is our primary supplier of opto amplifiers. . Premiere Die Casting, Inc. is our primary supplier of die-castings for RF distribution. . Anadigics, Inc. is a provider of CATV integrated circuits for use in our RF distribution products. For the first half of fiscal year 2001, we experienced substantial shortages of certain electronic components from our suppliers, which did not materially affect our output. Material availability was greatly enhanced in the second half of the fiscal year, and we do not expect to have significant material supply issues in the foreseeable future. Employees As of June 29, 2001, we employed approximately 8,159 regular full-time and part-time employees and approximately 261 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. At least one of our competitors is substantially larger and has greater resources. We primarily compete with a small number of equipment suppliers, most of which specialize in the production and sale of equipment to cable television system operators. We also compete 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. 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 733,000 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 related improvements in Gwinnett County, Georgia which are leased to ViaSat, Inc. and Microwave Instrumentation Technologies, LLC, (ii) two buildings totaling approximately 188,000 square feet which are leased to ViaSat, Inc., and (iii) 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 was completed in the third quarter of fiscal year 2001 and consisted of an additional 299,000 square feet of engineering and office space. In addition to the property we own and lease, 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 2002 to 2015:
Approximate Location Square Footage -------- -------------- Metropolitan Atlanta, Georgia...................... 249,000 Sonderborg, Denmark........... 71,500 Toronto, Ontario.............. 16,000
5 We also lease laboratory, office and warehouse space in several buildings in the metropolitan areas of Atlanta, Georgia; Chicago, Illinois; Cupertino, California; Huntsville, Alabama; Orlando, Florida; Phoenix, Arizona; Juarez, Mexico; Sonderborg, Denmark; Toronto, Ontario; Vancouver, British Columbia; Frankfurt, Germany; Sydney, Australia; and London and Southampton, United Kingdom. We lease sales and service offices in 17 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, Georgia. 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. 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, Georgia 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, Georgia rather than Los Angeles, California, for all pretrial proceedings. Therefore, all of these cases are now in the discovery phase in the Atlanta, Georgia court and the proceedings in the Los Angeles, 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. 6 By Order dated October 6, 2000, the United States District Court in Atlanta denied StarSight Telecast, Inc.'s motion for leave to file a motion for preliminary injunction in the declaratory judgment action filed by the Company against StarSight relating to two StarSight patents, including the so-called "121" or "Young" patent. StarSight filed a motion asking the Court to reconsider its Order, and on October 31, 2000 that motion to reconsider was denied by the Court. On February 14, 2001, Gemstar initiated an investigation in the International Trade Commission (the "ITC") under Section 337 of the Tariff Act of 1930 (the "Act") against Scientific-Atlanta, Pioneer Corporation and related entities, Echostar Communications Corporation and SCI Systems, Inc. The investigation is based on Gemstar's allegation that certain imported set-top boxes, including those manufactured by Scientific-Atlanta in Mexico, infringe certain Gemstar patents. Two of these patents have been in dispute between the parties since July 1999 when Scientific-Atlanta sought a declaratory judgment of non-infringement in the federal court in Atlanta. Under the provisions of the Act, the ITC may issue temporary and permanent exclusion orders preventing the importation of products found to infringe the valid intellectual property rights of an established domestic industry, but may not award monetary damages. Scientific-Atlanta has filed its Answer denying that it infringes any valid Gemstar intellectual property rights, and intends to defend Gemstar's claims vigorously. Immediately prior to filing the 337 action, Gemstar filed separate actions against Scientific-Atlanta, Pioneer and Echostar in the federal court in Atlanta alleging infringement of certain of the patents claimed in the 337 action. Scientific-Atlanta has moved to stay any proceedings in these actions pending the outcome of the 337 action. 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. On July 24, 2001, a purported class action alleging violations of the federal securities laws by us and certain of our officers was filed in the United States District Court for the Northern District of Georgia. Since then, several actions with similar allegations have been filed. We intend to defend these actions vigorously. 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 29, 2001. 7 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 61 1993 Chairman of the Board, President and Chief Executive Officer Conrad J. Wredberg, Jr. 60 1995 Senior Vice President and Chief Operating Officer J. Lawrence Bradner 50 1999 Senior Vice President; President, SciCare Broadband Services Dwight B. Duke 49 1997 Senior Vice President; President, Transmission Network Systems William E. Eason, Jr. 58 1993 Senior Vice President, General Counsel and Corporate Secretary H. Allen Ecker 65 1979 Senior Vice President; President, Subscriber Networks Wallace G. Haislip 52 1998 Senior Vice President, Chief Financial Officer and Treasurer Brian C. Koenig 54 1988 Senior Vice President, Human Resources John H. Levergood 67 1992 Senior Vice President Robert C. McIntyre 50 1999 Senior Vice President and Chief Technical Officer Julian W. Eidson 62 1978 Vice President and Controller Perry D. Tanner 43 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. 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 in April 1998. From June 1996 to April 1998, he served as a Vice President of Scientific-Atlanta. Prior to June 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, Chief Financial Officer and Treasurer in April 1998. Prior to April 1998, Mr. Haislip was employed by Scientific-Atlanta in a variety of management positions for more than five years. 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 8 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 June 29, 2001, was 6,088. 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 year 1999, Scientific-Atlanta paid a $0.0075, dividend per share each quarter. During fiscal year 2000, Scientific-Atlanta paid a $0.0075 and a $0.01 dividend per share in the first two quarters and the second two quarters, respectively. During fiscal year 2001, Scientific-Atlanta paid a $0.01, dividend per share each quarter. Information as to the high and low stock prices and dividends paid for each quarter of fiscal years 2000 and 2001 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 32 of this Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion of Consolidated Statements of Financial Position, of Consolidated Statements of Earnings, and of Consolidated Statements of Cash Flows are set forth on pages 17 and 18, 21 through 26, and 28 and 29 of this Report. Item 7A. Quantitative and Qualitative Disclosures about Market Risk We are exposed to market risks from changes in foreign exchange rates and have a process to monitor and manage these 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. Contracts are recorded at fair value. Changes in the fair value of derivatives are recorded in other comprehensive income until the underlying transaction affects earnings. Any ineffectiveness is recorded through earnings. 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. 9 Firmly committed purchase (sales) exposure and related hedging instruments at June 29, 2001 are as follows:
German Canadian Marks Dollars ------- -------- Firmly committed purchase (sales) contracts.............. (20,318) 20,225 Notional amount of forward contracts..................... (20,318) 20,225 Average contract amount (Foreign currency/United States dollar)................................................. 2.21 1.54
At June 29, 2001, we had changes in fair value of $384, net of tax of $235, related to these derivatives which were included in accumulated other comprehensive income. All derivatives entered into during fiscal year 2001 were designated as cash flow hedges and were fully effective. Scientific- Atlanta has no derivative exposure beyond the third quarter of fiscal year 2003. In June 1998, the Financial Accounting Standards Board issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" which we adopted in fiscal year 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. The adoption of this statement did not have a material impact on our results of operations or financial condition. We have market risks associated with the volatility in the value of our non-current marketable securities which consist of investments in common stock and are stated at market value. All non-current marketable securities are classified as "available for sale" under the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" and thus, changes in the fair value of these securities are not included in our Consolidated Statements of Earnings until realized. Unrealized holding gains and losses are included, net of taxes, in accumulated other comprehensive income. 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 16 through 47 of this Report. See Part IV, Item 14 for an index of the statements, notes and schedule. 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 2001 Annual Meeting of Shareholders, which is expected to be filed pursuant to Regulation 14A within 120 days after the end of fiscal year 2001. 10 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 16 through 46 of this Report. Report of Independent Public Accountants. Consolidated Statements of Financial Position as of June 29, 2001 and June 30, 2000. Consolidated Statements of Earnings for each of the three years in the period ended June 29, 2001. Consolidated Statements of Cash Flows for each of the three years in the period ended June 29, 2001. Consolidated Statements of Stockholders' Equity and Comprehensive Income for each of the three years in the period ended June 29, 2001. 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 29, 2001. 47
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.
Exhibit No. Description ----------- ----------- 3.1 Composite Statement of Amended and Restated Articles of Incorporation of Scientific-Atlanta (filed as Exhibit 3(a) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 27, 1997 (Commission File No. 1-5517), and incorporated herein by reference). 3.2 By-laws of Scientific-Atlanta (filed as Exhibit 3 to Scientific- Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended September 29, 2000 (Commission File No. 1-5517), and incorporated herein by reference).
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Exhibit No. Description ----------- ----------- 4.1 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 (filed as Exhibit 1 to Scientific-Atlanta's Registration Statement on Form 8-A dated April 7, 1997 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.1 Credit Agreement dated May 11, 1995 among Scientific-Atlanta, the Lenders (as defined therein), The Bank of New York and ABN AMRO Bank N.V., as co-agents, and NationsBank of Georgia, National Association, as agent (filed as Exhibit 10(g) to Scientific- Atlanta's Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.2 First Amendment to Credit Agreement dated December 29, 1995 among Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO Bank N.V. and NationsBank, N.A. (South) (formerly known as NationsBank of Georgia, National Association) (filed as Exhibit 10(j) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 28, 1996 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.3 Letter Amendment dated April 5, 1996 to the Credit Agreement among Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10(j) to Scientific-Atlanta's Annual Report Form 10-K for the fiscal year ended June 28, 1996 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.4 Second Amendment to Credit Agreement dated June 28, 1996 among Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10(l) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 28, 1996 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.5 Third Amendment to Credit Agreement dated January 27, 1997 among Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10.3 to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 1997 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.6 Letter Amendment dated April 23, 1997 to the Credit Agreement among Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10(r) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 27, 1997 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.7 Letter Amendment dated April 24, 1998 to the Credit Agreement among Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10(o) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 26, 1998 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.8 Fourth Amendment to Credit Agreement dated November 6, 1998 among Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO Bank N.V. and NationsBank, N.A. (successor to NationsBank, N.A. (South) (filed as Exhibit 10.14 to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.9 Amended and Restated Credit Agreement dated May 7, 1999 among Scientific-Atlanta, the Lenders, The Bank of New York, ABN Amro Bank N.V. and NationsBank, N.A. (filed as Exhibit 10(p) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended July 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.10 Amendment No. 1 to the Amended and Restated Credit Agreement dated June 22, 1999 among Scientific-Atlanta, the Lenders, The Bank of New York, ABN Amro Bank N.V. and NationsBank, N.A. (filed as Exhibit 10(q) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended July 2, 1999 (Commission File No. 1- 5517), and incorporated herein by reference).
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Exhibit No. Description ----------- ----------- 10.1.11 Second Amendment to Amended and Restated Credit Agreement dated May 4, 2000 among Scientific-Atlanta, the Lenders, The Bank of New York, ABN Amro Bank N.V. and NationsBank, N.A. (filed as Exhibit 10(p) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 30, 2000 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.12 Third Amendment to Amended and Restated Credit Agreement dated June 22, 2001 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. 10.2.1 Credit and Investment Agreement dated July 30, 1997 among Scientific-Atlanta, Wachovia Capital Markets, Inc., Wachovia Bank, N.A., as agent, and the lenders signatories thereto (filed as Exhibit 10(s) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 27, 1997 (Commission File No. 1- 5517), and incorporated herein by reference). 10.2.2 Lease Agreement dated July 30, 1997 between Wachovia Capital Markets, Inc. and Scientific-Atlanta (filed as Exhibit 10(t) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 27, 1997 (Commission File No. 1-5517), and incorporated herein by reference). 10.2.3 Ground Lease dated July 30, 1997 between Scientific-Atlanta and Wachovia Capital Markets, Inc. (filed as Exhibit 10(v) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 27, 1997 (Commission File No. 1-5517), and incorporated herein by reference). 10.2.4 Acquisition, Agency, Indemnity and Support Agreement dated July 30, 1997 between Scientific-Atlanta and Wachovia Capital Markets, Inc. (filed as Exhibit 10(u) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 27, 1997 (Commission File No. 1-5517), and incorporated herein by reference). 10.2.5 Letter Amendment dated September 30, 1997 to Credit and Investment Agreement among Scientific-Atlanta, Wachovia Bank, N.A. and Wachovia Capital Markets, Inc. (filed as Exhibit 10.11 to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.2.6 First Amendment to Lease Agreement dated October 9, 1997 between Scientific-Atlanta and Wachovia Capital Markets, Inc. (filed as Exhibit 10.16 to Scientific-Atlanta's Quarterly Report on Form 10- Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.2.7 Amendment to Credit and Investment Agreement dated November 30, 1997 among Scientific-Atlanta, Wachovia Bank, N.A. and Wachovia Capital Markets, Inc. (filed as Exhibit 10.12 to Scientific- Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.2.8 Second Amendment to Lease Agreement dated November 30, 1997 between Scientific-Atlanta and Wachovia Capital Markets, Inc. (filed as Exhibit 10.17 to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.2.9 Second Amendment to Credit and Investment Agreement dated November 9, 1998 among Scientific-Atlanta, Wachovia Bank, N.A. and Wachovia Capital Markets, Inc. (filed as Exhibit 10.13 to Scientific- Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.2.10 First Amendment to Ground Lease dated February 29, 2000 between Scientific-Atlanta and Wachovia Capital Markets, Inc.
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Exhibit No. Description ----------- ----------- 10.2.11 Third Amendment to Lease Agreement dated February 29, 2000 between Scientific-Atlanta and Wachovia Capital Markets, Inc. 10.3* Stock Plan for Non-Employee Directors, as amended and restated. 10.4* Non-Employee Directors Stock Option Plan, as amended and restated (filed as Exhibit 10(l) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 30, 2000 (Commission File No. 1-5517), and incorporated herein by reference). 10.5* Deferred Compensation Plan for Non-Employee Directors, as amended and restated. 10.6* Scientific-Atlanta Retirement Plan for Non-Employee Directors (filed as Exhibit 10.4 to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.7* Executive Deferred Compensation Plan, as amended and restated. 10.8* 1996 Employee Stock Option Plan, as amended and restated (filed as Exhibit 10.2 to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2001 (Commission File No. 1-5517), and incorporated herein by reference). 10.9* Long-Term Incentive Plan of Scientific-Atlanta, as amended and restated (filed as Exhibit 10(l) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended July 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.10* Scientific-Atlanta Annual Incentive Plan for Key Employees as amended and restated (filed as Exhibit 10.5 to Scientific- Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.11* Scientific-Atlanta Senior Officer Annual Incentive Plan, as amended and restated (filed as Exhibit 10(m) to Scientific- Atlanta's Annual Report on Form 10-K for the fiscal year ended July 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.12* 1985 Executive Deferred Compensation Plan of Scientific-Atlanta, as amended and restated (filed as Exhibit 10.6 to Scientific- Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.13* Supplemental Executive Retirement Plan, as amended and restated (filed as Exhibit 10(j) to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2001 (Commission File No. 1-5517), and incorporated herein by reference). 10.14* Scientific-Atlanta Restoration Retirement Plan, as amended (filed as Exhibit 10(n) to Scientific-Atlanta's Annual Report on Form 10- K for the fiscal year ended June 26, 1998 (Commission File No. 1- 5517), and incorporated herein by reference). 10.15.1* Form of Severance Protection Agreement between Scientific-Atlanta and Certain Officers and Key Employees (filed as Exhibit 10(g) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended July 1, 1994 (Commission File No. 1-5517), and incorporated herein by reference). 10.15.2* Form of First Amendment of Severance Protection Agreement by and between Scientific-Atlanta and Certain Executives (filed as Exhibit 10.3 to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1- 5517), and incorporated herein by reference).
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Exhibit No. Description ----------- ----------- 21 Significant Subsidiaries of Scientific-Atlanta. 23 Consent of Independent Public Accountants. 99 Cautionary Statements.
- -------- * Indicates management contract or compensatory plan or arrangement. 15 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 29, 2001, and June 30, 2000, 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 29, 2001 appearing on pages 19, 27, 30 and 31, 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 29, 2001 and June 30, 2000, and the results of their operations and their cash flows for each of the three years in the period ended June 29, 2001 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 19, 2001 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 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 29, 2001 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 Chairman of the Board Senior Vice President President and Chief Executive Officer Chief Financial Officer and Treasurer
16 Management's Discussion of Consolidated Statements of Financial Position Scientific-Atlanta had stockholders' equity of $1.5 billion and cash and short-term investments of $754.3 million at June 29, 2001. The current ratio was 3.9:1 at June 29, 2001 compared to 3.0:1 at June 30, 2000. Receivables were $502.3 million at fiscal year-end, compared to $333.2 million at the prior year-end. Average days sales outstanding were 63 in fiscal year 2001, as compared to 65 days in the prior year. The allowance for doubtful accounts of $6.0 million increased $1.8 million primarily due to the higher volume of sales in fiscal year 2001 as compared to fiscal year 2000. Inventory turnover was 7.8 times in 2001, compared to 5.7 in the prior year. The improvement in inventory turnover was due to higher sales volume and a shift in the mix of products to high-volume subscriber products in fiscal year 2001 as compared to the prior year and management's continued effort to improve working capital in fiscal year 2001. Current deferred income taxes increased $7.5 million in fiscal year 2001 primarily due to increases in reserves currently not deductible. Other current assets of $33.2 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 $48.4 million in fiscal year 2001. Capital additions of $104.8 million included expenditures for equipment and expansion of manufacturing capacity, primarily in Juarez, Mexico, and engineering and office facilities in Lawrenceville, Georgia. Goodwill and other intangible assets increased $74.0 million during fiscal year 2001 from the acquisition of PRASARA Technologies, Inc. (PRASARA) and the tender for shares held by minority shareholders of a majority owned subsidiary, PowerTV, Inc. (PowerTV). In July 2000, PowerTV acquired 100 percent of the outstanding stock of PRASARA 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 $31.7 million of goodwill and other intangibles, which will be amortized over five years. In March 2001, we announced a tender offer to purchase the outstanding shares of PowerTV not already owned by Scientific-Atlanta. We held approximately 85 percent of the outstanding shares of PowerTV prior to the tender offer. As the result of the tender offer, which was concluded in April 2001, we now own approximately 98 percent of the outstanding shares of PowerTV. The additional shares were acquired for an aggregate price of $66.8 million paid in cash. We recorded a one-time, pre-tax compensation charge of $10.8 million in connection with the acquisition of such shares. In addition, we recorded $52.5 million of goodwill and other intangibles, which will be amortized over five years. We plan to adopt Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" during the first quarter of fiscal year 2002. Under the provisions of SFAS No. 142, goodwill is no longer subject to amortization. After implementing SFAS No. 142, we believe that our annual goodwill amortization expense will be approximately $4.5 million lower in fiscal year 2002 than in fiscal year 2001. SFAS No. 142 also establishes a new method of testing goodwill for impairment and we will be required to test our goodwill for impairment under the new standard upon adoption. We are in the process of evaluating the financial statement impact of the adoption of SFAS No. 142 related to goodwill impairment. 17 Management's Discussion of Consolidated Statements of Financial Position (Continued) Non-current marketable securities consist of investments in common stock of publicly traded companies and are reported at market value. During fiscal year 2001, we recorded unrealized losses of $360.6 million, compared with unrealized gains of $348.9 million in fiscal year 2000, on these securities due to market value fluctuations, which are included in accumulated other comprehensive income. We also sold a portion of our investments in Bookham Technology plc (Bookham) and Wink Communications, Inc. (Wink) during fiscal year 2001. See Managements Discussion of Consolidated Statements of Earnings for additional information. Non-current deferred income taxes of $26.7 million relate primarily to accruals for expenses currently not deductible. Other assets, which include equity investments, license fees, intellectual property, capitalized software development costs, cash surrender value of company-owned life insurance and various prepaid expenses, increased $41.0 million due primarily to the purchase of additional company-owned life insurance and additional equity investments made in fiscal year 2001. Accounts payable were $224.0 million at year-end, up slightly from $212.1 million last year. Days payable were 50 in fiscal year 2001 as compared to 48 days in the prior fiscal year. Accrued liabilities of $165.0 million include accruals for compensation, provisions for businesses sold, warranty and service obligations, customer down-payments, royalties and taxes, excluding income taxes. See Note 8 for additional information. Non-current deferred income taxes of $114.4 million at June 30, 2000 related primarily to net unrealized gains on marketable securities classified as available for sale under the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The market value of these securities declined during fiscal year 2001 and the tax effect of the net unrealized gains at June 29, 2001 is included in the non-current deferred income tax asset. Other liabilities of $99.8 million are comprised of deferred compensation, retirement plans, postretirement benefit plans, post employment benefits and other miscellaneous accruals. See Note 9 for additional details. Stockholders' equity was $1.5 billion at the end of fiscal year 2001, up $294.0 million over the prior year. Net earnings of $333.7 million, $181.1 million of additional paid in capital and common stock from the issuance of common stock pursuant to employee benefit and other stock-based compensation plans and $12.9 million of gains from the issuance of common stock of a majority- owned subsidiary to minority shareholders were partially offset by a $227.2 million decline in accumulated other comprehensive income, primarily from unrealized losses on marketable equity securities, and dividend payments of $6.5 million. During July 2001, we purchased 7,925,000 shares of our common stock at an aggregate cost of $184.0 million pursuant to a stock buyback program announced March 16, 2000. In addition, on July 25, 2001, we announced a buyback program for the purchase of up to 8,000,000 additional shares of our common stock. 18 Consolidated Statements of Financial Position
In Thousands --------------------- 2001 2000 - ------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 563,322 $ 462,496 Short-term investments 191,001 61,481 Receivables, less allowance for doubtful accounts of $5,982,000 in 2001 and $4,134,000 in 2000 502,289 333,242 Inventories 201,762 209,916 Deferred income taxes 57,195 49,681 Other current assets 33,165 33,818 ---------- ---------- Total current assets 1,548,734 1,150,634 ---------- ---------- Property, plant and equipment, at cost Land and improvements 22,218 20,248 Buildings and improvements 67,946 40,915 Machinery and equipment 246,385 214,295 ---------- ---------- 336,549 275,458 Less - accumulated depreciation and amortization 108,934 96,209 ---------- ---------- 227,615 179,249 ---------- ---------- Goodwill and other intangible assets, net 81,491 7,475 ---------- ---------- Non-current marketable securities 17,159 381,983 ---------- ---------- Deferred income taxes 26,732 -- ---------- ---------- Other assets 101,097 60,119 ---------- ---------- Total Assets $2,002,828 $1,779,460 ========== ========== - ------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities Current maturities of long-term debt $ 91 $ 386 Accounts payable 223,990 212,111 Accrued liabilities 164,991 149,402 Income taxes currently payable 5,051 18,264 ---------- ---------- Total current liabilities 394,123 380,163 ---------- ---------- Long-term debt, less current maturities -- 102 ---------- ---------- Deferred income taxes -- 114,428 ---------- ---------- Other liabilities 99,766 69,807 ---------- ---------- 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 164,899,158 shares in 2001 and 159,971,077 shares in 2000 82,450 79,986 Additional paid-in capital 545,602 339,649 Retained earnings 935,038 607,822 Accumulated other comprehensive income (loss), net of taxes of $3,723,000 in 2001 and $135,538,000 in 2000 (6,075) 221,141 ---------- ---------- 1,557,015 1,248,598 Less - Treasury stock, at cost (859,339 shares in 2001 and 651,805 shares in 2000) 48,076 33,638 ---------- ---------- 1,508,939 1,214,960 ---------- ---------- Total Liabilities and Stockholders' Equity $2,002,828 $1,779,460 ========== ==========
- -------------------------------------------------------------------------------- See accompanying notes. 19 [This Page Intentionally Left Blank] 20 Management's Discussion of Consolidated Statements of Earnings The Consolidated Statements of Earnings summarize Scientific-Atlanta's operating performance over the last three years, during which time we have accelerated development of new products, particularly the development, qualification, deployment and production of our interactive digital networks at customer sites in North America, and continued our expansion into international markets. Net earnings were $333.7 million, or $1.99 per share in fiscal year 2001 as compared to $155.8 million, or $0.94 per share in fiscal year 2000. Earnings in fiscal year 2001 include an after-tax gain of $49.5 million from the sale of a portion of our investments in Bookham and Wink and a one-time, after-tax charge of $7.1 million related to the tender of shares held by minority shareholders of PowerTV. Excluding these items, net earnings were $291.3 million or $1.74 per share in fiscal year 2001. Earnings in fiscal year 2000 included after-tax gains of $4.0 million from the sale of a portion of our investment in WorldGate Communications, Inc. (WorldGate), $3.9 million from the reduction of reserves related to businesses sold, $3.2 million from the reduction of a reserve for expenses and potential settlement of environmental issues and an after-tax charge of $7.2 million related to contractual obligations to minority shareholders of PowerTV. Excluding these items, net earnings in fiscal year 2000 were $151.9 million or $0.92 per share. 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 in fiscal year 1999 were $60.7 million, or $0.39 per share. Sales of $2.5 billion in fiscal year 2001 increased 46 percent over the prior year. Domestic sales grew $779.3 million, or 57 percent, year over year. International sales increased 5 percent led by growth in Canada and Latin America. Subscriber product sales of $1.7 billion in fiscal year 2001 increased 100 percent over the prior year. During fiscal year 2001, we continued the rollout of advanced two-way digital cable systems, which are real-time, interactive digital networks designed to enable advanced services such as video-on-demand, e-mail and Web browsing. More than 4.8 million Explorer digital set-tops were shipped in fiscal year 2001, up from 1.9 million in fiscal year 2000. During fiscal year 2001, we increased the production capacity of our Explorer digital interactive set-tops in our Juarez facility from 1 million units per quarter to 1.5 million units per quarter. As previously announced, we do not expect to utilize all of this capacity in the first quarter of fiscal year 2002. Sales of transmission products of $714.1 million increased slightly in fiscal year 2001 as compared to fiscal year 2000. A 39 percent increase year over year in sales of opto-electronic products was offset by a 20 percent decline in sales of RF (radio frequency) products. Media Networks sales declined 7 percent in fiscal year 2001 as compared to fiscal year 2000. We believe the economic downturn, particularly in international markets, has led customers to delay purchasing decisions regarding these products. After our earnings release and conference call on July 19, 2001 for our quarter and fiscal year ended June 29, 2001, a number of the large multiple system cable operators ("MSOs") have published their results for that quarter. These results show that, although the total number of digital subscribers increased during the period, for most of the MSOs the number of net new digital subscribers added declined over the number added in the first calendar quarter. The MSOs first reported declines in the rate of new digital subscribers added after the end of the first quarter of calendar 2001. Although in their second quarter reports some of these MSOs reaffirmed or increased their previous guidance on the total number of digital subscribers to be added for the entire 2001 calendar year, the declines in the deployment rates for the second calendar quarter reported after our earnings release and conference call could have an adverse effect on our first quarter and thereby on our fiscal year 2002 results. 21 Management's Discussion of Consolidated Statements of Earnings (Continued) In addition, we continue to have limited visibility to the inventories that these MSOs may have accumulated during calendar 2000 and early 2001 when, as a result of our production capacity limitations, these customers were on allocation. A reduction in the MSO deployment rates could mean that these inventories will not be utilized as quickly as would otherwise be the case. Also, since digital interactive television is a relatively new business, there is little historical data to determine the factors that may affect demand for our products, including the sensitivity of demand to changes in the economy. A declining economy may adversely affect consumer purchases of new digital services, and thus purchases of our digital products by the MSOs, even if it does not impact monthly MSO subscription revenues. 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, 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. Sales of subscriber products led the year over year increase in fiscal year 2000 as compared to the prior year with growth of 51 percent driven by the continued deployment of digital interactive systems and strong demand for the Explorer set-tops in fiscal year 2000. We shipped 1.9 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 in fiscal year 2000 as cable operators shifted from analog to digital products. Sales of transmission products increased 44 percent led by growth of 79 percent and 51 percent in sales of opto-electronics and RF products, respectively. Media Networks and Satellite Networks sales declined 11 percent from fiscal year 1999 to fiscal year 2000 due to lower sales in the Satellite Networks business unit which relied 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. The sale of the Satellite Networks business unit did not 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. Customers that accounted for 10 percent or more of our total sales in fiscal years 2001, 2000 or 1999 are as follows:
2001 2000 1999 ---- ---- ---- AOL Time Warner, Inc. 22% 23% 16% Charter Communications, Inc. 20% 14% 7% Adelphia 18% 2% 2% AT&T 2% 10% 16% All other customers 38% 51% 59% ---- ---- ---- Total 100% 100% 100% ==== ==== ====
Sales of products that accounted for 10 percent or more of our total sales in fiscal years 2001, 2000 or 1999 are as follows:
2001 2000 1999 ---- ---- ---- Digital set-tops 57% 34% 15% RF products 10% 18% 16% Analog set-tops 3% 9% 24% All others 30% 39% 45% ---- ---- ---- Total 100% 100% 100% ==== ==== ====
International sales were 15 percent of total sales in fiscal year 2001, as compared to 21 percent and 22 percent of such sales in fiscal years 2000 and 1999, respectively. Cost of sales as a percent of sales decreased 2.3 percentage points in fiscal year 2001 from fiscal year 2000. We continue aggressively to reduce our costs through product design, procurement and manufacturing. Each generation of our custom ASICs (Application Specific Integrated Circuits) incorporates more functionality and helps us reduce the number of components in our digital set-tops. Our material costs have benefited from the recent downturn in the electronics industry, which has reduced 22 Management's Discussion of Consolidated Statements of Earnings (Continued) component costs and improved component availability. In addition, we have taken advantage of newly available e-commerce technology to reduce the cost of many of the commodity parts used in our products. Cost of sales as a percent of sales decreased 0.7 percentage points in fiscal year 2000 from fiscal year 1999, reflecting the economies of scale associated with increased manufacturing volumes, the continuing benefit from manufacturing in Juarez, Mexico and negotiated procurement savings. Except for certain ASICs, the materials and supplies we purchase generally 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. We also purchase aluminum die castings, steel enclosures and other semi-fabricated items, which are produced by a variety of sources. We consider our sources of supply to be adequate and are not dependent upon a single supplier, except for STMicroelectronics (and affiliates), Micron Semiconductor Products, Inc., Philips Semiconductors, Inc., Matsushita Electronics Components Corporation of America and its affiliates, Cablevision Electronics Co., Ltd., Zinwell Corporation, JDS Uniphase, Premiere Die Castings, Inc., and Anadigics, Inc. for any significant portion of the materials used in the products we manufacture or the products we sell. These suppliers provide us with the following materials and supplies: STMicroelectronics, Micron Semiconductor Products, Inc. and Philips Semiconductors, Inc. are our primary suppliers of a variety of semiconductor products, which are used as components in an array of products, including set-tops. Matsushita Electronics 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 are part of a joint venture in Shanghai, China that provides us with taps. JDS Uniphase is our primary supplier of opto amplifiers. Premiere Die Casting, Inc. is our primary supplier of die-castings for RF distribution. Anadigics, Inc. is a provider of CATV integrated circuits for use in our RF distribution products. For the first half of fiscal year 2001, we experienced substantial shortages of certain electronic components from our suppliers, which did not materially affect our output. Material availability was greatly enhanced in the second half of the fiscal year, and we do not expect to have significant material supply issues in the foreseeable future. Sales and administrative expenses of $222.0 million in fiscal year 2001 were up $44.4 million over the prior year. The year over year increase in expenses is related to the high volume of sales, improved profitability, higher professional fees, increase in headcount, increased amortization expenses related to the PowerTV tender offer and acquisition of PRASARA, which are discussed in Management's Discussion and Analysis of Consolidated Statements of Financial Position, and other acquisition expenses. Sales and administrative expenses of $177.6 million in fiscal year 2000 were $15.6 million higher than fiscal year 1999. Increases in expenses in fiscal year 2000 related to the high volume of sales and higher professional fees. Research and development expenses were $154.3 million in fiscal year 2001, excluding the $10.8 million stock compensation charge discussed in Management's Discussion and Analysis of Consolidated Statements of Financial Position, up $31.9 million over fiscal year 2000 driven primarily by the development of international products and advanced digital set-tops. Research and development efforts in 23 Management's Discussion of Consolidated Statements of Earnings (Continued) fiscal year 2001 continued to focus on the development of applications and enhancements to our interactive broadband networks. Research and development expenses were approximately 6 percent of sales in fiscal year 2001 and 7 percent and 9 percent of sales in fiscal years 2000 and 1999, respectively. 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 capitalize certain research and development costs for the software components of our products. Capitalization ceases when the products are available for general release to customers. We amortize these development costs to cost of sales when we recognize revenue on the products. Capitalized software development costs and the amortization of these costs in fiscal years 2001, 2000 and 1999 are as follows:
In Millions -------------- 2001 2000 1999 ---- ---- ---- Capitalized software development costs $6.0 $3.4 $3.3 Amortization to cost of sales $6.4 $4.4 $0.6
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 29, 2001 or June 30, 2000. At July 2, 1999, we had capitalized $9.0 million of such non-recurring engineering costs in inventory, which was charged to cost of sales as we recognized revenue on the related orders in fiscal year 2000. We also charged $2.2 million of previously capitalized non-recurring engineering to cost of sales as we recognized revenue on the related orders in fiscal year 1999. We invest in our technology and in select emerging technologies of innovative companies. During fiscal year 2000, we invested $13.1 million in Bookham, 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. In addition to the acquisition of PRASARA in July 2000, we invested an additional $6.7 million in Luminous and $15.0 million in various other emerging technology companies during fiscal year 2001. 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. Stock compensation expense of $10.8 million in fiscal year 2001 related to the tender for PowerTV shares discussed in Management's Discussion and Analysis of Consolidated Statements of Financial Position. A restructuring program initiated in fiscal year 1998 was substantially completed in fiscal year 1999. Approximately $0.8 million of the original $23.4 million restructuring charge will be paid after June 29, 2001 for expenses related to contractual obligations under the leases. 24 Management's Discussion of Consolidated Statements of Earnings (Continued) Interest expense was $0.4 million in fiscal year 2001 and $0.6 million in fiscal years 2000 and 1999. Interest income was $36.9 million in fiscal year 2001, an increase of $17.2 million over the prior year, due to higher average cash balances and the increase in short-term investments in fiscal year 2001 as compared to fiscal year 2000. The average yield on cash and short-term investments was 6.1 percent in fiscal year 2001 as compared to 5.9 percent in fiscal year 2000. Other (income) expense of $67.2 million in fiscal year 2001 included a gain of $79.8 million from the sale of a portion of our investments in Bookham and Wink and losses on the disposition of fixed assets, partnership losses, other than temporary declines in the market value of investments, declines in the cash surrender value of company owned life insurance, expenses related to buildings that were vacated during the year as part of the consolidation of facilities in Georgia and various other miscellaneous items, none of which individually were significant. 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 PowerTV 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 in fiscal year 2000 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 29, 2001, we had reserves of approximately $18.1 million related to the disposition of 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. In fiscal year 2000, 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 29, 2001, we had $0.9 million remaining in the reserve for expenses and the potential settlement of environmental issues. Other (income) expense 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 $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. The provision for income taxes was 34.6 percent of pretax earnings for fiscal year 2001, an increase of 4.6 percentage points from fiscal years 2000 and 1999. The increase was due to 25 Management's Discussion of Consolidated Statements of Earnings (Continued) the diminished impact on the tax rate from research and development credits with higher levels of pretax earnings as well as higher taxes to be paid on the gains from the sale of investments. We expect our effective income tax rate will be 34 percent of pre-tax earnings in fiscal year 2002. Details of the provision for income taxes are discussed in Note 10. Earnings per share of $1.99 in fiscal year 2001 compares with earnings per share of $0.94 in fiscal year 2000 and $0.65 in fiscal year 1999. Average diluted shares outstanding increased to 167.7 million in fiscal year 2001 from 164.9 million in 2000 due primarily to the issuance of shares pursuant to stock option plans, 401(k) plan and other stock-based compensation arrangements. Earnings per share and weighted average shares outstanding for fiscal year 1999 have been restated to reflect the 2-for-1 stock split in March 2000. See Notes 15 and 16 for additional information. 26 Consolidated Statements of Earnings
(In Thousands, Except Per Share Data) 2001 2000 1999 - ----------------------------------------------------------------------------- Sales $2,512,016 $1,715,410 $1,243,473 - ----------------------------------------------------------------------------- Costs and expenses Cost of sales 1,718,160 1,212,655 888,162 Sales and administrative 222,027 177,588 162,017 Research and development 154,346 122,403 117,261 Stock compensation 10,778 -- -- Interest expense 411 564 635 Interest income (36,879) (19,636) (8,526) Other (income) expense, net (67,229) (747) (62,281) - ----------------------------------------------------------------------------- Total costs and expenses 2,001,614 1,492,827 1,097,268 - ----------------------------------------------------------------------------- Earnings before income taxes 510,402 222,583 146,205 - ----------------------------------------------------------------------------- Provision for income taxes 176,728 66,775 43,862 - ----------------------------------------------------------------------------- Net earnings $ 333,674 $ 155,808 $ 102,343 - ----------------------------------------------------------------------------- Earnings per common share - ----------------------------------------------------------------------------- Basic $ 2.06 $ 0.99 $ 0.67 Diluted $ 1.99 $ 0.94 $ 0.65 - ----------------------------------------------------------------------------- Weighted average number of common shares outstanding - ----------------------------------------------------------------------------- Basic 161,601 157,807 153,630 Diluted 167,688 164,895 157,130 - ----------------------------------------------------------------------------- See accompanying notes.
27 Management's Discussion of Consolidated Statements of Cash Flows The Statements of Cash Flows summarize 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 2001 were $563.3 million, up $100.8 million from the end of fiscal year 2000 due primarily to improved earnings and the issuance of stock pursuant to stock option and employee stock purchase plans. We have a $200 million senior credit facility available that provides for unsecured borrowings up to $50 million, which expires June 2002, and up to $150 million, which expires May 2004. There were no outstanding borrowings under this facility at June 29, 2001 or at June 30, 2000. We believe that funds generated from operations, existing cash balances and our available senior credit facility will be sufficient to support operations. Cash provided by operating activities was $258.9 million for fiscal year 2001, compared to $222.2 million for fiscal year 2000. In fiscal year 2001, cash provided by improved earnings, a reduction in income taxes currently payable from the tax benefit related to the exercise of stock options, increases in accounts payable and a reduction of inventory was offset partially by increases in receivables. See Management's Discussion of the Consolidated Statements of Earnings for details of this performance. In fiscal year 2000, 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. 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 $238.8 million in fiscal year 2001 included $129.5 million for purchases of short-term investments, $104.8 million of expenditures for equipment and expansion of manufacturing capacity, primarily in Juarez, Mexico, and engineering and office facilities in Lawrenceville, Georgia, $64.6 million for the tender offer for shares of common stock of PowerTV and $24.2 million of technology investments. We also received $84.2 million from the sale of a portion of our investments in Bookham and Wink. Cash used by investing activities of $103.7 million in fiscal year 2000 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 in fiscal year 2000 included proceeds from the sale of the Satellite and Control System business units and divestiture of a portion of our investment in WorldGate. 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 provided by financing activities of $80.7 million in fiscal year 2001 consisted of $87.6 million from the issuance of common stock pursuant to stock option plans, the 401(k) plan and the employee stock purchase plan, dividend payments of $6.5 million and the reduction of $0.4 million of long- term debt. Cash provided by financing activities of $43.5 million in fiscal year 2000 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. 28 Management's Discussion of Consolidated Statements of Cash Flows 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. ---------------- Any statements in Management's Discussion and Analysis of Financial Condition and Results of Operations 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. Scientific-Atlanta, the Scientific-Atlanta logo, Explorer, Prisma and PowerVu are registered trademarks of Scientific-Atlanta, Inc. SciCare, WebSTAR and Surge-Gap are trademarks of Scientific-Atlanta, Inc. PowerTV is a registered trademark of PowerTV, Inc. 29 Consolidated Statements of Cash Flows
(In Thousands) 2001 2000 1999 - -------------------------------------------------------------------------------- Operating Activities: Net earnings $333,674 $155,808 $102,343 Adjustments to reconcile net earnings to net cash provided by operating activities: (Gains) on marketable securities, net (77,953) (5,780) (59,465) Depreciation and amortization 66,342 50,707 46,075 Compensation related to stock benefit plans 26,296 20,779 9,720 Provision for doubtful accounts 1,866 (3,165) (1,615) Losses on sale of property, plant and equipment 2,740 2,396 4,436 (Gain) on sale of businesses, net -- (6,527) -- (Earnings) losses of partnerships, net (257) 754 (6,023) Changes in operating assets and liabilities, net of effects of acquisitions Receivables (170,503) (55,409) (34,209) Inventories 8,303 (28,308) (29,809) Deferred income taxes (27,530) (22,570) (15,593) Accounts payable and accrued liabilities 17,009 74,435 25,185 Other assets (23,868) (29,204) (7,867) Other liabilities 104,941 71,571 12,658 Exchange rate fluctuations, net (2,181) (3,266) 316 - -------------------------------------------------------------------------------- Net cash provided by operating activities 258,879 222,221 46,152 - -------------------------------------------------------------------------------- Investing Activities: Purchases of property, plant and equipment (104,810) (82,772) (51,352) Purchases of short-term investments (129,520) (60,628) -- Tender for shares of PowerTV (64,607) -- -- Proceeds from the sale of businesses -- 68,606 -- Proceeds from the sale of investments 84,158 8,719 152,974 Other investments (24,179) (37,713) 4,952 Other 207 106 469 - -------------------------------------------------------------------------------- Net cash provided (used) by investing activities (238,751) (103,682) 107,043 - -------------------------------------------------------------------------------- Financing Activities: Principal payments on long-term debt (397) (298) (923) Dividends paid (6,458) (5,541) (4,618) Issuance of stock 87,553 53,087 42,636 Treasury shares acquired -- (3,745) (65,228) - -------------------------------------------------------------------------------- Net cash provided (used) by financing activities 80,698 43,503 (28,133) - -------------------------------------------------------------------------------- Increase in cash and cash equivalents 100,826 162,042 125,062 Cash and cash equivalents at beginning of year 462,496 300,454 175,392 - -------------------------------------------------------------------------------- Cash and cash equivalents at end of year $563,322 $462,496 $300,454 - -------------------------------------------------------------------------------- See accompanying notes.
30 Consolidated Statements of Stockholders' Equity and Comprehensive Income (Dollars In Thousands, Except Per Share Data) 2001 2000 1999 - -------------------------------------------------------------------------------- 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, beginning of year 159,971 79,617 79,207 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 4,928 633 264 Issuance of restricted shares -- 25 146 - -------------------------------------------------------------------------------- Shares issued, end of year 164,899 159,971 79,617 - -------------------------------------------------------------------------------- Additional Paid-in Capital Balance, beginning of year $ 339,649 $ 226,390 $195,446 Issuance of shares under employee benefit plans 80,113 27,839 11,431 Tax benefit related to the exercise of stock options 98,238 45,867 15,317 Issuance of restricted shares to employees (7,820) 46,759 8,616 Restricted shares forfeited/cancelled 5,291 25,891 849 Gains from issuance of equity of subsidiary 12,850 -- -- Unearned compensation -- restricted shares 17,281 (33,097) (5,269) - -------------------------------------------------------------------------------- Balance, end of year $ 545,602 $ 339,649 $226,390 - -------------------------------------------------------------------------------- Retained Earnings Balance, beginning of year $ 607,822 $ 497,403 $399,678 Net income(a) 333,674 155,808 102,343 Issuance of a 2-for-1 stock split effected in the form of a stock dividend -- (39,848) -- Cash dividends ($0.04, $0.035 and $0.03 per share in fiscal years 2001, 2000 and 1999, respectively) (6,458) (5,541) (4,618) - -------------------------------------------------------------------------------- Balance, end of year $ 935,038 $ 607,822 $497,403 - -------------------------------------------------------------------------------- Accumulated Other Comprehensive Income (Loss) (net of tax) Balance, beginning of year $ 221,141 $ 7,379 $ (123) Foreign currency translation adjustments(b) (1,797) (1,997) 72 Changes in fair value of derivatives(c) 384 -- -- Unrealized holding gains (losses) on marketable securities, net of reclassification adjustments ($49,851, $3,605, and $0 in fiscal years 2001, 2000 and 1999, respectively)(d) (223,541) 216,587 7,430 Minimum pension liability adjustment(e) (2,262) (828) -- - -------------------------------------------------------------------------------- Balance, end of year $ (6,075) $ 221,141 $ 7,379 - -------------------------------------------------------------------------------- Treasury Shares Balance, beginning of year $ 33,638 $ 32,814 $ 2,528 Treasury shares acquired -- 3,745 65,228 Restricted shares forfeited/cancelled 14,438 25,891 849 Issuance of shares under employee benefit plans -- (28,812) (35,791) - -------------------------------------------------------------------------------- Balance, end of year $ 48,076 $ 33,638 $ 32,814 - -------------------------------------------------------------------------------- Total Stockholders' Equity $1,508,939 $1,214,960 $738,166 Total Comprehensive Income (a+b+c+d+e) $ 106,458 $ 369,570 $109,845 - -------------------------------------------------------------------------------- See accompanying notes.
31 Selected Financial Data (Dollars in Thousands, Except Per Share Data) 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------ Sales $2,512,016 $1,715,410 $1,243,473 $1,181,404 $1,168,245 - ------------------------------------------------------------------------------------ Cost of Sales 1,718,160 1,212,655 888,162 850,738 809,081 Sales and Administrative Expense 222,027 177,588 162,017 165,639 160,613 Research and Development Expense 154,346 122,403 117,261 111,546 114,344 Stock Compensation Expense Related to Tender for Shares of PowerTV 10,778 -- -- -- -- Restructuring Expense -- -- -- 23,412 -- Interest Expense 411 564 635 476 484 Interest Income (36,879) (19,636) (8,526) (5,963) (3,943) Other (Income) Expense, Net (67,229) (747) (62,281) (79,863) (1,513) - ------------------------------------------------------------------------------------ Earnings Before Income Taxes and Discontinued Operations 510,402 222,583 146,205 115,419 89,179 - ------------------------------------------------------------------------------------ Provision for Income Taxes 176,728 66,775 43,862 34,626 28,537 - ------------------------------------------------------------------------------------ Earnings Before Discontinued Operations 333,674 155,808 102,343 80,793 60,642 - ------------------------------------------------------------------------------------ Earnings from Discontinued Operations, Net of Tax -- -- -- -- 3,400 - ------------------------------------------------------------------------------------ Net Earnings $ 333,674 $ 155,808 $ 102,343 $ 80,793 $ 64,042 - ------------------------------------------------------------------------------------ Basic Earnings Per Share Before Discontinued Operations $ 2.06 $ 0.99 $ 0.67 $ 0.51 $ 0.39 - ------------------------------------------------------------------------------------ Diluted Earnings Per Share Before Discontinued Operations $ 1.99 $ 0.94 $ 0.65 $ 0.50 $ 0.39 - ------------------------------------------------------------------------------------ Diluted Earnings Per Share $ 1.99 $ 0.94 $ 0.65 $ 0.50 $ 0.41 - ------------------------------------------------------------------------------------ Cash Dividends Paid Per Share $ 0.040 $ 0.035 $ 0.030 $ 0.030 $ 0.030 - ------------------------------------------------------------------------------------ Working Capital $1,154,611 $ 770,471 $ 563,650 $ 457,830 $ 347,340 - ------------------------------------------------------------------------------------ Total Assets $2,002,828 $1,779,460 $1,062,274 $ 940,223 $ 823,689 - ------------------------------------------------------------------------------------ Short-Term Debt and Current Maturities of Long- Term Debt $ 91 $ 386 $ 416 $ 726 $ 842 Long-Term Debt -- 102 370 983 1,810 Stockholders' Equity 1,508,939 1,214,960 738,166 632,077 532,724 - ------------------------------------------------------------------------------------ Total Capital Invested $1,509,030 $1,215,448 $ 738,952 $ 633,786 $ 535,376 - ------------------------------------------------------------------------------------ Gross Margin % of Sales 31.6% 29.3% 28.6% 28.0% 30.7% - ------------------------------------------------------------------------------------ Return on Sales Before Discontinued Operations 13.3% 9.1% 8.2% 6.8% 5.2% - ------------------------------------------------------------------------------------ Return on Average Stockholders' Equity 24.9% 17.2% 15.6% 13.9% 13.0% - ------------------------------------------------------------------------------------ Effective Tax Rate 34.6% 30.0% 30.0% 30.0% 32.0% - ------------------------------------------------------------------------------------
32 Notes to Consolidated Financial Statements (Dollars in thousands, except per share data) 1. Summary of Significant Accounting Policies - -------------------------------------------------------------------------------- Business Scientific-Atlanta provides its customers broadband transmission networks, digital interactive subscriber systems and worldwide customer service and support. We are a producer of a wide variety of products for the cable television industry including digital video, voice and data communications products. Prior to fiscal year 2001, we operated in two reportable business segments: Broadband and Satellite. The Broadband segment consisted 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 which constituted a substantial part of our satellite business. On April 25, 2000, ViaSat, Inc. acquired our satellite network business. We retained our satellite television network business which provides content distribution networks and is now part of our Broadband segment. We now operate only in the Broadband segment. 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 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. Sales of our products are also made to independent system integrators, distributors and dealers who resell the products to customers. Except for certain Application Specific Integrated Circuits (ASICs), the materials and supplies we purchase generally 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. We also purchase aluminum die castings, steel enclosures and other semi-fabricated items, which are produced by a variety of sources. We consider our sources of supply to be adequate and are not dependent upon a single supplier, except for STMicroelectronics (and affiliates), Micron Semiconductor Products, Inc., Philips Semiconductors, Inc., Matsushita Electronics Components Corporation of America and its affiliates, Cablevision Electronics Co., Ltd., Zinwell Corporation, JDS Uniphase, Premiere Die Castings, Inc., and Anadigics, Inc. for any significant portion of the materials used in the products we manufacture or the products we sell. These suppliers provide us with the following materials and supplies: STMicroelectronics, Micron Semiconductor Products, Inc. and Philips Semiconductors, Inc. are our primary suppliers of a variety of semiconductor products, which are used as components in an array of products, including set-tops. Matsushita Electronics 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 are part of a joint venture in Shanghai, China that provides us with taps. JDS Uniphase is our primary supplier of opto amplifiers. Premiere Die Casting, Inc. is our primary supplier of die-castings for RF distribution. Anadigics, Inc. is a provider of CATV integrated circuits for use in our RF distribution products. 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: 2001: June 29, 2001 2000: June 30, 2000 1999: July 2, 1999
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. 33 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, reserves for businesses sold, restructuring reserves, compensation, claims, litigation and taxes. 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 We are exposed to market risks from changes in foreign exchange rates and have a process to monitor and manage these 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. Contracts are recorded at fair value. Changes in the fair value of derivatives are recorded in other comprehensive income until the underlying transaction affects earnings. Any ineffectiveness is recorded through earnings. 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 (sales) exposure and related hedging instruments at June 29, 2001 are as follows:
German Canadian Marks Dollars ------- -------- Firmly committed purchase (sales) contracts (20,318) 20,225 Notional amount of forward contracts (20,318) 20,225 Average contract amount (Foreign currency/United States dollar) 2.21 1.54
At June 29, 2001, we had changes in fair value of $384, net of tax of $235, related to these derivatives which were included in accumulated other comprehensive income. All derivatives entered into during fiscal year 2001 were designated as cash flow hedges and were fully effective. Scientific-Atlanta has no derivative exposure beyond the third quarter of fiscal year 2003. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Satandards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging Activities" which we adopted as of July 1, 2000. 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. The adoption of this statement did not 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. Revenue is recognized only when we have no significant future performance obligation. 34 Our right of return policy, which is standard for virtually all sales, allows a customer the right to return product for refund only if the product does not conform to product specifications; the non-conforming product is identified by the customer; and the customer rejects the non-conforming product and notifies us within ten days of receipt. 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 $443 at June 29, 2001 and $1,269 at June 30, 2000. It is anticipated that substantially all such amounts will be collected within one year. Research and Development Expenditures Certain research and development costs for the software components of our products 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. Capitalization ceases when the products are available for general release to customers. We amortize these development costs to cost of sales when we recognize revenue on these products. Capitalized software development costs and the amortization of these costs in fiscal years 2001, 2000 and 1999 are as follows:
2001 2000 1999 ------ ------ ------ Capitalized software development costs $5,957 $3,401 $3,268 Amortization to cost of sales $6,376 $4,445 $ 603
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 29, 2001 or June 30, 2000. At July 2, 1999, we had capitalized $9,013 of such non-recurring engineering costs in inventory, which was charged to cost of sales as we recognized revenue on the related orders in fiscal year 2000. We also charged $2,175 of previously capitalized non-recurring engineering to cost of sales as we recognized revenue on the related orders in fiscal year 1999. 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 "Accounting for Certain Investments in Debt and Equity Securities". Investment income is included in interest income. Short- term investments on the Consolidated Statements of Financial Position include accrued interest of $4,582 at June 29, 2001 and $2,568 at June 30, 2000. 35 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:
2001 2000 -------- -------- Raw Materials and Work-In-Process $144,270 $163,969 Finished Goods 57,492 45,947 -------- -------- Total Inventory $201,762 $209,916 ======== ========
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. If our review indicates that the carrying value of an asset will not be recoverable, the impairment will be measured by comparing the carrying value of the asset to the fair value. Fair value will be determined based on quoted market values, discounted cash flows or appraisals. Our review will be at the lowest levels for which there are identifiable cash flows that are largely independent of the cash flows of other business units. Cost in Excess of Net Assets Acquired Cost in excess of net assets acquired is being amortized on a straight-line basis over five years for acquisitions of software development companies and seventeen years for all other acquisitions. 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 readily determinable, over the remaining life of the goodwill in measuring whether the goodwill is recoverable. We plan to adopt SFAS No. 142, "Goodwill and Other Intangible Assets" during the first quarter of fiscal year 2002. Under the provisions of SFAS No. 142, goodwill is no longer subject to amortization. After implementing SFAS No. 142, we believe that our annual goodwill amortization expense will be approximately $4,500 lower in fiscal year 2002 than in fiscal year 2001. SFAS No. 142 also establishes a new method of testing goodwill for impairment and we will be required to test our goodwill for impairment under the new standard upon adoption. We are in the process of evaluating the financial statement impact of the adoption of SFAS No. 142 related to goodwill impairment. Non-Current Marketable Securities Non-current marketable securities consist of investments in common stock and are stated at market value. We have market risks associated with the volatility in the value of our non-current marketable securities, all of which are classified as "available for sale" under the provisions of SFAS No. 115, and thus, changes in the fair value of these securities are not included in our Consolidated Statements of Earnings until realized. 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 and losses on marketable securities defined as available for sale under the provisions of SFAS No. 115, foreign currency translation adjustments, changes in the fair value of derivatives and charges for adjustments to the minimum pension liability. Financial Presentation Certain prior year amounts have been reclassified to conform to the current year presentation. 2. Investments, Acquisitions and Dispositions - -------------------------------------------------------------------------------- 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. Sales and net earnings (losses) of PRASARA prior to the acquisition were not significant. 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. In connection with the acquisition, PowerTV 36 acquired $32,184 of assets, including goodwill, and assumed liabilities of $17,191 for the non-cash consideration of the shares of PowerTV common stock. The purchase price has been allocated to the assets acquired and liabilities assumed, including $31,735 of goodwill and other intangibles, which will be amortized over five years. In the fourth quarter of fiscal year 2001, we acquired a portion of the shares held by minority shareholders of a majority-owned subsidiary, PowerTV, Inc., pursuant to a tender offer. The additional shares were acquired primarily from employees for an aggregate price of $66,794 paid in cash. As a result of the acquisition of shares, we recorded a one-time stock compensation charge of $10,778, as well as $52,459 of goodwill and other intangible assets, which will be amortized over five years. In addition, we invested $6,650 in Luminous Networks, a developer of next- generation optical transport technology, and $15,000 in various other emerging technology companies during fiscal year 2001. During fiscal year 2001, we also sold a portion of our investments in Bookham Technology plc (Bookham) and Wink Communications, Inc. See Note 4 for additional information. During fiscal year 2000, Scientific-Atlanta invested $13,100 in Bookham, a UK- based developer and supplier of optical components, $10,000 in Luminous Networks and $6,916 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. 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. The restructuring plan was substantially completed during fiscal year 1999. At June 29, 2001, $800 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 1999, 2000 and 2001:
Contractual Obligations under Cancelled Leases Severance Other Total ----------- --------- ------- ------- 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 Charges to the reserve (581) -- -- (581) ------ ------- ------- ------- Balance at June 29, 2001 $ 800 $ -- $ -- $ 800 ====== ======= ======= =======
4. Other (Income) Expense - -------------------------------------------------------------------------------- Other (income) expense of $67,229 included a gain of $79,792 from the sale of a portion of our investments in Bookham and Wink and losses on the disposition of fixed assets, partnership losses, other than temporary declines in the market value of investments, declines in the cash surrender value of company owned life insurance, expenses related to buildings that were vacated during the year as part of the consolidation of facilities in Georgia and various other miscellaneous items, none of which individually were significant. Other (income) expense of $747 in fiscal year 2000 included expenses of $10,338 related to contractual obligations to minority shareholders of PowerTV 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 37 of $1,500. We also recorded a $5,814 gain from the sale of a portion of our investment in WorldGate. Other (income) expense in fiscal year 2000 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 29, 2001, we had reserves of approximately $18,134 related to the disposition of 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. In fiscal year 2000, 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 29, 2001, we had $910 remaining in the reserve for expenses and the potential settlement of environmental issues. Other (income) expense of $62,281 in fiscal year 1999 included gains of $41,329 and $16,646 from the sale of our investments in Broadcom Corporation and Harmonic Inc., 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 during fiscal year 1999. 5. Quarterly Financial Data (Unaudited) - --------------------------------------------------------------------------------
Fiscal Quarters ---------------------------------------- 2001 First Second Third Fourth ---- -------- -------- -------- -------- Sales $597,240 $631,430 $663,700 $619,646 Gross margin 177,149 194,446 207,571 214,690 Gross margin % 29.7% 30.8% 31.3% 34.6% Net earnings 113,283(1) 70,802 76,236 73,353(2) Earnings per share Basic 0.70 0.44 0.47 0.45 Diluted 0.67 0.42 0.46 0.44 Stock prices High 93.3750 71.1250 63.7000 65.5000 Low 58.6875 32.0000 29.4400 36.1000 Dividends paid per share 0.01 0.01 0.01 0.01
- -------- (1) Includes a gain of $49,471 from the sale of a portion of our investments in Bookham and Wink. (2) Includes a one-time compensation charge of $7,113 from the tender for most of the shares held by minority shareholders, primarily employees, of PowerTV, Inc.
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(3) 38,109(4) 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
- -------- (3) Includes a gain of $4,046 from the sale of a portion of our investment in WorldGate. (4) 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. 6. Segment Information - -------------------------------------------------------------------------------- During fiscal years 2000 and 1999, we operated primarily in two reportable business segments: 38 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, now known as the Media Networks business of Scientific-Atlanta. Media Networks provides the content distribution networks. We now operate only in the Broadband segment. Customers that accounted for 10 percent or more of our total sales in fiscal years 2001, 2000 or 1999 are as follows:
2001 2000 1999 ---- ---- ---- AOL Time Warner, Inc. 22% 23% 16% Charter Communications, Inc. 20% 14% 7% Adelphia 18% 2% 2% AT&T 2% 10% 16% All other customers 38% 51% 59% --- --- --- Total 100% 100% 100% === === ===
Sales of products that accounted for 10 percent or more of our total sales in fiscal years 2001, 2000 or 1999 are as follows:
2001 2000 1999 ---- ---- ---- Digital Explorer set-tops 57% 34% 15% RF products 10% 18% 16% Analog set-tops 3% 9% 24% All others 30% 39% 45% --- --- --- Total 100% 100% 100% === === ===
International sales were 15 percent of total sales in fiscal year 2001, as compared to 21 percent and 22 percent of such sales in fiscal years 2000 and 1999, respectively. Sales are attributed to geographic areas based upon the location to which the product is shipped. Sales in any single country did not exceed 10 percent of total sales in fiscal years 2001, 2000 or 1999, except for the United States.
2001 U.S. Foreign Total - ---- ---------- -------- ---------- Sales $2,135,320 $376,696 $2,512,016 Long-lived assets 282,653 37,369 320,022 2000 - ---- 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
Long-lived assets include property, plant and equipment, cost in excess of net assets acquired, investments other than marketable securities, and intellectual property. Long-lived assets in the United States and Mexico were 88 percent and 6 percent, respectively, of total long-lived assets in fiscal year 2001 and 81 percent and 10 percent, respectively, in fiscal year 2000. Long-lived assets in any single country did not exceed 10 percent of total long-lived assets in fiscal year 1999, except for the United States. 7. Indebtedness - -------------------------------------------------------------------------------- At June 29, 2001, we had a $200,000 senior credit facility that provides for unsecured borrowings up to $50,000 which expires June 21, 2002, and up to $150,000 which expires May 11, 2004. There were no borrowings outstanding under this facility at June 29, 2001 or June 30, 2000. 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. Total interest paid, including fees on the senior credit facility, was $348, $480 and $581 in fiscal years 2001, 2000 and 1999, respectively. 8. Accrued Liabilities - -------------------------------------------------------------------------------- Accrued liabilities consisted of:
2001 2000 -------- -------- Compensation $ 58,048 $52,535 Taxes, other than income taxes 9,370 13,916 Warranty and service 19,906 9,449 Restructuring reserves 800 1,381 Other 76,867 72,121 -------- -------- $164,991 $149,402 ======== ========
9. Other Liabilities - -------------------------------------------------------------------------------- Other liabilities consisted of:
2001 2000 ------- ------- Retirement $50,447 $40,012 Compensation 29,066 17,086 Other 20,253 12,709 ------- ------- $99,766 $69,807 ======= =======
39 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:
2001 2000 1999 ---- ---- ---- Statutory federal tax rate 35.0% 35.0% 35.0% State income taxes, net of state credits and federal tax benefit 1.3 0.7 2.0 Tax contingencies and settlements 0.1 (2.7) (2.3) Research and development tax credit (1.3) (2.3) (3.7) Other, net (0.5) (0.7) (1.0) ---- ---- ---- 34.6% 30.0% 30.0% ==== ==== ====
Income tax provision (benefit) includes the following:
2001 2000 1999 -------- -------- ------- Current tax provision Federal $175,395 $ 70,760 $46,638 State 12,738 4,009 7,708 Foreign 11,704 10,748 5,107 -------- -------- ------- 199,837 85,517 59,453 -------- -------- ------- Deferred tax provision (benefit) Federal (19,861) (17,786) (14,094) State (2,852) (1,728) (3,317) Foreign (396) 772 1,820 -------- -------- ------- (23,109) (18,742) (15,591) -------- -------- ------- Total provision for income taxes $176,728 $ 66,775 $43,862 ======== ======== =======
Total income taxes paid include settlement payments for federal, state and foreign audit adjustments. The total income taxes paid were $113,205, $31,386 and $54,178 in fiscal years 2001, 2000 and 1999, respectively. The tax effect of significant temporary differences representing deferred tax assets and liabilities are as follows:
2001 2000 -------- --------- Current deferred tax assets Expenses not currently deductible $ 21,869 $ 25,679 Inventory valuation 19,792 14,754 Research and development credit carryforwards 6,439 5,016 Warranty reserves 7,352 3,407 Other 1,743 825 -------- --------- Current deferred tax assets $ 57,195 $ 49,681 ======== ========= Non-current deferred tax assets Postretirement and post employment benefits $ 33,747 $ 18,925 Expenses not currently deductible 4,692 5,186 Accumulated comprehensive income items 3,724 -- Depreciation and amortization 851 -- Other 643 -- -------- --------- Non-current deferred tax asset $ 43,657 $ 24,111 -------- --------- Non-current deferred tax liabilities Depreciation and amortization $ -- $ (963) Accumulated comprehensive income items -- (135,538) Capitalized software (1,804) (2,038) Gain on sale of subsidiary stock (7,876) -- Purchased intangibles (7,245) -- -------- --------- Non-current deferred tax liabilities $(16,925) $(138,539) -------- --------- Net non-current deferred tax asset (liability) $ 26,732 $(114,428) ======== =========
Valuation allowances for current deferred tax assets and non-current deferred tax assets were not required in fiscal years 2001 or 2000. In fiscal years 2001, 2000 and 1999, earnings before income taxes included $32,276, $33,052 and $17,242, respectively, of earnings by our foreign operations. 40 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. The following table sets forth the plan's funded status and amounts recognized in Scientific-Atlanta's Consolidated Statements 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:
2001 2000 ------- -------- Change in Benefit Obligation Benefit obligation at beginning of year $79,442 $ 91,127 Service cost 5,938 7,048 Interest cost 5,822 6,166 Actuarial (gain)/loss 4,797 (4,398) Benefits paid (8,739) (4,439) Effect of curtailment -- 2,677 Effect of settlement -- (18,739) ------- -------- Benefit obligation at end of year $87,260 $ 79,442 ======= ======== Change in Plan Assets Fair value of plan assets at beginning of year $82,395 $ 91,267 Actual return on plan assets (2,394) 14,306 Benefits paid (8,739) (4,439) Effect of settlement -- (18,739) ------- -------- Fair value of plan at end of year $71,262 $ 82,395 ======= ======== Funded status $15,998 $ (2,953) Unrecognized net actuarial gain (loss) (2,181) 12,586 Unrecognized transition asset 2,681 3,132 Unrecognized prior service cost 159 190 ------- -------- Accrued pension cost $16,657 $ 12,955 ======= ========
2001 2000 1999 ----- ----- ----- Weighted-Average Assumptions Discount rate 7.50% 8.00% 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 $3,703 in fiscal year 2001, $1,306 in fiscal year 2000 and $4,604 in fiscal year 1999. The components of pension expense are as follows:
2001 2000 1999 ------- ------- ------- Service cost $ 5,938 $ 7,048 $ 6,941 Interest cost 5,822 6,166 5,671 Expected return on plan assets (7,576) (7,487) (7,318) Amortization of transition net asset (451) (656) (656) Amortization of prior service cost (30) (34) (34) Amount recognized due to settlement -- (3,707) -- Amount recognized due to curtailment -- (24) -- ------- ------- ------- Pension expense $ 3,703 $ 1,306 $ 4,604 ======= ======= =======
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 $23,848 at June 29, 2001 and $17,293 at June 30, 2000. Retirement expense for these plans was $4,027, $3,786 and $2,494 in fiscal years 2001, 2000 and 1999, respectively. The minimum pension liability adjustments on the Statements of Stockholders' Equity and Comprehensive Income relate primarily to these plans. 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 Statements of Financial 41 Position at year-end, using March 31 as a measurement date for all actuarial calculations of liability values:
2001 2000 ------- ------- Change in Benefit Obligation Benefit obligation at beginning of year $ 7,557 $ 7,487 Service cost 40 50 Interest cost 579 521 Actuarial loss 2,213 552 Benefits paid (1,192) (1,053) ------- ------- Benefit obligation at end of year $ 9,197 $ 7,557 ======= ======= Change in Plan Assets Fair value of plan assets at beginning of year $ 222 $ 197 Company contributions 1,246 1,078 Benefits paid (1,192) (1,053) ------- ------- Fair value of plan assets at end of year $ 276 $ 222 ======= ======= Funded status $ 8,921 $ 7,335 Unrecognized net actuarial gain (loss) (207) 2,110 Unrecognized prior service cost (296) (338) ------- ------- Accrued benefit cost $ 8,418 $ 9,107 ======= =======
Significant actuarial assumptions are as follows:
2001 2000 1999 ----- ----- ----- Weighted-average Assumptions Discount rate 7.50% 8.00% 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 6.0 percent, 6.63 percent and 7.25 percent for fiscal years 2001, 2000 and 1999, respectively, and is expected to remain at 6.0 percent. The components of postretirement benefit expense are as follows:
2001 2000 1999 ---- ----- ---- Service cost $ 40 $ 50 $ 45 Interest cost 579 521 570 Amortization of net actuarial gain and prior service cost (62) (107) (93) ---- ----- ---- Postretirement benefit expense $557 $ 464 $522 ==== ===== ====
A change in the assumed health care trend rate would have the following effects:
1% 1% Increase Decrease -------- -------- Effect on total of 2001 service and interest cost components $ 44 $ (38) Effect on beginning of year 2001 postretirement benefit obligation $579 $(517)
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.
2001 2000 ------------------ ------------------ Carrying/ Carrying/ Contract Fair Contract Fair Amount Value Amount Value --------- -------- --------- -------- Cash and cash equivalents $563,322 $563,322 $462,496 $462,496 Short-term investments $191,001 $191,001 $ 61,481 $ 61,481 Non-current marketable securities $ 17,159 $ 17,159 $381,983 $381,983 Foreign currency forward contracts Sell $ 9,214 $ 8,781 $ 685 $ 581 Buy $ 13,121 $ 13,320 $ -- $ --
13. Related Party Transactions - -------------------------------------------------------------------------------- Related party transactions for fiscal years 2001, 2000 and 1999 are as follows:
2001 2000 1999 ------ ------- ------- Sales: Scientific-Atlanta of Shanghai, Ltd. $ 313 $ 554 $ 1,907 Advanced Broadband System Services 72 249 79 Arcodan Visiorep 4,240 2,637 2,170 Purchases: Scientific-Atlanta of Shanghai, Ltd. $ 782 $ 5,660 $ 5,664 Advanced Broadband System Services 8,595 17,084 16,311 Arcodan Visiorep -- -- -- Receivables (Payables): Scientific-Atlanta of Shanghai, Ltd. $ -- $ (119) $ (51) Advanced Broadband System Services -- 1,251 32 Arcodan Visiorep 577 404 913
Related party transactions were at prices and terms equivalent to those available to and transacted with 42 unrelated parties. Scientific-Atlanta of Shanghai, Ltd. is a partially-owned subsidiary of Scientific-Atlanta. Our investment in Advanced Broadband System Services, formerly a partially-owned subsidiary of Scientific-Atlanta, was sold in the third quarter of fiscal year 2001. We have a minority interest in Arcodan Visiorep. 14. Commitments, Contingencies and Other Matters - -------------------------------------------------------------------------------- Rental expense under operating lease agreements for facilities and equipment for fiscal years 2001, 2000 and 1999 was $16,044, $16,418 and $18,879, 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 29, 2001, under operating leases were $29,500. Payments under these leases for the next five years are as follows: 2002 -- $11,414; 2003 -- $8,635; 2004 -- $5,464; and 2005 -- $2,240; and 2006 -- $1,746. 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 have no commitments with a remaining term in excess of a year, except for the operating lease commitments discussed above. 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. 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. No shares were purchased under this program in fiscal year 2001. During July 2001, we purchased 7,925,000 shares of our common stock at an aggregate cost of $183,993 pursuant to the stock buyback program announced in March 2000. In addition, we announced a buyback program for the purchase of up to 8,000,000 additional shares of our common stock in July 2001. We also purchased 4,648,000 shares of our common stock at an aggregate cost of $65,228 during fiscal year 1999. 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:
2001 2000 1999 -------- -------- -------- Net income As reported $333,674 $155,808 $102,343 Pro forma $254,800 $ 95,070 $ 91,041 Earnings per share: Basic As reported $ 2.06 $ 0.99 $ 0.67 Pro forma $ 1.58 $ 0.60 $ 0.60 Diluted As reported $ 1.99 $ 0.94 $ 0.65 Pro forma $ 1.52 $ 0.58 $ 0.58
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. 43 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 2001, 2000 and 1999, respectively:
2001 2000 1999 ------- ------- ------- Risk free interest rate 5.28% 6.44% 5.31% Expected term 5 years 5 years 5 years Expected forfeiture rate 1% 1% 1% Volatility 69% 61% 51% Expected annual dividends $ 0.040 $ 0.035 $ 0.030
The following information pertains to options on Scientific-Atlanta's common stock for the years ended June 29, 2001 and June 30, 2000:
Number of Weighted Average 2001 Shares Exercise Price - ---- ---------- ---------------- Outstanding, beginning of year 15,291,300 $27.730 Granted 5,334,850 $53.739 Cancelled (331,275) $33.225 Exercised (4,720,825) $15.526 ---------- Outstanding, end of year 15,574,050 $40.210 ==========
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 ==========
The following information pertains to options on Scientific-Atlanta's common stock at June 29, 2001:
Options Outstanding --------------------------------- Weighted Weighted Average Average Range of Remaining Exercise Exercise Prices Shares Life in Years Price - --------------- ---------- ------------- -------- $ 1.625 - $10.969 1,156,462 4.79 $ 8.279 $11.250 - $18.500 1,722,177 6.90 $12.063 $23.313 - $49.180 3,585,208 8.43 $28.001 $50.000 - $51.781 6,135,606 9.04 $51.705 $52.688 - $86.812 2,974,597 9.32 $59.923 ---------- 15,574,050 8.40 $40.210 ==========
Options Exercisable ------------------ Weighted Average Range of Exercise Exercise Prices Shares Price - --------------- --------- -------- $ 1.625 - $10.969 1,113,030 $ 8.282 $11.250 - $18.500 1,404,217 $11.986 $23.313 - $49.180 1,586,810 $26.191 $50.000 - $51.781 2,454,586 $51.732 $55.688 - $86.812 1,004,074 $59.049 --------- 7,562,717 $33.570 =========
At June 29, 2001, 4,137,925 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 29, 2001, 1,836,458 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 $7,552, $6,325 and $6,416 in fiscal years 2001, 2000 and 1999, respectively. We have stock plans for non-employee directors which provide 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 provide for a retirement award of 1,500 shares of Scientific- Atlanta common stock annually. At June 29, 2001, 1,054,371 shares were reserved for issuance to non-employee directors under these plans. We issue restricted stock awards, cash 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 $18,744, $14,454 and $3,304 in fiscal years 2001, 2000 and 1999, respectively. At June 29, 2001, 41,661 shares were reserved for issuance under this plan. Issuance of restricted shares to employees and Unearned compensation-restricted shares in the Consolidated Statements of Stockholders' Equity and Comprehensive Income include the change in the market value of restricted shares. 44 At June 29, 2001, a total of 7,070,415 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 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 29, 2001, 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 29, 2001, there were 82,020 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:
In Thousands ---------------- Per Share 2001 Earnings Shares Amount - ---- -------- ------- --------- Basic earnings per common share: Net earnings $333,674 161,601 $ 2.06 ======== ======= ====== Diluted earnings per common share: Net earnings $333,674 167,888 $ 1.99 ======== ======= ====== Effect of dilutive stock options $ -- 6,287 $(0.07) ======== ======= ======
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) ======== ======= ======
45 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:
2001 2000 1999 ---------- ------- ------- Number of options outstanding 4,630,308 52,700 78,100 Weighted average exercise price $ 55.41 $ 68.64 $ 18.28
46 Scientific-Atlanta, Inc. and Subsidiaries Schedule II -- Valuation and Qualifying Accounts For Each Of The Three Years In The Period Ended June 29, 2001 (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 29, 2001 -- Allowance for doubtful accounts.... $ 4,134 $ 1,866 $-- $ (18)(4) $5,982 ======= ======= ==== ======= ====== June 30, 2000 -- Allowance for doubtful accounts.... $ 8,160 $(3,165)(1) $-- $ (861)(4) $4,134 ======= ======= ==== ======= ====== July 2, 1999 -- Allowance for doubtful accounts.... $10,052 $(1,615)(2) $-- $ (277)(4) $8,160 ======= ======= ==== ======= ====== June 29, 2001 -- Restructuring Reserves............. $ 1,381 $ -- (3) $-- $ (581)(5) $ 800 ======= ======= ==== ======= ====== June 30, 2000 -- Restructuring Reserves............. $ 1,600 $ -- (3) $-- $ (219)(5) $1,381 ======= ======= ==== ======= ====== July 2, 1999 -- Restructuring Reserves............. $ 9,677 $ -- (3) $-- $(8,077)(5) $1,600 ======= ======= ==== ======= ======
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) 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. There were no restructuring charges in fiscal years 2001, 2000 or 1999. (4) 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. (5) Utilization of restructuring reserves for expenses incurred under obligations under cancelled leases, severance and other miscellaneous expenses related to the restructuring. 47 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) August 15, 2001 By: /s/ James F. McDonald - ----------- ----------------------------------- Date James F. McDonald Chairman of the Board, President and Chief Executive Officer 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 August 15, 2001 - ------------------------------------------------------------ -------------------- James F. McDonald Date Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) /s/ Wallace G. Haislip August 15, 2001 - ------------------------------------------------------------ -------------------- Wallace G. Haislip Date Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) /s/ Julian W. Eidson August 15, 2001 - ------------------------------------------------------------ -------------------- Julian W. Eidson Date Vice President and Controller (Principal Accounting Officer) /s/ Marion H. Antonini August 15, 2001 - ------------------------------------------------------------ -------------------- Marion H. Antonini Date Director /s/ James I. Cash, Jr. August 15, 2001 - ------------------------------------------------------------ -------------------- James I. Cash, Jr. Date Director /s/ David W. Dorman August 15, 2001 - ------------------------------------------------------------ -------------------- David W. Dorman Date Director
48 /s/ William E. Kassling August 15, 2001 - ------------------------------------------------------------ -------------------- William E. Kassling Date Director /s/ Mylle Bell Mangum August 15, 2001 - ------------------------------------------------------------ -------------------- Mylle Bell Mangum Date Director /s/ Terence F. McGuirk August 15, 2001 - ------------------------------------------------------------ -------------------- Terence F. McGuirk Date Director /s/ David J. McLaughlin August 15, 2001 - ------------------------------------------------------------ -------------------- David J. McLaughlin Date Director /s/ James V. Napier August 15, 2001 - ------------------------------------------------------------ -------------------- James V. Napier Date Director /s/ Sam Nunn August 15, 2001 - ------------------------------------------------------------ -------------------- Sam Nunn Date Director
49 EXHIBIT INDEX
Exhibit No. Description ----------- ----------- 3.1 Composite Statement of Amended and Restated Articles of Incorporation of Scientific-Atlanta (filed as Exhibit 3(a) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 27, 1997 (Commission File No. 1-5517), and incorporated herein by reference). 3.2 By-laws of Scientific-Atlanta (filed as Exhibit 3 to Scientific- Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended September 29, 2000 (Commission File No. 1-5517), and incorporated herein by reference). 4.1 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 (filed as Exhibit 1 to Scientific-Atlanta's Registration Statement on Form 8-A dated April 7, 1997 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.1 Credit Agreement dated May 11, 1995 among Scientific-Atlanta, the Lenders (as defined therein), The Bank of New York and ABN AMRO Bank N.V., as co-agents, and NationsBank of Georgia, National Association, as agent (filed as Exhibit 10(g) to Scientific- Atlanta's Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.2 First Amendment to Credit Agreement dated December 29, 1995 among Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO Bank N.V. and NationsBank, N.A. (South) (formerly known as NationsBank of Georgia, National Association) (filed as Exhibit 10(j) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 28, 1996 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.3 Letter Amendment dated April 5, 1996 to the Credit Agreement among Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10(j) to Scientific-Atlanta's Annual Report Form 10-K for the fiscal year ended June 28, 1996 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.4 Second Amendment to Credit Agreement dated June 28, 1996 among Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10(l) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 28, 1996 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.5 Third Amendment to Credit Agreement dated January 27, 1997 among Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10.3 to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 1997 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.6 Letter Amendment dated April 23, 1997 to the Credit Agreement among Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10(r) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 27, 1997 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.7 Letter Amendment dated April 24, 1998 to the Credit Agreement among Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10(o) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 26, 1998 (Commission File No. 1-5517), and incorporated herein by reference).
Exhibit No. Description ----------- ----------- 10.1.8 Fourth Amendment to Credit Agreement dated November 6, 1998 among Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO Bank N.V. and NationsBank, N.A. (successor to NationsBank, N.A. (South) (filed as Exhibit 10.14 to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.9 Amended and Restated Credit Agreement dated May 7, 1999 among Scientific-Atlanta, the Lenders, The Bank of New York, ABN Amro Bank N.V. and NationsBank, N.A. (filed as Exhibit 10(p) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended July 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.10 Amendment No. 1 to the Amended and Restated Credit Agreement dated June 22, 1999 among Scientific-Atlanta, the Lenders, The Bank of New York, ABN Amro Bank N.V. and NationsBank, N.A. (filed as Exhibit 10(q) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended July 2, 1999 (Commission File No. 1- 5517), and incorporated herein by reference). 10.1.11 Second Amendment to Amended and Restated Credit Agreement dated May 4, 2000 among Scientific-Atlanta, the Lenders, The Bank of New York, ABN Amro Bank N.V. and NationsBank, N.A. (filed as Exhibit 10(p) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 30, 2000 (Commission File No. 1-5517), and incorporated herein by reference). 10.1.12 Third Amendment to Amended and Restated Credit Agreement dated June 22, 2001 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. 10.2.1 Credit and Investment Agreement dated July 30, 1997 among Scientific-Atlanta, Wachovia Capital Markets, Inc., Wachovia Bank, N.A., as agent, and the lenders signatories thereto (filed as Exhibit 10(s) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 27, 1997 (Commission File No. 1- 5517), and incorporated herein by reference). 10.2.2 Lease Agreement dated July 30, 1997 between Wachovia Capital Markets, Inc. and Scientific-Atlanta (filed as Exhibit 10(t) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 27, 1997 (Commission File No. 1-5517), and incorporated herein by reference). 10.2.3 Ground Lease dated July 30, 1997 between Scientific-Atlanta and Wachovia Capital Markets, Inc. (filed as Exhibit 10(v) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 27, 1997 (Commission File No. 1-5517), and incorporated herein by reference). 10.2.4 Acquisition, Agency, Indemnity and Support Agreement dated July 30, 1997 between Scientific-Atlanta and Wachovia Capital Markets, Inc. (filed as Exhibit 10(u) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 27, 1997 (Commission File No. 1-5517), and incorporated herein by reference). 10.2.5 Letter Amendment dated September 30, 1997 to Credit and Investment Agreement among Scientific-Atlanta, Wachovia Bank, N.A. and Wachovia Capital Markets, Inc. (filed as Exhibit 10.11 to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.2.6 First Amendment to Lease Agreement dated October 9, 1997 between Scientific-Atlanta and Wachovia Capital Markets, Inc. (filed as Exhibit 10.16 to Scientific-Atlanta's Quarterly Report on Form 10- Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference).
Exhibit No. Description ----------- ----------- 10.2.7 Amendment to Credit and Investment Agreement dated November 30, 1997 among Scientific-Atlanta, Wachovia Bank, N.A. and Wachovia Capital Markets, Inc. (filed as Exhibit 10.12 to Scientific- Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.2.8 Second Amendment to Lease Agreement dated November 30, 1997 between Scientific-Atlanta and Wachovia Capital Markets, Inc. (filed as Exhibit 10.17 to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.2.9 Second Amendment to Credit and Investment Agreement dated November 9, 1998 among Scientific-Atlanta, Wachovia Bank, N.A. and Wachovia Capital Markets, Inc. (filed as Exhibit 10.13 to Scientific- Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.2.10 First Amendment to Ground Lease dated February 29, 2000 between Scientific-Atlanta and Wachovia Capital Markets, Inc. 10.2.11 Third Amendment to Lease Agreement dated February 29, 2000 between Scientific-Atlanta and Wachovia Capital Markets, Inc. 10.3* Stock Plan for Non-Employee Directors, as amended and restated. 10.4* Non-Employee Directors Stock Option Plan, as amended and restated (filed as Exhibit 10(l) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended June 30, 2000 (Commission File No. 1-5517), and incorporated herein by reference). 10.5* Deferred Compensation Plan for Non-Employee Directors, as amended and restated. 10.6* Scientific-Atlanta Retirement Plan for Non-Employee Directors (filed as Exhibit 10.4 to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.7* Executive Deferred Compensation Plan, as amended and restated. 10.8* 1996 Employee Stock Option Plan, as amended and restated (filed as Exhibit 10.2 to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2001 (Commission File No. 1-5517), and incorporated herein by reference). 10.9* Long-Term Incentive Plan of Scientific-Atlanta, as amended and restated (filed as Exhibit 10(l) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended July 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.10* Scientific-Atlanta Annual Incentive Plan for Key Employees as amended and restated (filed as Exhibit 10.5 to Scientific- Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.11* Scientific-Atlanta Senior Officer Annual Incentive Plan, as amended and restated (filed as Exhibit 10(m) to Scientific- Atlanta's Annual Report on Form 10-K for the fiscal year ended July 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference). 10.12* 1985 Executive Deferred Compensation Plan of Scientific-Atlanta, as amended and restated (filed as Exhibit 10.6 to Scientific- Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1-5517), and incorporated herein by reference).
Exhibit No. Description ----------- ----------- 10.13* Supplemental Executive Retirement Plan, as amended and restated (filed as Exhibit 10(j) to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2001 (Commission File No. 1-5517), and incorporated herein by reference). 10.14* Scientific-Atlanta Restoration Retirement Plan, as amended (filed as Exhibit 10(n) to Scientific-Atlanta's Annual Report on Form 10- K for the fiscal year ended June 26, 1998 (Commission File No. 1- 5517), and incorporated herein by reference). 10.15.1* Form of Severance Protection Agreement between Scientific-Atlanta and Certain Officers and Key Employees (filed as Exhibit 10(g) to Scientific-Atlanta's Annual Report on Form 10-K for the fiscal year ended July 1, 1994 (Commission File No. 1-5517), and incorporated herein by reference). 10.15.2* Form of First Amendment of Severance Protection Agreement by and between Scientific-Atlanta and Certain Executives (filed as Exhibit 10.3 to Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission File No. 1- 5517), and incorporated herein by reference). 21 Significant Subsidiaries of Scientific-Atlanta. 23 Consent of Independent Public Accountants. 99 Cautionary Statements.
- -------- * Indicates management contract or compensatory plan or arrangement. EX-10.1.12 3 dex10112.txt THIRD AMENDMENT CREDIT AGREEMENT, JUNE 22, 2001 EXHIBIT 10.1.12 THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT dated as of June 22, 2001, 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 and as of May 5, 2000 (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 Commitment Amount" contained in Section 1.1. of the Credit Agreement is hereby deleted in its entirety and the following substituted in its place: "Facility B Commitment Amount" means $50,000,000, as the same may be ---------------------------- reduced or increased from time to time pursuant to the terms of this Agreement. (b) 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 June 21, 2002, or such later date to --------------------------- which such date may be extended under Section 2.12. (c) The following new Section 2.15. is added to the Credit Agreement immediately following Section 2.14. thereof: Section 2.15. Increase of Facility B Commitments. ---------------------------------- The Borrower shall have the right to request increases in the aggregate amount of the Facility B Commitments by providing written notice to the Agent, which notice shall be irrevocable once given; provided, -------- however, that after giving effect to any such increases the aggregate ------- amount of the Facility B Commitments shall not exceed $250,000,000). Each such increase in the Facility B Commitments must be an aggregate minimum amount of $50,000,000 and integral multiples of $10,000,000 in excess thereof. The Agent shall promptly notify each Lender of any such request. Each existing Lender shall have the right to increase its Facility B Commitment, or to make one available, as the case may be, so long as such Lender's Commitment Percentage shall not be increased as a result of the exercise of such right. Each Lender shall notify the Agent within 10 Business Days after receipt of the Agent's notice whether such Lender wishes to increase the amount of its, or make available a, Facility B Commitment. If a Lender fails to deliver any such notice to the Agent within such time period, then such Lender shall be deemed to have declined to increase its, or make available a, Facility B Commitment. No Lender shall be obligated in any way whatsoever to increase its, or make available a, Facility B Commitment. If a new Lender becomes a party to this Agreement, or if any existing Lender agrees to increase its, or make available a, Facility B Commitment, such Lender shall on the date it becomes a Lender hereunder (or in the case of an existing Lender, increases its, or makes available a, Facility B Commitment) (and as a condition thereto) purchase from the other Lenders its pro rata share (determined with respect to the Lenders' relative Facility B Commitments and after giving effect to the increase of Facility B Commitments) of any outstanding Facility B Loans, by making available to the Agent for the account of such other Lenders at the Principal Office, in same day funds, an amount equal to the sum of (A) the portion of the outstanding principal amount of such Facility B Loans to be purchased by such Lender plus (B) interest accrued and unpaid to and as of such date on such portion of the outstanding principal amount of such Facility B Loans. The Borrower shall pay to the Lenders amounts payable, if any, to such Lenders under Section 4.4. as a result of the prepayment of any such Facility B Loans. No increase of the Facility B Commitments may be effected under this Section if either (x) a Default or Event of Default shall be in existence on the effective date of such increase or (y) any representation or warranty made or deemed made by the Borrower or any other Loan Party in any Loan Document to which any such Loan Party is a party is not (or would not be) true or correct on the effective date of such increase 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 and expressly permitted hereunder. In connection with any increase in the aggregate amount of the Facility B Commitments pursuant to this Section (a) any Lender becoming a party hereto shall execute such documents and agreements as the Agent may reasonably request and (b) the Borrower shall make appropriate arrangements so that each new Lender, and any existing Lender increasing its, or making available a, Facility B Commitment, receives a new or replacement Syndicated Note, as appropriate, in the aggregate amount of such Lender's Facility A and Facility B Commitments within 2 Business Days of the -2- effectiveness of the applicable increase in the aggregate amount of Facility B Commitments. (d) Section 7.9. of the Credit Agreement is hereby deleted in its entirety and the following substituted in its place: Section 7.9. Additional Material Subsidiaries. -------------------------------- (a) Generally. Upon the acquisition, incorporation or other --------- creation of a Material Subsidiary after the Agreement Date, the Borrower shall deliver to the Agent each of the following in form and substance satisfactory to the Agent: (a) except as otherwise provided under Section 3.13., a Guaranty executed by such Material Subsidiary, (b) if such Material Subsidiary is a Foreign Subsidiary, a Pledge Agreement executed by the Borrower or other Subsidiary owning the capital stock of such Material Subsidiary if and to the extent required under Section 3.13., together with such capital stock and (c) the items that would have been delivered under Sections 5.1.(g), (l) through (o) and (q) if such Material Subsidiary had been one on the Agreement Date. (b) Timing of Delivery. The Borrower shall deliver the items ------------------ required to be delivered to the Agent under the immediately preceding subsection (a) as follows: (i) For any Material Subsidiary acquired, incorporated or otherwise created during any period that any Bid Rate Loans, Syndicated Loans, Letters of Credit, or Reimbursement Obligations are outstanding or the Lenders have reserved any portion of their Facility A Commitments to enhance Commercial Paper pursuant to Section 2.13., within 30 days of the acquisition, incorporation or creation of such Material Subsidiary; and (ii) For any Material Subsidiary acquired, incorporated or otherwise created during any other period, no later than the date the Borrower is required to deliver its certificate under Section 8.3. with respect to the fiscal quarter during which such Material Subsidiary was acquired, incorporated or otherwise created (or with respect to the Fiscal Year of the Borrower during which such Material Subsidiary was acquired, incorporated or otherwise created if the Material Subsidiary was acquired, incorporated or otherwise created during the fourth fiscal quarter of the Fiscal Year of the Borrower). Notwithstanding the immediately preceding subsection (ii), if no Bid Rate Loans, Syndicated Loans, Letters of Credit, or Reimbursement Obligations are outstanding and no Lender has reserved any portion of its Facility A Commitment to enhance Commercial Paper pursuant to Section 2.13. at the time the Borrower gives the Agent a Notice of Borrowing, Bid Rate Quote Request, request for issuance of a Letter of Credit pursuant to Section 2.3.(c) or request for credit enhancement pursuant to Section 2.13.(b), the Borrower shall, within 30 days of the date of such Notice of Borrowing, Bid Rate Quote Request, request for issuance of a Letter of Credit or request for credit enhancement, -3- deliver the items required to be delivered to the Agent under the immediately preceding subsection (a) for any Material Subsidiary acquired, incorporated or otherwise created before such Notice of Borrowing, Bid Rate Quote Request, request for issuance of a Letter of Credit or request for credit enhancement. (e) Section 8.4. of the Credit Agreement is hereby amended by adding the following new paragraph at the end of such Section: Notwithstanding the foregoing, during any period that no Bid Rate Loans, Syndicated Loans, Letters of Credit, or Reimbursement Obligations are outstanding and no Lender has reserved any portion of its Facility A Commitment to enhance Commercial Paper pursuant to Section 2.13., the Borrower shall not be required to deliver notice of the occurrence of an event described in the immediately preceding subsections (a), (b) and (d) through (h) until the date the Borrower is required to deliver its certificate under Section 8.3. with respect to the fiscal quarter during which such event occurred. (f) Section 9.3. of the Credit Agreement is hereby deleted in its entirety and the following substituted in its place: Section 9.3. Investments; Acquisitions. ------------------------- (i) Acquire or purchase, or permit any Subsidiary to acquire or purchase, all or substantially all of the assets constituting the business or a division or operating unit of any Person or (ii) acquire, make or purchase, or permit any Subsidiary to acquire, make or purchase, any Investment or (iii) permit any Investment of the Borrower or any Subsidiary to be outstanding on and after the Agreement Date other than the following: (a) Investments in Subsidiaries in existence on the Agreement Date and disclosed on Schedule 6.1.(b), together with any increases in such Investments after the Agreement Date in Material Subsidiaries; (b) Investments that constitute Indebtedness permitted under Section 9.2.; (c) Loans and advances to employees for moving, entertainment, travel and other similar expenses in the ordinary course of business consistent with past practices not to exceed $10,000,000 in the aggregate at any one time; (d) Investments in "Eligible Investments" described in, and in accordance with, the Borrower's Cash Investment Policy, a copy of which as in effect on the Agreement Date is attached as Exhibit M, as such Cash Investment Policy is amended or otherwise modified from time to time on terms not inconsistent with the Cash Investment Policy as currently in effect; -4- (e) Acquisitions or purchases by the Borrower or any Material Subsidiary of all or substantially all of the assets constituting the business or a division or operating unit of any Person, and the making of Investments in Material Subsidiaries which Investments are not otherwise subject to any of the preceding subsections; provided, however, that during -------- ------- any Fiscal Year, (A) the amount of cash paid, together with the fair market value of all other assets (excluding assets of the type described in the following clause (B)) conveyed, by the Borrower and its Material Subsidiaries in consideration for such acquisitions, purchases and Investments shall not exceed $150,000,000 in the aggregate and (B) the market value of all capital stock, warrants and options to acquire capital stock, of the Borrower conveyed by the Borrower in consideration for such acquisitions, purchases and Investments shall not exceed $400,000,000 in the aggregate; provided, further, however, neither the Borrower nor any -------- ------- ------- Material Subsidiary shall effect any one such acquisition, purchase or Investment (or series of related acquisitions, purchases or Investments) without the prior written consent of the Requisite Lenders if the market value of the capital stock, warrants and options to acquire capital stock, of the Borrower to be conveyed by the Borrower in consideration for such acquisition, purchase or Investment equals or exceeds $300,000,000 in the aggregate; and (f) Acquisitions or purchases by any Subsidiary that is not a Material Subsidiary of all or substantially all of the assets constituting the business or a division or operating unit of any Person, and the making by the Borrower or any Subsidiary after the Agreement Date of Investments in Persons that are not Material Subsidiaries; provided, however, (A) the -------- ------- aggregate consideration paid (excluding any Indebtedness assumed in connection with such acquisition, purchase or Investment) for such acquisitions, purchases and Investments and (B) the aggregate amount of increases after the Agreement Date in Investments in such Persons that are not Material Subsidiaries existing as of the Agreement Date, shall not exceed $100,000,000 in the aggregate during any Fiscal Year and $300,000,000 during the term of this Agreement. If after the Agreement Date, (x) any Person that is not a Material Subsidiary the Investment in which is subject to the limitations of this subsection shall become a Material Subsidiary and the Loan Documents required to be delivered under Section 7.9. are so delivered or (y) the Borrower, at its election, delivers the Loan Documents that would be required to be delivered under Section 7.9. if such Person were a Material Subsidiary, then the Investment in, and any increase therein, such Person shall be excluded from the limitations of this subsection; and (g) Investments in direct or indirect wholly-owned Material Subsidiaries of the Borrower or in Subsidiaries that will become direct or indirect wholly-owned Material Subsidiaries of the Borrower after giving effect to such Investment. All cash, the market value of all capital stock, warrants and options to acquire capital stock, of the Borrower and the fair market value of all other assets conveyed by the Borrower as consideration for any transaction of merger or consolidation effected by the Borrower or a Subsidiary and which is permitted under Section 9.6.(vii), shall be -5- included in determinations of the Borrower's compliance with the preceding subsections (e) and (f). (g) Section 9.6. of the Credit Agreement is hereby deleted in its entirety and the following substituted in its place: Section 9.6. Merger, Consolidation, Sales of Assets and Other ------------------------------------------------ Arrangements. ------------ The Borrower shall not, and shall not permit any Subsidiary or any other Loan Party to (a) enter into any transaction of merger or consolidation with any Person; (b) liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution); or (c) convey, sell, lease, sublease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business or assets, including capital stock of or other equity interests in any of its Subsidiaries, whether now owned or hereafter acquired; provided, however, that: -------- ------- (i) Subsidiaries of the Borrower may merge or consolidate with the Borrower and with other Subsidiaries of the Borrower; (ii) a Subsidiary may sell, transfer or dispose of its assets to the Borrower or another Subsidiary of the Borrower; (iii) the Borrower, its Subsidiaries and the other Loan Parties may sell inventory in the ordinary course of business; (iv) the Borrower may sell its accounts receivable on a non- recourse basis in an aggregate amount not to exceed $100,000,000 at any time; (v) the Borrower and its Subsidiaries may, during any Fiscal Year, sell, transfer or otherwise dispose of assets (excluding the capital stock of any Subsidiary) having an aggregate book value in an amount not to exceed 10% of the total book value of the assets of the Borrower and its Subsidiaries taken as a whole; (vi) the Borrower and its Subsidiaries may, during any Fiscal Year, enter into sale and leaseback transactions covering fixed or capital property which collectively cover property having an aggregate fair market value, as determined for each item of property at the time such property became the subject of such a transaction, not in excess of 10% of the total book value of the assets of the Borrower and its Subsidiaries taken as a whole; (vii) the Borrower or any Subsidiary may merge or consolidate with any other corporation, provided that (A) the Borrower or such Subsidiary shall be the continuing or surviving corporation or the surviving corporation becomes thereby a direct or indirect wholly- owned Subsidiary and (B) if instead of the Borrower or -6- such Subsidiary merging or consolidating with such corporation, the Borrower were to acquire all of the issued and outstanding capital stock of such corporation, such acquisition would be permitted under Section 9.3., and in each case, immediately prior to such merger or consolidation and immediately after such merger or consolidation and after giving effect thereto, no Default or Event of Default is or would be in existence; and (viii) the Borrower may sell, transfer or dispose of its assets to a direct or indirect wholly-owned Subsidiary. (h) Annex I to the Credit Agreement is deleted in its entirety and Annex I hereto is substituted in its place. Section 2. Reinstatement of Facility B Commitments. Notwithstanding --------------------------------------- the passing of the Facility B Termination Date before the date of this Amendment, so long as no Event of Default or Default shall be in existence on the effective date of this Amendment, each Lender's Facility B Commitment (in the amount set forth on Annex I attached hereto) and each Lender's obligation to make Facility B Loans shall be reinstated simultaneous with the effectiveness of this Amendment. Section 3. Acknowledgment of Lenders' Commitments. The parties hereto -------------------------------------- agree that after giving effect to the transactions contemplated by this Amendment, the amount of each Lender's respective Facility A Commitment and Facility B Commitment is as set forth on Annex I attached hereto. Section 4. 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, -7- 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 5. 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 6. 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 7. Benefits. This Amendment shall be binding upon and shall -------- inure to the benefit of the parties hereto and their respective successors and assigns. Section 8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND ------------- CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA. Section 9. 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 10. 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. Section 11. Effectiveness of Amendment. This Amendment shall not be -------------------------- effective until its execution and delivery by the Borrower and the Requisite Lenders, whereupon it shall be deemed effective as of the date first written above. Section 12. Replacement Notes. Upon the Borrower's request, and upon ----------------- delivery by the Borrower to Agent or its counsel of a replacement Syndicated Note in favor of each Lender with a Facility B Commitment in the principal amount equal to the aggregate amount of such Lender's Facility A Commitment and Facility B Commitment as set forth on Annex I attached -8- hereto, each such Lender shall cancel and deliver to Agent or its counsel the Syndicated Note in favor of such Lender being replaced. Section 13. 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 14. 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] -9- IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to Amended and Restated Credit Agreement to be executed as of the date first above written. SCIENTIFIC-ATLANTA, INC. By: /s/ Robert R. Hunt Name: Robert R. Hunt Title: Assistant Treasurer BANK OF AMERICA, N.A., individually and as Agent By: /s/ Richard M. Peck Name: Richard M. Peck Title: Vice President 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/ David Carrington Name: David Carrington Title: Group Vice President By: /s/ Shilpa Parandekar Name: Shilpa Parandekar Title: Assistant Vice President [Signatures Continued on Next Page] -10- [Signature Page to Third Amendment to Amended and Restated Credit Agreement dated as of June 22, 2001 with Scientific-Atlanta, Inc.] WACHOVIA BANK, N.A. By: /s/ Tracy Williams Name: Tracy Williams Title: Vice President THE BANK OF TOKYO-MITSUBISHI LTD., NEW YORK BRANCH By: /s/ Gary L. England Name: Gary L. England Title: Vice President and Manager FIRST UNION NATIONAL BANK By: /s/ Donald J. Mathews Name: Donald J. Mathews Title: Vice President AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED By:_____________________________ Name:________________________ Title:_______________________ -11- 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, 64th Floor $42,500,000 Dallas, Texas 75202 Initial Facility B Commitment Amount: ------------------------------------ $12,500,000 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 $10,000,000 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 $0 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 $7,500,000 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 Ltd., New York Branch 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 $ 7,500,000 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 $12,500,000 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-10.2.10 4 dex10210.txt FIRST AMENDMENT TO GROUND LEASE, 2-29-00 EXHIBIT 10.2.10 AFTER RECORDING RETURN TO: CROSS REFERENCE TO: Weiss & Kala, L.I.C. Deed Book 14847, Page 224, 6111 Peachtree-Dunwoody Gwinnett County, Georgia Bldg. D Records Atlanta, Georgia 30328 FIRST AMENDMENT TO GROUND LEASE THIS FIRST AMENDMENT TO GROUND LEASE ("Amendment") dated as of February 29, --------- 2000, is between SCIENTIFIC-ATLANTA, INC., a Georgia corporation ("Ground ------ Lessor") and WACHOVIA CAPITAL MARKETS, INC., a Georgia corporation ("Ground ------ Lessee"). - ------ WHEREAS Ground Lessor and Ground Lessee executed that certain Ground Lease ("Ground Lease") dated as of July 30, 1997, and filed for record on October 9, ------------ 1997, in Deed Book 14847, Page 224, Records of Gwinnett County, Georgia; WHEREAS Ground Lessor and Ground Lessee wish to amend certain provisions of the Ground Lease, subject to the terms set forth below; NOW, THEREFORE, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Ground Lessor and Ground Lessee hereby agree as follows with respect to the Ground Lease: 1. Amendments to Ground Lease. The legal description attached to the -------------------------- Ground Lease as Exhibit "B" is hereby deleted and replaced in its entirety with ----------- Exhibit "B" attached hereto. - ----------- 2. Continued Validity. Ground Lessor and Ground Lessee hereby acknowledge ------------------ and agree that, except as expressly modified hereby, the Ground Lease has not been modified or amended, is in full force and effect in accordance with the terms and provisions thereof as modified hereby, and is hereby ratified and confirmed by both Ground Lessor and Ground Lessee. 3. Binding Effect. This Amendment shall insure to the benefit of and be -------------- binding upon Ground Lessor and Ground Lessee and their respective successors, legal representatives and permitted assigns. 4. Defined Terms. All initially-capitalized terms used but not defined ------------- herein shall have the meaning ascribed thereto in the Ground Lease. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the Ground Lessor and Ground Lessee have caused this Amendment to be executed under seal as of the date first above written. GROUND LESSEE: ------------- Signed, sealed and delivered in the WACHOVIA CAPITAL MARKETS, presence of: INC., a Georgia corporation /s/ Robert R. Myers By: /s/ Karen H. McClain Unofficial Witness Printed Name: Karen H. McClain Printed Title: Senior Vice Preisident /s/ Maxine Crawford [CORPORATE SEAL] Notary Public-Cobb County, Georgia My Commission Expires: July 27, 2002 [NOTARIAL SEAL] GROUND LESSOR: ------------- Signed, sealed and delivered in the SCIENTIFIC-ATLANTA, INC., a Georgia presence of: corporation /s/ Anna S. Plagianis By: /s/ Wallace G. Haislip Unofficial Witness Printed Name: Wallace G. Haislip Printed Title: CFO & Treasurer /s/ Susan S. Lane [CORPORATE SEAL] Notary Public, Gwinnett County, Georgia My Commission Expires: Sept. 13, 2002 [NOTARIAL SEAL] Pursuant to Section 10(d) of the Lease, Wachovia Bank, N.A., a national banking association, in its capacity as agent for the Lenders, as Leasehold Mortgagee, hereby consents to this First Amendment to Ground Lease. Signed, sealed and delivered WACHOVIA BANK, N.A., a in the presence of: national banking association, as agent for the Lenders /s/ Patrick R. Myers By: /s/ Karen H. McClain Unofficial Witness Name: Karen H. McClain Title: Senior Vice President /s/ Maxine Crawford [SEAL] Notary Public-Cobb County, Georgia My Commission Expires: July 27, 2002 [NOTARIAL SEAL] EXHIBIT "B" ----------- Legal Description ----------------- ALL THAT TRACT OR PARCEL OF LAND lying and being in Land Lot 43 of the 7th District, Gwinnett County, Georgia, as shown on that ALTA/ACSM Survey for Scientific-Atlanta, Inc., Wachovia Capital Markets, Inc., and Commonwealth Land Title Insurance Company, dated September 9, 1999, last revised October 27, 1999, by Thomas Edward Peay, Jr., G.R.L.S. No. 2402, and being more particularly described as follows (the "Benefitted Property"): To find the true point of beginning, commence at the southwestern corner of Land Lot 43, said point being the common corner to Land Lots 36, 37, 42 and 43; THENCE, North 12 degrees 18 minutes 17 seconds East for a distance of 394.14 feet to THE POINT OF BEGINNING; THENCE, North 37 degrees 46 minutes 38 seconds West for a distance of 893.12 feet to a point; THENCE, North 52 degrees 09 minutes 06 seconds East for a distance of 539.90 feet to a point; THENCE, South 37 degrees 48 minutes 35 seconds East for a distance of 433.79 feet to a point; THENCE, South 52 degrees 08 minutes 14 seconds West for a distance of 53.95 feet to a point; THENCE, South 37 degrees 53 minutes 33 seconds East for a distance of 545.74 feet to a point; THENCE, South 52 degrees 32 minutes 00 seconds West for a distance of 265.27 feet to a point; THENCE, North 37 degrees 49 minutes 56 seconds West for a distance of 83.17 feet to a point; THENCE, South 52 degrees 32 minutes 00 seconds West for a distance of 221.94 feet to a point; Said property contains 11.03 acres more or less. TOGETHER WITH a perpetual non-exclusive easement, over, across and through the real property described on Exhibit "A-1" attached hereto (the "Burdened ------------- Property"). The easement shall be located on a sixty-foot strip of land to be designated by the owner of the Benefitted Property. The purpose of the easement is to (i) provide ingress to and egress from the Benefitted Property, (ii) permit the construction and maintenance of a sixty-foot roadway to serve the Benefitted Property, and (iii) permit the location, use, construction and maintenance of utilities to serve the Benefitted Property and the improvements located thereon, including water, sewer, electricity, gas, cable television and storm drainage. In the event the owner of the Burdened Property is the successor-in-interest to Scientific-Atlanta, Inc., then all utilities constructed from and after the date of such succession-in-interest must be located within the sixty-foot strip of land. Prior to the date of such succession-in-interest, if any utilities serving the Benefitted Property are located outside of the sixty-foot roadway, Scientific-Atlanta, Inc. shall grant additional easements in order to permit the location, use, construction and maintenance of such utilities. Scientific-Atlanta, Inc. reserves the right to relocate at its sole expense any and all of the easements created hereby. Such relocation shall be performed in such a manner as to provide for continuous ingress to, egress from, and use of utilities by, the Benefitted Property. EX-10.2.11 5 dex10211.txt THIRD AMENDMENT TO LEASE AGREEMENT, 2-29-00 EXHIBIT 10.2.11 AFTER RECORDING RETURN TO: CROSS REFERENCE TO: Weiss & Kala, L.I.C. Deed Book 14848, Page 0001, 6111 Peachtree-Dunwoody Gwinnett County, Georgia Bldg. D Records Atlanta, Georgia 30328 THIRD AMENDMENT TO LEASE AGREEMENT THIS THIRD AMENDMENT TO LEASE AGREEMENT ("Amendment") dated as of February --------- 29, 2000, is between WACHOVIA CAPITAL MARKETS, INC., a Georgia corporation ("Lessor") and SCIENTIFIC-ATLANTA, INC., a Georgia corporation ("Lessee"). ------ ------ WHEREAS Lessor and Lessee executed that certain Lease Agreement (as amended, the "Lease") dated as of July 30, 1997, and filed for record on October ----- 9, 1997, in Deed Book 14848, Page 0001, Records of Gwinnett County, Georgia; as amended by that certain First Amendment to Lease Agreement dated as of October ____, 1997, and filed for record on January 16, 1998, in Deed Book 15319, Page 085, aforesaid records; as further amended by that certain Second Amendment to Lease Agreement dated as of November ____, 1997, and filed for record on January 16, 1998, in Deed Book 15319, Page 118, aforesaid records. WHEREAS Lessor and Lessee wish to amend certain provisions of the Lease, subject to the terms set forth below; NOW, THEREFORE, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree as follows with respect to the Lease: 1. Amendment to Lease. The legal description attached to the Lease as ------------------ Exhibit "A" is hereby deleted in its entirety and replaced with Exhibit "A" - ----------- ----------- attached hereto. 2. Continued Validity. Lessor and Lessee hereby acknowledge and agree ------------------ that, except as expressly modified hereby, the Lease has not been modified or amended, is in full force and effect in accordance with the terms and provisions thereof as modified hereby, and is hereby ratified and confirmed by both Lessor and Lessee. 3. Binding Effect. This Amendment shall insure to the benefit of and be -------------- binding upon Lessor and Lessee and their respective successors, legal representatives and permitted assigns. 4. Defined Terms. All initially-capitalized terms used but not defined ------------- herein shall have the meaning ascribed thereto in the Lease. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the Lessor and Lessee have caused this Amendment to be executed under seal as of the date first above written. LESSOR: ------ Signed, sealed and delivered in the WACHOVIA CAPITAL MARKETS, presence of: INC., a Georgia corporation /s/ Patrick R. Myers By: /s/ Karen H. McClain Unofficial Witness Printed Name: Karen H. McClain Printed Title: Senior Vice President /s/ Maxine Crawford [CORPORATE SEAL] Notary Public-Cobb County, Georgia My Commission Expires: July 27, 2002 [NOTARIAL SEAL] LESSEE: ------ Signed, sealed and delivered in the SCIENTIFIC-ATLANTA, INC., a Georgia presence of: corporation /s/ Anna S. Plagianis By: /s/ Wallace G. Haislip Unofficial Witness Printed Name: Wallace G. Haislip Printed Title: CFO & Treasurer /s/ Susan S. Lane [CORPORATE SEAL] Notary Public, Gwinnett County, Georgia My Commission Expires: Sept. 13, 2002 [NOTARIAL SEAL] Pursuant to Section 23 of the Lease, Wachovia Bank, N.A., a national banking association, in its capacity as agent for the Lenders, as Agent, hereby consents to this Third Amendment to Lease Agreement. Signed, sealed and delivered WACHOVIA BANK, N.A., a in the presence of: national banking association, as agent for the Lenders /s/ Patrick R. Myers By: /s/ Karen H. McClain Unofficial Witness Name: Karen H. McClain Title: Senior Vice President /s/ Maxine Crawford [SEAL] Notary Public-Cobb County, Georgia My Commission Expires: July 27, 2002 [NOTARIAL SEAL] EXHIBIT "A" ----------- Legal Description ----------------- ALL THAT TRACT OR PARCEL OF LAND lying and being in Land Lot 43 of the 7th District, Gwinnett County, Georgia, as shown on that ALTA/ACSM Survey for Scientific-Atlanta, Inc., Wachovia Capital Markets, Inc., and Commonwealth Land Title Insurance Company, dated September 9, 1999, last revised October 27, 1999, by Thomas Edward Peay, Jr., G.R.L.S. No. 2402, and being more particularly described as follows (the "Benefitted Property"): To find the true point of beginning, commence at the southwestern corner of Land Lot 43, said point being the common corner to Land Lots 36, 37, 42 and 43; THENCE, North 12 degrees 18 minutes 17 seconds East for a distance of 394.14 feet to THE POINT OF BEGINNING; THENCE, North 37 degrees 46 minutes 38 seconds West for a distance of 893.12 feet to a point; THENCE, North 52 degrees 09 minutes 06 seconds East for a distance of 539.90 feet to a point; THENCE, South 37 degrees 48 minutes 35 seconds East for a distance of 433.79 feet to a point; THENCE, South 52 degrees 08 minutes 14 seconds West for a distance of 53.95 feet to a point; THENCE, South 37 degrees 53 minutes 33 seconds East for a distance of 545.74 feet to a point; THENCE, South 52 degrees 32 minutes 00 seconds West for a distance of 265.27 feet to a point; THENCE, North 37 degrees 49 minutes 56 seconds West for a distance of 83.17 feet to a point; THENCE, South 52 degrees 32 minutes 00 seconds West for a distance of 221.94 feet to a point; Said property contains 11.03 acres more or less. TOGETHER WITH a perpetual non-exclusive easement, over, across and through the real property described on Exhibit "A-1" attached hereto (the "Burdened ------------- Property"). The easement shall be located on a sixty-foot strip of land to be designated by the owner of the Benefitted Property. The purpose of the easement is to (i) provide ingress to and egress from the Benefitted Property, (ii) permit the construction and maintenance of a sixty-foot roadway to serve the Benefitted Property, and (iii) permit the location, use, construction and maintenance of utilities to serve the Benefitted Property and the improvements located thereon, including water, sewer, electricity, gas, cable television and storm drainage. In the event the owner of the Burdened Property is the successor-in-interest to Scientific-Atlanta, Inc., then all utilities constructed from and after the date of such succession-in-interest must be located within the sixty-foot strip of land. Prior to the date of such succession-in-interest, if any utilities serving the Benefitted Property are located outside of the sixty-foot roadway, Scientific-Atlanta, Inc. shall grant additional easements in order to permit the location, use, construction and maintenance of such utilities. Scientific-Atlanta, Inc. reserves the right to relocate at its sole expense any and all of the easements created hereby. Such relocation shall be performed in such a manner as to provide for continuous ingress to, egress from, and use of utilities by, the Benefitted Property. EX-10.3 6 dex103.txt STOCK PLAN FOR NON-EMPLOYEE DIRECTORS EXHIBIT 10.3 SCIENTIFIC-ATLANTA, INC. STOCK PLAN FOR NON-EMPLOYEE DIRECTORS As Amended and Restated August 15, 2001 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 selling price of a Share as reported on the New York Stock Exchange Composite on the date such value is determined or, if there is no trade on such Exchange on that date, then the closing selling 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 2 for their service to the Company in any other capacity, shall be excluded from the calculation of Quarterly Compensation. (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. (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 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. 3 (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"). (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 4 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 August 15, 2001, 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-10.5 7 dex105.txt DEFERRED COMPENSATION PLAN EXHIBIT 10.5 [LOGO OF SCIENTIFIC ATLANTA] DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS OF SCIENTIFIC-ATLANTA, INC. -------------------------------------------------- As Amended and Restated, Effective July 1, 2001 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 July 1, 2001. All deferral elections made on or after July 1, 2001, 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. 3 2.19 Phantom Stock ------------- The hypothetical shares of Scientific-Atlanta Common Stock credited to the Phantom Stock Sub-Account prior to the Conversion Date. 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. 4 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. 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. 5 (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. (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 6 Election, which date shall be (i) a set date which is no earlier than July 1 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. 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. 7 (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 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 daily using the daily equivalent yield of the Plan Interest Rate. 8 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 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 9 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 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 10 (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. 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 11 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 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. 12 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 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. 13 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. 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. 14 (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. 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 15 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 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. 16 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 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. 17 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 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. 18 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. To record the adoption of the Plan (as amended and restated) by the Plan Committee on July 1, 2001, 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-10.7 8 dex107.txt EXECUTIVE DEFERRED COMPENSATION PLAN EXHIBIT 10.7 SCIENTIFIC-ATLANTA EXECUTIVE DEFERRED COMPENSATION PLAN AMENDED AND RESTATED MAY 16, 2001 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 2 Deferral Elections, as the same may be amended or revised as herein permitted. 2.11 Eligible Compensation --------------------- The total of a Participant's Salary and Annual Incentive Plan Payment or sales incentive payments, 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 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 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 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 (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. 7 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 (i) whose Eligible Compensation exceeds $170,000, as adjusted by 401(a)(17) and (ii) who contributed either (a) 6% of his Eligible Compensation for the preceding calendar year 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 from Eligible Compensation 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) 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 8 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 (ii) with the approval of the other Board members, but by reason of any agreement intended to avoid or settle a Proxy Contest; or 11 (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 16, 2001, 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-21 9 dex21.txt SIGNIFICANT 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, L.P. Texas SAMMEX, L.P.
EX-23 10 dex23.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 16 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, 333-64971 and 333-50066); 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, 333-31968 and 333-56942); 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 August 15, 2001 EX-99 11 dex99.txt CAUTIONARY STATEMENT 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, including those discussed below, 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 economic conditions (including the growth of the cable industry); . uncertainties relating to customer plans and commitments; . changes in customer order patterns; . changes in the ownership and/or management of our major customers; . our dependence on the cable television industry and cable television spending; . development and timing of introduction of software applications for the Explorer network; . insufficient, excess or obsolete inventory; . the pricing and availability of equipment, materials and inventories; . performance issues with key suppliers and subcontractors; . the entry of new, well-capitalized competitors into our markets; . 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; . technological developments; . signal security; . 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; . regulatory uncertainties; . uncertainties inherent in international operations and foreign currency fluctuations; 1 . worldwide political stability and economic growth; . governmental export and import policies, and global trade policies; . uncertainties related to the regulation of the Internet; and . the impact of a major earthquake on our operations. The words "may," "will," "should," "continue," "future," "potential," "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 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 large portion of the cable television systems and account for a significant portion of the capital expenditures made by cable television system operators. Historically, a significant majority of our sales have been to relatively few customers. Sales of products to AOL Time Warner, Inc. and its affiliates were 22 percent, 23 percent and 16 percent of our total sales in fiscal years 2001, 2000 and 1999, respectively. Sales of products to Charter Communications, Inc. and its affiliates were 20 percent, 14 percent and 7 percent of sales in fiscal years 2001, 2000 and 1999, respectively. Sales of products to Adelphia and its affiliates were 18 percent, 2 percent and 2 percent of sales in fiscal years 2001, 2000 and 1999, respectively. Sales of products to AT&T and its affiliates were 2 percent, 10 percent and 16 percent of our total sales in fiscal years 2001, 2000 and 1999, respectively. The loss of business from a significant MSO could have a material adverse effect on our business. Dependence on Principal Product Line. Sales of our Explorer digital set-tops constituted approximately 57 percent, 34 percent and 15 percent of our total sales in fiscal years 2001, 2000 and 1999, respectively. We expect that sales of our Explorer set-tops will continue to account for a significant portion of our revenues for the foreseeable future. As a result, our financial performance will depend in significant part on continued market acceptance of the Explorer digital set-tops and the growth of the digital interactive television application market. After our earnings release and conference call on July 19, 2001 for our quarter and fiscal year ended June 29, 2001, a number of the large MSOs published their results for that quarter. These results show that, although the total number of digital subscribers increased during the period, for most of the MSOs the number of net new digital subscribers added declined over the number added in the first calendar quarter. The MSOs first reported declines in the rate of new digital subscribers added after the end of the first quarter of calendar 2001. Although in their second quarter reports some of these MSOs reaffirmed or increased their previous guidance on the total number of digital subscribers to be added for the entire 2001 calendar year, the declines in the deployment rates for the second calendar quarter reported after our earnings release and conference call could have an adverse effect on our first quarter and thereby on our fiscal year 2002 results. In addition, we continue to have limited visibility to the inventories that these MSOs may have accumulated during calendar 2000 and early 2001 when, as a result of our production capacity limitations, these customers were on allocation. A reduction in the MSO deployment rates could mean that these inventories will not be utilized as quickly as would otherwise be the case. Digital interactive television is a relatively new business, and therefore there are many characteristics of this business that are not yet fully known. These characteristics include sensitivity to the economy, consumer demand for various types of interactive applications, the proper pricing levels and models for various applications, the likely level of penetration of digital services into the subscriber base, the likely number of digital set-tops per household, the customer churn rate to be expected, international demand for the products and the extent to which demand will be seasonal. A declining economy may adversely affect consumer purchases of new digital services, and thus purchases of our digital products by the MSOs, even if it does not impact monthly MSO subscription revenues. Each of these business characteristics may have a material impact on the sales of our products. 2 Dependence on the General Business and Economic Condition of 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. International. We have and expect to continue to make significant sales to customers outside the United States. International sales constituted 15 percent, 21 percent and 22 percent of our total sales for fiscal years 2001, 2000 and 1999, respectively. Substantially all of these sales were export sales. As a result, our revenues are subject to the impact of economic conditions in various geographic regions. 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 that 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. 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 3 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 minor shortages of certain electronic components from our suppliers. 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., was 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. 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. Securities Litigation. 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. On July 24, 2001, a purported class action alleging violations of the federal securities laws by us and certain of our officers was filed in the United States District Court for the Northern District of Georgia. Since then, several actions with similar allegations have been filed. Such litigation may be expensive and may divert management's attention. 4 -----END PRIVACY-ENHANCED MESSAGE-----