-----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, CKrImCdNo+w0z0tP2gVXkAvSn8XKdmz+IC3sNTSVX49TdcYMZzYK7lhqsmgsHKSJ KK5Bz7VPv0ZGOmA/3rHLgA== 0000950144-96-006513.txt : 19960924 0000950144-96-006513.hdr.sgml : 19960924 ACCESSION NUMBER: 0000950144-96-006513 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960628 FILED AS OF DATE: 19960923 SROS: BSE SROS: CSE SROS: CSX SROS: NYSE SROS: PHLX 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: 96633331 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 SCIENTIFIC ATLANTA ANNUAL REPORT 1 - -------------------------------------------------------------------------------- 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 28, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- --------------- Commission file number 1-5517 SCIENTIFIC-ATLANTA, INC. (Exact name of Registrant as specified in its charter) GEORGIA 58-0612397 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) ONE TECHNOLOGY PARKWAY, SOUTH 30092-2967 NORCROSS, GEORGIA (Zip Code) (Address of principal executive offices)
770-903-5000 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange Title of each class on which registered - -------------------------------------------------------------------------------------------------------- Common Stock, par value New York Stock Exchange $0.50 per share
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 / / Indicated 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 September 9, 1996, was approximately $984,628,706. As of September 9, 1996, the registrant had outstanding 77,167,705 shares of common stock. DOCUMENTS INCORPORATED BY REFERENCE: Specified portions of the Proxy Statement for the registrant's 1996 Annual Meeting of Shareholders are incorporated by reference to the extent indicated in Part III of this Form 10-K. - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS GENERAL Scientific-Atlanta, Inc. (the "Company") provides its customers with the products and services they need to develop the advanced terrestrial and satellite networks which deliver entertainment, information and communications. The Company's products connect information generators with information users via broadband terrestrial and satellite networks, and include applications for the converging cable, telephone, and data networks. The Company operates primarily in one business segment, communications, providing satellite-based and terrestrial-based networks to a range of customers in a variety of applications, and providing network management and systems integration to add value to those networks. This segment represents over 90 percent of consolidated sales, operating profit and identifiable assets. The Company has evolved from a manufacturer of electronic test equipment for antennas and electronics for the cable industry to a producer of a wide variety of products for terrestrial and satellite communications networks, including digital video, voice and data communications products. The Company's products include receivers, transmitters, distribution amplifiers, modulators, demodulators, signal encoders and decoders, controllers, optical amplifiers, source lasers, set-top (home communications) terminals, digital audio terminals, digital video compression and transmission equipment, fiber optic distribution equipment, and satellite earth station antennas. These products, and integrated systems and networks using these and other products, are sold to CATV system operators, telephone companies, communications carriers, communications network operators, utility companies and multi-facility business organizations which use communications satellites for intracompany communications. Sales are also made to independent system integrators, distributors and dealers who resell the products to some of the above types of customers. The Company sells transmission products, including RF 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. The Company's transmission products enable operators to transmit telephony, video and data over the same network, with a reverse path for customers to communicate back to the operator. Sales of RF (radio frequency) distribution products constituted approximately 21% of the Company's total sales for fiscal 1996, and approximately 17% and 20% of such sales in each of the fiscal years 1995 and 1994, respectively. On June 28, 1996, the Company acquired ATx Telecom Systems, Inc. ("ATx") from Amoco Technology Company in a strategic move to enhance the Company's global position in various 1550 nanometer fiber optic technologies, including Erbium Doped Fiber Amplifiers (EDFAs). The acquisition of ATx reflects the Company's strategic commitment to maintaining its leadership role in the rapidly growing opto-electronic market with a full range of fiber optic technology. By adding ATx's EDFA research and development, manufacturing and marketing to its current RF and fiber optic product family, the Company can offer additional, cost-effective platforms today as well as provide enhanced capabilities for Wave Division Multiplexing (WDM), Dense Wave Division Multiplexing (DWDM) and other optical technologies once they become economically feasible for the market. WDM technology allows two or more different laser signals to be transmitted simultaneously on the same optical fiber, thereby expanding the data transmission capacity of the fiber. The Company also sells modulators, demodulators and signal processors for video and audio receiving stations (often referred to as "headend" systems), products for distributing communications signals by coaxial cable and fiber optics from headend systems to subscribers, set-top terminals that enable television sets to receive all channels transmitted by system operators, and interdiction equipment which enables connections, disconnections and changes in service to be made from the headend. The Company's set-top terminals include units which are addressable from the headend system so as to permit control of channel authorizations, including authorizations for pay-per-view events, impulse ordering and automatic recording of billing information at the cable operator's central facility, and menu-driven volume controllable units. 1 3 Sales of set-top terminals constituted approximately 27% of the Company's total sales for fiscal year 1996, and approximately 26% and 23% of such sales in each of the fiscal years 1995 and 1994, respectively. Proprietary software used in the terminals, as well as system manager software at the headend system or at the transmission level, was developed by the Company and is updated from time to time. The Company's new digital home communications terminals, currently being used in customer trials, will enable subscribers to access new services such as advanced pay-per-view ordering of special events and movies, fully interactive home shopping services, electronic program guides and more. See "Item 3. Legal Proceedings" for a discussion of an arbitration award relating to the Company's set-top terminals. The Company's products, both analog and digital, are being utilized by the Company's traditional cable operator customers to upgrade their networks to provide new services and by the Regional Bell Operating Companies to build new video, voice and data networks. They are also utilized by electric utilities in load management systems which monitor and control power usage and monitor power outages. The Company's products are also utilized by programmers and broadcasters to transmit their programs to viewers. The Company's satellite earth stations receive and transmit signals for video, voice and data and are utilized in satellite-band telephone, data and television distribution networks. Some of these earth stations are part of national and international communications systems which communicate by means of a satellite with earth stations in other countries or with other earth stations in the same national network. Earth stations in these systems may be connected with local telephone, teletype, television or other terrestrial communications networks. The Company's earth stations, signal encoders and decoders, packet switches and controllers are also used in private business networks for the exchange of audio, video and data via satellite among various office, manufacturing and sales facilities and for the delivery of television programming to hotels, motels and apartment complexes. The Company's data communications product offerings include private interactive data systems using VSAT (very small aperture terminal) technology. The Company designs, manufactures and sells digital video compression communications products for direct satellite broadcast and cable television systems and digital storage and retrieval products for applications such as ad insertion for television broadcasters and cable operators. The Company's compression products utilize the open architecture MPEG-2 technology developed by an international standards group. MPEG-2 digital equipment allows cable, telephone, computer and consumer electronics products and systems to operate together across networks and in the home. The Company's satellite products and systems include tracking and telemetry equipment, earth observation satellite ground stations, shipboard and command telephony and facsimile communications products and intercept systems. The Company produces telemetry instruments, radar platforms, special receivers, special measurement devices and other equipment used to track aircraft, missiles, satellites and other moving objects and to communicate with and receive and record various measurements and other data from the object. The Company develops services and applications which can be utilized by its customers on their terrestrial-based and satellite-based networks. Such applications include (i) a system which enables power companies to detect power failures automatically, (ii) telephony capability over cable networks, (iii) interactive systems for video conferencing, (iv) transmittal of information over cable networks via modem, and (v) interactive video games. OTHER PRODUCTS AND SERVICES The Company's microwave instrumentation systems are used to design and manufacture antennas for communication and radar systems. Products include pattern recorders, receivers, positioners and various display units, which measure, record and display various characteristics of antennas such as signal pattern, gain, phase, amplitude and frequency. The Company has consolidated its service functions into a service organization, with its goal being to ensure effective post-sale service for customers using its products, whether such products are under warranty or no longer under warranty. This service organization offers a variety of maintenance and service contracts to companies using products manufactured or sold by the Company. 2 4 MARKETING AND SALES The Company's products are sold primarily through its own sales personnel who work out of offices in Atlanta and other metropolitan areas in the United States. Certain products are also marketed in the United States through independent sales representatives and distributors. Sales in foreign countries are made through wholly-owned subsidiaries and branch offices, as well as through independent distributors and independent sales representatives. The Company's management personnel are also actively involved in marketing and sales activities. The Company's sales to various units of the United States Government were less than 10% of the Company's sales during fiscal years 1996, 1995 and 1994. The Company's international sales constituted 36% of the Company's total sales for fiscal year 1996 and 34% and 35% of total sales in fiscal years 1995 and 1994, respectively. Substantially all of these sales were export sales. Foreign subsidiary sales were not material for any of these fiscal years. See Note 3 of the Notes to Financial Statements included in this Report. Sales to Europe were 12% of total sales in fiscal 1996 and were 16% and 14% of total sales in fiscal 1995 and 1994, respectively. The increase in sales to customers located in Europe and other international markets may be the result of actual or anticipated deregulation of telecommunications markets. No customer (or group of customers under common control) accounted for more than 10% of the Company's revenues in fiscal 1996. BACKLOG The Company's backlog consists of unfilled customer orders believed to be firm and long-term contracts which have not been completed. The Company's backlog as of June 28, 1996, and June 30, 1995, was $378,582,000 and $457,455,000, respectively. The Company believes that approximately 90% of the backlog existing at June 28, 1996, will be shipped within the succeeding fiscal year. With respect to long-term contracts, the Company includes in its 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 the Company's backlog at any time does not reflect expected revenues for any fiscal period. PRODUCT RESEARCH AND DEVELOPMENT AND PATENTS The Company conducts an active research and development program to strengthen and broaden its existing products and systems and to develop new products and systems. The Company's development strategy is to identify products and systems which are, or are expected to be, needed by a substantial number of customers in the Company's markets and to allocate a greater share of its research and development resources to areas with the highest potential for future benefits to the Company. In addition, the Company develops specific applications related to its present technology. Expenditures in fiscal 1996, 1995 and 1994 were principally for development of commercial cable and telephone digital products, satellite network products, CoAxiom cable telephony products and interactive data communications products. In fiscal 1996, 1995 and 1994, the Company's research and development expenses were approximately $95,299,000, $82,378,000, and $58,542,000 respectively. The Company holds patents with respect to certain of its products and actively seeks to obtain patent protection for significant inventions and developments. MANUFACTURING The Company develops, designs, fabricates, manufactures, assembles or acquires its products. 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 the Company's products include precision electronic components requiring close tolerances, the Company maintains rigorous and exacting test and inspection procedures designed to prevent production errors, and also constantly reviews its overall production techniques to enhance productivity and 3 5 reliability. The Company's set-top terminals and certain pole-line hardware for the CATV industry are manufactured by contract vendors with high-quality, high-volume production facilities. In addition to such manufacturing by contract vendors, the Company commenced shipment of set-top terminals in fiscal year 1996 from its new Juarez, Mexico manufacturing facility. MATERIALS AND SUPPLIES The materials and supplies purchased by the Company are standard electronic components, custom integrated circuits, wire, circuit boards, transistors, capacitors and resistors, all of which are produced by a number of manufacturers. Matsushita Electronic Components Co., Ltd. manufactures set-top terminals for the Company and is a primary supplier of those terminals. Cablevision is a primary supplier of taps for the Company. The Company also purchases aluminum and steel, including castings and semi-fabricated items produced by a variety of sources. The Company considers its sources of supply to be adequate and is not dependent upon any single supplier, except for Matsushita Electronic Components Co., Ltd. and Cablevision, for any significant portion of the materials used in the products it manufactures or for any significant portion of the products it sells. EMPLOYEES The Company had approximately 4,837 employees (approximately 664 of which were employed through temporary employment agencies) on June 28, 1996. The Company believes its employee relations are satisfactory. COMPETITION The businesses in which the Company is engaged are highly competitive. The Company competes with companies which have substantially greater resources and a larger number of products, as well as with smaller specialized companies. Some of the Company's customers are in businesses closely related to the production of such products and are, therefore, potential competitors of the Company. The Company believes that its ability to compete successfully results from its marketing strategy, engineering skills, ability to provide post-purchase services, ability to provide quality products at competitive prices and broad coverage by its sales personnel. ITEM 2. PROPERTIES The Company owns and uses in its operations office and manufacturing facilities in metropolitan Atlanta, Georgia; Chicago, Illinois and Juarez, Mexico, which comprise five sites containing a total of approximately 497,700 square feet. The Company also owns (i) approximately 130 acres of land in Gwinnett County, Georgia, where antenna test ranges and a hub station used in providing interactive data communications services are located, (ii) approximately 219 acres of land in Walton County, Georgia, held for future antenna test range expansion, and (iii) approximately 280 acres of land in Gwinnett County, Georgia, held for future development of and expansion of a consolidated campus for the Company. The Company presently owns one building and leases two buildings in San Diego County, California, none of which are required for present operations and all are under lease or sublease to other tenants. 4 6 Additional major manufacturing facilities containing an aggregate of approximately 342,700 square feet are leased by the Company at the following locations under leases expiring (including renewal options) from 1998 to 2015:
LOCATION APPROXIMATE FOOTAGE - ------------------------------- ------------------- Norcross, Georgia 301,700 Vancouver, British Columbia 25,000 Toronto, Ontario 16,000
The Company also leases laboratory, office and warehouse space in several buildings in the metropolitan areas of Atlanta, Georgia; Cupertino, California; Tempe, Arizona; Toronto, Ontario; Vancouver, British Columbia; Melbourne, Florida; El Paso, Texas; and Manchester, United Kingdom, and the Company leases sales and service offices in 24 U.S. and foreign cities. ITEM 3. LEGAL PROCEEDINGS The Company is not currently a party to any legal proceedings which may or could have a material adverse impact on the Company or its operations. In July 1996, a California arbitration panel ordered the Company to pay StarSight Telecast, Inc. ("StarSight") $15 million in damages, plus legal and arbitration expenses, and issued a three-year limited-term injunction on the future sale of interactive electronic program guides contained in set-tops. The panel determined that the Company violated the terms of a 1992 license and technical assistance agreement between the Company and StarSight. Under the terms of the injunction, the Company is permitted (i) to continue to ship its existing electronic program guides to fill orders to which it has committed in signed agreements with existing customers and (ii) to ship any electronic program guides acquired from a third party or developed after the date of the arbitration award by the Company, in accordance with the arbitration ruling. The Company is currently challenging in federal court the $10 million punitive damages portion of the arbitration award. The Company has also commenced independent development of new electronic program guides in accordance with the provisions of the arbitration award. The arbitration panel's award does not affect a patent infringement suit filed by the Company in February, 1996 against StarSight. In that suit, the Company alleges that the StarSight CB1500 receiver infringes at least three of the Company's patents. The suit seeks damages and an injunction against continued infringement. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the last quarter of its fiscal year ended June 28, 1996. 5 7 EXECUTIVE OFFICERS OF THE COMPANY The following persons are the executive officers of the Company:
Executive Name Age Officer Since Present Office - ---------------------- --- ------------- --------------------------------------- James F. McDonald 56 1993 President and Chief Executive Officer John E. Breyer 61 1989 Senior Vice President William E. Eason, Jr. 53 1993 Senior Vice President, General Counsel and Corporate Secretary H. Allen Ecker 60 1979 Senior Vice President, Technical Operations Chief Technical Officer Brian C. Koenig 49 1988 Senior Vice President, Human Resources John H. Levergood 62 1992 Senior Vice President, Corporate Operating Committee Raymond D. Lucas 58 1989 Senior Vice President, Strategic Operations Chief Strategic Officer Robert C. McIntyre 45 1995 Senior Vice President, Corporate Operating Committee Jack W. Simpson, Sr. 54 1993 Senior Vice President, Corporate Operating Committee Harvey A. Wagner 55 1994 Senior Vice President, Chief Financial Officer and Treasurer Corporate Operating Committee Conrad Wredberg, Jr. 55 1995 Senior Vice President, Corporate Operating Committee Julian W. Eidson 57 1978 Vice President and Controller
Each executive officer is elected annually and serves at the pleasure of the Board of Directors. Each executive officer, except Mr. Eidson, serves on the Corporate Management Committee of the Company. Mr. McDonald was elected President and Chief Executive Officer of the Company effective July 15, 1993. He was a general partner of J. H. Whitney & Company, a private investment firm, from 1991 until his employment by the Company. From 1989 to 1991 he was President and Chief Executive Officer of Prime Computer, Inc., a supplier of CAD/CAM software and computer systems. Prior to that time he was President and Chief Operating Officer of Gould, Inc., a computer and electronics company (1984 to 1989) and held a variety of positions with IBM Corporation (1963 to 1984). 6 8 Mr. Eason has been a partner at Paul, Hastings, Janofsky & Walker since 1989. He has been Secretary of the Company since August, 1993, and became Senior Vice President and General Counsel in February, 1994. Paul, Hastings, Janofsky & Walker performs legal services for the Company. Mr. Eason receives a fixed salary from the Firm for work which he performs for clients of the Firm other than the Company, but has no interest in the Firm's earnings and profits. Mr. Koenig was elected Senior Vice President, Human Resources in 1995. Prior to that time he served as Vice President, Human Resources for more than five years. Mr. Levergood re-joined the Company in December 1992 as a Senior Vice President. He had previously been employed by the Company in various managerial positions (most recently as Chief Operating Officer) until December 1989. From January through June, 1990, he was President and Chief Operating Officer of Dowden Communications, an operator of cable television systems. He was an independent communications consultant from June, 1990 until he re-joined the Company in 1992. Mr. McIntyre was elected as a Senior Vice President in November, 1995. He has been employed by the Company since 1991, and from February, 1995 until November, 1995, he served as a Vice President of the Company. Prior to his employment with the Company, Mr. McIntyre was employed by Augat, Inc., a computer components supplier, as Vice President and General Manager of its Interconnection Products Division, from 1988 to 1991. Mr. Simpson was President and Chief Executive Officer of Mead Data Central, Inc., an electronic publisher, from June, 1982 through November, 1992. From December, 1992 until joining the Company in October, 1993, he was President of Infobyte, Inc., a consulting firm. Since joining the Company, he has held his current position. Mr. Wagner was Vice President-Finance and Chief Financial Officer of Computervision Corporation, a supplier of CAD/CAM/CAE software and services from September, 1989 until he joined the Company in his current position in June, 1994. Mr. Wredberg joined the Company 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 of the Company. Mr. Wredberg served as President of American Microsystem, Inc., a supplier of semiconductors, from 1985 until 1995. All other executive officers have been employed by the Company 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 the Company is traded on the New York Stock Exchange (symbol SFA). The approximate number of holders of record of the Company's Common Stock at September 9, 1996, was 6,802. It has been the policy of the Company to retain a substantial portion of its earnings to finance the expansion of its business. In 1976 the Company 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 the Company. During fiscal years 1996 and 1995, the Company paid out a $.015 dividend each quarter. Information as to the high and low stock prices and dividends paid for each quarter of fiscal years 1996 and 1995 is included in Note 7 of the Notes to Financial Statements included in this Report. ITEM 6. SELECTED FINANCIAL DATA Selected Financial Data is set forth on page 22 of this Report. 7 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion of Consolidated Statement of Financial Position, of Consolidated Statement of Earnings, and of Consolidated Statement of Cash Flows are set forth on pages 14, 16 through 18, and 20 of this Report, respectively. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company and notes thereto, the schedule containing certain supporting information and the report of independent public accountants are set forth on pages 13 through 33 of this Report. See Part IV, Item 14 for an index of the statements, notes and schedules. 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 through 13 (except for the information set forth at the end of Part I with respect to Executive Officers of the Company) is incorporated by reference from the Company's definitive proxy statement for the Company's 1996 Annual Meeting of Shareholders, which is expected to be filed pursuant to Regulation 14A within 120 days after the end of the Company's 1996 fiscal year. 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 13 through 32 of this Report. Report of Independent Public Accountants Consolidated Statement of Financial Position as of June 28, 1996 and June 30, 1995 Consolidated Statement of Earnings for each of the three years in the period ended June 28, 1996 Consolidated Statement of Cash Flows for each of the three years in the period ended June 28, 1996 Notes to Consolidated Financial Statements 8 10 (2) Financial Statement Schedule:
Page ---- Schedule II Valuation and Qualifying Accounts for Each of the Three Years in the Period ended June 28, 1996 33
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. (3) Exhibits: (3) (a) The following is incorporated by reference to the registrant's report on Form 10-K for its fiscal year ended June 29, 1990: (i) Amended and Restated Articles of Incorporation, as amended. (b) The following is incorporated by reference to the registrant's report on Form 10-K for its fiscal year ended July 1, 1994: (i) By-laws of registrant, as amended. (10) Material Contracts: (a) The following material contract is incorporated by reference to the registrant's report on Form 10-Q for its fiscal quarter ended March 31, 1987: (i) Agreement pertaining to the compensation of Sidney Topol.* (b) The following material contract is incorporated by reference to the registrant's report on Form 10-Q for its fiscal quarter ended December 29, 1989: (i) Scientific-Atlanta, Inc. Non-Employee Directors Stock Option Plan.* (c) The following material contracts are incorporated by reference to the registrant's report on Form 10-K for the fiscal year ended June 26, 1992: (i) Scientific-Atlanta, Inc. 1981 Incentive Stock Option Plan, as amended.* (ii) 1985 Executive Deferred Compensation Plan of Scientific-Atlanta, Inc., as amended.* (iii) Scientific-Atlanta, Inc. Annual Incentive Plan for Key Executives, as amended.* 9 11 (iv) Scientific-Atlanta, Inc. 1978 Non-Qualified Stock Option Plan for Key Employees, as amended.* (d) The following material contract is incorporated by reference to the registrant's report on Form 10-K for the fiscal year ended July 2, 1993: (i) Scientific-Atlanta, Inc. 1992 Employee Stock Option Plan.* (e) The following material contracts are incorporated by reference to the registrant's report on Form 10-K for the fiscal year ended July 1, 1994: (i) Scientific-Atlanta, Inc. Supplemental Executive Retirement Plan.* (ii) 1994 Scientific-Atlanta, Inc. Executive Deferred Compensation Plan.* (iii) Form of Severance Protection Agreement between the Registrant and Certain Officers and Key Employees.* (f) The following material contract is incorporated by reference to the exhibit filed with the registrant's proxy statement filed on October 3, 1994, as amended by the revised cover page thereto incorporated by reference to the registrant's report on Form 10-Q for the fiscal quarter ended December 31, 1994: (i) Scientific-Atlanta, Inc. Long-Term Incentive Plan, adopted by the shareholders on November 11, 1994.* (g) The following material contract is incorporated by reference to the registrant's report on Form 10-K for the fiscal year ended June 30, 1995: (i) Credit Agreement, dated May 11, 1995, by and between the Company and NationsBank of Georgia, National Association, for itself and as agent for other banks participating in the credit facility. (h) The following material contract is incorporated by reference to registrant's Form S-8 Registration Statement, filed on November 8, 1995: (i) Stock Plan for Non-Employee Directors.* (i) The following material contracts and amendment to a material contract are incorporated by reference to the registrant's report on Form 10-Q for its fiscal quarter ended December 29, 1995: (i) Amended and Restated Scientific-Atlanta, Inc. Retirement Plan for Non-Employee Directors.* (ii) Amended and Restated Deferred Compensation Plan for Non-Employee Directors of Scientific-Atlanta, Inc.* 10 12 (iii) Amendment Number One to the Non-Employee Directors Stock Option Plan.* (j) First Amendment, dated as of December 29, 1995, to the Credit Agreement which is incorporated by reference as Exhibit 10(g). (k) Letter Amendment, dated as of April 5, 1996, to the Credit Agreement which is incorporated by reference as Exhibit 10(g). (l) Second Amendment, dated as of June 28, 1996, to the Credit Agreement which is incorporated by reference as Exhibit 10(g). (11) Computation of Earnings Per Share of Common Stock (21) List of Significant Subsidiaries (23) Consent of Independent Public Accountants (27) Financial Data Schedule (for SEC use only) - --------------- * Indicates management contract or compensatory plan or arrangement. (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. 11 13 (This page intentionally left blank) 12 14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Scientific-Atlanta, Inc.: We have audited the accompanying consolidated statement of financial position of Scientific-Atlanta, Inc. (a Georgia corporation) and subsidiaries as of June 28, 1996 and June 30, 1995 and the related consolidated statements of earnings and cash flows for each of the three years in the period ended June 28, 1996 appearing on pages 15, 19 and 21, 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 generally accepted auditing standards. 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 28, 1996 and June 30, 1995 and the results of their operations and their cash flows for each of the three years in the period ended June 28, 1996 in conformity with generally accepted accounting principles. 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. Atlanta, Georgia ARTHUR ANDERSEN LLP August 5, 1996 (except with respect to the matter discussed in Note 6, as to which the date is August 14, 1996) 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 generally accepted accounting principles 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 28, 1996 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/ Harvey A. Wagner James F. McDonald Harvey A. Wagner President and Chief Executive Officer Senior Vice President Chief Financial Officer and Treasurer
13 15 MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF FINANCIAL POSITION Scientific-Atlanta had stockholders' equity of $463.7 million and cash on hand of $20.9 million at June 28, 1996. The current ratio of 2.1:1 at June 28, 1996 compared to 2.2:1 at June 30, 1995. CASH AND CASH EQUIVALENTS at the end of 1996 were $20.9 million, down from $80.3 million last year. Cash decreased as expenditures for equipment, expansion of manufacturing capacity, the acquisition of ATx Telecom Systems, Inc. (ATx) and the repurchase of 1,010,000 shares of the Company's common stock exceeded cash generated from earnings. Ending working capital, excluding cash, was $280.1 million, or 26.7 percent of sales, as compared to $259.4 million or 23.2 percent of sales in the prior year. RECEIVABLES were $252.9 million at year-end, compared to $243.4 million at the prior fiscal year-end. Average days sales outstanding increased from 71 for 1995 to 79 for 1996 due to slightly lower sales and higher average receivable balances in 1996 as compared to 1995. The allowance for doubtful accounts as a percent of gross receivables was 1.5 percent in 1996, unchanged from the prior year. INVENTORY TURNOVER was 3.1 times in 1996, compared to 4.2 in the prior year. The decline was due primarily to higher average inventory balances in 1996 as compared to 1995. Inventories of $215.8 million at year-end were $41.7 million lower than at the end of the prior year, reflecting management's efforts to reduce inventory levels and shipments of certain set-tops in 1996 which had been delayed at the end of fiscal 1995. CURRENT DEFERRED INCOME TAXES increased $22.7 million due to increases in nondeductible reserves, including a reserve of $25.4 million for the amount and related costs of an arbitration award recorded in 1996. OTHER CURRENT ASSETS, which include assets held for sale, prepaid insurance, deposits, royalties, license fees and other miscellaneous prepaid expenses, increased $16.5 million due primarily to the net assets held for sale of the defense-related businesses discontinued in 1996 (see Note 5 for details) and the purchase of land held for resale. NET PROPERTY, PLANT AND EQUIPMENT increased by $26.0 million in 1996 as capital spending exceeded depreciation and disposals. Capital additions of $60.8 million included expenditures for equipment, expansion of manufacturing capacity and the purchase of land for future expansion. COST IN EXCESS OF NET ASSETS ACQUIRED decreased in 1996, reflecting amortization of goodwill. OTHER ASSETS, which include license fees, investments, noncurrent deferred tax charges, intellectual property, various prepaid expenses and cash surrender value of company-owned life insurance, increased $5.2 million in 1996 due primarily to investments and increases in non-current deferred tax assets related to non-deductible expenses. See Notes 2 and 11. TOTAL BORROWINGS at year-end amounted to $2.0 million, down $0.2 million from the prior year. The borrowings include industrial development bonds and working capital loans for foreign subsidiaries. Working capital borrowings by foreign subsidiaries increased $0.3 million during 1996. Details of borrowings are shown in Note 8. The Company has a $300 million senior credit facility that provides for unsecured borrowings up to $150 million which expire May 1997 and up to $150 million which expire May 2000. There were no outstanding borrowings under this facility at June 28, 1996 or June 30, 1995. The facility will be used to supplement funds generated internally to support the growth of the Company. ACCOUNTS PAYABLE were $106.5 million at year-end, down from $148.3 million last year. The decrease reflects lower production and inventory levels. Days in accounts payable increased to 56 in 1996 from 43 in 1995. ACCRUED LIABILITIES of $127.5 million include accruals for the resolution of litigation and related costs, compensation, warranty and service, customer down-payments and taxes, excluding income taxes. Accruals for the resolution of litigation and related costs were offset partially by lower accruals for compensation. See Note 9 for details. OTHER LIABILITIES of $37.4 million are comprised of deferred compensation, postretirement benefit plans, postemployment benefits and other miscellaneous accruals. See Note 10 for details. STOCKHOLDERS' EQUITY was $463.7 million at the end of 1996, down $10.5 million from the prior year. A net loss of $6.0 million, the repurchase of 1,010,000 shares of the Company's stock for $12.4 million and dividend payments of $4.6 million were partially offset by $12.5 million from the issuance of stock pursuant to employee benefit plans. See Note 17 for details of changes in stockholders' equity. 14 16 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
In Thousands -------------------------------- 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 20,930 $ 80,311 Receivables, less allowance for doubtful accounts of $3,826,000 in 1996 and $3,823,000 in 1995 252,882 243,420 Inventories 215,767 257,427 Deferred income taxes 50,979 28,271 Other current assets 22,413 5,950 -------- -------- TOTAL CURRENT ASSETS 562,971 615,379 -------- -------- PROPERTY, PLANT, AND EQUIPMENT, AT COST Land and improvements 18,173 7,005 Buildings and improvements 38,628 36,847 Machinery and equipment 162,073 145,301 -------- -------- 218,874 189,153 Less - Accumulated depreciation and amortization 68,275 64,539 -------- -------- 150,599 124,614 -------- -------- COST IN EXCESS OF NET ASSETS ACQUIRED 6,191 6,940 -------- -------- OTHER ASSETS 43,561 38,331 -------- -------- TOTAL ASSETS $763,322 $785,264 ======== ======== - ------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt and current maturities of long-term debt $ 1,600 $ 1,386 Accounts payable 106,542 148,260 Accrued liabilities 127,546 113,947 Income taxes currently payable 26,229 12,121 -------- -------- TOTAL CURRENT LIABILITIES 261,917 275,714 -------- -------- LONG-TERM DEBT, less current maturities 400 773 -------- -------- OTHER LIABILITIES 37,353 34,588 -------- -------- COMMITMENTS AND CONTINGENCIES (NOTE 15) STOCKHOLDERS' EQUITY Preferred stock, authorized 50,000,000 shares; no shares issued -- -- Common stock, $0.50 par value, authorized 350,000,000 shares, issued 77,255,528 shares in 1996 and 76,950,029 shares in 1995 38,628 38,475 Additional paid-in capital 163,143 160,206 Retained earnings 264,206 274,840 Accumulated translation adjustments 740 668 -------- -------- 466,717 474,189 Less - Treasury stock, at cost (265,640 shares) 3,065 -- -------- -------- 463,652 474,189 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $763,322 $785,264 ======== ======== - ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes. 15 17 MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS The Consolidated Statement of Earnings summarizes Scientific-Atlanta's operating performance over the last three years, during which time the Company has accelerated development of new products and expanded into international markets. EARNINGS FROM CONTINUING OPERATIONS in 1996 were $7.2 million, down from $66.0 million in 1995. One-time after-tax charges of $19.5 million for the resolution of an arbitration proceeding and related costs and $9.9 million for the write-off of purchased in-process technology were the primary factors in the year-to-year decline. Lower sales volume and higher research and development expenses also contributed to the lower earnings in 1996 as compared to the prior year. Earnings from continuing operations in 1995 were up $32.8 million over 1994. Higher sales volume was the primary factor in the year-to-year increase. SALES of $1,047.9 million in 1996 were 6 percent lower than the prior year. Lower sales volumes of video game adapters and analog set-tops more than offset increases in sales of distribution equipment and satellite systems, excluding sales to Orbit Communications Company (Orbit). Sales of satellite systems in 1996 included sales of $4.5 million to Orbit for its direct to home satellite services, $78.3 million lower than the prior year due to substantial completion of deliveries in 1995. Sales of set-tops constituted approximately 27 percent of the Company's total sales in 1996, and approximately 26 percent and 23 percent of such sales in 1995 and 1994, respectively. Sales of RF (radio frequency) products were approximately 21 percent of the Company's total sales in 1996, and approximately 17 percent and 20 percent of such sales in 1995 and 1994, respectively. International sales were 36 percent of total sales in 1996 as compared to 34 percent in the prior year. Sales in 1996 were negatively impacted by reduced levels of orders from domestic cable operators and telephone companies. The Company believes that the capital spending in telecommunications markets has been affected as cable television operators and telephone companies develop strategies to take advantage of provisions in the recently enacted Telecommunications Act of 1996, and by the fact that many of the products service providers wish to use in advanced communications networks are still under development and not commercially available. Sales in 1995 increased 48 percent over 1994. Strong growth in sales volume of transmission products and addressable set-tops and Sega game adapters and deliveries of equipment to Orbit Communications Company for its direct to home satellite services contributed to the year-to-year increase in sales. COST OF SALES as a percent of sales increased 0.9 percentage points over 1995. Unfavorable exchange rates in Japanese yen and costs associated with planned expansion of manufacturing capacity offset cost reductions. During the fourth quarter of 1996, the Company began shipments of set-tops assembled at its recently completed manufacturing facility in Juarez, Mexico. The Company believes that it will be able to manufacture certain products at its new high-quality, high volume facility in Juarez, Mexico and expanded facilities in Atlanta, Georgia at costs competitive with those currently charged by contract vendors. The materials and supplies purchased by the Company are standard electronic components, such as custom integrated circuits, wire, circuit boards, transistors, capacitors and resistors, all of which are produced by a number of manufacturers. Matsushita Electronic Components Co., Ltd. manufactures set-top terminals for the Company and is a primary supplier of those terminals. Cablevision is a primary supplier of taps for the Company. The Company also purchases aluminum and steel, including castings and semi-fabricated items produced by a variety of sources. The Company considers its sources of supply to be adequate and is not dependent upon any single supplier, except for Matsushita Electronic Components, Ltd. and Cablevision, for any significant portion of the materials used in the products it manufactures or the products it sells. Certain material purchases are denominated in Japanese yen and, accordingly, the purchase price in U.S. dollars is subject to change based on exchange rate fluctuations. Currently, the Company has forward exchange contracts to purchase yen to hedge a portion of its exposure on purchase commitments for a period of twelve months. Cost of sales as a percent of sales in 1995 increased 2.2 percentage points over 1994. Gains from cost improvements in satellite networks and increased volumes in transmission products and addressable 16 18 MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS set-tops were offset by unfavorable exchange rate changes in Japanese yen, production startup costs and product mix. SALES AND ADMINISTRATIVE EXPENSES of $138.4 million in 1996 were slightly lower than the prior year. Selling expenses were flat reflecting the slightly lower sales volume in 1996. The Company is continuing to invest in opportunities to expand into international markets and introduce new products. Administrative expenses declined slightly in 1996 as the Company continued efforts to improve internal processes and systems to enhance quality and the overall cost structure. Sales and administrative expense in 1995 increased 31 percent over the prior year reflecting costs associated with ongoing investments to support expansion into international markets, the introduction of new products and a build-up in the infrastructure of the Company to handle the growth the Company experienced. Sales and administrative expenses as a percent of sales declined to 13 percent in 1995 from 14 percent in 1994. RESEARCH AND DEVELOPMENT EXPENSES of $95.3 million increased $12.9 million over 1995. Research and development activity increased in most businesses, particularly in the development of digital products and cable telephony products. The Company anticipates that spending on research and development will increase at a slightly lower rate in 1997. Research and development expenses in 1995 increased $23.8 million over the prior year. Increased research and development activity, particularly development of digital products, was the primary factor in the year-to-year increase. PURCHASED IN-PROCESS TECHNOLOGY was $14.6 million in 1996. In connection with the acquisition of ATx Telecom Systems, Inc. (ATx), on June 28, 1996, the Company recorded a pre-tax charge of $14.6 million for purchased in-process technology which had not yet reached technological feasibility and had no alternative future use. ATx is a supplier of Erbium Doped Fiber Amplifiers (EDFA) fiber optic products for hybrid fiber/coax (HFC) networks. The acquisition reflects the Company's strategic commitment to maintaining its role in the rapidly growing opto-electronic market with a full range of fiberoptic technology. INTEREST EXPENSE was $0.7 million, $0.8 million, and $1.1 million in 1996, 1995, and 1994, respectively. The year-to-year decreases reflect lower average working capital borrowings by foreign subsidiaries. INTEREST INCOME was $1.8 million, $2.8 million and $3.2 million in 1996, 1995 and 1994, respectively. The year-to-year decreases in interest income reflect lower average cash balances. OTHER EXPENSE in 1996 included a charge of $28.7 million, related to an arbitration panel's decision in a proceeding with StarSight Telecast, Inc. (StarSight), for damages, legal and arbitration expenses and other expenses, including incremental costs to independently develop an electronic program guide. The Company is currently challenging in federal court the punitive damages portion ($10.0 million) of the arbitration award. In July 1996, an arbitration panel awarded StarSight $15 million in damages, plus legal and arbitration expenses, and issued a three year limited-term injunction on the future sales of interactive electronic program guides contained in set-tops. The panel determined the Company violated the terms of a 1992 license and technical assistance agreement between the Company and StarSight. Under the terms of the injunction, the Company is permitted to continue to ship its existing guides to fill orders it has committed to in signed agreements with existing customers and to ship any electronic program guides acquired from a third party or developed by Scientific-Atlanta in accordance with the arbitration ruling after the date of the award. The Company intends to develop one or more new program guides for analog and digital set-tops and is also exploring the possibility of using third party guides for its products. The Company's royalty-free license to sell the StarSight guide also remains in effect. The Company believes that compliance with the terms of the arbitration award will not have a significant impact on future revenues or profitability. The arbitration award does not affect a patent infringement suit filed by the Company in February 1996 against StarSight. In that suit, the Company alleges that the StarSight CB1500 receiver infringes at least three of the Company's patents. The suit seeks damages and an injunction against continued infringement. The Company intends to vigorously pursue that suit. 17 19 MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF EARNINGS Other income was $1.6 million in 1995. Other income included rental income, royalty income, net gains from partnership activities and other miscellaneous items. There were no significant items in other income and other expense during 1995. Other expense of $17.4 million in 1994 included a $17.5 million charge to settle securities class action litigation, losses of $1.0 million from partnership activities and net gains from other miscellaneous items of $1.1 million. The securities class action suit, which was filed in 1988, related to events which occurred during the early 1980's principally as a result of the difficulties experienced by the Company in the production and delivery of a new product. The Company firmly believes it fully complied with the law in this matter and that the suit was without merit. The litigation was settled in 1994 in the best interest of the Company's shareholders to avoid protracted and costly legal proceedings and eliminate the uncertainty of a jury trial. THE PROVISION FOR INCOME TAXES was 32 percent of pre-tax earnings in 1996, 1995 and 1994. Details of the provision for income taxes are discussed in Note 11. LOSSES FROM DISCONTINUED OPERATIONS of $13.2 million in 1996 included losses from discontinued operations of $1.0 million, net of a tax benefit of $0.5 million, and a one-time after-tax charge of $12.2 million, net of a tax benefit of $5.7 million, for the estimated loss on the sale of discontinued operations which was recorded in the quarter ended September 29, 1995. During the quarter ended September 29, 1995, the Company decided to discontinue its defense-related businesses in San Diego, California because these businesses were not aligned with the Company's core business strategies. The estimated loss on the sale of discontinued operations included losses of the operations through the expected date of sale, reserves to adjust the carrying amount of the net assets held for sale to net realizable value and losses on a subcontract. The Company had performed work as a subcontractor under a contract which included options for additional products. The Company believed that some of these options had not been validly exercised. The Company had been negotiating with the prime contractor to increase the pricing on the unexercised options to provide a reasonable margin and believed these negotiations would be successful. At the time the Company decided to discontinue the defense related businesses, the negotiations had deteriorated significantly. The estimated loss on the disposition was computed on the basis that the Company would give a buyer a subcontract to complete the options at an amount that would provide a reasonable margin. No accounting recognition was given to the Company's claim against the prime contractor due to its uncertain outcome. In July 1996, the Company completed negotiations with the prime contractor to settle issues related to the pricing of the unexercised options. On August 14, 1996, the Company completed the sale of its defense-related businesses to Global Associates, Ltd. (Global) for cash of $13.1 million and secured and unsecured notes aggregating approximately $5.0 million. The net realizable value of the assets of the defense-related businesses and the settlement with the prime contractor were more favorable than the Company had anticipated when it decided to exit these businesses; accordingly the Company will recognize a pre-tax gain of approximately $5.0 million from these transactions in the first quarter of fiscal 1997. Losses from the defense-related businesses while they were accounted for as discontinued operations of $2.5 million, net of a tax benefit of $1.2 million, approximated the amount included in the $12.2 million one-time after-tax charge for the estimated loss on the sale of discontinued operations. After recording the pre-tax gain of $5.0 million, the Company will have a reserve of approximately $8.9 million for potential sales price adjustments, indemnifications provided to Global, legal, severance and other miscellaneous expenses related to the sale and the settlement with the prime contractor. NET LOSS was $6.0 million in 1996. The net loss included after tax charges of $9.9 million for purchased in-process technology, $19.5 million for damages, legal and arbitration expenses and $13.2 million from discontinued operations. LOSS PER SHARE of $0.08 in 1996 compares with earnings per share of $0.83 in 1995 and $0.46 in 1994. Shares outstanding and share equivalents increased slightly to 76.7 million in 1996 from 76.2 million in 1995. 18 20 CONSOLIDATED STATEMENT OF EARNINGS
(In Thousands, Except Per Share Data) 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------- SALES $1,047,901 $1,118,057 $755,923 - ------------------------- ---------- ---------- -------- COSTS AND EXPENSES - -------------------- Cost of sales 761,876 802,216 525,955 Sales and administrative 138,362 140,082 107,233 Research and development 95,299 82,378 58,542 Purchased in-process technology 14,583 -- -- Interest expense 672 775 1,066 Interest income (1,818) (2,837) (3,151) Other (income) expense, net 28,374 (1,566) 17,449 ---------- ---------- -------- 1,037,348 1,021,048 707,094 ---------- ---------- -------- EARNINGS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS 10,553 97,009 48,829 - ------------------------------------------------------------- PROVISION FOR INCOME TAXES 3,377 31,042 15,624 - --------------------------- ---------- ---------- -------- EARNINGS BEFORE DISCONTINUED OPERATIONS 7,176 65,967 33,205 - ------------------------------------------ Earnings (loss) from discontinued operations, net of tax (1,038) (2,427) 1,817 Estimated loss on sale of discontinued operations, net of tax (12,172) -- -- ---------- ---------- -------- NET EARNINGS (LOSS) $ (6,034) $ 63,540 $ 35,022 - -------------------- ========== ========== ======== EARNINGS (LOSS) PER COMMON SHARE AND COMMON EQUIVALENT SHARE - ------------------------------------ Primary Before discontinued operations $ 0.09 $ 0.86 $ 0.44 Discontinued operations (0.17) (0.03) 0.02 ---------- ---------- -------- Net earnings (loss) $ (0.08) $ 0.83 $ 0.46 ========== ========== ======== Fully diluted $ (0.08) $ 0.83 $ 0.46 ========== ========== ======== WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON EQUIVALENT SHARES OUTSTANDING - ------------------------------------------------ Primary 76,666 76,194 76,638 ========== ========== ======== Fully diluted 76,666 76,194 77,105 ========== ========== ========
See accompanying notes. 19 21 MANAGEMENT'S DISCUSSION OF CONSOLIDATED STATEMENT OF CASH FLOWS The Statement of Cash Flows summarizes the main sources of Scientific-Atlanta's cash and its uses. These flows of cash provided or used are summarized by the Company's operating activities, investing activities and financing activities. Cash on hand at the end of 1996 was $20.9 million. Cash on hand and cash generated from earnings were used for capital expenditures, the acquisition of ATx, the repurchase of 1,010,000 shares of the Company's stock and to fund working capital requirements. The Company has a $300 million senior credit facility available that provides for unsecured borrowings up to $150 million which expire May 1997 and up to $150 million which expire May 2000. There were no outstanding borrowings under this facility at June 28, 1996 or June 30, 1995. The Company believes that funds generated from operations, existing cash balances and its available senior credit facility will be sufficient to support growth and planned expansion of manufacturing capacity. CASH PROVIDED BY OPERATING ACTIVITIES was $44.1 million for 1996, compared to $24.1 million for 1995. Cash provided by earnings and decreases in inventories was partially offset by increases in accounts receivable and decreases in payables. In 1995 and 1994 cash provided by improved earnings and increases in payables was partially offset by increases in inventories and accounts receivable. See Management's Discussion of the Statement of Financial Position for details of this performance. CASH USED BY INVESTING ACTIVITIES of $90.7 million included expenditures for equipment, expansion of manufacturing capacity, the purchase of land for future expansion, the acquisition of ATx and other investing activities. See Note 2 for additional discussion of investing activities. In 1995, cash used by investing activities of $65.4 million included expenditures of $63.8 million for equipment and expansion of manufacturing capacity, including the construction of a manufacturing facility in Juarez, Mexico. In 1994, cash used by investing activities included $34.3 million for purchases of plant and equipment and $5.2 million for investments in partnerships. Expenditures focused on increased capacity and productivity improvements. Cash provided by investing activities included $11.2 million from the sale of an investment. See Note 2. CASH USED BY FINANCING ACTIVITIES was $12.8 million in 1996. The repurchase of 1,010,000 shares of the Company's common stock for $12.4 million and dividend payments of $4.6 million exceeded cash generated from the issuance of stock pursuant to stock option and employee benefit plans of $4.3 million. The issuance of stock pursuant to stock option and employee benefit plans generated $8.2 million in 1995. Cash used by financing activities included a $5.1 million reduction of working capital borrowings by foreign subsidiaries and dividend payments of $4.6 million. Cash provided by financing activities was $0.8 million in 1994. The issuance of stock pursuant to stock option and employee benefit plans and increases in short-term borrowings generated $5.0 million and $0.5 million, respectively, of cash during 1994. 20 22 CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands) 1996 1995 1994 - ----------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: ---------------------------------- NET EARNINGS FROM CONTINUING OPERATIONS $ 7,176 $ 65,967 $ 33,205 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 36,597 28,328 19,544 Purchased in-process technology 14,583 -- -- Compensation related to stock benefit plans 6,193 6,051 4,787 Provision for losses on accounts receivable 324 343 73 (Gain) loss on sale of property, plant and equipment (2,123) 625 824 Losses of partnerships 103 386 475 Changes in operating assets and liabilities: Receivables (21,810) (43,618) (67,878) Inventories 29,370 (117,156) (8,372) Deferred income taxes (15,308) (353) (3,999) Accounts payable and accrued liabilities (27,546) 81,862 59,726 Other assets (4,900) 2,928 (21,124) Other liabilities 21,450 (1,021) 21,735 Net effect of exchange rate fluctuations 35 (208) (163) -------- --------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 44,144 24,134 38,833 -------- --------- -------- INVESTING ACTIVITIES: - ---------------------------------- Purchases of property, plant and equipment (60,812) (63,798) (34,335) Acquisition of business, net of cash acquired (24,336) -- -- Payment for businesses purchased (1,721) (1,634) (1,060) Purchase of land held for resale (5,085) -- -- Proceeds from the sale of property, plant and equipment 2,358 510 596 Proceeds from the sale of investments -- 4,214 11,174 (Increase) decrease in net assets of discontinued operations 1,505 (1,110) 9,132 Other investments (2,600) (3,560) (5,240) -------- --------- -------- NET CASH USED BY INVESTING ACTIVITIES (90,691) (65,378) (19,733) -------- --------- -------- FINANCING ACTIVITIES: - ------------------------------------ Net short-term borrowings (payments) 214 (5,101) 520 Principal payments on long-term debt (373) (315) (305) Dividends paid (4,600) (4,578) (4,497) Issuance of stock 4,336 8,162 5,033 Treasury shares acquired (12,411) -- -- -------- --------- -------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (12,834) (1,832) 751 -------- --------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (59,381) (43,076) 19,851 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 80,311 123,387 103,536 -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 20,930 $ 80,311 $123,387 ======== ========= ========
See accompanying notes. 21 23 SELECTED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Data) 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------- SALES $1,047,901 $1,118,057 $755,923 $666,033 $518,790 Cost of Sales 761,876 802,216 525,955 484,887 368,990 Sales and Administrative Expenses 138,362 140,082 107,233 103,143 92,813 Research and Development Expenses 95,299 82,378 58,542 55,283 47,858 Purchased In-Process Technology 14,583 -- -- -- -- Interest Expense 672 775 1,066 933 551 Interest Income (1,818) (2,837) (3,151) (2,925) (4,423) Other (Income) Expense, Net 28,374 (1,566) 17,449 (686) (314) EARNINGS BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND ACCOUNTING CHANGES 10,553 97,009 48,829 25,398 13,315 PROVISION FOR INCOME TAXES 3,377 31,042 15,624 6,349 3,328 EARNINGS BEFORE DISCONTINUED OPERATIONS AND ACCOUNTING CHANGES 7,176 65,967 33,205 19,049 9,987 EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS NET OF TAX (13,210) (2,427) 1,817 5,625 6,290 CUMULATIVE EFFECT OF ACCOUNTING CHANGES -- -- -- (4,700) -- NET EARNINGS (LOSS) $ (6,034) $ 63,540 $ 35,022 $ 19,974 $ 16,277 PRIMARY EARNINGS PER SHARE BEFORE DISCONTINUED OPERATIONS AND ACCOUNTING CHANGES $ 0.09 $ 0.86 $ 0.44 $ 0.25 $ 0.23 PRIMARY EARNINGS (LOSS) PER SHARE $ (0.08) $ 0.83 $ 0.46 $ 0.27 $ 0.23 CASH DIVIDENDS PAID PER SHARE $ 0.06 $ 0.06 $ 0.06 $0.05 5/6 $0.05 1/3 WORKING CAPITAL $ 301,054 $ 339,665 $302,771 $280,616 $233,691 TOTAL ASSETS $ 763,322 $ 785,264 $640,219 $524,210 $440,913 Short-Term Debt and Current Maturities $ 1,600 $ 1,386 $ 6,487 $ 5,962 $ 4,081 Long-Term Debt 400 773 1,088 1,398 1,704 Stockholders' Equity 463,652 474,189 395,646 352,890 299,725 TOTAL CAPITAL INVESTED $ 465,652 $ 476,348 $403,221 $360,250 $305,510 SALES PER EMPLOYEE $ 240 $ 265 $ 224 $ 220 $ 194 GROSS MARGIN % TO SALES 27.3% 28.2% 30.4% 27.2% 28.9% RETURN ON SALES BEFORE DISCONTINUED OPERATIONS AND ACCOUNTING CHANGES 0.7% 5.9% 4.4% 2.9% 1.9% RETURN ON AVERAGE STOCKHOLDERS' EQUITY (1.3)% 14.7% 9.5% 6.1% 5.7%
22 24 NOTES TO FINANCIAL STATEMENTS (Dollars in Thousands, Except Per Share Data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- BUSINESS Scientific-Atlanta, Inc. (the "Company") provides its customers with the products and services they need to develop the advanced terrestrial and satellite networks that deliver entertainment information and communications. The Company's products connect information generators with information users via broadband terrestrial and satellite networks, and include applications for the converging cable, telephone, and data networks. The Company operates primarily in one business segment, communications, providing satellite and terrestrial based networks to a range of customers and applications, and providing network management and systems integration to add value to those networks. This segment represents over 90 percent of consolidated sales, operating profit and identifiable assets. The Company's products are sold primarily through its own sales personnel who work out of offices in Atlanta and other metropolitan areas in the United States. Certain products are also marketed in the United States through independent sales representatives and distributors. Sales in foreign countries are made through wholly-owned subsidiaries and branch offices, as well as through independent distributors and sales representatives. The materials and supplies purchased by the Company are standard electronic components, custom integrated circuits, wire, circuit boards, transistors, capacitors and resistors, all of which are produced by a number of manufacturers. Matsushita Electronic Components Co., Ltd. manufactures set-top terminals for the Company and is a primary supplier of those terminals. Cablevision is a primary supplier of taps for the Company. The Company also purchases aluminum and steel, including castings and semifabricated items produced by a variety of sources. The Company considers its sources of supply to be adequate and is not dependent upon any single supplier, except for Matsushita Electronic Components Co., Ltd. and Cablevision, for any significant portion of the materials used in the products it manufactures or the products it sells. FISCAL YEAR-END The Company's fiscal year-ends on the Friday closest to June 30 of each year. Fiscal year-ends are as follows: 1996: June 28, 1996 1995: June 30, 1995 1994: July 1, 1994
CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and all subsidiaries after elimination of all material intercompany accounts and transactions. USE OF ESTIMATES The preparation of the accompanying consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue 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, 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 stockholders' equity and excluded from net earnings. Foreign currency transaction gains and losses are included in cost of sales and other income. FOREIGN EXCHANGE CONTRACTS The Company enters into foreign exchange forward contracts to hedge certain firm commitments and assets denominated in currencies other than the U.S. dollar, primarily Japanese yen. These contracts are for periods consistent with the exposure being hedged and generally have maturities of one year or less. Gains and losses on foreign exchange forward contracts, including cost of the contracts, are deferred and recognized in income in the same period as the hedged transactions. The Company's foreign exchange forward contracts do not subject the Company's results of operations to risk due to exchange rate fluctuations because gains and losses on these contracts generally offset losses and gains on the exposure being hedged. The Company does not enter 23 25 into any foreign exchange forward contracts for speculative trading purposes. METHOD OF RECORDING CONTRACT PROFITS 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. These receivables from commercial customers and government agencies were $45,543 at June 28, 1996 and $32,738 at June 30, 1995. It is anticipated that substantially all such amounts will be collected within one year. 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 The Company 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 Earnings per share were computed based on the weighted average number of shares of common stock outstanding and equivalent shares derived from dilutive stock options. CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash at June 28, 1996 includes $470 held in escrow as a contingent payment for an acquisition. See Note 2. 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:
1996 1995 -------- -------- Raw Materials and Work-In-Process $131,762 $142,418 Finished Goods 84,005 115,009 -------- -------- Total Inventory $215,767 $257,427 ======== ========
COST IN EXCESS OF NET ASSETS ACQUIRED Cost in excess of net assets of businesses acquired is amortized on a straight-line basis over seventeen years. The Company periodically evaluates the carrying values assigned to costs in excess of net assets acquired and other intangible assets. FINANCIAL PRESENTATION Certain prior year amounts have been restated to reflect the discontinuance in 1996 of defense related businesses. See Note 5. 2. INVESTMENTS AND ACQUISITION - ---------------------------------------------------- On June 28, 1996, the Company acquired 100 percent of the outstanding stock of ATx Telecom Systems, Inc. (ATx) for $24,336 in cash and a contingent payment of $470 due June 28, 1997. ATx is a supplier of fiber optic products for hybrid fiber/coax networks. The acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities were recorded at their estimated fair value at the date of acquisition. The purchase price of $24,336 has been allocated to the assets and liabilities acquired. Approximately $14,583 of the total purchase price represented the value of ATx's in-process technology. Since technological feasibility had not yet been achieved and there was no alternative future use for the technology being developed, the amounts allocated to the in-process technology were expensed concurrent with the purchase. During 1996, the Company also acquired a minority interest in Wink Communications, Inc., an enabling software developer, for $2,400. During 1994 the Company entered into partnership agreements in connection with the formation of two joint ventures, Comunicaciones Broadband and Scientific-Atlanta of Shanghai, Ltd., and invested a total of $5,240 in the partnerships. During 1995 the Company invested an additional $2,410 in these partnerships and disposed of its investment in Comunicaciones Broadband for a loss of $197 24 26 which was included in other (income) expense. The Company's equity in the earnings (losses) of these partnerships was $21, ($296) and ($345) in 1996, 1995, and 1994, respectively. During 1994, the Company disposed of its investment in International Cablecasting Technologies, Inc., for a loss of $549 which was included in other (income) expense. 3. SALES Sales to Time Warner, Inc. and affiliates were 13 percent of total sales in 1995. Sales to any one customer were less than 10 percent of total sales in 1996 and 1994. Export sales accounted for 36 percent of total sales in 1996, 34 percent in 1995 and 35 percent in 1994. Sales to Europe were 12 percent, 16 percent and 14 percent of total sales in 1996, 1995 and 1994, respectively. Sales of set-top terminals constituted approximately 27 percent of the Company's total sales in 1996, and approximately 26 percent and 23 percent of such sales in 1995 and 1994, respectively. Sales of RF (radio frequency) products were approximately 21 percent of the Company's total sales in 1996, and approximately 17 percent and 20 percent of such sales in 1995 and 1994, respectively. Foreign subsidiary sales were not material for any of the three fiscal years presented. 4. OTHER (INCOME) EXPENSES Other expense in 1996 included a charge of $28,700, related to an arbitration panel's decision in a proceeding with StarSight Telecast, Inc. (StarSight), for damages, legal and arbitration expenses and other expenses, including incremental costs to independently develop an electronic program guide. The Company is currently challenging in federal court the punitive damages portion ($10,000) of the arbitration award. In July 1996, an arbitration panel awarded StarSight $15,000 in damages, plus legal and arbitration expenses, and issued a three year limited-term injunction on the future sales of interactive electronic program guides contained in set-tops. The panel determined the Company violated the terms of a 1992 license and technical assistance agreement between the Company and StarSight. Under the terms of the injunction, the Company is permitted to continue to ship its existing guides to fill orders it has committed to in signed agreements with existing customers and to ship any electronic program guides acquired from a third party or developed by Scientific-Atlanta in accordance with the arbitration ruling after the date of the award. The Company intends to develop one or more new program guides for analog and digital set-tops and is also exploring the possibility of using third party guides for its products. The Company's royalty-free license to sell the StarSight guide also remains in effect. The Company believes that compliance with the terms of the arbitration award will not have a significant impact on future revenues or profitability. The arbitration award does not affect a patent infringement suit filed by the Company in February 1996 against StarSight. In that suit, the Company alleges that the StarSight CB1500 receiver infringes at least three of the Company's patents. The suit seeks damages and an injunction against continued infringement. The Company intends to vigorously pursue that suit. Other income of $1,566 in 1995 included rental income, royalty income, net gains from partnership activities and other miscellaneous items. There were no significant items in other income and other expense during 1995. Other expense of $17,449 in 1994 included a $17,500 charge to settle securities class action litigation, losses of $992 from partnership activities and net gains from other miscellaneous items of $1,043. The securities class action suit, which was filed in 1988, related to events which occurred during the early 1980's principally as a result of the difficulties experienced by the Company in the production and delivery of a new product. The Company firmly believes it fully complied with the law in this matter and that the suite was without merit. The litigation was settled in 1994 in the best interest of the Company's shareholders to avoid protracted and costly legal proceedings and eliminate the uncertainty of a jury trial. 5. DISCONTINUED OPERATIONS During the quarter ended September 29, 1995, the Company decided to discontinue its defense-related businesses in San Diego, California because these businesses were not aligned with the Company's core business strategies. A one-time charge of $12,172, net of a tax benefit of $5,728, for the estimated loss on the sale of discontinued operations was recorded in the quarter ended September 29, 1995. The estimated loss on the sale of discontinued operations included losses of the operations through the expected date of sale, reserves to adjust the carrying amount of the net assets held for sale to net realizable value and losses on a subcontract. The Company had performed work as a subcontractor under a contract which included options for additional products. The Company believed that some of these options had not been validly exercised. The Company 25 27 had been negotiating with the prime contractor to increase the pricing on the unexercised options to provide a reasonable margin and believed these negotiations would be successful. At the time the Company decided to discontinue the defense related businesses, the negotiations had deteriorated significantly. The estimated loss on the disposition was computed on the basis that the Company would give a buyer a subcontract to complete the options at an amount that would provide a reasonable margin. No accounting recognition was given to the Company's claim against the prime contractor due to its uncertain outcome. Sales and earnings (loss) from discontinued operations were as follows:
1996 1995 1994 ------- ------- ------- Sales $25,780 $28,445 $55,660 Earnings (losses) from discontinued operations, net of tax $(2,744) $(2,427) $ 1,817 Tax (expense) benefit $ 1,291 $ 1,141 $ (856)
The net assets of the discontinued operations which include inventory, accounts receivable, machinery and equipment, accounts payable, and accrued expenses are included in other current assets in the Consolidated Statement of Financial Position. 6. SUBSEQUENT EVENTS In July 1996, the Company completed negotiations with the prime contractor to settle issues related to the pricing of the unexercised options (see Note 5). On August 14, 1996, the Company completed the sale of its defense-related businesses to Global Associates, Ltd. (Global) for cash of $13,142 and secured and unsecured notes aggregating approximately $5,000. The net realizable value of the assets of the defense-related businesses and the settlement with the prime contractor were more favorable than the Company had anticipated when it decided to exit these businesses; accordingly the Company will recognize a pre-tax gain of approximately $5,000 from these transactions in the first quarter of fiscal 1997. Losses from the defense-related businesses while they were accounted for as discontinued operations of $2,482, net of a tax benefit of $1,168, approximated the amount included in the $12,172 one-time after-tax charge for the estimated loss on the sale of discontinued operations. After recording the pre-tax gain of $5,000, the Company will have a reserve of approximately $8,900 for potential sales price adjustments, indemnifications provided to Global, legal, severance and other miscellaneous expenses related to the sale and the settlement with the prime contractor. 7. QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal Quarters ------------------------------------------- 1996 First Second Third Fourth - -------------- -------- -------- -------- -------- Sales $242,193 $261,100 $271,883 $272,725 Gross margin 61,077 67,717 75,210 82,021 Gross margin % 25.2% 25.9% 27.7% 30.1% Net earnings (loss) (9,124)(1) 6,601 11,525 (15,036)(2) Earnings (loss) per share (0.12)(1) 0.09 0.15 (0.20)(2) Stock prices: High 23.250 16.750 19.250 19.875 Low 16.875 11.500 13.375 14.625 Dividends paid per share 0.015 0.015 0.015 0.015
- --------------- (1) Includes charges of $13,210 ($0.17 per share) for the discontinuance of defense related businesses. (2) Includes charges of $19,516 ($0.25 per share) to settle an arbitration proceeding and related costs and $9,916 ($0.14 per share) to write-off purchased in-process technology in connection with the acquisition of ATx.
Fiscal Quarters ------------------------------------------- 1995 First Second Third Fourth - -------------- -------- -------- -------- -------- Sales $224,976 $269,690 $309,112 $314,279 Gross margin 67,423 73,810 84,017 90,591 Gross margin % 30.0% 27.4% 27.2% 28.8% Net earnings 12,013 15,505 17,845 20,604 Earnings per share 0.16 0.20 0.23 0.27 Stock prices: High 22.438 22.875 24.875 24.500 Low 16.375 19.125 18.125 18.375 Dividends paid per share 0.015 0.015 0.015 0.015
8. INDEBTEDNESS Credit Facility: At June 28, 1996, the Company had a $300,000 senior credit facility that provides for unsecured borrowings up to $150,000 which expire May 9, 1997 and up to $150,000 which expire May 10, 2000. There were no borrowings outstanding under this facility at June 28, 1996 or June 30, 1995. 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. 26 28 Long-term debt consisted of:
1996 1995 ---- ------ 6 1/4%-10% capitalized leases, payable in varying installments ranging from $200 to $250 through 1999 $650 $ 900 8 1/4% mortgage -- 188 ---- ------ 1,088 Less-Current maturities 250 315 ---- ------ $400 $ 773 ==== ======
Long-term debt at June 28, 1996 had scheduled maturities as follows: 1997 -- $250; 1998 -- $200; 1999 -- $200. At June 28, 1996, property, plant and equipment costing approximately $4,000 were pledged as collateral on long-term debt. Foreign short-term debt was $1,350 and $1,071 at the end of 1996 and 1995, respectively. The average interest rates for foreign short-term debt at June 28, 1996 and June 30, 1995 were 10.9 percent and 9.2 percent, respectively. Total interest paid was $680, $811, and $1,071 in 1996, 1995, and 1994, respectively. 9. ACCRUED LIABILITIES Accrued liabilities consisted of:
1996 1995 -------- -------- Compensation.................... $ 24,294 $ 34,747 Arbitration and related costs... 25,383 -- Warranty and service............ 15,852 13,818 Customer down payments.......... 9,282 7,976 Taxes other than income taxes... 8,236 5,613 Other........................... 44,499 51,793 -------- -------- $127,546 $113,947 ======== ========
10. OTHER LIABILITIES Other liabilities consisted of:
1996 1995 ------- ------- Retirement........................ $23,645 $22,751 Compensation...................... 8,247 6,285 Other............................. 5,461 5,552 ------- ------- $37,353 $34,588 ======= =======
11. 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:
1996 1995 1994 ------- ------- ------- Statutory federal tax rate.................... $ 3,693 $33,953 $17,090 State income taxes, net of federal tax benefit..... (901) 3,430 2,194 Tax reserves.............. 1,689 1 506 Research and development tax credit.............. -- (2,852) (1,738) Export incentives......... (1,233) (1,370) (1,096) Exempt interest income.... (143) (656) (956) Other, net................ 272 (1,464) (376) ------- ------- ------- $ 3,377 $31,042 $15,624 ======= ======= =======
Income tax provision (benefit) includes the following:
1996 1995 1994 -------- ------- ------- Current tax provision Federal................ $ 10,974 $22,588 $13,906 State.................. 273 5,436 3,719 Foreign................ 10,187 1,138 581 -------- ------- ------- 21,434 29,162 18,206 -------- ------- ------- Deferred tax provision (benefit) Federal................ (16,300) (389) (1,911) State.................. (1,659) (195) (263) Foreign................ (98) 2,464 (408) -------- ------- ------- (18,057) 1,880 (2,582) -------- ------- ------- Total provision for income taxes........... $ 3,377 $31,042 $15,624 ======== ======= =======
Total income taxes paid include settlement payments for federal, state and foreign audit adjustments. The total income taxes paid were $5,394, $28,937 and $1,551 in 1996, 1995, and 1994, respectively. 27 29 The tax effect of significant temporary differences representing deferred tax assets and liabilities are as follows:
1996 1995 ------- ------- Current deferred tax assets Expenses not currently deductible.................... $33,593 $13,582 Inventory valuation............. 12,108 9,876 Warranty reserves............... 3,632 3,077 Bad debt reserves............... 1,353 1,432 Other........................... 293 304 ------- ------- Current deferred tax assets....... $50,979 $28,271 ======= ======= Noncurrent deferred tax assets Postretirement and postemployment benefits...................... $10,477 $12,235 Tax credit/loss carryforwards... 267 633 Expenses not currently deductible.................... 2,707 1,748 ------- ------- Noncurrent deferred tax assets.......................... 13,451 14,616 Noncurrent deferred tax liabilities Depreciation and amortization... (4,322) (7,461) ------- ------- Net noncurrent deferred tax asset........................... $ 9,129 $ 7,155 ======= =======
Valuation allowances for current deferred tax assets and noncurrent deferred tax assets were not required in 1996 or 1995. The net noncurrent deferred tax asset is included in Other Assets at June 28, 1996 and June 30, 1995. In 1996, 1995, and 1994, earnings before income taxes included $33,745, $8,571, and $2,641, respectively, of earnings generated by the Company's foreign operations. 12. RETIREMENT AND BENEFIT PLANS - ---------------------------------------------------- The Company has a defined benefit pension plan covering substantially all of its domestic employees. The benefits are based upon the employees' years of service and compensation. The Company's funding policy is to contribute annually the amount expensed each year consistent with the requirements of federal law to the extent that such costs are currently deductible. The following table sets forth the plan's funded status, amounts recognized in the Company's Consolidated Statement of Financial Position at year-end, using March 31 as a measurement date for all actuarial calculations of asset and liability values and significant actuarial assumptions:
1996 1995 -------- -------- Accumulated benefit obligation Vested portion $ 55,252 $ 49,723 Nonvested portion 2,274 2,234 -------- -------- 57,526 51,957 Effect of projected future compensation levels 17,215 15,144 -------- -------- Projected benefit obligation 74,741 67,101 Plan assets at fair value (75,155) (60,381) -------- -------- Projected benefit obligation in excess of (less than) plan assets (414) 6,720 Unrecognized prior service costs 351 384 Unrecognized gain (loss) 528 (2,855) Unrecognized net asset from initial application of SFAS 87 7,025 7,681 Fourth quarter contribution (279) (999) -------- -------- Accrued pension cost $ 7,211 $ 10,931 ======== ======== Discount rate 7.75% 8.0% Rate of increase in future compensation 4.5% 4.5% Expected long-term rate of return on assets 10.0% 10.0%
Plan assets are invested in listed stocks, bonds and short-term monetary investments. The Company's net pension expense was $3,325 in 1996, $2,483 in 1995, and $2,709 in 1994. The components of pension expense are as follows:
1996 1995 1994 -------- ------- ------- Service cost of benefits earned $ 5,169 $ 4,059 $ 4,522 Interest cost 5,128 4,826 4,295 Actual return on plan assets (12,532) (4,821) (2,694) Net amortization and deferral 5,560 (1,581) (3,414) -------- ------- ------- Net periodic pension cost $ 3,325 $ 2,483 $ 2,709 ======== ======= =======
The Company has unfunded defined benefit retirement plans for certain key officers and non-employee directors. Accrued pension cost for these plans was $6,842 at June 28, 1996 and $5,521 at June 30, 1995. Retirement expense for these plans was $1,366, $1,223, and $906 in 1996, 1995, and 1994, respectively. 28 30 In addition to providing pension benefits, the Company has contributory plans that provide certain health care and life insurance benefits to eligible retired employees. The following table sets forth the plan's funded status and amounts recognized in the Company's Consolidated Statement of Financial Position at year-end, using March 31 as a measurement date for all actuarial calculations of liability values:
1996 1995 ------- ------- Accumulated postretirement benefit obligation Retirees $ 9,069 $ 8,876 Fully eligible active participants 181 177 Other active participants 293 287 ------- ------- 9,543 9,340 Unrecognized net gain 978 1,200 Fourth quarter claims payments (220) (167) ------- ------- Accrued postretirement benefit cost $10,301 $10,373 ======= =======
The components of postretirement benefit expense are as follows:
1996 1995 ---- ---- Service cost of benefits earned $ 39 $ 30 Interest cost 719 740 Net amortization and deferral (26) (11) ---- ---- Postretirement benefit expense $732 $759 ==== ====
Significant actuarial assumptions are as follows:
1996 1995 ----- ----- Annual rate of increase in per capita cost Pre-Medicare 11.25% 11.25% Annual decline 0.75% 0.75% Final rate of increase 6.00% 6.00% Post-Medicare 9.50% 9.50% Annual decline 0.50% 0.50% Final rate of increase 6.00% 6.00% Impact of one percentage point in health care cost trend rate on Accumulated postretirement benefit obligation 7.6% 8.6% Interest cost component of benefits 11.2% 9.0% Discount rate used to measure accumulated postretirement benefit obligation 7.75% 8.0%
13. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those instruments. The fair value of foreign currency contracts is based on quoted market prices.
1996 1995 --------------------- ---------------------- CARRYING/ Carrying/ CONTRACT FAIR Contract Fair AMOUNT VALUE Amount Value --------- -------- --------- --------- Cash and cash equivalents $ 20,930 $ 20,930 $ 80,311 $ 80,311 Foreign currency contracts Sell $ 7,999 $ 8,152 $ 7,185 $ 7,605 Buy $ 61,700 $ 59,245 $ 129,570 $ 127,749
14. RELATED PARTY TRANSACTIONS During 1996 the Company had sales of $2,728 to Scientific-Atlanta of Shanghai, Ltd. and a net receivable of $760 at June 28, 1996. During 1995 the Company had sales of $3,384 to Scientific-Atlanta of Shanghai, Ltd. and a net receivable of $420 at June 30, 1995. During 1994 the Company had sales of $12,127 to Comunicaciones Broadband and Scientific-Atlanta of Shanghai, Ltd. and had a net receivable of $4,774 from these partnerships at July 1, 1994. 15. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS Rental expense under operating lease agreements for facilities and equipment for 1996, 1995 and 1994 was $15,347, $10,696 and $9,303, respectively. The Company pays taxes, insurance, and maintenance costs with respect to most leased items. Remaining operating lease terms, including renewals, range up to fourteen years. Future minimum payments at June 28, 1996, under operating leases were $46,846. Payments under these leases for the next five years are as follows: 1997 -- $11,460; 1998 -- $9,702; 1999 -- $6,422; 2000 -- $4,657; 2001 -- $3,106. The Company has 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 the Company. 29 EX-10.J 2 FIRST AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10(J) EXECUTION COPY FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT dated as of December 29, 1995, by and among SCIENTIFIC-ATLANTA, INC. (the "Borrower"), each of the financial institutions party hereto (the "Lenders"), THE BANK OF NEW YORK and ABN AMRO BANK N.V., acting through its Atlanta Agency, as Co-Agents (the "Co-Agents"), and NATIONSBANK, N.A. (SOUTH), formerly known as NationsBank of Georgia, National Association, as Agent (the "Agent"). WHEREAS, the Borrower, the Lenders, the Co-Agents and the Agent are parties to that certain Credit Agreement dated as of May 11, 1995 (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 Amendment to Credit Agreement. The Credit Agreement is amended by deleting the table contained in 9.1.(b) and substituting in its place the following:
Four-Quarter Period ending Minimum Fixed Charge during Fiscal Year Coverage Ratio ------------------------------------ -------------------- 1995 2.00 to 1.00 1996 1.50 to 1.00 1997 2.00 to 1.00 1998 and thereafter 2.50 to 1.00
Section 2. Representations of Borrower. The Borrower represents and warrants to the Agent and the Lenders that: (a) Authorization. The Borrower has the right and power, and has taken all necessary action to authorize it, to execute and deliver this Amendment and to perform its obligations under the Credit Agreement as amended by this Amendment, in accordance with its terms. This Amendment has been duly executed and delivered by a duly authorized officer of the Borrower and the Credit Agreement as amended by this Amendment, is a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms. 2 (b) Compliance with Laws, etc. The execution and delivery by the Borrower of this Amendment and the performance by the Borrower of the Credit Agreement as amended by this Amendment, in accordance with its terms, do not and will not, by the passage of time, the giving of notice or otherwise: (i) require any Governmental Approval or violate any Applicable Law relating to the Borrower or any other Loan Party; (ii) conflict with, result in a breach of or constitute a default under the articles of incorporation or the bylaws of the Borrower or the organizational documents of any other Loan Party; (iii) conflict with, result in a breach of or constitute a default under any indenture, agreement or other instrument to which the Borrower or any other Loan Party is a party or by which it or any of its properties may be bound, which conflict, breach or default would have a Material Adverse Effect; or (iv) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by the Borrower or any other Loan Party other than in favor of the Agent for the benefit of the Lenders. Section 3. 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 4. Benefits. This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Section 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA. Section 6. Effect. Except as expressly herein amended, the terms and conditions of the Credit Agreement shall remain in full force and effect. Section 7. Effectiveness of Amendment. This Amendment shall not be effective until its execution and delivery by all of the parties hereto whereupon its shall be deemed effective as of the date first written above. Section 8. 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 9. 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] 2 3 IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Credit Agreement to be executed as of the date first above written. SCIENTIFIC-ATLANTA, INC. By: /s/ Harvey A. Wagner ------------------------------------- Name: Harvey A. Wagner Title: Senior Vice President, Chief Financial Officer & Treasurer NATIONSBANK, N.A. (SOUTH), individually and as Agent By: /s/ James S. Scully ------------------------------------- Name: James S. Scully Title: Vice President THE BANK OF NEW YORK, individually and as Co-Agent By: /s/ Gregory L. Batson ------------------------------------- Name: Gregory L. Batson Title: Vice President ABN AMRO BANK N.V., acting through its Atlanta Agency, individually and as Co-Agent By: /s/ Larry Kelley ------------------------------------- Name: Larry Kelley Title: Group Vice President By: /s/ Steven Hipsman ------------------------------------- Name: Steven Hipsman Title: Vice President [Signatures Continued on Next Page] 3 4 [SIGNATURE PAGE TO FIRST AMENDMENT TO CREDIT AGREEMENT DATED AS OF DECEMBER 29, 1995 WITH SCIENTIFIC-ATLANTA, INC.] AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED By: /s/ Kyle Loughlin ------------------------------------- Name: Kyle Loughlin Title: Vice President WACHOVIA BANK OF GEORGIA, N.A. By: /s/ Karen H. MCClain ------------------------------------- Name: Karen H. McClain Title: Vice President TORONTO DOMINION (TEXAS), INC. By: /s/ Frederic Hawley ------------------------------------- Name: Frederic Hawley Title: Vice President THE BANK OF TOKYO LIMITED, ATLANTA AGENCY By: /s/ Gary L. England ------------------------------------- Name: Gary L. England Title: Vice President & Manager 4 EX-10.K 3 LETTER AMENDMENT 1 NationsBank EXHIBIT 10(K) 600 Peachtree Street, N.E. 21st Floor Atlanta, GA 30308-2213 [LOGO] April 5, 1996 To: Lenders Party to the $300,000,000 Scientific-Atlanta, Inc. Revolving Credit Facility Ladies and Gentlemen: Reference is made to the Credit Agreement dated as of May 11, 1995, as amended (the "Credit Agreement") by and among Scientific-Atlanta, Inc. (the "Borrower"), the financial institutions party thereto as Lenders (the "Lenders"), and NationsBank, N.A. (South), formerly known as NationsBank of Georgia, National Association, as Agent (the "Agent"). Capitalized terms not defined in this letter have the respective meanings given them in the Credit Agreement. As you are aware, the Borrower has requested that the Lenders agree to an extension of the Facility B Termination Date by 364 days from May 10, 1996, to May 9, 1997. To confirm your agreement to such extension of the Facility B Termination Date, on a copy of this letter, please type or write the name of your institution in the space provided below, sign below that and then return the same to the Agent no later than 5:00 p.m., April 11, 1996. I have also enclosed an executed copy of the First Amendment to the Credit Agreement dated December 29, 1995 for your records. Should you have any questions, please do not hesitate to call the undersigned at (404) 607-5529, Will Duke at (404) 607-5593, or Karen Spiegelberg at (704) 366-0192. Sincerely, NATIONSBANK, N.A. (SOUTH), as Agent By: /s/ James S. Scully ----------------------------------- Name: James S. Scully Title: Vice President AGREED AND ACCEPTED: NATIONSBANK, N.A. (South) By: /s/ James S. Scully ----------------------------------- Name: James S. Scully Title: Vice President 2 Each of the following additional parties and signatures therefor appears on counterparts of the Letter Agreement, dated as of April 5, 1996: The Bank of New York By:/s/ Gregory L. Batson ------------------------------------ Name: Gregory L. Batson Title: Vice President ABN AMRO North America, Inc., as Agent for ABN AMRO Bank, N.V., Atlanta Agency By: /s/ Patrick A. Thom ----------------------------------- Name: Patrick A. Thom Title: Vice President Australia and New Zealand Banking Group Limited By: /s/ Paul Clifford ----------------------------------- Name: Paul Clifford Title: Vice President Wachovia Bank of Georgia, N.A. By: /s/ Karen H. McClain ----------------------------------- Name: Karen H. McClain Title: Vice President Toronto Dominion Bank By: /s/ F. B. Hawley ----------------------------------- Name: F. B. Hawley Title: Manager, Credit Administration The Bank of Tokyo-Mitsubishi, Ltd. By: /s/ Gary L. England ----------------------------------- Name: Gary L. England Title: Vice President and Manager 2 EX-10.L 4 SECOND AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10(L) SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT dated as of June 28, 1996, by and among SCIENTIFIC-ATLANTA, INC. (the "Borrower"), each of the financial institutions party hereto (the "Lenders"), THE BANK OF NEW YORK and ABN AMRO BANK N.V., acting through its Atlanta Agency, as Co-Agents (the "Co-Agents"), and NATIONSBANK, N.A. (SOUTH), formerly known as NationsBank of Georgia, National Association, as Agent (the "Agent"). WHEREAS, the Borrower, the Lenders, the Co-Agents and the Agent are parties to that certain Credit Agreement dated as of May 11, 1995, as amended 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 Amendment to Credit Agreement. (a) The definition of the term "Capital Expenditures" contained in Section 1.1 of the Credit Agreement is hereby amended by adding the following sentence to the end of such definition: For purposes of Section 9.1(b), Capital Expenditures shall not include the amount (not to exceed $25,000,000) of capital expenditures incurred by the Borrower during the fourth fiscal quarter of its 1996 Fiscal Year in connection with its acquisition of ATx Telecom Systems, Inc. from Amoco Technology Company. (b) The definition of the term "Consolidated Net Income" contained in Section 1.1 of the Credit Agreement is hereby amended by adding the following sentence to the end of such definition: Each of the following shall be disregarded when determining Consolidated Net Income: (a) the amount (not to exceed $25,000,000) of in-progress research and development costs expensed by the Borrower for the fourth fiscal quarter of its 1996 Fiscal Year as a result of its acquisition of ATx Telecom Systems, Inc. from Amoco Technology Company and (b) the charge (not to exceed $25,000,000) to the Borrower's earnings resulting from the arbitration award in favor of StarSight Telecast, Inc. granted by a California arbitration panel on July 24, 1996. 2 (c) The Credit Agreement is amended by deleting Section 10.1(h) and substituting in its place the following: (h) Judgment. A judgment or order for the payment of money (other than the arbitration award against the Borrower in favor of StarSight Telecast, Inc. granted by a California arbitration panel on July 24, 1996) not adequately covered by insurance as to which the insurance company has acknowledged coverage in writing shall be entered against the Borrower or any Loan Party by any court or other tribunal which exceeds, individually or together with all other such judgments or orders entered against the Borrower and the Loan Parties, $10,000,000 in amount (or which shall otherwise have a Material Adverse Effect) and such judgment or order shall continue for a period of 30 days without being stayed or dismissed through appropriate appellate proceedings. Section 2. Representations of Borrower. The Borrower represents and warrants to the Agent and the Lenders that: (a) Authorization. The Borrower has the right and power, and has taken all necessary action to authorize it, to execute and deliver this Amendment and to perform its obligations under the Credit Agreement as amended by this Amendment, in accordance with its terms. This Amendment has been duly executed and delivered by a duly authorized officer of the Borrower and the Credit Agreement as amended by this Amendment, is a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms. (b) Compliance with Laws, etc. The execution and delivery by the Borrower of this Amendment and the performance by the Borrower of the Credit Agreement as amended by this Amendment, in accordance with its terms, do not and will not, by the passage of time, the giving of notice or otherwise: (i) require any Governmental Approval or violate any Applicable Law relating to the Borrower or any other Loan Party; (ii) conflict with, result in a breach of or constitute a default under the articles of incorporation or the bylaws of the Borrower or the organizational documents of any other Loan Party; (iii) conflict with, result in a breach of or constitute a default under any indenture, agreement or other instrument to which the Borrower or any other Loan Party is a party or by which it or any of its properties may be bound, which conflict, breach or default would have a Material Adverse Effect; or (iv) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by the Borrower or any other Loan Party other than in favor of the Agent for the benefit of the Lenders. Section 3. 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. 2 3 Section 4. Benefits. This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Section 5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA. Section 6. Effect. Except as expressly herein amended, the terms and conditions of the Credit Agreement shall remain in full force and effect. Section 7. Effectiveness of Amendment. This Amendment shall not be effective until its execution and delivery by all of the parties hereto whereupon it shall be deemed effective as of the date first written above. Section 8. 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 9. Definitions. All capitalized terms not otherwise defined herein are used herein with the respective definitions given them in the Credit Agreement. [Signatures on Next Page] 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to Credit Agreement to be executed as of the date first above written. SCIENTIFIC-ATLANTA, INC. By: /s/ Harvey A. Wagner ----------------------------------------- Name: Harvey A. Wagner Title: Senior Vice President, Chief Financial Officer & Treasurer NATIONSBANK, N.A. (SOUTH), individually and as Agent By: /s/ William D. Duke ----------------------------------------- Name: William D. Duke Title: Corporate Finance Officer THE BANK OF NEW YORK, individually and as Co-Agent By: /s/ Gregory L. Batson ----------------------------------------- Name: Gregory L. Batson Title: Vice President ABN AMRO BANK N.V., acting through its Atlanta Agency, individually and as Co-Agent By: /s/ Larry Kelley ----------------------------------------- Name: Larry Kelley Title: Group Vice President By: /s/ Steven Hipsman ----------------------------------------- Name: Steven Hipsman Title: Vice President [Signatures Continued on Next Page] 4 5 [SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT DATED AS OF JUNE 28, 1996 WITH SCIENTIFIC-ATLANTA, INC.] AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED By: /s/ Kyle Loughlin ---------------------------------------- Name: Kyle Loughlin Title: Vice President WACHOVIA BANK OF GEORGIA, N.A. By: /s/ Karen H. McClain ---------------------------------------- Name: Karen H. McClain Title: Vice President TORONTO DOMINION (TEXAS), INC. By: /s/ Lisa Allison ---------------------------------------- Name: Lisa Allison Title: Vice President THE BANK OF TOKYO LIMITED, ATLANTA AGENCY By: /s/ Gary England ---------------------------------------- Name: Gary England Title: Vice President & Manager 5 EX-11 5 COMPUTATION OF EARNINGS PER SHARES 1 EXHIBIT 11 SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 28, 1996 (In Thousands, Except Per Share)
1996 1995 1994 - --------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 76,666 76,194 74,986 Add - Shares of common stock assumed issued upon exercise of options using the "treasury stock" method as it applies to the computation of primary earnings per share 1,192 2,098 1,652 ------- ------- ------- NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 77,858 78,292 76,638 Add - Additional shares of common stock assumed issued upon exercise of options using the "treasury stock" method as it applies to the computation of fully diluted earnings per share 47 92 467 ------- ------- ------- NUMBER OF SHARES OUTSTANDING ASSUMING FULL DILUTION 77,905 78,384 77,105 ======= ======= ======= - --------------------------------------------------------------------------------------------------------- NET EARNINGS (LOSS) FOR PRIMARY AND FULLY DILUTED COMPUTATION $(6,034) $63,540 $35,022 ======= ======= ======= EARNINGS (LOSS) PER COMMON SHARE AND COMMON EQUIVALENT SHARE(1) Primary $ (0.08) $ 0.83 $ 0.46 Fully diluted $ (0.08) $ 0.83 $ 0.46 - ---------------------------------------------------------------------------------------------------------
(1) In 1996 and 1995 the dilutive effect of equivalent shares derived from stock options was less than 3 percent and therefore, the equivalent shares were not included in the computation of earnings per share. EX-21 6 LIST OF SIGNIFICANT SUBSIDIARIES 1 EXHIBIT 21 LIST OF SIGNIFICANT SUBSIDIARIES
NAME STATE OR COUNTRY OF INCORPORATION - -------------------------------------------------------------------------- PowerTV, Inc. California SAMMEX, Inc. Texas Scientific-Atlanta Canada, Inc. Canada Scientific-Atlanta Export Corporation Barbados Scientific-Atlanta Europe Ltd. England Scientific-Atlanta Private Networks, Inc. Florida Scientific-Atlanta Pty. Limited Australia
EX-23 7 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report appearing on page 13 of this Form 10-K into the Company'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 Statements on Form S-8 covering the Scientific-Atlanta, Inc. Employee Stock Purchase Plan, as amended (File Nos. 33-5621 and 33-36925); 3. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. 1981 Incentive Stock Option Plan (File No. 33-781); 4. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. Non-Employee Directors Stock Option Plan (File No. 33-35313); 5. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. Voluntary Employee Retirement and Investment Plan (File No. 33-69827); 6. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. 1992 Employee Stock Option Plan (File No. 33-69218); 7. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. 1993 Restricted Stock Awards (File No. 33-52135); 8. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. Long-Term Incentive Plan (File No. 33-56449); and 9. Registration Statement on Form S-8 covering the Scientific-Atlanta, Inc. Stock Plan for Non-Employee Directors (File No. 33-64065).
ARTHUR ANDERSEN LLP Atlanta, Georgia September 23, 1996 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR ENDED JUNE 28, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JUN-28-1996 JUL-01-1995 JUN-28-1996 20,930 0 256,708 3,826 215,767 562,971 218,874 68,275 763,322 261,917 400 0 0 38,628 425,024 763,322 1,047,901 1,047,901 761,876 761,876 109,882 324 672 10,553 3,377 7,176 (13,210) 0 0 (6,034) (0.08) (0.08)
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