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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 29, 2001
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-5517
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SCIENTIFIC-ATLANTA, INC.
(Exact name of Registrant as specified in its charter)
Georgia 58-0612397
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
5030 Sugarloaf Parkway 30044
Lawrenceville, Georgia (Zip Code)
(Address of principal executive offices)
770-903-5000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, par value $0.50 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at July 27, 2001 was approximately $3,848,764,181.
As of July 27, 2001, the Registrant had outstanding 156,486,611 shares
of common stock.
Documents Incorporated By Reference:
Specified portions of the Proxy Statement for the Registrant's 2001
Annual Meeting of Shareholders are incorporated by reference to the extent
indicated in Part III of this Form 10-K.
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PART I
In this Form 10-K, the words "Scientific-Atlanta," "we," "our,"
"ours," and "us" refer to Scientific-Atlanta, Inc. and its subsidiaries.
Our fiscal year ends on the Friday closest to June 30 of each year.
The references to fiscal year by date refer to our fiscal year ending in that
particular calendar year; for example, fiscal year 1999 refers to our fiscal
year ended July 2, 1999, fiscal year 2000 refers to our fiscal year ended June
30, 2000 and fiscal year 2001 refers to our fiscal year ended June 29, 2001.
This Form 10-K includes "forward-looking statements." The words "may,"
"will," "should," "continue," "future," "potential," "believe," "expect,"
"anticipate," "project," "plan," "intend," "seek," "estimate" and similar
expressions identify forward-looking statements. We caution investors that any
forward-looking statements made by us are not guarantees of future performance
and that a variety of factors, including those discussed below, could cause
our actual results and experience to differ materially from the anticipated
results or other expectations expressed in our forward-looking statements.
Please see Exhibit 99 to this Form 10-K for detailed information about the
uncertainties and other factors that may cause actual results to materially
differ from the views stated in such forward-looking statements.
Item 1. Business
General
Scientific-Atlanta, Inc. provides its customers with broadband
transmission networks, digital interactive subscriber systems, content
distribution networks and worldwide customer service and support. Established
as a Georgia corporation in 1951, we have evolved from a manufacturer of
electronic test equipment for antennas and electronics to a producer of a wide
variety of products for the cable television industry, including digital
video, voice and data communications products. On April 25, 2000, ViaSat, Inc.
acquired our satellite network business, which constituted a substantial part
of our satellite business. We retained our satellite television network
business, which provides the content distribution networks. We now operate
only in the Broadband segment.
We are one of the leading providers of end-to-end networks used by
programmers and cable operators to provide video, data, and voice services to
their customers. These networks are comprised of equipment and software that
reside at the programmer's facility, at the cable operator's headend (or
"central office"), in the outside transmission plant (whether underground or
aerial), and in the consumer's home. Our products include satellite
communications equipment that transports programming from its source to
geographically distributed headends, optical communications products that
transport information within metropolitan areas to individual neighborhoods,
and radio frequency electronics products that provide connectivity within the
neighborhoods to each consumer's home. Increasingly, as these networks have
transitioned to digital technology, our products have included integrated
computer systems and software at the cable operators' headends. These systems
manage video and data services to large networks, often comprising hundreds of
thousands of consumers. Our products that reside in the consumer's home
include digital interactive set-tops and high-speed cable modems.
Our Explorer(R) digital set-tops, digital headends and cable modems
are designed to enable subscribers to access new interactive television
services to be developed by us and third parties, such as e-mail through cable
television service, video-on-demand (VOD), Web browsing, various types of
electronic commerce and other Internet Protocol (IP) services. Several of
these advanced services, including e-mail, VOD, electronic commerce and Web
browsing, have already been deployed on our networks. Sales of our Explorer
digital set-tops constituted approximately 57 percent, 34 percent and 15
percent of Scientific-Atlanta's total sales in fiscal years 2001, 2000 and
1999, respectively.
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In November 2000, we announced development of our Explorer 8000 home
media server set-top, which is expected to provide personal video recording
(PVR) capabilities together with a suite of bundled interactive applications.
We had also announced that we expected to have the Explorer 8000 set-top in
production in calendar year 2001. Due to delays by one of our suppliers in the
development and supply of a chip for incorporation in the Explorer 8000 set-
top, we now expect to produce the Explorer 8000 in commercial quantities in the
spring of 2002.
In addition, we have announced development of our home gateway set-top,
which is designed to serve the in-home network or gateway market with two
tuners and a built-in DOCSIS modem. We had previously described our home
gateway set-top for the United States market as both an Explorer 4000 set-top
and as an Explorer 4100 set-top. There is only one domestic home gateway set-
top being developed and it will be referred to as the Explorer 4100 home
gateway set-top. In addition to the Explorer 4100 set-top, which is being
developed for the U.S. market, we are also currently developing the Explorer
4000 DVB set-top, which is designed to satisfy the market requirements for
Europe.
In January 2001, we began shipments of our WebSTAR(TM) cable modem. Our
WebSTAR cable modem product line has received DOCSIS, Euro-DOCSIS, CE and @Home
certifications. We previously announced that Telewest would purchase at least
25,000 WebSTAR cable modems for delivery by the end of calendar year 2001. We
shipped these cable modems to Telewest during the fourth quarter of fiscal year
2001.
PowerTV, Inc., our majority-owned subsidiary located in Cupertino,
California, develops and markets operating system, middleware and application
software products for the advanced digital interactive cable television
markets. PowerTV's core products are the PowerTV(R) Operating System, which it
has licensed to Pace Micro Technology plc, Pioneer Corporation and Panasonic,
and an HTML engine. In April 2001, we concluded a tender offer for the PowerTV
outstanding shares not held by Scientific-Atlanta. We now own approximately 98
percent of the outstanding shares of PowerTV.
Scientific-Atlanta, PowerTV and PowerTV's wholly-owned subsidiary,
PRASARA Technologies, Inc., have developed a number of applications for
interactive television, such as Internet TV applications (e.g., Email, Web
browsing and Chat), Customer Care and Education, Video On Demand and Food
Service. Additionally, PowerTV and PRASARA have developed and offer Business
Management Tools, a back office system for managing interactive applications.
Scientific-Atlanta and PowerTV both actively conduct third party developer
support programs for the Explorer network. We also support several VOD
providers. Based on our belief at the time, we previously had announced that we
expected 30-40 major multiple systems operator (MSO) sites to deploy VOD by
July 2001. As of July 2001, approximately 18 sites had launched VOD services.
Transmission products include headend equipment, RF (radio frequency)
amplifiers, line extenders, opto-electronic transmitters and amplifiers, taps
and passives, which transmit signals via coaxial cable or fiber optics from the
cable operator to the end-user customer. These products enable operators to
transmit video, data and voice over the same network, with a reverse path for
customers to communicate back to the operator. Sales of RF distribution
products constituted approximately 10 percent, 18 percent and 16 percent of our
total sales for fiscal years 2001, 2000 and 1999, respectively.
We are currently developing the Compact Node Type 90071, which is a
dual high level output node that allows operators to considerably reduce the
number of amplifiers needed per node, and the Compact Fiber Deeper Node Type
90090, which is designed to eliminate the need for amplifiers after the node
and to help operators plan for their future network speed needs. Based on our
belief at the time, we previously announced that Compact Distribution Node Type
90071 and Compact Fiber Deeper Node Type 90090 would be available during the
spring 2001. Although the 90071 node shipped in June 2001, it is expected that
the 90090 node will not ship before October 2001. In addition, based on our
belief at the time, we previously announced that the new Surge-Gap(TM) Power
Distribution Unit product and the new Surge-Gap Tap product were scheduled for
availability in June 2001 and July 2001, respectively. It is now expected that
they will become available in August 2001.
2
Our satellite television networks business (the Media Networks
business) produces encoders, statistical multiplexers, modulators and
receivers. Customers, such as television programmers, broadcasters, and service
providers use these products to deliver compressed digital video via satellite
to cable operators and viewers.
Services
We have consolidated most of our service functions into a single
professional services organization, SciCare(TM) Broadband Services, with its
goal being to ensure effective post-sale service for customers using our
products, whether such products are under warranty or no longer under warranty.
SciCare Broadband Services offers a variety of maintenance and service
contracts to customers using products manufactured or sold by Scientific-
Atlanta and by other manufacturers, in addition to providing software and
systems integration, installation, management and consulting services.
Marketing and Sales
Our products are sold primarily through our own sales personnel who
work out of offices throughout the United States and various foreign countries.
Certain products are also marketed in the United States through independent
sales representatives and independent distributors. In addition to direct sales
by Scientific-Atlanta, sales in foreign countries are made through wholly-owned
subsidiaries and branch offices, as well as through independent distributors
and independent sales representatives. Sales of our products are also made to
independent system integrators, distributors and dealers who resell the
products to customers. Our management personnel are also actively involved in
marketing and sales activities.
International sales constituted 15 percent, 21 percent and 22 percent
of our total sales for fiscal years 2001, 2000 and 1999, respectively.
Substantially all of these sales were export sales. See Note 6 of the Notes to
Consolidated Financial Statements included in this Form 10-K.
Sales of products to AOL Time Warner, Inc. and its affiliates were 22
percent, 23 percent and 16 percent of our total sales in fiscal years 2001,
2000 and 1999, respectively. Sales of products to Charter Communications, Inc.
and its affiliates were 20 percent, 14 percent and 7 percent of sales in fiscal
years 2001, 2000 and 1999, respectively. Sales of products to Adelphia and its
affiliates were 18 percent, 2 percent and 2 percent of sales in fiscal years
2001, 2000 and 1999, respectively. Sales of products to AT&T and its affiliates
were 2 percent, 10 percent and 16 percent of our total sales in fiscal years
2001, 2000 and 1999, respectively. Sales to these four customers were
principally broadband products. No other customer accounted for 10 percent or
more of our sales in any of the last three fiscal years.
Backlog
Our backlog consists of unfilled customer orders believed to be firm
and long-term contracts that have not been completed. Scientific-Atlanta's
backlog as of June 29, 2001 and June 30, 2000 was $900,926,000 and
$811,689,000, respectively. We believe that approximately 90 percent of the
backlog existing at June 29, 2001 will be shipped within the succeeding fiscal
year. Our policy is to include in our backlog firm orders for product scheduled
for shipment within six months from the date entered into backlog. With respect
to long-term contracts, we include in our backlog only amounts representing
orders currently released for production. The amount contained in backlog for
any contract or order may not be the total amount of the contract or order. The
amount of our backlog at any time does not reflect expected revenues for any
fiscal period.
Product Research and Development and Patents
We conduct an active research and development program to strengthen and
broaden existing products and systems and to develop new products and systems.
Our development strategy is to identify products and systems which are, or are
expected to be, needed by a substantial number of customers in large markets
and to
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allocate a greater share of our research and development resources to areas
with the highest potential for future benefits to Scientific-Atlanta. In
addition, we develop specific applications related to our present technology.
Expenditures in fiscal years 2001, 2000 and 1999 were principally for
development of digital set-top, digital network and cable modem products, opto-
electronic and RF transmission products, and introduction of our PowerVu(R)
products. In fiscal years 2001, 2000 and 1999, our research and development
expenses were approximately $165.1 million (including a $10.8 million stock
compensation charge related to the PowerTV tender offer), $122.4 million and
$117.3 million, respectively.
We hold patents with respect to certain of our products and actively
seek to obtain patent protection for significant inventions and developments.
Patents are important to our business. See Item 3. Legal Proceedings.
Manufacturing
Manufacturing operations range from complete assembly of a particular
product by one individual or small group of individuals to semi-automated
assembly lines for volume production. Because many of our products include
precision electronic components requiring close tolerances, we maintain
rigorous and exacting test and inspection procedures designed to prevent
production errors, and also constantly review our overall production techniques
to enhance productivity and reliability. We conduct the following operations at
the following manufacturing facilities:
. We manufacture a variety of products, including our Explorer digital
set-top and RF amplifier product lines, at our Juarez, Mexico facility.
. We manufacture a variety of broadband products, including digital
headend products, Prisma(R) DT products and analog headend products, at
our Atlanta, Georgia manufacturing facility.
. We manufacture transmission equipment, including RF, opto-electronics
and headend equipment, at our Arcodan operations in Sonderborg, Denmark.
. We manufacture opto-electronics equipment at our Chicago, Illinois
manufacturing facility.
. We perform final test and assembly of Media Networks products at our
Toronto, Ontario facility.
Our analog set-tops and taps and passives hardware for the cable
television industry are manufactured primarily by contract vendors with high-
quality, high-volume production facilities.
Materials and Supplies
Except for certain Application Specific Integrated Circuits (ASICs),
the materials and supplies we purchase generally are standard electronic
components, such as integrated circuits, wire, circuit boards, transistors,
capacitors and resistors, all of which are produced by a number of
manufacturers. We also purchase aluminum die castings, steel enclosures and
other semi-fabricated items, which are produced by a variety of sources. We
consider our sources of supply to be adequate and are not dependent upon a
single supplier, except for STMicroelectronics (and its affiliates), Micron
Semiconductor Products, Inc., Phillips Semiconductors, Inc., Matsushita
Electronics Components Corporation of America (and its affiliates), Cablevision
Electronics Co., Ltd., Zinwell Corporation, JDS Uniphase, Premiere Die Casting,
Inc., and Anadigics, Inc. for any significant portion of the materials used in
the products we manufacture or the products we sell. These suppliers provide us
with the following materials and supplies:
. STMicroelectronics, Micron Semiconductor Products, Inc. and Phillips
Semiconductors, Inc. are our primary suppliers of a variety of
semiconductor products, which are used as components in an array of
products, including set-tops.
. Matsushita Electronics Components Corporation of America and its
affiliates manufacture analog set-tops for us and are a primary supplier
of those set-tops.
4
. Cablevision Electronics Co., Ltd. and Zinwell Corporation, Taiwanese
companies, are our primary suppliers of taps. We also are part of a
joint venture in Shanghai, China that provides us with taps.
. JDS Uniphase is our primary supplier of opto amplifiers.
. Premiere Die Casting, Inc. is our primary supplier of die-castings for
RF distribution.
. Anadigics, Inc. is a provider of CATV integrated circuits for use in our
RF distribution products.
For the first half of fiscal year 2001, we experienced substantial
shortages of certain electronic components from our suppliers, which did not
materially affect our output. Material availability was greatly enhanced in the
second half of the fiscal year, and we do not expect to have significant
material supply issues in the foreseeable future.
Employees
As of June 29, 2001, we employed approximately 8,159 regular full-time
and part-time employees and approximately 261 additional workers employed
through temporary employment agencies. We believe our employee relations are
satisfactory.
Competition
The businesses in which we are engaged are highly competitive. At least
one of our competitors is substantially larger and has greater resources. We
primarily compete with a small number of equipment suppliers, most of which
specialize in the production and sale of equipment to cable television system
operators. We also compete with a variety of satellite television equipment
providers. We believe that our ability to compete successfully results from our
marketing strategy, engineering skills, product features, product performance,
ability to provide post-purchase services, ability to provide quality products
at competitive prices and broad coverage by our sales personnel.
Item 2. Properties
We own and use offices and manufacturing facilities in metropolitan
Atlanta, Georgia; Naperville, Illinois; and Juarez, Mexico, which contain a
total of approximately 733,000 square feet, of which approximately 339,000
square feet are located at the Juarez manufacturing facility.
We also own (i) approximately 130 acres of land and related
improvements in Gwinnett County, Georgia which are leased to ViaSat, Inc. and
Microwave Instrumentation Technologies, LLC, (ii) two buildings totaling
approximately 188,000 square feet which are leased to ViaSat, Inc., and (iii)
approximately 280 acres of land in Gwinnett County, Georgia, held for
development of a consolidated office site for Scientific-Atlanta. The first
phase of this consolidated office site, 283,000 square feet of engineering and
office facilities, was completed in the third quarter of fiscal year 1999
utilizing a long-term operating lease arrangement. The second phase was
completed in the third quarter of fiscal year 2001 and consisted of an
additional 299,000 square feet of engineering and office space.
In addition to the property we own and lease, which is described above,
we lease additional major manufacturing facilities containing an aggregate of
approximately 336,500 square feet at the following locations under leases
expiring (including renewal options) from 2002 to 2015:
Approximate
Location Square Footage
-------- --------------
Metropolitan Atlanta,
Georgia...................... 249,000
Sonderborg, Denmark........... 71,500
Toronto, Ontario.............. 16,000
5
We also lease laboratory, office and warehouse space in several
buildings in the metropolitan areas of Atlanta, Georgia; Chicago, Illinois;
Cupertino, California; Huntsville, Alabama; Orlando, Florida; Phoenix, Arizona;
Juarez, Mexico; Sonderborg, Denmark; Toronto, Ontario; Vancouver, British
Columbia; Frankfurt, Germany; Sydney, Australia; and London and Southampton,
United Kingdom. We lease sales and service offices in 17 domestic and foreign
cities.
Item 3. Legal Proceedings
From time to time, we are involved in litigation and legal proceedings
incident to the ordinary course of our business, such as personal injury
claims, employment matters, contractual disputes and intellectual property
disputes. We do not have pending any litigation or proceedings that management
believes will have a material adverse effect, either individually or in the
aggregate, upon us.
Included in the litigation which we currently have pending are several
lawsuits we have filed as plaintiff against Gemstar International Group Ltd.
and affiliated companies. On December 3, 1998, we filed an action against
Gemstar International Group Ltd. (now Gemstar-TV Guide International, Inc.), in
the U.S. District Court in Atlanta, Georgia. Gemstar-TV Guide International,
Inc. and/or its affiliated entities are referred to hereafter as "Gemstar." The
suit alleges that Gemstar violated federal antitrust laws and misused certain
patents. We seek damages, an injunction and a declaration that eight patents
that Gemstar asserts are related to electronic program guides are invalid,
unenforceable and not infringed. Gemstar has filed a counterclaim against us
alleging infringement of five of the patents.
On the next day, December 4, 1998, Gemstar filed a responsive action
against us in the United States District Court in Los Angeles, California
alleging infringement of two of the same patents involved in the Atlanta,
Georgia suit filed by us on December 3, 1998. The suit asks for damages and
injunctive relief. As indicated below, all proceedings in this case have been
stayed.
On December 23, 1998, Gemstar filed a motion with the Judicial Panel on
Multi-district Litigation requesting that the cases filed on December 3rd and
4th 1998 be consolidated with cases previously filed by Gemstar in California
against General Instrument Corp. and Pioneer Electronic Corp., and in Oklahoma
against TV Guide Networks, Inc. The motion asked that the actions be
consolidated in a U.S. District Court in California. A hearing on the motion
was held, and in April 1999 the Judicial Panel ordered that all cases (except
the action against TV Guide Networks, Inc.) be consolidated, but in Atlanta,
Georgia rather than Los Angeles, California, for all pretrial proceedings.
Therefore, all of these cases are now in the discovery phase in the Atlanta,
Georgia court and the proceedings in the Los Angeles, California case filed by
Gemstar have been stayed.
On April 23, 1999, we filed a patent infringement action against
Gemstar in the U.S. District Court in Atlanta. The suit alleges that Gemstar
infringes three Scientific-Atlanta patents relating to electronic program
guides, and seeks damages and injunctive relief.
On June 25, 1999, we filed an action against StarSight Telecast, Inc.,
a subsidiary of Gemstar International Group Ltd., in the U.S. District Court in
Atlanta, seeking a declaratory judgment of invalidity and non-infringement of
two StarSight patents that StarSight asserts are related to electronic program
guides. StarSight initially answered our complaint as to one of the two
patents, and filed a counterclaim against us alleging infringement of this one
patent. After proceedings before the court, StarSight ultimately answered the
complaint as to the second patent, but has not filed a counterclaim based on
that patent. StarSight's counterclaim seeks damages and injunctive relief.
StarSight also filed a motion for preliminary injunctive relief pending the
final outcome of the case. This case is now in the discovery phase.
On July 23, 1999, we filed a patent infringement action against
StarSight in the U.S. District Court in Atlanta. The suit alleges that
StarSight infringes three Scientific-Atlanta patents relating to electronic
program guides, and seeks damages and injunctive relief. This case was
coordinated with the April 23, 1999 action by us against Gemstar described
above, and the coordinated cases are now in the discovery phase.
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By Order dated October 6, 2000, the United States District Court in
Atlanta denied StarSight Telecast, Inc.'s motion for leave to file a motion for
preliminary injunction in the declaratory judgment action filed by the Company
against StarSight relating to two StarSight patents, including the so-called
"121" or "Young" patent. StarSight filed a motion asking the Court to
reconsider its Order, and on October 31, 2000 that motion to reconsider was
denied by the Court.
On February 14, 2001, Gemstar initiated an investigation in the
International Trade Commission (the "ITC") under Section 337 of the Tariff Act
of 1930 (the "Act") against Scientific-Atlanta, Pioneer Corporation and related
entities, Echostar Communications Corporation and SCI Systems, Inc. The
investigation is based on Gemstar's allegation that certain imported set-top
boxes, including those manufactured by Scientific-Atlanta in Mexico, infringe
certain Gemstar patents. Two of these patents have been in dispute between the
parties since July 1999 when Scientific-Atlanta sought a declaratory judgment
of non-infringement in the federal court in Atlanta. Under the provisions of
the Act, the ITC may issue temporary and permanent exclusion orders preventing
the importation of products found to infringe the valid intellectual property
rights of an established domestic industry, but may not award monetary damages.
Scientific-Atlanta has filed its Answer denying that it infringes any valid
Gemstar intellectual property rights, and intends to defend Gemstar's claims
vigorously. Immediately prior to filing the 337 action, Gemstar filed separate
actions against Scientific-Atlanta, Pioneer and Echostar in the federal court
in Atlanta alleging infringement of certain of the patents claimed in the 337
action. Scientific-Atlanta has moved to stay any proceedings in these actions
pending the outcome of the 337 action.
In both of the cases involving our patents, we seek both damages and an
injunction against the Gemstar defendants' deployment of infringing programs
guides. In the cases challenging the Gemstar defendants' patents, we seek an
injunction against Gemstar's enforcement of these patents. In those cases where
the Gemstar defendants' patents are at issue, they have sought damages and
injunctive relief against us for infringement of certain of those patents. The
party or parties prevailing on their patents in these actions could be entitled
to damages measured either as actual lost profits or as a reasonable royalty
for the past sale of infringing electronic program guides, and potentially a
trebling of damages if the court determines that the losing party acted
willfully. The prevailing party may also be entitled to an injunction against
the future sale of infringing electronic program guides. Accordingly, an
adverse judgment against either us or the Gemstar defendants could result in an
injunction against the future sale by us or the Gemstar defendants of
infringing electronic program guides and could cause the offending party to
have to redesign their program guide to avoid infringement.
None of the actions described above is related to the 1995 American
Arbitration Association arbitration action brought against us by StarSight.
That arbitration action concerned the alleged delay by us in the deployment of
StarSight-capable set-top boxes and our development of a competing electronic
program guide allegedly using StarSight's proprietary information in violation
of a licensing agreement between us and StarSight. StarSight won an award in
that action from the arbitration panel, which we appealed to federal court.
While the appeal was pending the controversy was settled by a cross-license
agreement between the parties. The arbitration action did not address the issue
of patent infringement by either StarSight or us.
On July 24, 2001, a purported class action alleging violations of the
federal securities laws by us and certain of our officers was filed in the
United States District Court for the Northern District of Georgia. Since then,
several actions with similar allegations have been filed. We intend to defend
these actions vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Scientific-Atlanta's security
holders during the last quarter of its fiscal year ended June 29, 2001.
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Item 4A. Executive Officers of Scientific-Atlanta
The following persons are the executive officers of Scientific-Atlanta:
Executive
Name Age Officer Since Present Office
---- --- ------------- --------------
James F. McDonald 61 1993 Chairman of the Board, President and
Chief Executive Officer
Conrad J. Wredberg, Jr. 60 1995 Senior Vice President and Chief
Operating Officer
J. Lawrence Bradner 50 1999 Senior Vice President; President,
SciCare Broadband Services
Dwight B. Duke 49 1997 Senior Vice President; President,
Transmission Network Systems
William E. Eason, Jr. 58 1993 Senior Vice President, General
Counsel and Corporate Secretary
H. Allen Ecker 65 1979 Senior Vice President; President,
Subscriber Networks
Wallace G. Haislip 52 1998 Senior Vice President, Chief
Financial Officer and Treasurer
Brian C. Koenig 54 1988 Senior Vice President, Human
Resources
John H. Levergood 67 1992 Senior Vice President
Robert C. McIntyre 50 1999 Senior Vice President and Chief
Technical Officer
Julian W. Eidson 62 1978 Vice President and Controller
Perry D. Tanner 43 2000 Vice President, Marketing
Patrick M. Tylka 51 2000 Vice President; President, Worldwide
Sales
Each executive officer is elected annually and serves at the pleasure
of the Board of Directors.
Mr. Wredberg joined Scientific-Atlanta in 1995 and was elected to the
position of Vice President in May 1995. In November 1995, Mr. Wredberg was
elected as a Senior Vice President, and in January 1997, Mr. Wredberg was
appointed Chairman of the Corporate Operating Committee. In May 1999, Mr.
Wredberg was elected Chief Operating Officer.
Mr. Bradner joined Scientific-Atlanta in August 1999. Mr. Bradner
served as Chairman and Chief Executive Officer of Syntellect, Inc. from March
1996 to May 1999. Mr. Bradner was Chairman and Chief Executive Officer of
Pinnacle Investment Associates and its wholly-owned subsidiary, Telecorp
Systems, Inc., from January 1991 to March 1996. Mr. Bradner was employed by
Scientific-Atlanta from 1977 to 1990, where he held various management
positions and was elected Vice President in 1987. Mr. Bradner is a director of
Telemate.net, Inc.
Mr. Duke was elected Senior Vice President of Scientific-Atlanta in
April 1998. From June 1996 to April 1998, he served as a Vice President of
Scientific-Atlanta. Prior to June 1996, Mr. Duke was employed by Scientific-
Atlanta in a variety of management positions for more than five years.
Mr. Haislip was elected to the position of Senior Vice President, Chief
Financial Officer and Treasurer in April 1998. Prior to April 1998, Mr. Haislip
was employed by Scientific-Atlanta in a variety of management positions for
more than five years.
Mr. McIntyre was employed by Scientific-Atlanta from 1991 through 1997.
He served as a Vice President of Scientific-Atlanta from February 1995 through
November 1995 and as a Senior Vice President of
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Scientific-Atlanta from November 1995 through September 1997. From September
1997 through November 1998, Mr. McIntyre served as Chief Operating Officer and
as Chief Executive Officer from July 1998 to November 1998 of Avex, Inc. Mr.
McIntyre re-joined Scientific-Atlanta as an employee in February 1999 and was
elected Senior Vice President and Chief Technical Officer in May 1999.
Mr. Tanner was elected to the position of Vice President, Marketing in
May 2000. Prior to May 2000, he was employed by Scientific-Atlanta in a
variety of management positions for more than five years.
All other executive officers have been employed by Scientific-Atlanta
in the same or similar capacities for more than five years. There are no
family relationships among the executive officers.
PART II
Item 5. Market for the Registrant's Common Stock and Related Matters
The Common Stock of Scientific-Atlanta is traded on the New York Stock
Exchange (symbol SFA). The approximate number of holders of record of
Scientific-Atlanta's Common Stock at June 29, 2001, was 6,088.
It has been the policy of Scientific-Atlanta to retain a substantial
portion of its earnings to finance the expansion of its business. In 1976,
Scientific-Atlanta commenced payment of quarterly cash dividends and intends
to consider the continued payment of dividends on a regular basis; however,
the declaration of dividends is discretionary with the Board of Directors, and
there is no assurance regarding the payment of future dividends by Scientific-
Atlanta. During fiscal year 1999, Scientific-Atlanta paid a $0.0075, dividend
per share each quarter. During fiscal year 2000, Scientific-Atlanta paid a
$0.0075 and a $0.01 dividend per share in the first two quarters and the
second two quarters, respectively. During fiscal year 2001, Scientific-Atlanta
paid a $0.01, dividend per share each quarter.
Information as to the high and low stock prices and dividends paid for
each quarter of fiscal years 2000 and 2001 is included in Note 5 of the Notes
to Financial Statements included in this Report.
Item 6. Selected Financial Data
Selected Financial Data is set forth on page 32 of this Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion of Consolidated Statements of Financial
Position, of Consolidated Statements of Earnings, and of Consolidated
Statements of Cash Flows are set forth on pages 17 and 18, 21 through 26, and
28 and 29 of this Report.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks from changes in foreign exchange rates
and have a process to monitor and manage these risks. Scientific-Atlanta
enters into foreign exchange forward contracts to hedge certain firm
commitments and assets denominated in currencies other than the U.S. dollar.
These contracts are for periods consistent with the exposure being hedged and
generally have maturities of one year or less. Contracts are recorded at fair
value. Changes in the fair value of derivatives are recorded in other
comprehensive income until the underlying transaction affects earnings. Any
ineffectiveness is recorded through earnings. Our foreign exchange forward
contracts do not significantly subject our results of operations to risk due
to exchange rate fluctuations because gains and losses on these contracts
generally offset losses and gains on the exposure being hedged. We do not
enter into any foreign exchange forward contracts for speculative trading
purposes. If a foreign exchange forward contract did not meet the criteria for
a hedge, we would recognize unrealized gains and losses as they occur.
9
Firmly committed purchase (sales) exposure and related hedging
instruments at June 29, 2001 are as follows:
German Canadian
Marks Dollars
------- --------
Firmly committed purchase (sales) contracts.............. (20,318) 20,225
Notional amount of forward contracts..................... (20,318) 20,225
Average contract amount (Foreign currency/United States
dollar)................................................. 2.21 1.54
At June 29, 2001, we had changes in fair value of $384, net of tax of
$235, related to these derivatives which were included in accumulated other
comprehensive income. All derivatives entered into during fiscal year 2001
were designated as cash flow hedges and were fully effective. Scientific-
Atlanta has no derivative exposure beyond the third quarter of fiscal year
2003.
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities" which we adopted in fiscal year 2001. Under Statement 133, every
derivative instrument is recorded in the balance sheet as either an asset or a
liability measured at its fair value. Changes in the derivative instrument's
fair value must be recognized currently in earnings unless specific hedge
accounting criteria are met. The adoption of this statement did not have a
material impact on our results of operations or financial condition.
We have market risks associated with the volatility in the value of
our non-current marketable securities which consist of investments in common
stock and are stated at market value. All non-current marketable securities
are classified as "available for sale" under the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" and thus, changes in the fair value of these
securities are not included in our Consolidated Statements of Earnings until
realized. Unrealized holding gains and losses are included, net of taxes, in
accumulated other comprehensive income.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of Scientific-Atlanta and notes
thereto, the schedule containing certain supporting information and the report
of independent public accountants are set forth on pages 16 through 47 of this
Report. See Part IV, Item 14 for an index of the statements, notes and
schedule.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Pursuant to Instruction G(3) to Form 10-K, the information required in
Items 10-13 (except for the information set forth at the end of Part I in Item
4A with respect to Executive Officers of Scientific-Atlanta) is incorporated
by reference from Scientific-Atlanta's definitive proxy statement for
Scientific-Atlanta's 2001 Annual Meeting of Shareholders, which is expected to
be filed pursuant to Regulation 14A within 120 days after the end of fiscal
year 2001.
10
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
(1) The consolidated financial statements listed below are included on
pages 16 through 46 of this Report.
Report of Independent Public Accountants.
Consolidated Statements of Financial Position as of June 29, 2001
and June 30, 2000.
Consolidated Statements of Earnings for each of the three years in
the period ended June 29, 2001.
Consolidated Statements of Cash Flows for each of the three years
in the period ended June 29, 2001.
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for each of the three years in the period ended June 29,
2001.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedule:
Page
----
Schedule II Valuation and Qualifying Accounts for each of the
three years in the period ended June 29, 2001. 47
All other Schedules called for under Regulation S-X are not
submitted because they are not applicable or not required or
because the required information is not material or is included in
the financial statements or notes thereto.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
(c) Exhibits:
Periodic reports, proxy statements and other information filed by
Scientific-Atlanta with the SEC pursuant to the informational requirements of
the Exchange Act may be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the following Regional Offices
of the SEC: Midwest Regional Office, Citicorp Center, Suite 1400, 14th Floor,
500 West Madison Street, Chicago, Illinois 60661-2511; and Northeast Regional
Office, Suite 1300, 13th Floor, 7 World Trade Center, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549. The SEC also maintains a Web site
(http://www.sec.gov) that makes available reports, proxy statements and other
information regarding Scientific-Atlanta. Scientific-Atlanta's SEC file number
reference is Commission File No. 1-5517.
Exhibit No. Description
----------- -----------
3.1 Composite Statement of Amended and Restated Articles of
Incorporation of Scientific-Atlanta (filed as Exhibit 3(a) to
Scientific-Atlanta's Annual Report on Form 10-K for the fiscal
year ended June 27, 1997 (Commission File No. 1-5517), and
incorporated herein by reference).
3.2 By-laws of Scientific-Atlanta (filed as Exhibit 3 to Scientific-
Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 29, 2000 (Commission File No. 1-5517), and
incorporated herein by reference).
11
Exhibit No. Description
----------- -----------
4.1 Rights Agreement, dated as of February 23, 1997, between
Scientific-Atlanta and The Bank of New York, as Rights Agent,
which includes as Exhibit A the Preferences and Rights of Series A
Junior Participating Preferred Stock and as Exhibit B the Form of
Rights Certificate (filed as Exhibit 1 to Scientific-Atlanta's
Registration Statement on Form 8-A dated April 7, 1997 (Commission
File No. 1-5517), and incorporated herein by reference).
10.1.1 Credit Agreement dated May 11, 1995 among Scientific-Atlanta, the
Lenders (as defined therein), The Bank of New York and ABN AMRO
Bank N.V., as co-agents, and NationsBank of Georgia, National
Association, as agent (filed as Exhibit 10(g) to Scientific-
Atlanta's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995 (Commission File No. 1-5517), and incorporated
herein by reference).
10.1.2 First Amendment to Credit Agreement dated December 29, 1995 among
Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO
Bank N.V. and NationsBank, N.A. (South) (formerly known as
NationsBank of Georgia, National Association) (filed as Exhibit
10(j) to Scientific-Atlanta's Annual Report on Form 10-K for the
fiscal year ended June 28, 1996 (Commission File No. 1-5517), and
incorporated herein by reference).
10.1.3 Letter Amendment dated April 5, 1996 to the Credit Agreement among
Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO
Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10(j) to
Scientific-Atlanta's Annual Report Form 10-K for the fiscal year
ended June 28, 1996 (Commission File No. 1-5517), and incorporated
herein by reference).
10.1.4 Second Amendment to Credit Agreement dated June 28, 1996 among
Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO
Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10(l) to
Scientific-Atlanta's Annual Report on Form 10-K for the fiscal
year ended June 28, 1996 (Commission File No. 1-5517), and
incorporated herein by reference).
10.1.5 Third Amendment to Credit Agreement dated January 27, 1997 among
Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO
Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10.3 to
Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 28, 1997 (Commission File No. 1-5517), and
incorporated herein by reference).
10.1.6 Letter Amendment dated April 23, 1997 to the Credit Agreement
among Scientific-Atlanta, the Lenders, The Bank of New York, ABN
AMRO Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit
10(r) to Scientific-Atlanta's Annual Report on Form 10-K for the
fiscal year ended June 27, 1997 (Commission File No. 1-5517), and
incorporated herein by reference).
10.1.7 Letter Amendment dated April 24, 1998 to the Credit Agreement
among Scientific-Atlanta, the Lenders, The Bank of New York, ABN
AMRO Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit
10(o) to Scientific-Atlanta's Annual Report on Form 10-K for the
fiscal year ended June 26, 1998 (Commission File No. 1-5517), and
incorporated herein by reference).
10.1.8 Fourth Amendment to Credit Agreement dated November 6, 1998 among
Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO
Bank N.V. and NationsBank, N.A. (successor to NationsBank, N.A.
(South) (filed as Exhibit 10.14 to Scientific-Atlanta's Quarterly
Report on Form 10-Q for the fiscal quarter ended April 2, 1999
(Commission File No. 1-5517), and incorporated herein by
reference).
10.1.9 Amended and Restated Credit Agreement dated May 7, 1999 among
Scientific-Atlanta, the Lenders, The Bank of New York, ABN Amro
Bank N.V. and NationsBank, N.A. (filed as Exhibit 10(p) to
Scientific-Atlanta's Annual Report on Form 10-K for the fiscal
year ended July 2, 1999 (Commission File No. 1-5517), and
incorporated herein by reference).
10.1.10 Amendment No. 1 to the Amended and Restated Credit Agreement dated
June 22, 1999 among Scientific-Atlanta, the Lenders, The Bank of
New York, ABN Amro Bank N.V. and NationsBank, N.A. (filed as
Exhibit 10(q) to Scientific-Atlanta's Annual Report on Form 10-K
for the fiscal year ended July 2, 1999 (Commission File No. 1-
5517), and incorporated herein by reference).
12
Exhibit No. Description
----------- -----------
10.1.11 Second Amendment to Amended and Restated Credit Agreement dated
May 4, 2000 among Scientific-Atlanta, the Lenders, The Bank of New
York, ABN Amro Bank N.V. and NationsBank, N.A. (filed as Exhibit
10(p) to Scientific-Atlanta's Annual Report on Form 10-K for the
fiscal year ended June 30, 2000 (Commission File No. 1-5517), and
incorporated herein by reference).
10.1.12 Third Amendment to Amended and Restated Credit Agreement dated
June 22, 2001 among Scientific-Atlanta and The Bank of New York
and ABN Amro Bank N.V. as co-agents and Bank of America, N.A.,
successor to Nationsbank, N.A.
10.2.1 Credit and Investment Agreement dated July 30, 1997 among
Scientific-Atlanta, Wachovia Capital Markets, Inc., Wachovia Bank,
N.A., as agent, and the lenders signatories thereto (filed as
Exhibit 10(s) to Scientific-Atlanta's Annual Report on Form 10-K
for the fiscal year ended June 27, 1997 (Commission File No. 1-
5517), and incorporated herein by reference).
10.2.2 Lease Agreement dated July 30, 1997 between Wachovia Capital
Markets, Inc. and Scientific-Atlanta (filed as Exhibit 10(t) to
Scientific-Atlanta's Annual Report on Form 10-K for the fiscal
year ended June 27, 1997 (Commission File No. 1-5517), and
incorporated herein by reference).
10.2.3 Ground Lease dated July 30, 1997 between Scientific-Atlanta and
Wachovia Capital Markets, Inc. (filed as Exhibit 10(v) to
Scientific-Atlanta's Annual Report on Form 10-K for the fiscal
year ended June 27, 1997 (Commission File No. 1-5517), and
incorporated herein by reference).
10.2.4 Acquisition, Agency, Indemnity and Support Agreement dated July
30, 1997 between Scientific-Atlanta and Wachovia Capital Markets,
Inc. (filed as Exhibit 10(u) to Scientific-Atlanta's Annual Report
on Form 10-K for the fiscal year ended June 27, 1997 (Commission
File No. 1-5517), and incorporated herein by reference).
10.2.5 Letter Amendment dated September 30, 1997 to Credit and Investment
Agreement among Scientific-Atlanta, Wachovia Bank, N.A. and
Wachovia Capital Markets, Inc. (filed as Exhibit 10.11 to
Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal
quarter ended April 2, 1999 (Commission File No. 1-5517), and
incorporated herein by reference).
10.2.6 First Amendment to Lease Agreement dated October 9, 1997 between
Scientific-Atlanta and Wachovia Capital Markets, Inc. (filed as
Exhibit 10.16 to Scientific-Atlanta's Quarterly Report on Form 10-
Q for the fiscal quarter ended April 2, 1999 (Commission File No.
1-5517), and incorporated herein by reference).
10.2.7 Amendment to Credit and Investment Agreement dated November 30,
1997 among Scientific-Atlanta, Wachovia Bank, N.A. and Wachovia
Capital Markets, Inc. (filed as Exhibit 10.12 to Scientific-
Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 2, 1999 (Commission File No. 1-5517), and incorporated
herein by reference).
10.2.8 Second Amendment to Lease Agreement dated November 30, 1997
between Scientific-Atlanta and Wachovia Capital Markets, Inc.
(filed as Exhibit 10.17 to Scientific-Atlanta's Quarterly Report
on Form 10-Q for the fiscal quarter ended April 2, 1999
(Commission File No. 1-5517), and incorporated herein by
reference).
10.2.9 Second Amendment to Credit and Investment Agreement dated November
9, 1998 among Scientific-Atlanta, Wachovia Bank, N.A. and Wachovia
Capital Markets, Inc. (filed as Exhibit 10.13 to Scientific-
Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 2, 1999 (Commission File No. 1-5517), and incorporated
herein by reference).
10.2.10 First Amendment to Ground Lease dated February 29, 2000 between
Scientific-Atlanta and Wachovia Capital Markets, Inc.
13
Exhibit No. Description
----------- -----------
10.2.11 Third Amendment to Lease Agreement dated February 29, 2000 between
Scientific-Atlanta and Wachovia Capital Markets, Inc.
10.3* Stock Plan for Non-Employee Directors, as amended and restated.
10.4* Non-Employee Directors Stock Option Plan, as amended and restated
(filed as Exhibit 10(l) to Scientific-Atlanta's Annual Report on
Form 10-K for the fiscal year ended June 30, 2000 (Commission File
No. 1-5517), and incorporated herein by reference).
10.5* Deferred Compensation Plan for Non-Employee Directors, as amended
and restated.
10.6* Scientific-Atlanta Retirement Plan for Non-Employee Directors
(filed as Exhibit 10.4 to Scientific-Atlanta's Quarterly Report on
Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission
File No. 1-5517), and incorporated herein by reference).
10.7* Executive Deferred Compensation Plan, as amended and restated.
10.8* 1996 Employee Stock Option Plan, as amended and restated (filed as
Exhibit 10.2 to Scientific-Atlanta's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 30, 2001 (Commission File No.
1-5517), and incorporated herein by reference).
10.9* Long-Term Incentive Plan of Scientific-Atlanta, as amended and
restated (filed as Exhibit 10(l) to Scientific-Atlanta's Annual
Report on Form 10-K for the fiscal year ended July 2, 1999
(Commission File No. 1-5517), and incorporated herein by
reference).
10.10* Scientific-Atlanta Annual Incentive Plan for Key Employees as
amended and restated (filed as Exhibit 10.5 to Scientific-
Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 2, 1999 (Commission File No. 1-5517), and incorporated
herein by reference).
10.11* Scientific-Atlanta Senior Officer Annual Incentive Plan, as
amended and restated (filed as Exhibit 10(m) to Scientific-
Atlanta's Annual Report on Form 10-K for the fiscal year ended
July 2, 1999 (Commission File No. 1-5517), and incorporated herein
by reference).
10.12* 1985 Executive Deferred Compensation Plan of Scientific-Atlanta,
as amended and restated (filed as Exhibit 10.6 to Scientific-
Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 2, 1999 (Commission File No. 1-5517), and incorporated
herein by reference).
10.13* Supplemental Executive Retirement Plan, as amended and restated
(filed as Exhibit 10(j) to Scientific-Atlanta's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 30, 2001
(Commission File No. 1-5517), and incorporated herein by
reference).
10.14* Scientific-Atlanta Restoration Retirement Plan, as amended (filed
as Exhibit 10(n) to Scientific-Atlanta's Annual Report on Form 10-
K for the fiscal year ended June 26, 1998 (Commission File No. 1-
5517), and incorporated herein by reference).
10.15.1* Form of Severance Protection Agreement between Scientific-Atlanta
and Certain Officers and Key Employees (filed as Exhibit 10(g) to
Scientific-Atlanta's Annual Report on Form 10-K for the fiscal
year ended July 1, 1994 (Commission File No. 1-5517), and
incorporated herein by reference).
10.15.2* Form of First Amendment of Severance Protection Agreement by and
between Scientific-Atlanta and Certain Executives (filed as
Exhibit 10.3 to Scientific-Atlanta's Quarterly Report on Form 10-Q
for the fiscal quarter ended April 2, 1999 (Commission File No. 1-
5517), and incorporated herein by reference).
14
Exhibit No. Description
----------- -----------
21 Significant Subsidiaries of Scientific-Atlanta.
23 Consent of Independent Public Accountants.
99 Cautionary Statements.
- --------
* Indicates management contract or compensatory plan or arrangement.
15
Report of Independent Public Accountants
To the Stockholders of Scientific-Atlanta, Inc.:
We have audited the accompanying consolidated statements of financial
position of Scientific-Atlanta, Inc. (a Georgia corporation) and subsidiaries
as of June 29, 2001, and June 30, 2000, and the related consolidated
statements of earnings, cash flows and stockholders' equity and comprehensive
income for each of the three years in the period ended June 29, 2001 appearing
on pages 19, 27, 30 and 31, respectively. These financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Scientific-
Atlanta, Inc. and subsidiaries as of June 29, 2001 and June 30, 2000, and the
results of their operations and their cash flows for each of the three years
in the period ended June 29, 2001 in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed in
Item 14(a)(2) of this Form 10-K is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
July 19, 2001
Report of Management
The management of Scientific-Atlanta, Inc. (the Company) has the
responsibility for preparing the accompanying financial statements and for
their integrity and objectivity. The statements, which include amounts that
are based on management's best estimates and judgments, have been prepared in
conformity with accounting principles generally accepted in the United States
and are free of material misstatement. Management also prepared the other
information in the Form 10-K and is responsible for its accuracy and
consistency with the financial statements.
The Company maintains a system of internal control over the preparation
of its published annual and interim financial statements. It should be
recognized that even an effective internal control system, no matter how well
designed, can provide only reasonable assurance with respect to the
preparation of reliable financial statements; further, because of changes in
conditions, internal control system effectiveness may vary over time.
Management assessed the Company's system of internal control in
relation to criteria for effective internal control over the preparation of
its published annual and interim financial statements. Based on its
assessment, it is management's opinion that its system of internal control as
of June 29, 2001 is effective in providing reasonable assurance that its
published annual and interim financial statements are free of material
misstatement.
As part of their audit of our financial statements, Arthur Andersen LLP
considered certain elements of our system of internal controls in determining
their audit procedures for the purpose of expressing an opinion on the
financial statements.
The audit committee of the board of directors is composed solely of
outside directors and is responsible for recommending to the board the
independent public accountants to be retained for the year, subject to
stockholder approval. The audit committee meets three times each year to
review with management the Company's system of internal accounting controls,
audit plans and results, accounting principles and practices, and the annual
financial statements.
/s/ James F. McDonald /s/ Wallace G. Haislip
James F. McDonald Wallace G. Haislip
Chairman of the Board Senior Vice President
President and Chief Executive Officer Chief Financial Officer and Treasurer
16
Management's Discussion of Consolidated Statements of Financial Position
Scientific-Atlanta had stockholders' equity of $1.5 billion and cash and
short-term investments of $754.3 million at June 29, 2001. The current
ratio was 3.9:1 at June 29, 2001 compared to 3.0:1 at June 30, 2000.
Receivables were $502.3 million at fiscal year-end, compared to $333.2 million
at the prior year-end. Average days sales outstanding were 63 in fiscal
year 2001, as compared to 65 days in the prior year. The allowance for
doubtful accounts of $6.0 million increased $1.8 million primarily due to
the higher volume of sales in fiscal year 2001 as compared to fiscal year
2000.
Inventory turnover was 7.8 times in 2001, compared to 5.7 in the prior year.
The improvement in inventory turnover was due to higher sales volume and a
shift in the mix of products to high-volume subscriber products in fiscal
year 2001 as compared to the prior year and management's continued effort
to improve working capital in fiscal year 2001.
Current deferred income taxes increased $7.5 million in fiscal year 2001
primarily due to increases in reserves currently not deductible.
Other current assets of $33.2 million include vendor deposits, license fees,
prepaid taxes (other than income taxes), land held for sale, prepaid
software maintenance fees and other miscellaneous prepaid expenses.
Net property, plant and equipment increased $48.4 million in fiscal year 2001.
Capital additions of $104.8 million included expenditures for equipment and
expansion of manufacturing capacity, primarily in Juarez, Mexico, and
engineering and office facilities in Lawrenceville, Georgia.
Goodwill and other intangible assets increased $74.0 million during fiscal
year 2001 from the acquisition of PRASARA Technologies, Inc. (PRASARA) and
the tender for shares held by minority shareholders of a majority owned
subsidiary, PowerTV, Inc. (PowerTV).
In July 2000, PowerTV acquired 100 percent of the outstanding stock of
PRASARA for shares of PowerTV common stock and $2.6 million in cash.
PRASARA provides business and technical solutions to the telecommunications
industry including development, installation, maintenance and operation of
interactive television technology. The acquisition was accounted for under
the purchase method of accounting and, accordingly, the acquired assets and
liabilities were recorded at their estimated fair value at the date of
acquisition. The purchase price has been allocated to the assets acquired
and liabilities assumed, including $31.7 million of goodwill and other
intangibles, which will be amortized over five years.
In March 2001, we announced a tender offer to purchase the outstanding
shares of PowerTV not already owned by Scientific-Atlanta. We held
approximately 85 percent of the outstanding shares of PowerTV prior to the
tender offer. As the result of the tender offer, which was concluded in
April 2001, we now own approximately 98 percent of the outstanding shares
of PowerTV. The additional shares were acquired for an aggregate price of
$66.8 million paid in cash. We recorded a one-time, pre-tax compensation
charge of $10.8 million in connection with the acquisition of such shares.
In addition, we recorded $52.5 million of goodwill and other intangibles,
which will be amortized over five years.
We plan to adopt Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets" during the first quarter of
fiscal year 2002. Under the provisions of SFAS No. 142, goodwill is no
longer subject to amortization. After implementing SFAS No. 142, we believe
that our annual goodwill amortization expense will be approximately $4.5
million lower in fiscal year 2002 than in fiscal year 2001. SFAS No. 142
also establishes a new method of testing goodwill for impairment and we
will be required to test our goodwill for impairment under the new standard
upon adoption. We are in the process of evaluating the financial statement
impact of the adoption of SFAS No. 142 related to goodwill impairment.
17
Management's Discussion of Consolidated Statements of Financial Position
(Continued)
Non-current marketable securities consist of investments in common stock of
publicly traded companies and are reported at market value. During fiscal
year 2001, we recorded unrealized losses of $360.6 million, compared with
unrealized gains of $348.9 million in fiscal year 2000, on these securities
due to market value fluctuations, which are included in accumulated other
comprehensive income. We also sold a portion of our investments in Bookham
Technology plc (Bookham) and Wink Communications, Inc. (Wink) during fiscal
year 2001. See Managements Discussion of Consolidated Statements of Earnings
for additional information.
Non-current deferred income taxes of $26.7 million relate primarily to accruals
for expenses currently not deductible.
Other assets, which include equity investments, license fees, intellectual
property, capitalized software development costs, cash surrender value of
company-owned life insurance and various prepaid expenses, increased
$41.0 million due primarily to the purchase of additional company-owned life
insurance and additional equity investments made in fiscal year 2001.
Accounts payable were $224.0 million at year-end, up slightly from $212.1
million last year. Days payable were 50 in fiscal year 2001 as compared to
48 days in the prior fiscal year.
Accrued liabilities of $165.0 million include accruals for compensation,
provisions for businesses sold, warranty and service obligations, customer
down-payments, royalties and taxes, excluding income taxes. See Note 8 for
additional information.
Non-current deferred income taxes of $114.4 million at June 30, 2000 related
primarily to net unrealized gains on marketable securities classified as
available for sale under the provisions of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The market value of
these securities declined during fiscal year 2001 and the tax effect of the
net unrealized gains at June 29, 2001 is included in the non-current
deferred income tax asset.
Other liabilities of $99.8 million are comprised of deferred compensation,
retirement plans, postretirement benefit plans, post employment benefits and
other miscellaneous accruals. See Note 9 for additional details.
Stockholders' equity was $1.5 billion at the end of fiscal year 2001, up $294.0
million over the prior year. Net earnings of $333.7 million, $181.1 million
of additional paid in capital and common stock from the issuance of common
stock pursuant to employee benefit and other stock-based compensation plans
and $12.9 million of gains from the issuance of common stock of a majority-
owned subsidiary to minority shareholders were partially offset by a
$227.2 million decline in accumulated other comprehensive income, primarily
from unrealized losses on marketable equity securities, and dividend
payments of $6.5 million.
During July 2001, we purchased 7,925,000 shares of our common stock at an
aggregate cost of $184.0 million pursuant to a stock buyback program
announced March 16, 2000. In addition, on July 25, 2001, we announced a
buyback program for the purchase of up to 8,000,000 additional shares of our
common stock.
18
Consolidated Statements of Financial Position
In Thousands
---------------------
2001 2000
- -------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 563,322 $ 462,496
Short-term investments 191,001 61,481
Receivables, less allowance for doubtful accounts of
$5,982,000
in 2001 and $4,134,000 in 2000 502,289 333,242
Inventories 201,762 209,916
Deferred income taxes 57,195 49,681
Other current assets 33,165 33,818
---------- ----------
Total current assets 1,548,734 1,150,634
---------- ----------
Property, plant and equipment, at cost
Land and improvements 22,218 20,248
Buildings and improvements 67,946 40,915
Machinery and equipment 246,385 214,295
---------- ----------
336,549 275,458
Less - accumulated depreciation and amortization 108,934 96,209
---------- ----------
227,615 179,249
---------- ----------
Goodwill and other intangible assets, net 81,491 7,475
---------- ----------
Non-current marketable securities 17,159 381,983
---------- ----------
Deferred income taxes 26,732 --
---------- ----------
Other assets 101,097 60,119
---------- ----------
Total Assets $2,002,828 $1,779,460
========== ==========
- -------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 91 $ 386
Accounts payable 223,990 212,111
Accrued liabilities 164,991 149,402
Income taxes currently payable 5,051 18,264
---------- ----------
Total current liabilities 394,123 380,163
---------- ----------
Long-term debt, less current maturities -- 102
---------- ----------
Deferred income taxes -- 114,428
---------- ----------
Other liabilities 99,766 69,807
---------- ----------
Commitments and contingencies (Note 14)
Stockholders' equity
Preferred stock, authorized 50,000,000 shares; no
shares issued
Common stock, $0.50 par value, authorized
350,000,000 shares, issued 164,899,158 shares in
2001 and 159,971,077 shares in 2000 82,450 79,986
Additional paid-in capital 545,602 339,649
Retained earnings 935,038 607,822
Accumulated other comprehensive income (loss), net
of taxes
of $3,723,000 in 2001 and $135,538,000 in 2000 (6,075) 221,141
---------- ----------
1,557,015 1,248,598
Less - Treasury stock, at cost (859,339 shares in
2001 and
651,805 shares in 2000) 48,076 33,638
---------- ----------
1,508,939 1,214,960
---------- ----------
Total Liabilities and Stockholders' Equity $2,002,828 $1,779,460
========== ==========
- --------------------------------------------------------------------------------
See accompanying notes.
19
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20
Management's Discussion of Consolidated Statements of Earnings
The Consolidated Statements of Earnings summarize Scientific-Atlanta's
operating performance over the last three years, during which time we have
accelerated development of new products, particularly the development,
qualification, deployment and production of our interactive digital
networks at customer sites in North America, and continued our expansion
into international markets.
Net earnings were $333.7 million, or $1.99 per share in fiscal year 2001 as
compared to $155.8 million, or $0.94 per share in fiscal year 2000.
Earnings in fiscal year 2001 include an after-tax gain of $49.5 million
from the sale of a portion of our investments in Bookham and Wink and a
one-time, after-tax charge of $7.1 million related to the tender of shares
held by minority shareholders of PowerTV. Excluding these items, net
earnings were $291.3 million or $1.74 per share in fiscal year 2001.
Earnings in fiscal year 2000 included after-tax gains of $4.0 million from
the sale of a portion of our investment in WorldGate Communications, Inc.
(WorldGate), $3.9 million from the reduction of reserves related to
businesses sold, $3.2 million from the reduction of a reserve for expenses
and potential settlement of environmental issues and an after-tax charge of
$7.2 million related to contractual obligations to minority shareholders of
PowerTV. Excluding these items, net earnings in fiscal year 2000 were
$151.9 million or $0.92 per share.
Earnings in fiscal year 1999 included gains of $41.6 million from the sale
of certain marketable securities and the adjustment of our investments in
other marketable securities to market value. Excluding these gains,
earnings in fiscal year 1999 were $60.7 million, or $0.39 per share.
Sales of $2.5 billion in fiscal year 2001 increased 46 percent over the prior
year. Domestic sales grew $779.3 million, or 57 percent, year over year.
International sales increased 5 percent led by growth in Canada and Latin
America.
Subscriber product sales of $1.7 billion in fiscal year 2001 increased 100
percent over the prior year. During fiscal year 2001, we continued the
rollout of advanced two-way digital cable systems, which are real-time,
interactive digital networks designed to enable advanced services such as
video-on-demand, e-mail and Web browsing. More than 4.8 million Explorer
digital set-tops were shipped in fiscal year 2001, up from 1.9 million in
fiscal year 2000. During fiscal year 2001, we increased the production
capacity of our Explorer digital interactive set-tops in our Juarez
facility from 1 million units per quarter to 1.5 million units per quarter.
As previously announced, we do not expect to utilize all of this capacity
in the first quarter of fiscal year 2002.
Sales of transmission products of $714.1 million increased slightly in
fiscal year 2001 as compared to fiscal year 2000. A 39 percent increase
year over year in sales of opto-electronic products was offset by a 20
percent decline in sales of RF (radio frequency) products. Media Networks
sales declined 7 percent in fiscal year 2001 as compared to fiscal year
2000. We believe the economic downturn, particularly in international
markets, has led customers to delay purchasing decisions regarding these
products.
After our earnings release and conference call on July 19, 2001 for our
quarter and fiscal year ended June 29, 2001, a number of the large multiple
system cable operators ("MSOs") have published their results for that
quarter. These results show that, although the total number of digital
subscribers increased during the period, for most of the MSOs the number of
net new digital subscribers added declined over the number added in the
first calendar quarter. The MSOs first reported declines in the rate of new
digital subscribers added after the end of the first quarter of calendar
2001. Although in their second quarter reports some of these MSOs
reaffirmed or increased their previous guidance on the total number of
digital subscribers to be added for the entire 2001 calendar year, the
declines in the deployment rates for the second calendar quarter reported
after our earnings release and conference call could have an adverse effect
on our first quarter and thereby on our fiscal year 2002 results.
21
Management's Discussion of Consolidated Statements of Earnings (Continued)
In addition, we continue to have limited visibility to the inventories that
these MSOs may have accumulated during calendar 2000 and early 2001 when,
as a result of our production capacity limitations, these customers were on
allocation. A reduction in the MSO deployment rates could mean that these
inventories will not be utilized as quickly as would otherwise be the case.
Also, since digital interactive television is a relatively new business,
there is little historical data to determine the factors that may affect
demand for our products, including the sensitivity of demand to changes in
the economy. A declining economy may adversely affect consumer purchases of
new digital services, and thus purchases of our digital products by the
MSOs, even if it does not impact monthly MSO subscription revenues.
Sales of $1.72 billion in fiscal year 2000 increased 38 percent over the
prior year. Domestic sales grew $391.3 million, or 41 percent, year over
year while international sales increased $80.6 million, or 29 percent, year
over year.
During fiscal year 2000, we increased the production capacity of our
digital set-tops in our Juarez facility from 250,000 units per quarter to 1
million units per quarter.
Sales of subscriber products led the year over year increase in fiscal year
2000 as compared to the prior year with growth of 51 percent driven by the
continued deployment of digital interactive systems and strong demand for
the Explorer set-tops in fiscal year 2000. We shipped 1.9 million Explorer
set-tops during fiscal year 2000 as compared to approximately 0.5 million
in fiscal year 1999. As anticipated and previously announced, sales of
analog set-tops continued to decline in fiscal year 2000 as cable operators
shifted from analog to digital products. Sales of transmission products
increased 44 percent led by growth of 79 percent and 51 percent in sales of
opto-electronics and RF products, respectively. Media Networks and
Satellite Networks sales declined 11 percent from fiscal year 1999 to
fiscal year 2000 due to lower sales in the Satellite Networks business unit
which relied significantly on international markets which were negatively
impacted by the weak economic conditions in Eastern Europe and the Asia
Pacific region and the sale of the Satellite Networks business unit to
ViaSat, Inc. in April 2000. The sale of the Satellite Networks business
unit did not have a material impact on our results of operations or
financial position. Sales of the Satellite Networks business unit were
approximately 4 percent of total sales in fiscal year 2000 and 8 percent of
total sales in fiscal year 1999.
Customers that accounted for 10 percent or more of our total sales in
fiscal years 2001, 2000 or 1999 are as follows:
2001 2000 1999
---- ---- ----
AOL Time Warner, Inc. 22% 23% 16%
Charter Communications, Inc. 20% 14% 7%
Adelphia 18% 2% 2%
AT&T 2% 10% 16%
All other customers 38% 51% 59%
---- ---- ----
Total 100% 100% 100%
==== ==== ====
Sales of products that accounted for 10 percent or more of our total sales
in fiscal years 2001, 2000 or 1999 are as follows:
2001 2000 1999
---- ---- ----
Digital set-tops 57% 34% 15%
RF products 10% 18% 16%
Analog set-tops 3% 9% 24%
All others 30% 39% 45%
---- ---- ----
Total 100% 100% 100%
==== ==== ====
International sales were 15 percent of total sales in fiscal year 2001, as
compared to 21 percent and 22 percent of such sales in fiscal years 2000
and 1999, respectively.
Cost of sales as a percent of sales decreased 2.3 percentage points in fiscal
year 2001 from fiscal year 2000. We continue aggressively to reduce our
costs through product design, procurement and manufacturing. Each
generation of our custom ASICs (Application Specific Integrated Circuits)
incorporates more functionality and helps us reduce the number of
components in our digital set-tops. Our material costs have benefited from
the recent downturn in the electronics industry, which has reduced
22
Management's Discussion of Consolidated Statements of Earnings (Continued)
component costs and improved component availability. In addition, we have
taken advantage of newly available e-commerce technology to reduce the cost
of many of the commodity parts used in our products.
Cost of sales as a percent of sales decreased 0.7 percentage points in
fiscal year 2000 from fiscal year 1999, reflecting the economies of scale
associated with increased manufacturing volumes, the continuing benefit
from manufacturing in Juarez, Mexico and negotiated procurement savings.
Except for certain ASICs, the materials and supplies we purchase generally
are standard electronic components, such as integrated circuits, wire,
circuit boards, transistors, capacitors and resistors, all of which are
produced by a number of manufacturers. We also purchase aluminum die
castings, steel enclosures and other semi-fabricated items, which are
produced by a variety of sources. We consider our sources of supply to be
adequate and are not dependent upon a single supplier, except for
STMicroelectronics (and affiliates), Micron Semiconductor Products, Inc.,
Philips Semiconductors, Inc., Matsushita Electronics Components Corporation
of America and its affiliates, Cablevision Electronics Co., Ltd., Zinwell
Corporation, JDS Uniphase, Premiere Die Castings, Inc., and Anadigics, Inc.
for any significant portion of the materials used in the products we
manufacture or the products we sell. These suppliers provide us with the
following materials and supplies:
STMicroelectronics, Micron Semiconductor Products, Inc. and Philips
Semiconductors, Inc. are our primary suppliers of a variety of
semiconductor products, which are used as components in an array of
products, including set-tops.
Matsushita Electronics Components Corporation of America and its
affiliates manufacture analog set-tops for us and are a primary supplier
of those set-tops.
Cablevision Electronics Co., Ltd. and Zinwell Corporation, Taiwanese
companies, are our primary suppliers of taps. We also are part of a joint
venture in Shanghai, China that provides us with taps.
JDS Uniphase is our primary supplier of opto amplifiers.
Premiere Die Casting, Inc. is our primary supplier of die-castings for RF
distribution.
Anadigics, Inc. is a provider of CATV integrated circuits for use in our
RF distribution products.
For the first half of fiscal year 2001, we experienced substantial
shortages of certain electronic components from our suppliers, which did
not materially affect our output. Material availability was greatly
enhanced in the second half of the fiscal year, and we do not expect to
have significant material supply issues in the foreseeable future.
Sales and administrative expenses of $222.0 million in fiscal year 2001 were
up $44.4 million over the prior year. The year over year increase in
expenses is related to the high volume of sales, improved profitability,
higher professional fees, increase in headcount, increased amortization
expenses related to the PowerTV tender offer and acquisition of PRASARA,
which are discussed in Management's Discussion and Analysis of Consolidated
Statements of Financial Position, and other acquisition expenses.
Sales and administrative expenses of $177.6 million in fiscal year 2000
were $15.6 million higher than fiscal year 1999. Increases in expenses in
fiscal year 2000 related to the high volume of sales and higher
professional fees.
Research and development expenses were $154.3 million in fiscal year 2001,
excluding the $10.8 million stock compensation charge discussed in
Management's Discussion and Analysis of Consolidated Statements of
Financial Position, up $31.9 million over fiscal year 2000 driven primarily
by the development of international products and advanced digital set-tops.
Research and development efforts in
23
Management's Discussion of Consolidated Statements of Earnings (Continued)
fiscal year 2001 continued to focus on the development of applications and
enhancements to our interactive broadband networks. Research and development
expenses were approximately 6 percent of sales in fiscal year 2001 and 7
percent and 9 percent of sales in fiscal years 2000 and 1999, respectively.
We continue to invest in research and development programs to support
existing products as well as future potential products and services for our
customer base.
Certain software development costs are capitalized when incurred and are
reported at the lower of unamortized cost or net realizable value.
Capitalization of software development costs begins upon the establishment
of technological feasibility. The establishment of technological feasibility
and the ongoing assessment of recoverability of capitalized software
development costs requires considerable judgment by management with respect
to certain external factors, including, but not limited to, anticipated
future revenues, estimated economic life and changes in software and
hardware technologies.
We capitalize certain research and development costs for the software
components of our products. Capitalization ceases when the products are
available for general release to customers. We amortize these development
costs to cost of sales when we recognize revenue on the products.
Capitalized software development costs and the amortization of these costs
in fiscal years 2001, 2000 and 1999 are as follows:
In Millions
--------------
2001 2000 1999
---- ---- ----
Capitalized software development costs $6.0 $3.4 $3.3
Amortization to cost of sales $6.4 $4.4 $0.6
We periodically allocate engineering resources from research and development
efforts for specific customer orders. The revenue from these orders will be
recognized in future periods and, accordingly, the related costs have been
capitalized as inventory. There were no non-recurring engineering costs
capitalized in inventory at June 29, 2001 or June 30, 2000. At July 2, 1999,
we had capitalized $9.0 million of such non-recurring engineering costs in
inventory, which was charged to cost of sales as we recognized revenue on
the related orders in fiscal year 2000. We also charged $2.2 million of
previously capitalized non-recurring engineering to cost of sales as we
recognized revenue on the related orders in fiscal year 1999.
We invest in our technology and in select emerging technologies of
innovative companies. During fiscal year 2000, we invested $13.1 million in
Bookham, a UK-based developer and supplier of optical components, $10.0
million in Luminous Networks, a developer of next-generation optical
transport technology, and $6.9 million in Broadband Innovations, Inc., a
telecommunications technology company specializing in RF and digital signal
processing solutions for broadband communications. In addition to the
acquisition of PRASARA in July 2000, we invested an additional $6.7 million
in Luminous and $15.0 million in various other emerging technology companies
during fiscal year 2001.
We periodically evaluate our strategic direction including an assessment of
the markets we serve and alternative methods of generating revenues from our
investments in research and development programs, such as licensing of
software and hardware technology.
Stock compensation expense of $10.8 million in fiscal year 2001 related to the
tender for PowerTV shares discussed in Management's Discussion and Analysis
of Consolidated Statements of Financial Position.
A restructuring program initiated in fiscal year 1998 was substantially
completed in fiscal year 1999. Approximately $0.8 million of the original
$23.4 million restructuring charge will be paid after June 29, 2001 for
expenses related to contractual obligations under the leases.
24
Management's Discussion of Consolidated Statements of Earnings (Continued)
Interest expense was $0.4 million in fiscal year 2001 and $0.6 million in
fiscal years 2000 and 1999.
Interest income was $36.9 million in fiscal year 2001, an increase of $17.2
million over the prior year, due to higher average cash balances and the
increase in short-term investments in fiscal year 2001 as compared to
fiscal year 2000. The average yield on cash and short-term investments was
6.1 percent in fiscal year 2001 as compared to 5.9 percent in fiscal year
2000.
Other (income) expense of $67.2 million in fiscal year 2001 included a gain of
$79.8 million from the sale of a portion of our investments in Bookham and
Wink and losses on the disposition of fixed assets, partnership losses,
other than temporary declines in the market value of investments, declines
in the cash surrender value of company owned life insurance, expenses
related to buildings that were vacated during the year as part of the
consolidation of facilities in Georgia and various other miscellaneous
items, none of which individually were significant.
Other (income) expense of $0.7 million in fiscal year 2000 included
expenses of $10.3 million related to contractual obligations to minority
shareholders of PowerTV and losses of $2.4 million from the disposal of
fixed assets. During fiscal year 2000, we completed the sale of certain
assets of our Control Systems business unit for $3.3 million of cash and
recorded a gain of $1.5 million. We also recorded a $5.8 million gain from
the sale of a portion of our investment in WorldGate Communications, Inc.
(WorldGate).
Other (income) expense in fiscal year 2000 also included gains of $5.5
million from the reduction of reserves related to the sale of two business
units. During the year, we determined that our exposure for
indemnifications to the purchasers of these business units and other
miscellaneous expenses related to the dispositions were ultimately less
than we had previously estimated and, accordingly, reduced the reserves. We
also completed the sale of the majority of the Satellite Networks business
unit for $65.3 million of cash. No gain or loss was recognized on this
transaction. At June 29, 2001, we had reserves of approximately
$18.1 million related to the disposition of business units to provide for
potential sales price adjustments, expenses related to contractual
commitments to the purchasers, indemnifications to the purchasers,
severance and other miscellaneous expenses related to the sales.
In fiscal year 2000, we also reversed approximately $4.5 million of a $5.5
million charge recorded in fiscal year 1998 for expenses and the potential
settlement of environmental issues. As this environmental matter has
progressed, we have determined that its potential exposure is less than
initially anticipated. At June 29, 2001, we had $0.9 million remaining in
the reserve for expenses and the potential settlement of environmental
issues.
Other (income) expense of $62.3 million in fiscal year 1999 included gains
of $41.3 million and $16.6 million from the sale of our investments in
Broadcom Corporation and Harmonic Inc., respectively, $6.2 million from the
cancellation of a contract under which we were obligated to supply
equipment and $5.0 million from an investment in a partnership. In
addition, during the second quarter of fiscal year 1999, we decided to
dispose of a business unit, Control Systems, which produced devices to
monitor and manage utility service usage, because the business unit did not
fit with our core strategy. We recorded a charge of approximately $6.0
million to adjust the carrying value of the assets to be sold to fair
value, less costs to sell, to adjust the estimated profitability on certain
contracts to allow the purchaser to achieve reasonable margins, to provide
for indemnification to the purchaser and to provide for other miscellaneous
expenses associated with the sale.
The provision for income taxes was 34.6 percent of pretax earnings for fiscal
year 2001, an increase of 4.6 percentage points from fiscal years 2000 and
1999. The increase was due to
25
Management's Discussion of Consolidated Statements of Earnings (Continued)
the diminished impact on the tax rate from research and development credits
with higher levels of pretax earnings as well as higher taxes to be paid on
the gains from the sale of investments. We expect our effective income tax
rate will be 34 percent of pre-tax earnings in fiscal year 2002. Details of
the provision for income taxes are discussed in Note 10.
Earnings per share of $1.99 in fiscal year 2001 compares with earnings per
share of $0.94 in fiscal year 2000 and $0.65 in fiscal year 1999. Average
diluted shares outstanding increased to 167.7 million in fiscal year 2001
from 164.9 million in 2000 due primarily to the issuance of shares pursuant
to stock option plans, 401(k) plan and other stock-based compensation
arrangements. Earnings per share and weighted average shares outstanding for
fiscal year 1999 have been restated to reflect the 2-for-1 stock split in
March 2000. See Notes 15 and 16 for additional information.
26
Consolidated Statements of Earnings
(In Thousands, Except Per Share Data) 2001 2000 1999
- -----------------------------------------------------------------------------
Sales $2,512,016 $1,715,410 $1,243,473
- -----------------------------------------------------------------------------
Costs and expenses
Cost of sales 1,718,160 1,212,655 888,162
Sales and administrative 222,027 177,588 162,017
Research and development 154,346 122,403 117,261
Stock compensation 10,778 -- --
Interest expense 411 564 635
Interest income (36,879) (19,636) (8,526)
Other (income) expense, net (67,229) (747) (62,281)
- -----------------------------------------------------------------------------
Total costs and expenses 2,001,614 1,492,827 1,097,268
- -----------------------------------------------------------------------------
Earnings before income taxes 510,402 222,583 146,205
- -----------------------------------------------------------------------------
Provision for income taxes 176,728 66,775 43,862
- -----------------------------------------------------------------------------
Net earnings $ 333,674 $ 155,808 $ 102,343
- -----------------------------------------------------------------------------
Earnings per common share
- -----------------------------------------------------------------------------
Basic $ 2.06 $ 0.99 $ 0.67
Diluted $ 1.99 $ 0.94 $ 0.65
- -----------------------------------------------------------------------------
Weighted average number of common shares
outstanding
- -----------------------------------------------------------------------------
Basic 161,601 157,807 153,630
Diluted 167,688 164,895 157,130
- -----------------------------------------------------------------------------
See accompanying notes.
27
Management's Discussion of Consolidated Statements of Cash Flows
The Statements of Cash Flows summarize the main sources of our cash and its
uses. These flows of cash provided or used are summarized by Scientific-
Atlanta's operating activities, investing activities and financing
activities.
Cash and cash equivalents at the end of fiscal year 2001 were $563.3 million,
up $100.8 million from the end of fiscal year 2000 due primarily to improved
earnings and the issuance of stock pursuant to stock option and employee
stock purchase plans.
We have a $200 million senior credit facility available that provides for
unsecured borrowings up to $50 million, which expires June 2002, and up to
$150 million, which expires May 2004. There were no outstanding borrowings
under this facility at June 29, 2001 or at June 30, 2000. We believe that
funds generated from operations, existing cash balances and our available
senior credit facility will be sufficient to support operations.
Cash provided by operating activities was $258.9 million for fiscal year 2001,
compared to $222.2 million for fiscal year 2000. In fiscal year 2001, cash
provided by improved earnings, a reduction in income taxes currently payable
from the tax benefit related to the exercise of stock options, increases in
accounts payable and a reduction of inventory was offset partially by
increases in receivables. See Management's Discussion of the Consolidated
Statements of Earnings for details of this performance.
In fiscal year 2000, cash provided by improved earnings and increases in
accounts payable and other liabilities were offset partially by increases in
accounts receivable and inventory levels as compared to the prior year.
In fiscal year 1999, cash provided by earnings and increases in accounts
payable were also offset partially by increases in accounts receivable and
inventory levels as compared to the prior year.
Cash used by investing activities of $238.8 million in fiscal year 2001
included $129.5 million for purchases of short-term investments,
$104.8 million of expenditures for equipment and expansion of manufacturing
capacity, primarily in Juarez, Mexico, and engineering and office facilities
in Lawrenceville, Georgia, $64.6 million for the tender offer for shares of
common stock of PowerTV and $24.2 million of technology investments. We also
received $84.2 million from the sale of a portion of our investments in
Bookham and Wink.
Cash used by investing activities of $103.7 million in fiscal year 2000
included expenditures for equipment and expansion of manufacturing capacity,
primarily in Juarez, Mexico, purchases of short-term investments and
technology investments. Cash provided by investing activities in fiscal year
2000 included proceeds from the sale of the Satellite and Control System
business units and divestiture of a portion of our investment in WorldGate.
See Note 2 for additional discussion of investing activities.
Cash provided by investing activities of $107.0 million in fiscal year 1999
consisted of proceeds from the sale of marketable securities and other
investments offset by investing activities of $51.4 million for expenditures
for equipment and the expansion of manufacturing capacity, primarily in
Juarez, Mexico.
Cash provided by financing activities of $80.7 million in fiscal year 2001
consisted of $87.6 million from the issuance of common stock pursuant to
stock option plans, the 401(k) plan and the employee stock purchase plan,
dividend payments of $6.5 million and the reduction of $0.4 million of long-
term debt.
Cash provided by financing activities of $43.5 million in fiscal year 2000
included $53.1 million from the issuance of stock pursuant to stock option
and employee benefit plans offset partially by dividend payments of $5.5
million, the repurchase of 75,000 shares of Scientific-Atlanta's common
stock for $3.7 million and payments on long-term debt of $0.3 million.
28
Management's Discussion of Consolidated Statements of Cash Flows
Cash used by financing activities of $28.1 million in fiscal year 1999
included the acquisition of 4,648,000 shares of Scientific-Atlanta's stock
for $65.2 million, dividend payments of $4.6 million and payments on long-
term debt of $0.9 million. We reissue these shares under the Scientific-
Atlanta stock option plans, 401(k) plan, employee stock purchase plan and
other stock-based employee compensation arrangements. The issuance of stock
pursuant to these plans generated cash of $42.6 million.
----------------
Any statements in Management's Discussion and Analysis of Financial Condition
and Results of Operations that are not statements about historical facts are
forward-looking statements. Such forward-looking statements are based upon
current expectations but involve risks and uncertainties. Investors are
referred to the Cautionary Statements contained in Exhibit 99 to this Form 10-K
for a description of the various risks and uncertainties that could cause
Scientific-Atlanta's actual results and experience to differ materially from
the anticipated results or other expectations expressed in Scientific-Atlanta's
forward-looking statements. Such Exhibit 99 is hereby incorporated by reference
into Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Scientific-Atlanta, the Scientific-Atlanta logo, Explorer, Prisma and PowerVu
are registered trademarks of Scientific-Atlanta, Inc.
SciCare, WebSTAR and Surge-Gap are trademarks of Scientific-Atlanta, Inc.
PowerTV is a registered trademark of PowerTV, Inc.
29
Consolidated Statements of Cash Flows
(In Thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Operating Activities:
Net earnings $333,674 $155,808 $102,343
Adjustments to reconcile net earnings to net
cash
provided by operating activities:
(Gains) on marketable securities, net (77,953) (5,780) (59,465)
Depreciation and amortization 66,342 50,707 46,075
Compensation related to stock benefit plans 26,296 20,779 9,720
Provision for doubtful accounts 1,866 (3,165) (1,615)
Losses on sale of property, plant and equipment 2,740 2,396 4,436
(Gain) on sale of businesses, net -- (6,527) --
(Earnings) losses of partnerships, net (257) 754 (6,023)
Changes in operating assets and liabilities, net
of effects of acquisitions
Receivables (170,503) (55,409) (34,209)
Inventories 8,303 (28,308) (29,809)
Deferred income taxes (27,530) (22,570) (15,593)
Accounts payable and accrued liabilities 17,009 74,435 25,185
Other assets (23,868) (29,204) (7,867)
Other liabilities 104,941 71,571 12,658
Exchange rate fluctuations, net (2,181) (3,266) 316
- --------------------------------------------------------------------------------
Net cash provided by operating activities 258,879 222,221 46,152
- --------------------------------------------------------------------------------
Investing Activities:
Purchases of property, plant and equipment (104,810) (82,772) (51,352)
Purchases of short-term investments (129,520) (60,628) --
Tender for shares of PowerTV (64,607) -- --
Proceeds from the sale of businesses -- 68,606 --
Proceeds from the sale of investments 84,158 8,719 152,974
Other investments (24,179) (37,713) 4,952
Other 207 106 469
- --------------------------------------------------------------------------------
Net cash provided (used) by investing activities (238,751) (103,682) 107,043
- --------------------------------------------------------------------------------
Financing Activities:
Principal payments on long-term debt (397) (298) (923)
Dividends paid (6,458) (5,541) (4,618)
Issuance of stock 87,553 53,087 42,636
Treasury shares acquired -- (3,745) (65,228)
- --------------------------------------------------------------------------------
Net cash provided (used) by financing activities 80,698 43,503 (28,133)
- --------------------------------------------------------------------------------
Increase in cash and cash equivalents 100,826 162,042 125,062
Cash and cash equivalents at beginning of year 462,496 300,454 175,392
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of year $563,322 $462,496 $300,454
- --------------------------------------------------------------------------------
See accompanying notes.
30
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Dollars In Thousands, Except Per Share
Data) 2001 2000 1999
- --------------------------------------------------------------------------------
Preferred Stock
Shares authorized 50,000 50,000 50,000
Shares issued -- -- --
- --------------------------------------------------------------------------------
Common Stock ($0.50 Par Value)
Shares authorized 350,000 350,000 350,000
Shares issued, beginning of year 159,971 79,617 79,207
Issuance of a 2-for-1 stock split effected
in the form of a stock dividend -- 79,696 --
Issuance of shares under employee benefit
plans 4,928 633 264
Issuance of restricted shares -- 25 146
- --------------------------------------------------------------------------------
Shares issued, end of year 164,899 159,971 79,617
- --------------------------------------------------------------------------------
Additional Paid-in Capital
Balance, beginning of year $ 339,649 $ 226,390 $195,446
Issuance of shares under employee benefit
plans 80,113 27,839 11,431
Tax benefit related to the exercise of stock
options 98,238 45,867 15,317
Issuance of restricted shares to employees (7,820) 46,759 8,616
Restricted shares forfeited/cancelled 5,291 25,891 849
Gains from issuance of equity of subsidiary 12,850 -- --
Unearned compensation -- restricted shares 17,281 (33,097) (5,269)
- --------------------------------------------------------------------------------
Balance, end of year $ 545,602 $ 339,649 $226,390
- --------------------------------------------------------------------------------
Retained Earnings
Balance, beginning of year $ 607,822 $ 497,403 $399,678
Net income(a) 333,674 155,808 102,343
Issuance of a 2-for-1 stock split effected
in the form of a stock dividend -- (39,848) --
Cash dividends ($0.04, $0.035 and $0.03 per
share in fiscal years 2001, 2000 and 1999,
respectively) (6,458) (5,541) (4,618)
- --------------------------------------------------------------------------------
Balance, end of year $ 935,038 $ 607,822 $497,403
- --------------------------------------------------------------------------------
Accumulated Other Comprehensive Income (Loss)
(net of tax)
Balance, beginning of year $ 221,141 $ 7,379 $ (123)
Foreign currency translation adjustments(b) (1,797) (1,997) 72
Changes in fair value of derivatives(c) 384 -- --
Unrealized holding gains (losses) on
marketable securities, net of
reclassification adjustments ($49,851,
$3,605, and $0 in fiscal years 2001, 2000
and 1999, respectively)(d) (223,541) 216,587 7,430
Minimum pension liability adjustment(e) (2,262) (828) --
- --------------------------------------------------------------------------------
Balance, end of year $ (6,075) $ 221,141 $ 7,379
- --------------------------------------------------------------------------------
Treasury Shares
Balance, beginning of year $ 33,638 $ 32,814 $ 2,528
Treasury shares acquired -- 3,745 65,228
Restricted shares forfeited/cancelled 14,438 25,891 849
Issuance of shares under employee benefit
plans -- (28,812) (35,791)
- --------------------------------------------------------------------------------
Balance, end of year $ 48,076 $ 33,638 $ 32,814
- --------------------------------------------------------------------------------
Total Stockholders' Equity $1,508,939 $1,214,960 $738,166
Total Comprehensive Income (a+b+c+d+e) $ 106,458 $ 369,570 $109,845
- --------------------------------------------------------------------------------
See accompanying notes.
31
Selected Financial Data
(Dollars in Thousands,
Except Per Share Data) 2001 2000 1999 1998 1997
- ------------------------------------------------------------------------------------
Sales $2,512,016 $1,715,410 $1,243,473 $1,181,404 $1,168,245
- ------------------------------------------------------------------------------------
Cost of Sales 1,718,160 1,212,655 888,162 850,738 809,081
Sales and
Administrative
Expense 222,027 177,588 162,017 165,639 160,613
Research and
Development Expense 154,346 122,403 117,261 111,546 114,344
Stock Compensation
Expense Related to
Tender for Shares of
PowerTV 10,778 -- -- -- --
Restructuring Expense -- -- -- 23,412 --
Interest Expense 411 564 635 476 484
Interest Income (36,879) (19,636) (8,526) (5,963) (3,943)
Other (Income)
Expense, Net (67,229) (747) (62,281) (79,863) (1,513)
- ------------------------------------------------------------------------------------
Earnings Before Income
Taxes and Discontinued
Operations 510,402 222,583 146,205 115,419 89,179
- ------------------------------------------------------------------------------------
Provision for Income
Taxes 176,728 66,775 43,862 34,626 28,537
- ------------------------------------------------------------------------------------
Earnings Before
Discontinued
Operations 333,674 155,808 102,343 80,793 60,642
- ------------------------------------------------------------------------------------
Earnings from
Discontinued
Operations, Net of Tax -- -- -- -- 3,400
- ------------------------------------------------------------------------------------
Net Earnings $ 333,674 $ 155,808 $ 102,343 $ 80,793 $ 64,042
- ------------------------------------------------------------------------------------
Basic Earnings Per
Share Before
Discontinued
Operations $ 2.06 $ 0.99 $ 0.67 $ 0.51 $ 0.39
- ------------------------------------------------------------------------------------
Diluted Earnings Per
Share Before
Discontinued
Operations $ 1.99 $ 0.94 $ 0.65 $ 0.50 $ 0.39
- ------------------------------------------------------------------------------------
Diluted Earnings Per
Share $ 1.99 $ 0.94 $ 0.65 $ 0.50 $ 0.41
- ------------------------------------------------------------------------------------
Cash Dividends Paid Per
Share $ 0.040 $ 0.035 $ 0.030 $ 0.030 $ 0.030
- ------------------------------------------------------------------------------------
Working Capital $1,154,611 $ 770,471 $ 563,650 $ 457,830 $ 347,340
- ------------------------------------------------------------------------------------
Total Assets $2,002,828 $1,779,460 $1,062,274 $ 940,223 $ 823,689
- ------------------------------------------------------------------------------------
Short-Term Debt and
Current
Maturities of Long-
Term Debt $ 91 $ 386 $ 416 $ 726 $ 842
Long-Term Debt -- 102 370 983 1,810
Stockholders' Equity 1,508,939 1,214,960 738,166 632,077 532,724
- ------------------------------------------------------------------------------------
Total Capital Invested $1,509,030 $1,215,448 $ 738,952 $ 633,786 $ 535,376
- ------------------------------------------------------------------------------------
Gross Margin % of Sales 31.6% 29.3% 28.6% 28.0% 30.7%
- ------------------------------------------------------------------------------------
Return on Sales Before
Discontinued
Operations 13.3% 9.1% 8.2% 6.8% 5.2%
- ------------------------------------------------------------------------------------
Return on Average
Stockholders' Equity 24.9% 17.2% 15.6% 13.9% 13.0%
- ------------------------------------------------------------------------------------
Effective Tax Rate 34.6% 30.0% 30.0% 30.0% 32.0%
- ------------------------------------------------------------------------------------
32
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
1. Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Business
Scientific-Atlanta provides its customers broadband transmission networks,
digital interactive subscriber systems and worldwide customer service and
support. We are a producer of a wide variety of products for the cable
television industry including digital video, voice and data communications
products.
Prior to fiscal year 2001, we operated in two reportable business segments:
Broadband and Satellite. The Broadband segment consisted of subscriber and
transmission systems and the Satellite segment consisted of satellite network
and satellite television network systems, which is now known as the Media
Networks business of Scientific-Atlanta which constituted a substantial part of
our satellite business. On April 25, 2000, ViaSat, Inc. acquired our satellite
network business. We retained our satellite television network business which
provides content distribution networks and is now part of our Broadband
segment. We now operate only in the Broadband segment.
Our products are sold primarily through our own sales personnel who work out of
offices throughout the United States and various foreign countries. Certain
products are also marketed in the United States through independent sales
representatives and distributors. In addition to our direct sales, sales in
foreign countries are made through wholly-owned subsidiaries and branch
offices, as well as through independent distributors and independent sales
representatives. Sales of our products are also made to independent system
integrators, distributors and dealers who resell the products to customers.
Except for certain Application Specific Integrated Circuits (ASICs), the
materials and supplies we purchase generally are standard electronic
components, such as integrated circuits, wire, circuit boards, transistors,
capacitors and resistors, all of which are produced by a number of
manufacturers. We also purchase aluminum die castings, steel enclosures and
other semi-fabricated items, which are produced by a variety of sources. We
consider our sources of supply to be adequate and are not dependent upon a
single supplier, except for STMicroelectronics (and affiliates), Micron
Semiconductor Products, Inc., Philips Semiconductors, Inc., Matsushita
Electronics Components Corporation of America and its affiliates, Cablevision
Electronics Co., Ltd., Zinwell Corporation, JDS Uniphase, Premiere Die
Castings, Inc., and Anadigics, Inc. for any significant portion of the
materials used in the products we manufacture or the products we sell. These
suppliers provide us with the following materials and supplies:
STMicroelectronics, Micron Semiconductor Products, Inc. and Philips
Semiconductors, Inc. are our primary suppliers of a variety of semiconductor
products, which are used as components in an array of products, including
set-tops.
Matsushita Electronics Components Corporation of America and its affiliates
manufacture analog set-tops for us and are a primary supplier of those set-
tops.
Cablevision Electronics Co., Ltd. and Zinwell Corporation, Taiwanese
companies, are our primary suppliers of taps. We also are part of a joint
venture in Shanghai, China that provides us with taps.
JDS Uniphase is our primary supplier of opto amplifiers.
Premiere Die Casting, Inc. is our primary supplier of die-castings for RF
distribution.
Anadigics, Inc. is a provider of CATV integrated circuits for use in our RF
distribution products.
Fiscal Year-End
Scientific-Atlanta's fiscal year ends on the Friday closest to June 30 of each
year. Fiscal year ends are as follows:
2001: June 29, 2001
2000: June 30, 2000
1999: July 2, 1999
Fiscal 1999 includes fifty three weeks.
Consolidation
The accompanying consolidated financial statements include the accounts of
Scientific-Atlanta and all subsidiaries after elimination of all material
intercompany accounts and transactions.
33
Use of Estimates
The preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates. The
estimates made by management primarily relate to receivable and inventory
reserves, estimated costs to complete long-term contracts and certain accrued
liabilities, principally relating to warranty and service provisions, reserves
for businesses sold, restructuring reserves, compensation, claims, litigation
and taxes.
Foreign Currency Translation
The financial statements of certain foreign operations are translated into U.S.
dollars at current exchange rates. Resulting translation adjustments are
accumulated as a component of accumulated other comprehensive income and
excluded from net earnings. Foreign currency transaction gains and losses are
included in cost of sales and other income.
Foreign Exchange Contracts
We are exposed to market risks from changes in foreign exchange rates and have
a process to monitor and manage these risks. Scientific-Atlanta enters into
foreign exchange forward contracts to hedge certain firm commitments and assets
denominated in currencies other than the U.S. dollar. These contracts are for
periods consistent with the exposure being hedged and generally have maturities
of one year or less. Contracts are recorded at fair value. Changes in the fair
value of derivatives are recorded in other comprehensive income until the
underlying transaction affects earnings. Any ineffectiveness is recorded
through earnings. Our foreign exchange forward contracts do not significantly
subject our results of operations to risk due to exchange rate fluctuations
because gains and losses on these contracts generally offset losses and gains
on the exposure being hedged. We do not enter into any foreign exchange forward
contracts for speculative trading purposes. If a foreign exchange forward
contract did not meet the criteria for a hedge, we would recognize unrealized
gains and losses as they occur.
Firmly committed purchase (sales) exposure and related hedging instruments at
June 29, 2001 are as follows:
German Canadian
Marks Dollars
------- --------
Firmly committed purchase (sales) contracts (20,318) 20,225
Notional amount of forward contracts (20,318) 20,225
Average contract amount (Foreign currency/United States
dollar) 2.21 1.54
At June 29, 2001, we had changes in fair value of $384, net of tax of $235,
related to these derivatives which were included in accumulated other
comprehensive income. All derivatives entered into during fiscal year 2001 were
designated as cash flow hedges and were fully effective. Scientific-Atlanta has
no derivative exposure beyond the third quarter of fiscal year 2003.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Satandards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which we adopted as of July 1, 2000. Under
Statement 133, every derivative instrument is recorded in the balance sheet as
either an asset or a liability measured at its fair value. Changes in the
derivative instrument's fair value must be recognized currently in earnings
unless specific hedge accounting criteria are met. The adoption of this
statement did not have a material impact on our results of operations or
financial condition.
Revenue Recognition
Scientific-Atlanta's revenue recognition policies are in compliance with Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements"
issued by the Securities and Exchange Commission. Revenue is recognized at the
time product is shipped or title passes pursuant to the terms of the agreement
with the customer which include a standard right of return, the amount due from
the customer is fixed and collectibility of the related receivable is
reasonably assured. Revenue is recognized only when we have no significant
future performance obligation.
34
Our right of return policy, which is standard for virtually all sales, allows a
customer the right to return product for refund only if the product does not
conform to product specifications; the non-conforming product is identified by
the customer; and the customer rejects the non-conforming product and notifies
us within ten days of receipt.
Revenues from progress-billed contracts are primarily recorded using the
percentage-of-completion method based on contract costs incurred to date.
Losses, if any, are recorded when determinable. Costs incurred and accrued
profits not billed on these contracts are included in receivables. Unbilled
receivables, which consist of retainage, were $443 at June 29, 2001 and $1,269
at June 30, 2000. It is anticipated that substantially all such amounts will be
collected within one year.
Research and Development Expenditures
Certain research and development costs for the software components of our
products are capitalized when incurred and are reported at the lower of
unamortized cost or net realizable value. Capitalization of software
development costs begins upon the establishment of technological feasibility.
The establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, anticipated future revenues, estimated economic life and
changes in software and hardware technologies.
Capitalization ceases when the products are available for general release to
customers. We amortize these development costs to cost of sales when we
recognize revenue on these products.
Capitalized software development costs and the amortization of these costs in
fiscal years 2001, 2000 and 1999 are as follows:
2001 2000 1999
------ ------ ------
Capitalized software development costs $5,957 $3,401 $3,268
Amortization to cost of sales $6,376 $4,445 $ 603
We periodically allocate engineering resources from research and development
efforts for specific customer orders. The revenue from these orders will be
recognized in future periods and, accordingly, the related costs have been
capitalized as inventory. There were no non-recurring engineering costs
capitalized in inventory at June 29, 2001 or June 30, 2000. At July 2, 1999, we
had capitalized $9,013 of such non-recurring engineering costs in inventory,
which was charged to cost of sales as we recognized revenue on the related
orders in fiscal year 2000. We also charged $2,175 of previously capitalized
non-recurring engineering to cost of sales as we recognized revenue on the
related orders in fiscal year 1999.
Depreciation, Maintenance and Repairs
Depreciation is provided using principally the straight-line method over the
estimated useful lives of the assets. Maintenance and repairs are charged to
expense as incurred. Renewals and betterments are capitalized. The cost and
accumulated depreciation of property retired or otherwise disposed of are
removed from the respective accounts, and the gains or losses thereon are
included in the consolidated statement of earnings.
Warranty Costs
Scientific-Atlanta accrues warranty costs at the time of sale. Expenses related
to unusual product warranty problems and product defects are recorded in the
period the problem is identified.
Earnings Per Share
Basic earnings per share were computed based on the weighted average number of
shares of common stock outstanding. Diluted earnings per share were computed
based on the weighted average number of outstanding common shares and
potentially dilutive shares. Earnings per share have been restated to reflect
the 2-for-1 stock split in March 2000.
Cash and Cash Equivalents
Scientific-Atlanta considers all investments purchased with an original
maturity of three months or less to be cash equivalents.
Short-term Investments
Short-term investments include debt instruments with an original maturity
greater than three months and are classified as trading securities under the
provisions of SFAS No. 115 "Accounting for Certain Investments in Debt and
Equity Securities". Investment income is included in interest income. Short-
term investments on the Consolidated Statements of Financial Position include
accrued interest of $4,582 at June 29, 2001 and $2,568 at June 30, 2000.
35
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Cost includes materials, direct labor, and manufacturing overhead. Market is
defined principally as net realizable value. Inventories include purchased and
manufactured components in various stages of assembly as presented in the
following table:
2001 2000
-------- --------
Raw Materials and
Work-In-Process $144,270 $163,969
Finished Goods 57,492 45,947
-------- --------
Total Inventory $201,762 $209,916
======== ========
Long-Lived Assets
Scientific-Atlanta records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired. If our review indicates that the carrying value of an asset will not
be recoverable, the impairment will be measured by comparing the carrying value
of the asset to the fair value. Fair value will be determined based on quoted
market values, discounted cash flows or appraisals. Our review will be at the
lowest levels for which there are identifiable cash flows that are largely
independent of the cash flows of other business units.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired is being amortized on a straight-line
basis over five years for acquisitions of software development companies and
seventeen years for all other acquisitions. Subsequent to acquisition,
Scientific-Atlanta continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of goodwill might
warrant revision or that the remaining balance of goodwill may not be
recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, we use an estimate of the related business segment's
undiscounted net income or other methods of determining fair value, if more
readily determinable, over the remaining life of the goodwill in measuring
whether the goodwill is recoverable.
We plan to adopt SFAS No. 142, "Goodwill and Other Intangible Assets" during
the first quarter of fiscal year 2002. Under the provisions of SFAS No. 142,
goodwill is no longer subject to amortization. After implementing SFAS No. 142,
we believe that our annual goodwill amortization expense will be approximately
$4,500 lower in fiscal year 2002 than in fiscal year 2001. SFAS No. 142 also
establishes a new method of testing goodwill for impairment and we will be
required to test our goodwill for impairment under the new standard upon
adoption. We are in the process of evaluating the financial statement impact of
the adoption of SFAS No. 142 related to goodwill impairment.
Non-Current Marketable Securities
Non-current marketable securities consist of investments in common stock and
are stated at market value. We have market risks associated with the volatility
in the value of our non-current marketable securities, all of which are
classified as "available for sale" under the provisions of SFAS No. 115, and
thus, changes in the fair value of these securities are not included in our
Consolidated Statements of Earnings until realized. Unrealized holding gains
and losses are included, net of taxes, in accumulated other comprehensive
income.
Comprehensive Income
Comprehensive income consists of net income, unrealized gains and losses on
marketable securities defined as available for sale under the provisions of
SFAS No. 115, foreign currency translation adjustments, changes in the fair
value of derivatives and charges for adjustments to the minimum pension
liability.
Financial Presentation
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. Investments, Acquisitions and Dispositions
- --------------------------------------------------------------------------------
In July 2000, PowerTV, Inc., a majority-owned subsidiary of Scientific-Atlanta,
acquired 100 percent of the outstanding stock of PRASARA Technologies, Inc. for
shares of PowerTV common stock and $2,609 in cash. Sales and net earnings
(losses) of PRASARA prior to the acquisition were not significant.
The acquisition was accounted for under the purchase method of accounting, and,
accordingly, the acquired assets and liabilities were recorded at their
estimated fair value at the date of acquisition. In connection with the
acquisition, PowerTV
36
acquired $32,184 of assets, including goodwill, and assumed liabilities of
$17,191 for the non-cash consideration of the shares of PowerTV common stock.
The purchase price has been allocated to the assets acquired and liabilities
assumed, including $31,735 of goodwill and other intangibles, which will be
amortized over five years.
In the fourth quarter of fiscal year 2001, we acquired a portion of the shares
held by minority shareholders of a majority-owned subsidiary, PowerTV, Inc.,
pursuant to a tender offer. The additional shares were acquired primarily from
employees for an aggregate price of $66,794 paid in cash. As a result of the
acquisition of shares, we recorded a one-time stock compensation charge of
$10,778, as well as $52,459 of goodwill and other intangible assets, which will
be amortized over five years.
In addition, we invested $6,650 in Luminous Networks, a developer of next-
generation optical transport technology, and $15,000 in various other emerging
technology companies during fiscal year 2001.
During fiscal year 2001, we also sold a portion of our investments in Bookham
Technology plc (Bookham) and Wink Communications, Inc. See Note 4 for
additional information.
During fiscal year 2000, Scientific-Atlanta invested $13,100 in Bookham, a UK-
based developer and supplier of optical components, $10,000 in Luminous
Networks and $6,916 in Broadband Innovations, Inc., a telecommunications
technology company specializing in RF and digital signal processing solutions
for broadband communications. In addition, we acquired certain assets of an
optics business for a cash payment of $7,697. To the extent that these
investments represent non-marketable securities, they are recorded under the
cost method of accounting.
During fiscal year 2000, we completed the sale of the majority of the Satellite
Networks business unit and certain assets of the Control Systems business unit
for cash payments of $65,347 and $3,259, respectively.
3. Restructuring Charges
- --------------------------------------------------------------------------------
During fiscal year 1998, we announced a restructuring and consolidation of
worldwide manufacturing operations for reduced cost, improved efficiency and
better customer service. We recorded restructuring charges of $23,412 which
included $10,217 and $3,200 for assets to be abandoned and expenses related to
the remaining contractual liabilities for cancelled leases, respectively, as a
result of the consolidation of operations, $5,173 for severance costs for
approximately 500 employees primarily in manufacturing positions and $4,822 for
the impairment of certain assets and other miscellaneous expenses. The
restructuring plan was substantially completed during fiscal year 1999. At June
29, 2001, $800 remains in the liability which is expected to be utilized by
2002 for expenses related to contractual liabilities for cancelled leases.
The following reconciles the beginning restructuring charge to the liability at
the end of fiscal years 1999, 2000 and 2001:
Contractual
Obligations
under
Cancelled
Leases Severance Other Total
----------- --------- ------- -------
Balance at June 28, 1998 $3,200 $ 3,852 $ 2,625 $ 9,677
Charges to the reserve (927) (5,039) (2,111) (8,077)
Reserve adjustments (673) 1,187 (514) --
------ ------- ------- -------
Balance at July 2, 1999 1,600 -- -- 1,600
Charges to the reserve (219) -- -- (219)
------ ------- ------- -------
Balance at June 30, 2000 1,381 -- -- 1,381
Charges to the reserve (581) -- -- (581)
------ ------- ------- -------
Balance at June 29, 2001 $ 800 $ -- $ -- $ 800
====== ======= ======= =======
4. Other (Income) Expense
- --------------------------------------------------------------------------------
Other (income) expense of $67,229 included a gain of $79,792 from the sale of a
portion of our investments in Bookham and Wink and losses on the disposition of
fixed assets, partnership losses, other than temporary declines in the market
value of investments, declines in the cash surrender value of company owned
life insurance, expenses related to buildings that were vacated during the year
as part of the consolidation of facilities in Georgia and various other
miscellaneous items, none of which individually were significant.
Other (income) expense of $747 in fiscal year 2000 included expenses of $10,338
related to contractual obligations to minority shareholders of PowerTV and
losses of $2,396 from the disposal of fixed assets. During fiscal year 2000, we
completed the sale of certain assets of our Control Systems business unit for
$3,259 of cash and recorded a gain
37
of $1,500. We also recorded a $5,814 gain from the sale of a portion of our
investment in WorldGate.
Other (income) expense in fiscal year 2000 also included gains of $5,531 from
the reduction of reserves related to the sale of two business units. During the
year, we determined that our exposure for indemnifications to the purchasers of
these business units and other miscellaneous expenses related to the
dispositions were ultimately less than we had previously estimated and,
accordingly, reduced the reserves. We also completed the sale of the majority
of the Satellite Networks business unit for $65,347 of cash. No gain or loss
was recognized on this transaction. At June 29, 2001, we had reserves of
approximately $18,134 related to the disposition of business units to provide
for potential sales price adjustments, expenses related to contractual
commitments to the purchasers, indemnifications to the purchasers, severance
and other miscellaneous expenses related to the sales.
In fiscal year 2000, we also reversed approximately $4,540 of a $5,500 charge
recorded in fiscal 1998 for expenses and the potential settlement of
environmental issues. As this environmental matter has progressed, we
determined that our potential exposure is less than initially anticipated. At
June 29, 2001, we had $910 remaining in the reserve for expenses and the
potential settlement of environmental issues.
Other (income) expense of $62,281 in fiscal year 1999 included gains of $41,329
and $16,646 from the sale of our investments in Broadcom Corporation and
Harmonic Inc., respectively, $6,250 from the cancellation of a contract under
which we were obligated to supply equipment and $4,952 from an investment in a
partnership. In addition, during the second quarter of fiscal year 1999, we
decided to dispose of a business unit, Control Systems, which produced devices
to monitor and manage utility service usage, because the business unit did not
fit with our core strategy. We recorded a charge of $6,225 to adjust the
carrying value of the assets to be sold to fair value, less costs to sell, to
adjust the estimated profitability on certain contracts to allow the purchaser
to achieve reasonable margins, to provide for indemnification to the purchaser
and to provide for other miscellaneous expenses associated with the sale. There
were no charges to the reserve during fiscal year 1999.
5. Quarterly Financial Data (Unaudited)
- --------------------------------------------------------------------------------
Fiscal Quarters
----------------------------------------
2001 First Second Third Fourth
---- -------- -------- -------- --------
Sales $597,240 $631,430 $663,700 $619,646
Gross margin 177,149 194,446 207,571 214,690
Gross margin % 29.7% 30.8% 31.3% 34.6%
Net earnings 113,283(1) 70,802 76,236 73,353(2)
Earnings per share
Basic 0.70 0.44 0.47 0.45
Diluted 0.67 0.42 0.46 0.44
Stock prices
High 93.3750 71.1250 63.7000 65.5000
Low 58.6875 32.0000 29.4400 36.1000
Dividends paid per share 0.01 0.01 0.01 0.01
- --------
(1) Includes a gain of $49,471 from the sale of a portion of our investments in
Bookham and Wink.
(2) Includes a one-time compensation charge of $7,113 from the tender for most
of the shares held by minority shareholders, primarily employees, of
PowerTV, Inc.
Fiscal Quarters
------------------------------------------
2000 First Second Third Fourth
---- -------- -------- -------- --------
Sales $349,319 $372,721 $440,731 $552,639
Gross margin 99,948 109,209 130,075 163,523
Gross margin % 28.6% 29.3% 29.5% 29.6%
Net earnings 25,254 33,372(3) 38,109(4) 59,073
Earnings per share
Basic 0.16 0.21 0.25 0.37
Diluted 0.16 0.20 0.23 0.35
Stock prices
High 29.2188 33.0625 74.5938 74.5000
Low 17.5938 24.1875 25.0938 50.1875
Dividends paid
per share 0.0075 0.0075 0.0100 0.0100
- --------
(3) Includes a gain of $4,046 from the sale of a portion of our investment in
WorldGate.
(4) Includes expenses of $7,237 related to contractual obligations to minority
shareholders of a majority-owned subsidiary, $3,872 from the reduction of
reserves related to businesses sold and $3,178 from the reduction of a
reserve for expenses and potential settlement of environmental issues.
6. Segment Information
- --------------------------------------------------------------------------------
During fiscal years 2000 and 1999, we operated primarily in two reportable
business segments:
38
Broadband and Satellite. The Broadband segment consists of subscriber and
transmission systems, and the Satellite segment consisted of satellite network
and satellite television network systems. On April 25, 2000, ViaSat, Inc.
acquired our satellite network business, which constituted a substantial part
of our satellite business. We retained our satellite television network
business, now known as the Media Networks business of Scientific-Atlanta. Media
Networks provides the content distribution networks. We now operate only in the
Broadband segment.
Customers that accounted for 10 percent or more of our total sales in fiscal
years 2001, 2000 or 1999 are as follows:
2001 2000 1999
---- ---- ----
AOL Time Warner, Inc. 22% 23% 16%
Charter Communications, Inc. 20% 14% 7%
Adelphia 18% 2% 2%
AT&T 2% 10% 16%
All other customers 38% 51% 59%
--- --- ---
Total 100% 100% 100%
=== === ===
Sales of products that accounted for 10 percent or more of our total sales in
fiscal years 2001, 2000 or 1999 are as follows:
2001 2000 1999
---- ---- ----
Digital Explorer set-tops 57% 34% 15%
RF products 10% 18% 16%
Analog set-tops 3% 9% 24%
All others 30% 39% 45%
--- --- ---
Total 100% 100% 100%
=== === ===
International sales were 15 percent of total sales in fiscal year 2001, as
compared to 21 percent and 22 percent of such sales in fiscal years 2000 and
1999, respectively. Sales are attributed to geographic areas based upon the
location to which the product is shipped. Sales in any single country did not
exceed 10 percent of total sales in fiscal years 2001, 2000 or 1999, except for
the United States.
2001 U.S. Foreign Total
- ---- ---------- -------- ----------
Sales $2,135,320 $376,696 $2,512,016
Long-lived assets 282,653 37,369 320,022
2000
- ----
Sales $1,356,206 $359,204 $1,715,410
Long-lived assets 160,346 38,019 198,365
1999
- ----
Sales $964,911 $278,562 $1,243,473
Long-lived assets 147,934 35,148 183,082
Long-lived assets include property, plant and equipment, cost in excess of net
assets acquired, investments other than marketable securities, and intellectual
property. Long-lived assets in the United States and Mexico were 88 percent and
6 percent, respectively, of total long-lived assets in fiscal year 2001 and 81
percent and 10 percent, respectively, in fiscal year 2000. Long-lived assets in
any single country did not exceed 10 percent of total long-lived assets in
fiscal year 1999, except for the United States.
7. Indebtedness
- --------------------------------------------------------------------------------
At June 29, 2001, we had a $200,000 senior credit facility that provides for
unsecured borrowings up to $50,000 which expires June 21, 2002, and up to
$150,000 which expires May 11, 2004. There were no borrowings outstanding under
this facility at June 29, 2001 or June 30, 2000. Interest on borrowings under
this facility are at varying rates and fluctuate based on market rates.
Facility fees based on the average daily aggregate amount of the facility
commitments are payable quarterly.
Total interest paid, including fees on the senior credit facility, was $348,
$480 and $581 in fiscal years 2001, 2000 and 1999, respectively.
8. Accrued Liabilities
- --------------------------------------------------------------------------------
Accrued liabilities consisted of:
2001 2000
-------- --------
Compensation $ 58,048 $52,535
Taxes, other than income taxes 9,370 13,916
Warranty and service 19,906 9,449
Restructuring reserves 800 1,381
Other 76,867 72,121
-------- --------
$164,991 $149,402
======== ========
9. Other Liabilities
- --------------------------------------------------------------------------------
Other liabilities consisted of:
2001 2000
------- -------
Retirement $50,447 $40,012
Compensation 29,066 17,086
Other 20,253 12,709
------- -------
$99,766 $69,807
======= =======
39
10. Income Taxes
- --------------------------------------------------------------------------------
The tax provision differs from the amount resulting from multiplying earnings
before income taxes by the statutory federal income tax rate as follows:
2001 2000 1999
---- ---- ----
Statutory federal tax rate 35.0% 35.0% 35.0%
State income taxes, net of state credits and federal tax
benefit 1.3 0.7 2.0
Tax contingencies and settlements 0.1 (2.7) (2.3)
Research and development tax credit (1.3) (2.3) (3.7)
Other, net (0.5) (0.7) (1.0)
---- ---- ----
34.6% 30.0% 30.0%
==== ==== ====
Income tax provision (benefit) includes the following:
2001 2000 1999
-------- -------- -------
Current tax provision
Federal $175,395 $ 70,760 $46,638
State 12,738 4,009 7,708
Foreign 11,704 10,748 5,107
-------- -------- -------
199,837 85,517 59,453
-------- -------- -------
Deferred tax provision (benefit)
Federal (19,861) (17,786) (14,094)
State (2,852) (1,728) (3,317)
Foreign (396) 772 1,820
-------- -------- -------
(23,109) (18,742) (15,591)
-------- -------- -------
Total provision for income taxes $176,728 $ 66,775 $43,862
======== ======== =======
Total income taxes paid include settlement payments for federal, state and
foreign audit adjustments. The total income taxes paid were $113,205, $31,386
and $54,178 in fiscal years 2001, 2000 and 1999, respectively.
The tax effect of significant temporary differences representing deferred tax
assets and liabilities are as follows:
2001 2000
-------- ---------
Current deferred tax assets
Expenses not currently deductible $ 21,869 $ 25,679
Inventory valuation 19,792 14,754
Research and development credit carryforwards 6,439 5,016
Warranty reserves 7,352 3,407
Other 1,743 825
-------- ---------
Current deferred tax assets $ 57,195 $ 49,681
======== =========
Non-current deferred tax assets
Postretirement and post employment benefits $ 33,747 $ 18,925
Expenses not currently deductible 4,692 5,186
Accumulated comprehensive income items 3,724 --
Depreciation and amortization 851 --
Other 643 --
-------- ---------
Non-current deferred tax asset $ 43,657 $ 24,111
-------- ---------
Non-current deferred tax liabilities
Depreciation and amortization $ -- $ (963)
Accumulated comprehensive income items -- (135,538)
Capitalized software (1,804) (2,038)
Gain on sale of subsidiary stock (7,876) --
Purchased intangibles (7,245) --
-------- ---------
Non-current deferred tax liabilities $(16,925) $(138,539)
-------- ---------
Net non-current deferred tax asset (liability) $ 26,732 $(114,428)
======== =========
Valuation allowances for current deferred tax assets and non-current deferred
tax assets were not required in fiscal years 2001 or 2000.
In fiscal years 2001, 2000 and 1999, earnings before income taxes included
$32,276, $33,052 and $17,242, respectively, of earnings by our foreign
operations.
40
11. Retirement and Benefit Plans
- --------------------------------------------------------------------------------
We have a defined benefit pension plan covering substantially all of our
domestic employees. The benefits are based upon the employees' years of
service, age and compensation.
Our funding policy is to contribute annually the amount expensed each year
consistent with the requirements of the federal law to the extent that such
costs are currently deductible.
The following table sets forth the plan's funded status and amounts recognized
in Scientific-Atlanta's Consolidated Statements of Financial Position at year-
end, using March 31 as a measurement date for all actuarial calculations of
asset and liability values and significant actuarial assumptions:
2001 2000
------- --------
Change in Benefit Obligation
Benefit obligation at beginning of year $79,442 $ 91,127
Service cost 5,938 7,048
Interest cost 5,822 6,166
Actuarial (gain)/loss 4,797 (4,398)
Benefits paid (8,739) (4,439)
Effect of curtailment -- 2,677
Effect of settlement -- (18,739)
------- --------
Benefit obligation at end of year $87,260 $ 79,442
======= ========
Change in Plan Assets
Fair value of plan assets at beginning of year $82,395 $ 91,267
Actual return on plan assets (2,394) 14,306
Benefits paid (8,739) (4,439)
Effect of settlement -- (18,739)
------- --------
Fair value of plan at end of year $71,262 $ 82,395
======= ========
Funded status $15,998 $ (2,953)
Unrecognized net actuarial gain (loss) (2,181) 12,586
Unrecognized transition asset 2,681 3,132
Unrecognized prior service cost 159 190
------- --------
Accrued pension cost $16,657 $ 12,955
======= ========
2001 2000 1999
----- ----- -----
Weighted-Average Assumptions
Discount rate 7.50% 8.00% 7.25%
Expected return on plan assets 10.00% 10.00% 10.00%
Rate of compensation increase 5.00% 5.00% 5.00%
Plan assets are invested in listed stocks, bonds and short-term monetary
investments.
Our net pension expense was $3,703 in fiscal year 2001, $1,306 in fiscal year
2000 and $4,604 in fiscal year 1999. The components of pension expense are as
follows:
2001 2000 1999
------- ------- -------
Service cost $ 5,938 $ 7,048 $ 6,941
Interest cost 5,822 6,166 5,671
Expected return on plan assets (7,576) (7,487) (7,318)
Amortization of transition net asset (451) (656) (656)
Amortization of prior service cost (30) (34) (34)
Amount recognized due to settlement -- (3,707) --
Amount recognized due to curtailment -- (24) --
------- ------- -------
Pension expense $ 3,703 $ 1,306 $ 4,604
======= ======= =======
The settlement and curtailment relate to the sale of the Satellite Networks
business unit.
We have unfunded defined benefit retirement plans for certain key officers and
non-employee directors. Accrued pension cost for these plans was $23,848 at
June 29, 2001 and $17,293 at June 30, 2000. Retirement expense for these plans
was $4,027, $3,786 and $2,494 in fiscal years 2001, 2000 and 1999,
respectively. The minimum pension liability adjustments on the Statements of
Stockholders' Equity and Comprehensive Income relate primarily to these plans.
In addition to providing pension benefits, we have contributory plans that
provide certain health care and life insurance benefits to eligible retired
employees. The following table sets forth the plans' funded status and amounts
recognized in Scientific-Atlanta's Consolidated Statements of Financial
41
Position at year-end, using March 31 as a measurement date for all actuarial
calculations of liability values:
2001 2000
------- -------
Change in Benefit Obligation
Benefit obligation at beginning of year $ 7,557 $ 7,487
Service cost 40 50
Interest cost 579 521
Actuarial loss 2,213 552
Benefits paid (1,192) (1,053)
------- -------
Benefit obligation at end of year $ 9,197 $ 7,557
======= =======
Change in Plan Assets
Fair value of plan assets at beginning of year $ 222 $ 197
Company contributions 1,246 1,078
Benefits paid (1,192) (1,053)
------- -------
Fair value of plan assets at end of year $ 276 $ 222
======= =======
Funded status $ 8,921 $ 7,335
Unrecognized net actuarial gain (loss) (207) 2,110
Unrecognized prior service cost (296) (338)
------- -------
Accrued benefit cost $ 8,418 $ 9,107
======= =======
Significant actuarial assumptions are as follows:
2001 2000 1999
----- ----- -----
Weighted-average Assumptions
Discount rate 7.50% 8.00% 7.25%
Expected return on plan assets 10.00% 10.00% 10.00%
Rate of compensation increase 5.00% 5.00% 5.00%
The assumed rate of future increase in health care cost was 6.0 percent, 6.63
percent and 7.25 percent for fiscal years 2001, 2000 and 1999, respectively,
and is expected to remain at 6.0 percent. The components of postretirement
benefit expense are as follows:
2001 2000 1999
---- ----- ----
Service cost $ 40 $ 50 $ 45
Interest cost 579 521 570
Amortization of net actuarial gain and prior service cost (62) (107) (93)
---- ----- ----
Postretirement benefit expense $557 $ 464 $522
==== ===== ====
A change in the assumed health care trend rate would have the following
effects:
1% 1%
Increase Decrease
-------- --------
Effect on total of 2001 service and interest cost components $ 44 $ (38)
Effect on beginning of year 2001 postretirement benefit
obligation $579 $(517)
12. Fair Value of Financial Instruments
- --------------------------------------------------------------------------------
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. Short-term investments are
carried at fair value. The fair value of foreign currency forward contracts is
based on quoted market prices.
2001 2000
------------------ ------------------
Carrying/ Carrying/
Contract Fair Contract Fair
Amount Value Amount Value
--------- -------- --------- --------
Cash and cash equivalents $563,322 $563,322 $462,496 $462,496
Short-term investments $191,001 $191,001 $ 61,481 $ 61,481
Non-current marketable securities $ 17,159 $ 17,159 $381,983 $381,983
Foreign currency forward contracts
Sell $ 9,214 $ 8,781 $ 685 $ 581
Buy $ 13,121 $ 13,320 $ -- $ --
13. Related Party Transactions
- --------------------------------------------------------------------------------
Related party transactions for fiscal years 2001, 2000 and 1999 are as follows:
2001 2000 1999
------ ------- -------
Sales:
Scientific-Atlanta of Shanghai, Ltd. $ 313 $ 554 $ 1,907
Advanced Broadband System Services 72 249 79
Arcodan Visiorep 4,240 2,637 2,170
Purchases:
Scientific-Atlanta of Shanghai, Ltd. $ 782 $ 5,660 $ 5,664
Advanced Broadband System Services 8,595 17,084 16,311
Arcodan Visiorep -- -- --
Receivables (Payables):
Scientific-Atlanta of Shanghai, Ltd. $ -- $ (119) $ (51)
Advanced Broadband System Services -- 1,251 32
Arcodan Visiorep 577 404 913
Related party transactions were at prices and terms equivalent to those
available to and transacted with
42
unrelated parties. Scientific-Atlanta of Shanghai, Ltd. is a partially-owned
subsidiary of Scientific-Atlanta. Our investment in Advanced Broadband System
Services, formerly a partially-owned subsidiary of Scientific-Atlanta, was sold
in the third quarter of fiscal year 2001. We have a minority interest in
Arcodan Visiorep.
14. Commitments, Contingencies and Other Matters
- --------------------------------------------------------------------------------
Rental expense under operating lease agreements for facilities and equipment
for fiscal years 2001, 2000 and 1999 was $16,044, $16,418 and $18,879,
respectively. We pay taxes, insurance and maintenance costs with respect to
most leased items. Remaining operating lease terms, including renewals, range
up to ten years. Future minimum payments at June 29, 2001, under operating
leases were $29,500. Payments under these leases for the next five years are as
follows: 2002 -- $11,414; 2003 -- $8,635; 2004 -- $5,464; and 2005 -- $2,240;
and 2006 -- $1,746.
We have agreements with certain officers which include certain benefits in the
event of termination of the officers' employment as a result of a change in
control of Scientific-Atlanta.
We are also committed under certain purchase agreements which are intended to
benefit future periods. We have no commitments with a remaining term in excess
of a year, except for the operating lease commitments discussed above.
We are a party to various legal proceedings arising in the ordinary course of
business. In management's opinion, the outcome of these proceedings will not
have a material adverse effect on our financial position or results of
operations.
15. Common Stock and Related Matters
- --------------------------------------------------------------------------------
In February 2000, we declared a 2-for-1 stock split effected in the form of a
100 percent stock dividend which was paid on March 27, 2000 to shareholders of
record on March 10, 2000. The stock split has been accounted for by a transfer
from retained earnings to common stock in the amount of the par value of the
additional stock issued. All share price, per share amounts and stock option
information included herein have been restated to reflect the stock split.
In March 2000, Scientific-Atlanta announced a stock buyback program for the
purchase of up to 8,000,000 shares of our common stock. We plan to use the
shares repurchased for issuance under the company's employee stock option plans
and other benefit plans. As of June 30, 2000, 75,000 shares had been purchased
under this program at an aggregate cost of $3,745. No shares were purchased
under this program in fiscal year 2001.
During July 2001, we purchased 7,925,000 shares of our common stock at an
aggregate cost of $183,993 pursuant to the stock buyback program announced in
March 2000. In addition, we announced a buyback program for the purchase of up
to 8,000,000 additional shares of our common stock in July 2001.
We also purchased 4,648,000 shares of our common stock at an aggregate cost of
$65,228 during fiscal year 1999.
We have non-qualified and incentive stock option plans to provide key employees
and directors with an increased incentive to work for the success of
Scientific-Atlanta. Generally, the option price for stock options is the market
value at the date of grant and thus, the plans are non-compensatory. The
options expire 10 years after the dates of their respective grants.
We account for the stock purchase and stock option plans under APB Opinion No.
25, which requires compensation costs for fixed awards to be recognized only
when the option price differs from the market price at the grant date. SFAS No.
123 allows a company to follow APB Opinion No. 25 with the following additional
disclosure that shows what our net income and earnings per share would have
been using the compensation model under SFAS No. 123:
2001 2000 1999
-------- -------- --------
Net income As reported $333,674 $155,808 $102,343
Pro forma $254,800 $ 95,070 $ 91,041
Earnings per
share:
Basic As reported $ 2.06 $ 0.99 $ 0.67
Pro forma $ 1.58 $ 0.60 $ 0.60
Diluted As reported $ 1.99 $ 0.94 $ 0.65
Pro forma $ 1.52 $ 0.58 $ 0.58
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to July 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
43
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in fiscal years 2001, 2000 and 1999, respectively:
2001 2000 1999
------- ------- -------
Risk free interest rate 5.28% 6.44% 5.31%
Expected term 5 years 5 years 5 years
Expected forfeiture rate 1% 1% 1%
Volatility 69% 61% 51%
Expected annual
dividends $ 0.040 $ 0.035 $ 0.030
The following information pertains to options on Scientific-Atlanta's common
stock for the years ended June 29, 2001 and June 30, 2000:
Number of Weighted Average
2001 Shares Exercise Price
- ---- ---------- ----------------
Outstanding,
beginning of year 15,291,300 $27.730
Granted 5,334,850 $53.739
Cancelled (331,275) $33.225
Exercised (4,720,825) $15.526
----------
Outstanding,
end of year 15,574,050 $40.210
==========
Number of Weighted Average
2000 Shares Exercise Price
- ---- ---------- ----------------
Outstanding,
beginning of year 11,306,062 $ 9.921
Granted 9,289,039 $43.498
Cancelled (612,365) $17.500
Exercised (4,691,436) $10.731
----------
Outstanding,
end of year 15,291,300 $27.730
==========
The following information pertains to options on Scientific-Atlanta's common
stock at June 29, 2001:
Options Outstanding
---------------------------------
Weighted Weighted
Average Average
Range of Remaining Exercise
Exercise Prices Shares Life in Years Price
- --------------- ---------- ------------- --------
$ 1.625 - $10.969 1,156,462 4.79 $ 8.279
$11.250 - $18.500 1,722,177 6.90 $12.063
$23.313 - $49.180 3,585,208 8.43 $28.001
$50.000 - $51.781 6,135,606 9.04 $51.705
$52.688 - $86.812 2,974,597 9.32 $59.923
----------
15,574,050 8.40 $40.210
==========
Options
Exercisable
------------------
Weighted
Average
Range of Exercise
Exercise Prices Shares Price
- --------------- --------- --------
$ 1.625 - $10.969 1,113,030 $ 8.282
$11.250 - $18.500 1,404,217 $11.986
$23.313 - $49.180 1,586,810 $26.191
$50.000 - $51.781 2,454,586 $51.732
$55.688 - $86.812 1,004,074 $59.049
---------
7,562,717 $33.570
=========
At June 29, 2001, 4,137,925 shares were reserved under employee and director
stock option plans.
We have an employee stock purchase plan whereby we provide certain purchase
benefits for participating employees. At June 29, 2001, 1,836,458 shares were
reserved for issuance to employees under the plan.
We have a 401(k) plan whereby we match eligible employee contributions in
Scientific-Atlanta stock, subject to certain limitations. Our expense to match
contributions was $7,552, $6,325 and $6,416 in fiscal years 2001, 2000 and
1999, respectively.
We have stock plans for non-employee directors which provide for 500 shares of
Scientific-Atlanta common stock to be granted to each director annually, which
allows directors to elect to receive all or a portion of his or her quarterly
compensation from us in the form of shares of Scientific-Atlanta common stock,
and which also provide for a retirement award of 1,500 shares of Scientific-
Atlanta common stock annually. At June 29, 2001, 1,054,371 shares were reserved
for issuance to non-employee directors under these plans.
We issue restricted stock awards, cash awards and non-qualified stock option
grants to certain officers and key employees under a long-term incentive plan.
Compensation expense for restricted stock awards was $18,744, $14,454 and
$3,304 in fiscal years 2001, 2000 and 1999, respectively. At June 29, 2001,
41,661 shares were reserved for issuance under this plan.
Issuance of restricted shares to employees and Unearned compensation-restricted
shares in the Consolidated Statements of Stockholders' Equity and Comprehensive
Income include the change in the market value of restricted shares.
44
At June 29, 2001, a total of 7,070,415 shares of authorized stock were reserved
for the above purposes.
We adopted a Rights Plan effective upon expiration of our previous Shareholder
Rights Plan in April 1997, and pursuant to the Plan declared a dividend of one
Right for each outstanding share of common stock. Pursuant to the terms of the
Plan, following the March 2000 two-for-one stock split, one-half of a Right is
attached to each share of common stock outstanding on or issued after the date
of such stock split. Each whole Right is to purchase 1/1000th share of
preferred stock at an exercise price of $118. Separate Rights certificates will
be distributed and the Rights will become exercisable if a person or group (i)
acquires beneficial ownership of 15 percent or more of Scientific-Atlanta's
common stock, (ii) makes a tender offer to acquire 15 percent or more of
Scientific-Atlanta's common stock, or (iii) is determined by the Board of
Directors to be an "adverse person" as defined by the Plan. If a person or a
group becomes a 15 percent holder (other than by offer for all shares approved
by the Board of Directors) or is determined by the Board of Directors to be an
"adverse person", each Right will entitle the holder thereof, other than the
acquiring shareholder or adverse person, to acquire, upon payment of the
exercise price, common stock of Scientific-Atlanta's having a value equal to
twice the exercise price. If we engage in a merger or other business
combination in which Scientific-Atlanta does not survive, and which is not
approved by the Board of Directors, each Right entitles the holder to acquire
common shares of the surviving company having a market value equal to twice the
exercise price. Following the occurrence of any event described in either of
the two preceding sentences, we are required by the Rights Plan to reserve
sufficient shares of our common stock to permit the exercise in full of all
outstanding Rights. At June 29, 2001, no shares of common stock were reserved
for this purpose. The Rights may be redeemed by us at a price of $0.01 per
Right at any time prior to 10 days after the announcement that a party acquired
15 percent or more of Scientific-Atlanta's common stock or prior to the date
any person or group is determined by the Board of Directors to be an "adverse
person". The Rights have no voting power and, until exercised, no dilutive
effect on earnings per share. If not previously redeemed, the Rights will
expire on April 13, 2007.
In connection with adoption of the new Rights Plan, the Board of Directors
designated 350,000 shares of Series A Junior Participating Preferred Stock from
Scientific-Atlanta's 50,000,000 authorized shares of preferred stock for
issuance under the Rights Plan. Upon issuance, each share of preferred stock is
entitled to a quarterly dividend equal to the greater of $0.01 or 1,000 times
the per share amount of all cash dividends, non-cash dividends, or other
distributions, other than dividends payable in common stock, declared on
Scientific-Atlanta's common stock. At June 29, 2001, there were 82,020 shares
of preferred stock reserved for this purpose.
16. Earnings Per Share
- --------------------------------------------------------------------------------
Basic and diluted earnings per share for the last three fiscal years are as
follows:
In Thousands
----------------
Per Share
2001 Earnings Shares Amount
- ---- -------- ------- ---------
Basic earnings per common share:
Net earnings $333,674 161,601 $ 2.06
======== ======= ======
Diluted earnings per common share:
Net earnings $333,674 167,888 $ 1.99
======== ======= ======
Effect of dilutive stock options $ -- 6,287 $(0.07)
======== ======= ======
Per Share
2000 Earnings Shares Amount
- ---- -------- ------- ---------
Basic earnings per common share:
Net earnings $155,808 157,807 $ 0.99
======== ======= ======
Diluted earnings per common share:
Net earnings $155,808 164,895 $ 0.94
======== ======= ======
Effect of dilutive stock options $ -- 7,088 $(0.05)
======== ======= ======
Per Share
1999 Earnings Shares Amount
- ---- -------- ------- ---------
Basic earnings per common share:
Net earnings $102,343 153,630 $ 0.67
======== ======= ======
Diluted earnings per common share:
Net earnings $102,343 157,130 $ 0.65
======== ======= ======
Effect of dilutive stock options $ -- 3,500 $(0.02)
======== ======= ======
45
The following information pertains to options to purchase shares of common
stock which were not included in the computation of diluted earnings per common
share because the option's exercise price was greater than the average market
price of the common shares and inclusion of the options in the earnings per
share calculation would have been anti-dilutive:
2001 2000 1999
---------- ------- -------
Number of options
outstanding 4,630,308 52,700 78,100
Weighted average
exercise price $ 55.41 $ 68.64 $ 18.28
46
Scientific-Atlanta, Inc. and Subsidiaries
Schedule II -- Valuation and Qualifying Accounts
For Each Of The Three Years In The Period Ended June 29, 2001
(In Thousands)
Col. A Col. B Col. C Col. D Col. E
------ ---------- --------------------------------- ---------- ----------
Additions
Balance at --------------------------------- Balance at
beginning Charged to Charged to end of
Description of period costs and expenses other accounts Deductions period
----------- ---------- ------------------ -------------- ---------- ----------
Deducted on the balance
sheet from asset to
which it applies:
June 29, 2001 --
Allowance for
doubtful accounts.... $ 4,134 $ 1,866 $-- $ (18)(4) $5,982
======= ======= ==== ======= ======
June 30, 2000 --
Allowance for
doubtful accounts.... $ 8,160 $(3,165)(1) $-- $ (861)(4) $4,134
======= ======= ==== ======= ======
July 2, 1999 --
Allowance for
doubtful accounts.... $10,052 $(1,615)(2) $-- $ (277)(4) $8,160
======= ======= ==== ======= ======
June 29, 2001 --
Restructuring
Reserves............. $ 1,381 $ -- (3) $-- $ (581)(5) $ 800
======= ======= ==== ======= ======
June 30, 2000 --
Restructuring
Reserves............. $ 1,600 $ -- (3) $-- $ (219)(5) $1,381
======= ======= ==== ======= ======
July 2, 1999 --
Restructuring
Reserves............. $ 9,677 $ -- (3) $-- $(8,077)(5) $1,600
======= ======= ==== ======= ======
Notes:
(1) Includes the collection of $3,730 reserved in fiscal year 1998 for
receivables from customers in the Asia-Pacific region.
(2) Includes the collection of $1,439 reserved in fiscal year 1998 for
receivables from customers in the Asia Pacific region.
(3) Scientific-Atlanta recorded a restructuring charge of $23,412 in fiscal
year 1998 which included reserves of $10,998 and $12,414 for assets which
were abandoned and the impairment of certain assets. There were no
restructuring charges in fiscal years 2001, 2000 or 1999.
(4) Amounts represent uncollectible accounts written off. In fiscal year 2000,
includes $439 of allowance for doubtful accounts on receivables of the
Satellite Networks business unit that was sold to ViaSat in April 2000.
(5) Utilization of restructuring reserves for expenses incurred under
obligations under cancelled leases, severance and other miscellaneous
expenses related to the restructuring.
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Scientific-Atlanta, Inc.
(Registrant)
August 15, 2001 By: /s/ James F. McDonald
- ----------- -----------------------------------
Date James F. McDonald
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ James F. McDonald August 15, 2001
- ------------------------------------------------------------
--------------------
James F. McDonald Date
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
/s/ Wallace G. Haislip August 15, 2001
- ------------------------------------------------------------
--------------------
Wallace G. Haislip Date
Senior Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
/s/ Julian W. Eidson August 15, 2001
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--------------------
Julian W. Eidson Date
Vice President and Controller
(Principal Accounting Officer)
/s/ Marion H. Antonini August 15, 2001
- ------------------------------------------------------------
--------------------
Marion H. Antonini Date
Director
/s/ James I. Cash, Jr. August 15, 2001
- ------------------------------------------------------------
--------------------
James I. Cash, Jr. Date
Director
/s/ David W. Dorman August 15, 2001
- ------------------------------------------------------------
--------------------
David W. Dorman Date
Director
48
/s/ William E. Kassling August 15, 2001
- ------------------------------------------------------------
--------------------
William E. Kassling Date
Director
/s/ Mylle Bell Mangum August 15, 2001
- ------------------------------------------------------------
--------------------
Mylle Bell Mangum Date
Director
/s/ Terence F. McGuirk August 15, 2001
- ------------------------------------------------------------
--------------------
Terence F. McGuirk Date
Director
/s/ David J. McLaughlin August 15, 2001
- ------------------------------------------------------------
--------------------
David J. McLaughlin Date
Director
/s/ James V. Napier August 15, 2001
- ------------------------------------------------------------
--------------------
James V. Napier Date
Director
/s/ Sam Nunn August 15, 2001
- ------------------------------------------------------------
--------------------
Sam Nunn Date
Director
49
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3.1 Composite Statement of Amended and Restated Articles of
Incorporation of Scientific-Atlanta (filed as Exhibit 3(a) to
Scientific-Atlanta's Annual Report on Form 10-K for the fiscal
year ended June 27, 1997 (Commission File No. 1-5517), and
incorporated herein by reference).
3.2 By-laws of Scientific-Atlanta (filed as Exhibit 3 to Scientific-
Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 29, 2000 (Commission File No. 1-5517), and
incorporated herein by reference).
4.1 Rights Agreement, dated as of February 23, 1997, between
Scientific-Atlanta and The Bank of New York, as Rights Agent,
which includes as Exhibit A the Preferences and Rights of Series A
Junior Participating Preferred Stock and as Exhibit B the Form of
Rights Certificate (filed as Exhibit 1 to Scientific-Atlanta's
Registration Statement on Form 8-A dated April 7, 1997 (Commission
File No. 1-5517), and incorporated herein by reference).
10.1.1 Credit Agreement dated May 11, 1995 among Scientific-Atlanta, the
Lenders (as defined therein), The Bank of New York and ABN AMRO
Bank N.V., as co-agents, and NationsBank of Georgia, National
Association, as agent (filed as Exhibit 10(g) to Scientific-
Atlanta's Annual Report on Form 10-K for the fiscal year ended
June 30, 1995 (Commission File No. 1-5517), and incorporated
herein by reference).
10.1.2 First Amendment to Credit Agreement dated December 29, 1995 among
Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO
Bank N.V. and NationsBank, N.A. (South) (formerly known as
NationsBank of Georgia, National Association) (filed as Exhibit
10(j) to Scientific-Atlanta's Annual Report on Form 10-K for the
fiscal year ended June 28, 1996 (Commission File No. 1-5517), and
incorporated herein by reference).
10.1.3 Letter Amendment dated April 5, 1996 to the Credit Agreement among
Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO
Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10(j) to
Scientific-Atlanta's Annual Report Form 10-K for the fiscal year
ended June 28, 1996 (Commission File No. 1-5517), and incorporated
herein by reference).
10.1.4 Second Amendment to Credit Agreement dated June 28, 1996 among
Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO
Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10(l) to
Scientific-Atlanta's Annual Report on Form 10-K for the fiscal
year ended June 28, 1996 (Commission File No. 1-5517), and
incorporated herein by reference).
10.1.5 Third Amendment to Credit Agreement dated January 27, 1997 among
Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO
Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit 10.3 to
Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 28, 1997 (Commission File No. 1-5517), and
incorporated herein by reference).
10.1.6 Letter Amendment dated April 23, 1997 to the Credit Agreement
among Scientific-Atlanta, the Lenders, The Bank of New York, ABN
AMRO Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit
10(r) to Scientific-Atlanta's Annual Report on Form 10-K for the
fiscal year ended June 27, 1997 (Commission File No. 1-5517), and
incorporated herein by reference).
10.1.7 Letter Amendment dated April 24, 1998 to the Credit Agreement
among Scientific-Atlanta, the Lenders, The Bank of New York, ABN
AMRO Bank N.V. and NationsBank, N.A. (South) (filed as Exhibit
10(o) to Scientific-Atlanta's Annual Report on Form 10-K for the
fiscal year ended June 26, 1998 (Commission File No. 1-5517), and
incorporated herein by reference).
Exhibit No. Description
----------- -----------
10.1.8 Fourth Amendment to Credit Agreement dated November 6, 1998 among
Scientific-Atlanta, the Lenders, The Bank of New York, ABN AMRO
Bank N.V. and NationsBank, N.A. (successor to NationsBank, N.A.
(South) (filed as Exhibit 10.14 to Scientific-Atlanta's Quarterly
Report on Form 10-Q for the fiscal quarter ended April 2, 1999
(Commission File No. 1-5517), and incorporated herein by
reference).
10.1.9 Amended and Restated Credit Agreement dated May 7, 1999 among
Scientific-Atlanta, the Lenders, The Bank of New York, ABN Amro
Bank N.V. and NationsBank, N.A. (filed as Exhibit 10(p) to
Scientific-Atlanta's Annual Report on Form 10-K for the fiscal
year ended July 2, 1999 (Commission File No. 1-5517), and
incorporated herein by reference).
10.1.10 Amendment No. 1 to the Amended and Restated Credit Agreement dated
June 22, 1999 among Scientific-Atlanta, the Lenders, The Bank of
New York, ABN Amro Bank N.V. and NationsBank, N.A. (filed as
Exhibit 10(q) to Scientific-Atlanta's Annual Report on Form 10-K
for the fiscal year ended July 2, 1999 (Commission File No. 1-
5517), and incorporated herein by reference).
10.1.11 Second Amendment to Amended and Restated Credit Agreement dated
May 4, 2000 among Scientific-Atlanta, the Lenders, The Bank of New
York, ABN Amro Bank N.V. and NationsBank, N.A. (filed as Exhibit
10(p) to Scientific-Atlanta's Annual Report on Form 10-K for the
fiscal year ended June 30, 2000 (Commission File No. 1-5517), and
incorporated herein by reference).
10.1.12 Third Amendment to Amended and Restated Credit Agreement dated
June 22, 2001 among Scientific-Atlanta and The Bank of New York
and ABN Amro Bank N.V. as co-agents and Bank of America, N.A.,
successor to Nationsbank, N.A.
10.2.1 Credit and Investment Agreement dated July 30, 1997 among
Scientific-Atlanta, Wachovia Capital Markets, Inc., Wachovia Bank,
N.A., as agent, and the lenders signatories thereto (filed as
Exhibit 10(s) to Scientific-Atlanta's Annual Report on Form 10-K
for the fiscal year ended June 27, 1997 (Commission File No. 1-
5517), and incorporated herein by reference).
10.2.2 Lease Agreement dated July 30, 1997 between Wachovia Capital
Markets, Inc. and Scientific-Atlanta (filed as Exhibit 10(t) to
Scientific-Atlanta's Annual Report on Form 10-K for the fiscal
year ended June 27, 1997 (Commission File No. 1-5517), and
incorporated herein by reference).
10.2.3 Ground Lease dated July 30, 1997 between Scientific-Atlanta and
Wachovia Capital Markets, Inc. (filed as Exhibit 10(v) to
Scientific-Atlanta's Annual Report on Form 10-K for the fiscal
year ended June 27, 1997 (Commission File No. 1-5517), and
incorporated herein by reference).
10.2.4 Acquisition, Agency, Indemnity and Support Agreement dated July
30, 1997 between Scientific-Atlanta and Wachovia Capital Markets,
Inc. (filed as Exhibit 10(u) to Scientific-Atlanta's Annual Report
on Form 10-K for the fiscal year ended June 27, 1997 (Commission
File No. 1-5517), and incorporated herein by reference).
10.2.5 Letter Amendment dated September 30, 1997 to Credit and Investment
Agreement among Scientific-Atlanta, Wachovia Bank, N.A. and
Wachovia Capital Markets, Inc. (filed as Exhibit 10.11 to
Scientific-Atlanta's Quarterly Report on Form 10-Q for the fiscal
quarter ended April 2, 1999 (Commission File No. 1-5517), and
incorporated herein by reference).
10.2.6 First Amendment to Lease Agreement dated October 9, 1997 between
Scientific-Atlanta and Wachovia Capital Markets, Inc. (filed as
Exhibit 10.16 to Scientific-Atlanta's Quarterly Report on Form 10-
Q for the fiscal quarter ended April 2, 1999 (Commission File No.
1-5517), and incorporated herein by reference).
Exhibit No. Description
----------- -----------
10.2.7 Amendment to Credit and Investment Agreement dated November 30,
1997 among Scientific-Atlanta, Wachovia Bank, N.A. and Wachovia
Capital Markets, Inc. (filed as Exhibit 10.12 to Scientific-
Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 2, 1999 (Commission File No. 1-5517), and incorporated
herein by reference).
10.2.8 Second Amendment to Lease Agreement dated November 30, 1997
between Scientific-Atlanta and Wachovia Capital Markets, Inc.
(filed as Exhibit 10.17 to Scientific-Atlanta's Quarterly Report
on Form 10-Q for the fiscal quarter ended April 2, 1999
(Commission File No. 1-5517), and incorporated herein by
reference).
10.2.9 Second Amendment to Credit and Investment Agreement dated November
9, 1998 among Scientific-Atlanta, Wachovia Bank, N.A. and Wachovia
Capital Markets, Inc. (filed as Exhibit 10.13 to Scientific-
Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 2, 1999 (Commission File No. 1-5517), and incorporated
herein by reference).
10.2.10 First Amendment to Ground Lease dated February 29, 2000 between
Scientific-Atlanta and Wachovia Capital Markets, Inc.
10.2.11 Third Amendment to Lease Agreement dated February 29, 2000 between
Scientific-Atlanta and Wachovia Capital Markets, Inc.
10.3* Stock Plan for Non-Employee Directors, as amended and restated.
10.4* Non-Employee Directors Stock Option Plan, as amended and restated
(filed as Exhibit 10(l) to Scientific-Atlanta's Annual Report on
Form 10-K for the fiscal year ended June 30, 2000 (Commission File
No. 1-5517), and incorporated herein by reference).
10.5* Deferred Compensation Plan for Non-Employee Directors, as amended
and restated.
10.6* Scientific-Atlanta Retirement Plan for Non-Employee Directors
(filed as Exhibit 10.4 to Scientific-Atlanta's Quarterly Report on
Form 10-Q for the fiscal quarter ended April 2, 1999 (Commission
File No. 1-5517), and incorporated herein by reference).
10.7* Executive Deferred Compensation Plan, as amended and restated.
10.8* 1996 Employee Stock Option Plan, as amended and restated (filed as
Exhibit 10.2 to Scientific-Atlanta's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 30, 2001 (Commission File No.
1-5517), and incorporated herein by reference).
10.9* Long-Term Incentive Plan of Scientific-Atlanta, as amended and
restated (filed as Exhibit 10(l) to Scientific-Atlanta's Annual
Report on Form 10-K for the fiscal year ended July 2, 1999
(Commission File No. 1-5517), and incorporated herein by
reference).
10.10* Scientific-Atlanta Annual Incentive Plan for Key Employees as
amended and restated (filed as Exhibit 10.5 to Scientific-
Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 2, 1999 (Commission File No. 1-5517), and incorporated
herein by reference).
10.11* Scientific-Atlanta Senior Officer Annual Incentive Plan, as
amended and restated (filed as Exhibit 10(m) to Scientific-
Atlanta's Annual Report on Form 10-K for the fiscal year ended
July 2, 1999 (Commission File No. 1-5517), and incorporated herein
by reference).
10.12* 1985 Executive Deferred Compensation Plan of Scientific-Atlanta,
as amended and restated (filed as Exhibit 10.6 to Scientific-
Atlanta's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 2, 1999 (Commission File No. 1-5517), and incorporated
herein by reference).
Exhibit No. Description
----------- -----------
10.13* Supplemental Executive Retirement Plan, as amended and restated
(filed as Exhibit 10(j) to Scientific-Atlanta's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 30, 2001
(Commission File No. 1-5517), and incorporated herein by
reference).
10.14* Scientific-Atlanta Restoration Retirement Plan, as amended (filed
as Exhibit 10(n) to Scientific-Atlanta's Annual Report on Form 10-
K for the fiscal year ended June 26, 1998 (Commission File No. 1-
5517), and incorporated herein by reference).
10.15.1* Form of Severance Protection Agreement between Scientific-Atlanta
and Certain Officers and Key Employees (filed as Exhibit 10(g) to
Scientific-Atlanta's Annual Report on Form 10-K for the fiscal
year ended July 1, 1994 (Commission File No. 1-5517), and
incorporated herein by reference).
10.15.2* Form of First Amendment of Severance Protection Agreement by and
between Scientific-Atlanta and Certain Executives (filed as
Exhibit 10.3 to Scientific-Atlanta's Quarterly Report on Form 10-Q
for the fiscal quarter ended April 2, 1999 (Commission File No. 1-
5517), and incorporated herein by reference).
21 Significant Subsidiaries of Scientific-Atlanta.
23 Consent of Independent Public Accountants.
99 Cautionary Statements.
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* Indicates management contract or compensatory plan or arrangement.