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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

OR

Commission file number 1-5517

SCIENTIFIC-ATLANTA, INC.
(Exact name of Registrant as specified in its charter)

770-236-5000
(Registrant’s telephone number, including area code)

             Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

             As of October 25, 2002, Scientific-Atlanta, Inc. had outstanding 154,321,223 shares of common stock.

PART I – FINANCIAL INFORMATION

SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

SEE ACCOMPANYING NOTES

SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)

SEE ACCOMPANYING NOTES

SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

SEE ACCOMPANYING NOTES

SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)

SEE ACCOMPANYING NOTES

NOTES:
(Amounts in thousands, except share data)

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FINANCIAL CONDITION

         Scientific-Atlanta had stockholders’ equity of $1.4 billion and cash on hand was $427.4 million at September 27, 2002. Cash increased $50.9 million during the quarter. Cash provided by operating activities for the quarter ended September 27, 2002 of $88.6 million included net earnings of $11.0 million, reductions in accounts receivable and inventory of $43.9 million and $38.8 million, respectively, and a federal income tax refund of $32.0 million related to the write-off of accounts receivable from Adelphia Communications Corporation (Adelphia) resulting from its filing for bankruptcy in June 2002. These were offset partially by reductions in accounts payable and accrued expenses aggregating $62.1 million.

         During the quarter ended September 27, 2002, we received a cash payment of $20.8 million from the settlement of a collar on a warrant to purchase shares of common stock. We also purchased 2,685,200 shares of our common stock for $32.4 million, increased short-term investments by $13.1 million, acquired property, plant and equipment for $8.7 million and acquired a portion of the minority interest of shareholders of a majority-owned subsidiary, PowerTV, Inc., for $4.6 million.

         The current ratio of Scientific-Atlanta was 4.9:1 at September 27, 2002, up from 4.1:1 at June 28, 2002. At September 27, 2002, we had debt of $9.5 million, primarily mortgages on facilities we assumed in connection with the acquisition of BarcoNet during fiscal year 2002. We believe that funds generated from operations, existing cash balances and our available senior credit facility will be sufficient to support operations.

RESULTS OF OPERATIONS

         Scientific-Atlanta continued to experience declines in sales this quarter as compared to the prior year and the fourth quarter of fiscal year 2002. We believe the declining consumer confidence in the United States amid a slow economy and difficult economic conditions outside the United States, continued significant declines in capital spending by our customers as credit markets have tightened and customer credit ratings have been lowered, our customers’ competition from satellite providers and the declining financial condition of several of our customers and distributors has affected their ability to pay for product that has shipped, take orders they have previously placed or raise additional capital to fund the purchase of equipment and services. Adelphia filed for bankruptcy in June 2002. During the first quarter of fiscal year 2003, Communications Dynamics, Inc., parent of TVC Communications (TVC), a distributor of our products in Latin America, filed for bankruptcy. If these trends continue, which we are not able to predict, our sales and results of operations will be adversely affected.

         In addition, our backlog has declined from $772.5 million at March 29, 2002 to $391.6 million at September 27, 2002. Due to this decline in backlog, we are more dependent on the shipment of product from orders received during the quarter rather than from backlog to generate sales. Our increased dependence on the receipt of orders during each quarter to generate sales during that quarter limits our visibility as to our sales volume for the quarter until the end of the quarter. In addition, our quarters tend to be back-end loaded with a larger portion of orders being received and sales being recognized for any quarter at or near the end of the quarter.

         Sales for the fiscal quarter ended September 27, 2002 were $311.6 million, down 24 percent from the prior year. International sales in the first quarter of fiscal year 2003 were $94.1 million, up 13 percent over the prior year. The year-over-year increase in international sales was due to the addition of sales from BarcoNet, which we acquired in January 2002.

         Sales of subscriber products declined 30 percent from last year’s first quarter to $194.8 million. In the first quarter of fiscal year 2003, we sold 546 thousand Explorer® digital settops as compared to 855 thousand in the prior year. During the first quarter of fiscal year 2003, we sold 101 thousand WebSTAR™ cable modems, up from 27 thousand in the prior year.

         We also delivered an additional 60 thousand Explorer digital settops and associated headend equipment to Cablevision Systems Corporation (Cablevision) during the first quarter of fiscal year 2003, for which we have deferred recognition of approximately $18 million of revenue, pending the conversion of a binding letter agreement into a detailed, definitive contract. During the second quarter, we continued to deliver settops to Cablevision under the binding letter agreement and have deferred recognition of the related revenue. Shipments of settops to Cablevision are expected to constitute a significant portion of our total shipments of settops during the second quarter. We are currently negotiating the terms of the detailed, definitive contract. However, failure to convert the binding letter agreement into a detailed, definitive contract will adversely affect our ability to recognize revenue and therefore, our results of operation in the second quarter of fiscal year 2003.

         Sales of transmission products during the first quarter of fiscal year 2003 were $97.6 million, including $14.2 million related to the termination of a contract with German cable operator Callahan Kabel BW GmbH & Co. KG. Transmission product sales declined by 12 percent from last year’s first quarter, despite the addition of sales from BarcoNet, due to weak transmission-related spending in all regions of the world. Satellite product sales of $19.2 million in the first quarter of fiscal year 2003 were approximately the same as the first quarter of last year.

         During the fourth quarter of fiscal year 2002, Kabel NRW GmbH & Co. KG (KNRW), parent of ish GmbH & Co. KG (ish), a customer in Germany, was notified by its syndicate banks that an event of default had occurred under its Senior Credit Agreement. ish suspended or cancelled a number of work orders previously issued to the Cable Upgrade Consortium, of which we are a member and through which we furnish our products and services. In addition, ish requested and received a 120-day moratorium, which has been extended, on all outstanding invoices payable to all members of the Consortium. Callahan Nordrhein-Westfalen GmbH, parent of KNRW, initiated insolvency proceedings under German law in July 2002. At September 27, 2002, our exposure in accounts receivable and inventory related to ish was approximately $36 million. We have not received any significant additional orders or payments from ish. We are currently in negotiations with ish regarding the structure and timing of payment of outstanding invoices. Based on our understanding of the Consortium’s legal position as a creditor and current negotiations with ish, we believe the collectibility of the receivable and the realization of the carrying value of the inventory is probable, although not assured. However, these events may impact revenues from this customer and the results of our operations in future periods.

         Gross margin was 36.2 percent of sales, 4.2 percentage points higher than the prior year. The continued benefit of cost reductions through procurement, lower costs for warranty and scrap and the completion of the transfer of our Atlanta, Georgia manufacturing operations to Juarez, Mexico in the fourth quarter of fiscal year 2002 more than offset the impact of lower volumes and price reductions in the quarter ended September 27, 2002 as compared to the prior year.

         Research and development expenses for the quarter ended September 27, 2002 were $39.8 million, up $2.2 million, or 6 percent, over the first quarter of the prior fiscal year. The year-over-year increase was primarily due to research and development expenses at BarcoNet, offset in part by expense reductions related to the restructuring announced in October 2001. Research and development efforts during the quarter continued to focus on the development of applications and enhancements to our interactive broadband networks.

         Sales and administrative expenses of $47.0 million in the quarter ended September 27, 2002 increased $2.3 million, or 5 percent, over the comparable quarter of the prior fiscal year. Selling expenses in the quarter ended September 27, 2002 were lower than the prior year due to the impact of the restructuring announced in October 2001 and to the lower sales volume which more than offset the increase from the acquisition of BarcoNet. Administrative expenses in the quarter ended September 27, 2002 increased year-over-year due to higher amortization expense of intangible assets established with the acquisition of BarcoNet, the addition of administrative expenses from BarcoNet and $1.6 million of bad debt expense recorded following the bankruptcy filing of TVC’s parent during the quarter.

         In August 2002, we announced a reduction of our workforce by an additional 400 positions, or approximately 6 percent of our total workforce, to align our costs with reduced sales levels. Most of the reductions were effective during the first quarter of fiscal year 2003, although some will occur during the second fiscal quarter. The positions eliminated were from manufacturing, engineering, marketing, sales, service and administrative functions. The restructuring also includes the consolidation of certain office and manufacturing

facilities. We expect these actions to reduce our costs and expenses by approximately $40 million on an annual basis, starting in the second half of this fiscal year. As a result of these actions and an earlier restructuring announced in October 2001, we recorded restructuring charges of $8.7 million, primarily for severance, during the fiscal quarter ended September 27, 2002. We anticipate recording additional charges related to the August 2002 restructuring that will total approximately $8 million over the next two quarters of fiscal year 2003.

         We adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” in the first quarter of fiscal year 2003. This statement addresses the accounting and reporting of long-lived assets to be held and used, long-lived assets to be disposed of by sale and long-lived assets to be disposed of other than by sales. The adoption of this statement did not result in any charges to operations for impairment of long-lived assets.

         Interest expense was $0.8 million in the quarter ended September 27, 2002, up from $0.1 million in the first quarter of the prior fiscal year. The year-over-year increase was due to the debt we assumed from BarcoNet as a result of the acquisition.

         Other (income) expense of $5.5 million for the quarter ended September 27, 2002 included $4.6 million of losses from other-than-temporary declines in the market value of marketable securities and investments in privately-held companies and foreign exchange losses of $1.9 million. These losses were partially offset by a net gain of $2.5 million from the settlement of a collar on a warrant to purchase common stock and the related warrant. There were no other significant items in other (income) expense for the quarter ended September 27, 2002. Other (income) expense of $(1.4) million for the quarter ended September 28, 2001 did not include any significant items.

         Earnings before income taxes were $16.7 million in the quarter ended September 27, 2002, down $39.5 million from the prior year due primarily to the lower sales volume in the first quarter of fiscal year 2003 as compared to the prior year. This decline was partially offset by an improved gross margin rate in fiscal year 2003. Earnings before income taxes in the quarter ended September 27, 2002 also included restructuring charges of $8.7 million and charges of $4.6 million for other-than-temporary declines in the market value of investments in privately-held companies.

         Scientific-Atlanta’s effective income tax rate was 34.1 percent for the quarter ended September 27, 2002, approximately the same as the prior year.

         Net earnings for the quarter ended September 27, 2002 were $11.0 million, compared to $37.1 million in the prior year. Lower sales volume in the first quarter of fiscal year 2003 and charges for restructuring and other-than-temporary declines in the market value of marketable securities and investments in privately-held companies were the primary factors in the year-over-year decline.

Critical Accounting Policies

         Note 1 to the Consolidated Financial Statements in Form 10-K for fiscal year 2002 includes a summary of the significant accounting policies or methods used in the preparation of our Consolidated Financial Statements. Some of those significant accounting policies or methods require us to make estimates and assumptions that affect the amounts reported by us. We believe the following items require the most significant judgments and often involve complex estimates.

General

         The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. We base our estimates and judgments on historical experience and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant estimates and assumptions relate to revenue recognition, the adequacy of receivable and inventory reserves and accrued liabilities, principally relating to warranty provisions.

Revenue Recognition

         Our principal sources of revenues are from sales of broadband transmission networks, digital interactive subscriber systems and content distribution networks. We recognize revenue when (1) there is an agreement with the customer, (2) product is shipped and title has passed, (3) the amount due from the customer is fixed and determinable, and (4) collectibility is reasonably assured. Revenue is also recognized only when we have no significant future performance obligation. At the time of the transaction, we assess whether the amount due from the customer is fixed and determinable and collection of the resulting receivable is reasonably assured. We assess whether the amount due from the customer is fixed and determinable based on the terms of the agreement with the customer, including, but not limited to, the payment terms associated with the transaction. We assess collection based on a number of factors, including past transaction history with the customer and credit-worthiness of the customer. If we determine that collection of an amount due is not reasonably assured, we defer recognition of revenue until collection becomes reasonably assured.

         Our right of return policy, which is standard for virtually all our 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. If an agreement contains a non-standard right of return, we defer recognizing revenue until the conditions of the agreement are met. From time to time, our agreements include acceptance clauses. If an agreement includes an acceptance clause, revenue is recorded at the time of acceptance.

Allowance for Doubtful Accounts

         Management judgments and estimates are made in connection with establishing the allowance for doubtful accounts. Specifically, we analyze the aging of accounts receivable balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms. Significant changes in customer concentration or payment terms, deterioration of customer credit-worthiness, as in the case of the bankruptcies of Adelphia and the parent of TVC, or weakening in economic trends could have a significant impact on the collectibility of receivables and our operating results. Generally, we do not require collateral or other security to support accounts receivable.

Inventory Reserves

         We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and production requirements for the next twelve months. In addition, our industry is characterized by rapid technological change, frequent new product development and rapid product obsolescence that could result in an increase in the amount of obsolete inventory on hand. Any significant, unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and operating results.

Non-Current Marketable Securities

         Non-current marketable securities consist of investments in common stock, primarily technology companies, warrants of publicly traded companies and a collar on a warrant and are stated at market value. (The collar on the warrant held at June 28, 2002 was settled during the first quarter of fiscal year 2003.) We have market risks associated with the volatility in the value of our non-current marketable securities. All investments in common stock 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. Realized gains and losses and declines in value judged to be other-than-temporary are included in Other (income) expense. We periodically evaluate the carrying value of our investments in common stock to determine if declines in fair value are other-than-temporary. This evaluation requires judgment and is based on several factors including the market price of the security generally over the preceding six months, analysts’ reports on the security, the performance of the stock market index of the security and the overall economic environment. Unrealized gains and losses on the warrants and collar are included in Other (income) expense.

Investments in Privately-Held Companies

         Investments in privately-held companies consist primarily of securities of emerging technology companies for which readily determinable fair values are not available. These investments are carried at cost and are evaluated periodically to determine if declines in fair value are other-than-temporary. This evaluation requires judgment and is based on several factors including recent private offerings by the company, the performance of the stock market index of similar publicly traded securities and the overall economic environment. Declines in value judged to be other-than-temporary are included in Other (income) expense. Investments in privately-held companies are included in Other assets in the Consolidated Statements of Financial Position.

Warranty Costs

         We offer warranties of various lengths to our customers depending on the specific product and the terms of the agreements with the customer. Our standard warranties require us to repair or replace defective product returned to us during the warranty period at no cost to the customer. We record an estimate for warranty related costs based on our actual historical return rates and repair 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. A significant increase in product return rates or in the costs to repair our products could have a significant impact on our operating results.

         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 99.1 to this Form 10-Q 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 99.1 is hereby incorporated by reference into Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Scientific-Atlanta, the Scientific-Atlanta logo and Explorer, are registered trademarks of Scientific-Atlanta, Inc. WebSTAR is a trademark of Scientific-Atlanta, Inc. PowerTV is a registered trademark of PowerTV, Inc.

         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 forecasted transactions, firm commitments and assets denominated in currencies other than the U.S. dollar. These contracts, which qualify as cash flow hedges, are designated as hedging instruments at inception, 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. The effectiveness of the hedge is based on a high correlation between the changes in its value and the value of the underlying hedged item. Any ineffectiveness is recorded through earnings in Other (income) expense. There were no charges for ineffectiveness recorded during the first quarter of fiscal years 2003 or 2002. 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.

         Firmly committed purchase exposure and related hedging instruments at September 27, 2002 were as follows:

         At September 27, 2002, we had unrealized losses of $183, net of tax of $112, related to these derivatives which were included in accumulated other comprehensive income. Scientific-Atlanta has no derivative exposure beyond the first quarter of fiscal year 2004.

         Unrealized gains and losses on foreign exchange forward contracts which do not meet the criteria for hedge accounting in accumulated other comprehensive income are recognized in Other (income) expense. During the quarter ended September 27, 2002, we recorded losses of $2,097 related to these contracts. No such gains or losses were recorded in the first quarter of fiscal year 2002. At September 27, 2002, we had forward contracts to sell 36,795 Euros which did not meet the criteria for hedge accounting in accumulated other comprehensive income. Contracts for approximately 12,000 Euros hedged our exposure on Euro-based receivables and the remaining contracts served as an economic hedge of a portion of our foreign currency exposure in Euro-denominated operations.

         We have market risks associated with the volatility in the value of our non-current marketable securities which consist of investments in common stock, primarily technology companies, warrants of publicly traded companies and a collar on a warrant and are stated at market value. All investments in common stock are classified as “available for sale” under the provisions of SFAS 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. We recorded after-tax, unrealized holding gains of $968 in the first quarter of fiscal year 2003 and after-tax, unrealized losses of $5,741 in the first quarter of fiscal year 2002. Realized gains and losses and declines in value judged to be other-than-temporary are included in Other (income) expense. We recorded losses of $3,868 in the first quarter of fiscal year 2003 from the other-than-temporary decline in the market value of a marketable security. No such gains, losses or declines in value were recorded in the first quarter of fiscal year 2002.

         Scientific-Atlanta holds warrants to purchase common stock that are recorded at fair value. We also entered into a collar with put and call options which was designed to limit our exposure to fluctuations in the fair value of one of the warrants. The warrants and the collar, which are included in Non-current marketable securities in the Consolidated Statements of Financial Position, were valued using the Black-Scholes pricing model. Fluctuations in the volatility of the market price of the common stock for which we hold a warrant, risk free rate of return and expiration date of the warrant impact the valuation. During the first quarter of fiscal year 2003, we recorded unrealized losses of $856 related to the decline in the fair value of the warrants and a realized gain of $2,491 from the settlement of the collar and related warrant in Other (income) expense. No such gains or losses were recorded in the first quarter of fiscal year 2002.

         We also have market risks associated with the volatility of our investments in privately-held companies which consist primarily of securities of emerging technology companies. These investments are carried at cost and are evaluated periodically to determine if declines in fair value are other-than-temporary. Declines in value judged to be other-than-temporary are included in Other (income) expense. We recorded losses of $709 in the first quarter of fiscal year 2003 from other-than-temporary declines in the fair value of our investments in privately-held companies. No such losses were recorded in the first quarter of fiscal year 2002.

         Within the 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chairman of the Board, President, and Chief Executive Officer, James F. McDonald, and Senior Vice President, Chief Financial Officer and Treasurer, Wallace G. Haislip, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chairman of the Board, President and Chief Executive Officer and Senior Vice President, Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to the company (including its consolidated subsidiaries) required to be included in our periodic SEC filings.

PART II – OTHER INFORMATION

SIGNATURES

Certification of Chief Executive Officer Regarding Periodic Report
Containing Financial Statements Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James F. McDonald, the Chief Executive Officer of Scientific-Atlanta, Inc., certify that:

Certification of Chief Financial Officer Regarding Periodic Report
Containing Financial Statements Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Wallace G. Haislip, the Chief Financial Officer of Scientific-Atlanta, Inc., certify that: