SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 27, 1998
--------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-5517
SCIENTIFIC-ATLANTA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-0612397
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
ONE TECHNOLOGY PARKWAY, SOUTH
NORCROSS, GEORGIA 30092-2967
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
770-903-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----- -----
AS OF APRIL 24, 1998, SCIENTIFIC-ATLANTA, INC. HAD OUTSTANDING 78,820,559
SHARES OF COMMON STOCK.
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
- -----------------------------
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
------------------------ ------------------------
March 27, March 28, March 27, March 28,
1998 1997 1998 1997
--------- --------- --------- ---------
SALES $288,714 $301,741 $877,739 $845,589
COSTS AND EXPENSES
Cost of sales 197,442 207,449 610,222 587,190
Sales and administrative 39,761 41,545 120,047 114,602
Research and development 27,316 29,566 80,717 86,707
Interest expense 101 90 370 344
Interest income (1,315) (1,161) (3,650) (2,812)
Other (income) expense, net 928 45 814 (770)
-------- -------- --------- ---------
Total costs and expenses 264,233 277,534 808,520 785,261
EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 24,481 24,207 69,219 60,328
PROVISION (BENEFIT) FOR INCOME TAXES
Current 8,549 11,547 21,565 10,813
Deferred (1,205) (3,801) (799) 8,492
-------- -------- --------- ---------
NET EARNINGS FROM CONTINUING
OPERATIONS 17,137 16,461 48,453 41,023
GAIN ON SALE OF DISCONTINUED
OPERATIONS, NET OF TAX -- -- -- 3,400
-------- -------- --------- ---------
NET EARNINGS $ 17,137 $ 16,461 $ 48,453 $ 44,423
======== ======== ========= =========
EARNINGS PER COMMON SHARE
BASIC
CONTINUING OPERATIONS $ 0.22 $ 0.21 $ 0.62 $ 0.53
DISCONTINUED OPERATIONS -- -- -- 0.04
-------- -------- --------- ---------
NET EARNINGS $ 0.22 $ 0.21 $ 0.62 $ 0.57
======== ======== ========= =========
DILUTED $ 0.22 $ 0.21 $ 0.62 $ 0.57
======== ======== ========= =========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING
BASIC 78,725 77,345 78,619 77,226
======== ======== ========= =========
DILUTED 79,664 78,700 79,913 78,400
======== ======== ========= =========
DIVIDENDS PER SHARE PAID $ 0.015 $ 0.015 $ 0.045 $ 0.045
======== ======== ========= =========
SEE ACCOMPANYING NOTES
2
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
In Thousands
-------------------------
March 27, June 27,
1998 1997
-------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $150,289 $107,143
Receivables, less allowance for doubtful
accounts of $4,169,000 at March 27
and $4,202,000 at June 27 230,222 238,179
Inventories 199,314 209,570
Deferred income taxes 30,221 31,323
Other current assets 15,826 10,886
-------- --------
TOTAL CURRENT ASSETS 625,872 597,101
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and improvements 20,119 19,854
Buildings and improvements 37,230 32,229
Machinery and equipment 214,871 206,760
-------- --------
272,220 258,843
Less - Accumulated depreciation and amortization 107,944 92,423
-------- --------
164,276 166,420
-------- --------
COST IN EXCESS OF NET ASSETS ACQUIRED 10,450 11,263
-------- --------
OTHER ASSETS 53,562 48,831
-------- --------
TOTAL ASSETS $854,160 $823,615
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 804 $ 842
Accounts payable 101,960 123,675
Accrued liabilities 100,173 111,737
Income taxes currently payable 11,500 13,507
-------- --------
TOTAL CURRENT LIABILITIES 214,437 249,761
-------- --------
LONG-TERM DEBT, less current maturities 1,296 1,810
-------- --------
OTHER LIABILITIES 47,316 39,394
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, authorized 50,000,000 shares;
no shares issued -- --
Common stock, $0.50 par value, authorized
350,000,000 shares; issued 79,207,009 shares at
March 27 and 77,995,475 shares at June 27 39,604 38,998
Additional paid-in capital 193,070 171,857
Retained earnings 368,523 323,608
Accumulated translation adjustments (535) (186)
-------- --------
600,662 534,277
-------- --------
Less - Treasury stock, at cost (587,750 shares at March 27
and 113,000 shares at June 27) 9,551 1,627
-------- --------
591,111 532,650
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $854,160 $823,615
======== =======
SEE ACCOMPANYING NOTES
3
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
---------------------
March 27, March 28,
1998 1997
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES: $ 46,211 $ 87,761
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (29,967) (40,105)
Acquisition of business, net of cash acquired -- (11,066)
Proceeds from sale of discontinued operations -- 18,483
Proceeds from the sale of business units 27,059 --
Proceeds from sale of property, plant and equipment 180 13,142
Other (208) (2,375)
-------- --------
Net cash used by investing activities (2,936) (21,921)
-------- --------
FINANCING ACTIVITIES:
Net repayments of short-term borrowings -- (1,218)
Principal payments on long-term debt (552) --
Dividends paid (3,538) (3,477)
Issuance of common stock 11,472 2,120
Treasury shares acquired (7,511) (2,973)
-------- --------
Net cash used by financing activities (129) (5,548)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 43,146 60,292
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 107,143 20,930
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $150,289 $ 81,222
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 320 $ 285
======== ========
Income taxes paid, net $ 19,294 $ 19,832
======== ========
SEE ACCOMPANYING NOTES
4
NOTES:
(Amounts in thousands except share data).
A. The accompanying consolidated financial statements include the accounts
of the company and all subsidiaries after elimination of all material
intercompany accounts and transactions. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. These condensed financial statements
should be read in conjunction with the consolidated financial statements
and related notes contained in the 1997 Form 10-K. The financial
information presented in the accompanying statements reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the periods indicated. All such adjustments are of a
normal recurring nature.
B. Basic earnings per common share were computed by dividing net earnings by
the weighted average number of shares of common stock outstanding during
the period. Diluted earnings per common share were computed by dividing
net earnings by the sum of the weighted average shares of common stock
outstanding during the period and incremental shares from the assumed
exercise of dilutive options. See Exhibit 11.
C. Inventories consist of the following:
March 27, June 27,
1998 1997
--------- --------
Raw materials and work-in-process $131,485 $136,699
Finished goods 67,829 72,871
-------- --------
Total inventory $199,314 $209,570
======== ========
D. On February 28, 1997, the company acquired 100 percent of the outstanding
stock of Arcodan A/S (Arcodan) for $15,000 in cash. Arcodan is a Danish
manufacturer of advanced analog and digital headend systems, opto-
electronics and RF distribution equipment. The acquisition was accounted
for as a purchase and, accordingly, the acquired assets and liabilities
were recorded at their estimated fair value at the date of acquisition.
The purchase price has been allocated to the assets and liabilities
acquired, including $5,709 to goodwill.
E. During the quarter ended September 29, 1995, the company decided to
discontinue its defense-related businesses in San Diego, California,
because these businesses were not aligned with the company's core
business strategies and recorded a one-time charge of $12,172, net of a
tax benefit of $5,728, for the estimated loss on sale of discontinued
operations. During the quarter ended September 27, 1996, the company
completed negotiations with a prime contractor, for whom the defense-
related businesses had performed work as a subcontractor, to settle
issues related to the pricing of unexercised options for additional
products. The company also completed the sale of its defense-related
businesses to Global Associates, Ltd. (Global) for cash of $13,142 and
secured and unsecured notes aggregating approximately $4,700. The net
realizable value of the assets of the defense-related businesses and the
settlement with the prime contractor were more favorable than the company
had anticipated when it decided to exit these businesses; accordingly,
the company recognized a pre-tax gain of $5,000 from these transactions
in the first quarter of fiscal 1997. Sales and losses, net of tax, from
discontinued operations were $1,920 and $817, respectively, for the
quarter ended September 27, 1996. At March 27, 1998, the company had
a reserve of approximately $7,100 for potential sales price adjustments,
indemnifications provided to Global, legal, severance and other
miscellaneous expenses related to the sale and the settlement with the
prime contractor.
Global is currently in default under its promissory notes to the company
and under promissory notes to Global's senior lenders and, in January
1998, filed a voluntary petition for a Chapter 11 reorganization in the
United States Bankruptcy Court. Whether Global will successfully
reorganize in this bankruptcy proceeding is not known at this time. If a
satisfactory resolution of the situation is not reached, the company
believes it has adequate reserves to cover any potential losses related
to Global's default on the promissory notes and related to any contracts
of the defense-related businesses from which contracts the company has
not been released.
5
NOTES: (continued)
(Amounts in thousands except share data).
F. During the quarter ended March 28, 1997, the company decided to dispose
of two business units, microwave and mobile, because these businesses
were not aligned with the company's core business strategies and recorded
a pre-tax charge of $5,526. During the quarter ended December 26, 1997,
the company sold the majority of the net assets of the microwave business
unit for $8,059 of cash. No gain or loss was recognized on the
transaction. At March 27, 1998, the company had a reserve of
approximately $4,300 to adjust the carrying amount of the net assets of
the mobile business unit and to provide for estimated indemnifications to
the purchaser of the microwave business unit, potential losses on
contracts of the microwave business which were retained by the company,
severance, closing costs and other miscellaneous expenses related to the
sale of the microwave business unit.
G. During the quarter ended March 27, 1998, the company sold the inventory,
manufacturing assets and intellectual property of the interdiction
business to Blonder Tongue Laboratories, Inc. (Blonder Tongue) for
$19,000 in cash, Blonder Tongue stock valued at $1,000 and an option to
acquire additional shares of Blonder Tongue stock, and the company
recorded a pre-tax gain of $9,080. At March 27, 1998, the company had a
reserve of approximately $5,800 for research and development commitments,
transition services, potential post-closing sales price adjustments
and other miscellaneous expenses related to the sale.
H. During fiscal 1997, the company decided to decrease its research and
development efforts related to coaxiom products because the markets for
these products had not developed as quickly as the company previously
anticipated. During the quarter ended March 27, 1998, the company decided
to discontinue its efforts to develop coaxiom systems and recorded a pre-
tax charge of approximately $9,000. The charge included reserves for the
disposal of inventory and fixed assets which were associated with the
development of coaxiom systems, research and development costs incurred
during fiscal 1998 and other miscellaneous expenses. The company will
continue to develop applications and technology for telephony on cable
using IP (Internet protocol) telephony which will be used in the
company's networks and Explorer(R) 2000 digital interactive set-tops.
I. During the nine months ended March 27, 1998, the company purchased
500,000 shares of its common stock pursuant to a stock buyback program
for an aggregate cost of $7,511. The company obtained an additional
73,240 shares of its common stock, primarily from the cancellation of
unvested, restricted stock grants. During the nine months ended March 28,
1997, the company purchased 225,000 shares of its common stock pursuant
to a stock buyback program at an aggregate cost of $2,973. The company
re-issues these shares under the company's stock option plans, 401(k)
plan, employee stock purchase plan and other stock-based employee
compensation arrangements.
6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------ ------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
FINANCIAL CONDITION
- -------------------
Scientific-Atlanta had stockholders' equity of $591.1 million and cash on
hand of $150.3 million at March 27, 1998. Cash increased $43.1 million
during the nine months ended March 27, 1998 as cash generated from earnings,
proceeds from the sale of certain assets of the interdiction and microwave
businesses, reductions in inventory, accounts receivable collections and the
issuance of common stock exceeded expenditures for equipment, reductions in
payables and purchases of the company's common stock. The current ratio was
2.9:1 at March 27, 1998, compared to 2.4:1 at June 27, 1997. At March 27, 1998,
total debt was $2.1 million or less than one percent of total capital invested.
The company entered into a $38 million off-balance sheet operating lease
commitment with an option to purchase in July 1997 related to the construction
of facilities to replace those currently under lease by the company. The
company believes that funds generated from operations, existing cash balances
and its available senior credit facility will be sufficient to support the
company's growth.
RESULTS OF OPERATIONS
- ---------------------
Sales for the quarter ended March 27,1998 were $288.7 million, down 4
percent from the prior year. Sales of Subscriber Network Systems products
declined 4 percent from the prior year primarily due to lower international
sales volume of analog settops which more than offset the increase in domestic
sales volume of the analog settops. Sales of Terrestrial Network Systems
products increased 5 percent over the prior year primarily due to sales
generated by Arcodan A/S which was acquired in February 1997 and strong sales of
headend products. Sales of Satellite Networks Systems declined 11 percent from
the prior year primarily due to lower sales volumes in the Asia/Pacific
region.
Sales for the nine months ended March 27, 1998 were $877.7 million, up 4
percent over the prior year. Sales of Subscriber Network Systems and
Terrestrial Network Systems products increased 7 percent and 9 percent,
respectively. These increases were the result of higher sales volume of analog
settops and opto-electronic products and sales generated by Arcodan in fiscal
1998. Sales of Satellite Networks Systems declined 4 percent from the prior
year. Sales in each sector were negatively impacted by the deterioration in the
economic condition of the Asia/Pacific region during fiscal 1998 and the
company believes that future sales in this region will be negatively impacted
until the economic conditions improve.
Orders booked during the three and nine months ended March 27, 1998 were
$309.8 million and $885.0 million, respectively, a decline of 1 percent and 6
percent, respectively, from the comparable periods of the prior year. Lower
orders in fiscal 1998 reflected a decline in business in the Pacific Rim
resulting from currency issues in the region, which made the company's products
more expensive, and a slowdown of a cable system roll-out in Australia and a
softening of the market in the United Kingdom. These declines were offset
partially by strong growth in orders booked in North America and Latin America.
Gross margin of 31.6 percent for the three months ended March 27, 1998,
improved 0.4 percentage points over the prior year. The improvement from
favorable product mix and cost reductions was offset partially by lower volume
of sales in the Asia/Pacific region, which generally have higher margins than
some other geographic regions, and margin decreases in Terrestrial Network
Systems, resulting from market pressures. Gross margin of 30.5 percent for the
nine months ended March 27, 1998 was approximately the same as the comparable
period of the prior year. Lower volume of sales in the Asia/Pacific region
and margin decreases in Terrestrial Network Systems offset the impact of
favorable exchange rates on the Japanese yen compared to the prior year,
favorable product mix and cost reductions.
Certain material purchases are denominated in Japanese yen and,
accordingly, the purchase price in U.S. dollars is subject to change based on
exchange rate fluctuations. The company has forward exchange contracts to
purchase yen to hedge a portion of its exposure on purchase commitments for a
period of approximately twelve months.
7
Research and development costs were $27.3 million and $80.7 million for the
three and nine months ended March 27, 1998, respectively, or approximately 9
percent of sales, reflecting the company's continued investment in research and
development programs to support new product initiatives. Research and
development costs during fiscal 1998 were lower than the prior year due
primarily to decreased research and development efforts related to cable
telephony products which was offset partially by increased investments in analog
and digital settop programs. In addition, the company capitalized software
development costs of $0.4 million and $1.8 million during the three and nine
months ended March 27, 1998, respectively and non-recurring engineering costs of
$6.2 million during the nine months ended March 27, 1998. During the nine
months ended March 27, 1998, the company has charged $1.3 million of capitalized
non-recurring engineering costs to cost of sales.
Selling and administrative expenses of $39.8 million for the three months
ended March 27, 1998 decreased $1.8 million, or 4 percent, from the prior year.
Lower selling and administrative expenses reflect lower costs associated with
lower sales volume, reduced selling efforts for coaxiom and cable modem products
in fiscal 1998, the sale of the microwave business unit in the second quarter of
fiscal 1998 and cost reductions which were offset partially by ongoing
investments to support expansion into international markets and to support the
introduction of new products and the selling and administrative expense of
Arcodan. Sales and administrative expenses for the nine months ended March 27,
1998 were $120.0 million, or $5.4 million higher than the comparable period of
the prior year. This increase reflects the activities described above and costs
associated with higher sales volume.
Other (income) expense for the three and nine months ended March 27, 1998
included a gain of $9.1 million from the sale of certain assets of the
interdiction business, a loss of $9.0 million from the discontinuance of
research and development efforts related to coaxiom products, the results of
foreign currency transactions and partnership activities and other miscellaneous
items. During the quarter ended March 27, 1998, the company sold the inventory,
manufacturing assets and intellectual property of the interdiction business to
Blonder Tongue Laboratories, Inc. (Blonder Tongue) for $19.0 million in cash,
Blonder Tongue stock valued at $1.0 million and an option to acquire additional
shares of Blonder Tongue stock, and the company recorded a gain of $9.1 million.
At March 27, 1998, the company had a reserve of $5.8 million for research and
development commitments, transition services, potential post-closing sales price
adjustments and other miscellaneous expenses related to the sale.
During fiscal 1997, the company decided to decrease its research and
development efforts related to coaxiom products because the markets for these
products had not developed as quickly as the company previously anticipated.
During the quarter ended March 27, 1998, the company decided to discontinue its
efforts to develop coaxiom systems and recorded a charge of $9.0 million. The
charge included reserves for the disposal of inventory and fixed assets which
were associated with the development of coaxiom systems, research and
development costs incurred during fiscal 1998 and other miscellaneous expenses.
The company will continue to develop applications and technology for telephony
on cable using IP (Internet protocol) telephony which will be used in the
company's networks and Explorer 2000 digital interactive set-tops.
Other (income) expense for the three and nine months ended March 28, 1997
included a gain of $5.6 million from the sale of land and a building in San
Diego County, California not required for current operations, the results of
foreign currency transactions and partnership activities and net gains from
rental income and other miscellaneous items. During the quarter ended March 28,
1997, the company decided to dispose of two business units, microwave and
mobile, because these businesses were not aligned with the company's core
business strategies and recorded a charge of $5.5 million to adjust the carrying
amount of the net assets held for sale to net realizable value and to provide
for estimated indemnifications to the purchaser, severance, closing costs and
other miscellaneous expenses related to the sales of these businesses. During
the quarter ended December 26, 1997, the company sold the majority of the net
assets of the microwave business unit for $8.1 million of cash. No gain or loss
was recognized on the transaction.
The company's effective income tax rate in fiscal 1998 was 30 percent, two
percentage points lower than the rate in the prior year. The lower effective
income tax rate in fiscal 1998, as compared to fiscal 1997, is due to benefits
from the company's foreign sales corporation (FSC) and a decrease in foreign
earnings taxed at higher rates.
8
Net earnings from continuing operations were $17.1 million for the quarter
ended March 27, 1998, up $0.7 million, or 4 percent, over the prior year. Net
earnings from continuing operations were $48.5 million for the nine months ended
March 27, 1998, up $7.4 million, or 18 percent, over the prior year. Slightly
higher sales volume and lower research and development expenses in fiscal 1998
were offset partially by increased selling and administrative expenses.
The company periodically evaluates the contribution of its business
units and products to the company's overall strategic direction. During the
quarter ended September 29, 1995, the company decided to discontinue its
defense-related businesses in San Diego, California because these businesses
were not aligned with the company's core business strategy of being a provider
of satellite and terrestrial based networks and applications. In October 1995,
the company announced its intent to sell its defense-related businesses and
recorded a one-time, after-tax charge of $13.2 million in the quarter ended
September 29, 1995.
During the quarter ended September 27, 1996, the company completed
negotiations with a prime contractor, for whom the defense-related businesses
had performed work as a subcontractor, to settle issues related to the pricing
of unexercised options for additional products. The company also completed the
sale of its defense-related businesses to Global Associates, Ltd. for cash of
$13.1 million and secured and unsecured notes aggregating approximately $4.7
million. The net realizable value of the assets of the defense-related
businesses and the settlement with the prime contractor were more favorable than
the company had anticipated when it decided to exit these businesses;
accordingly the company recognized a pre-tax gain of $5.0 million from these
transactions in the quarter ended September 27, 1996.
Global is currently in default under its promissory notes to the company
and under promissory notes to Global's senior lenders and, in January 1998,
filed a voluntary petition for a Chapter 11 reorganization in the United States
Bankruptcy Court. Whether Global will successfully reorganize in this bankruptcy
proceeding is not known at this time. If a satisfactory resolution of the
situation is not reached, the company believes it has adequate reserves to cover
any potential losses related to Global's default on the promissory notes and
related to any contracts of the defense-related businesses from which contracts
the company has not been released.
Net earnings for the three months ended March 27, 1998 were $17.1 million,
up $0.7 million over the prior year. Net earnings for the nine months ended
March 27, 1998 were $48.5 million, up $4.0 million over the prior year which
included an after-tax gain of $3.4 million related to the sale of discontinued
operations.
The company previously announced that it planned to have production
quantities of the new PRISMA (TM) Digital Transport product available in the
third quarter of fiscal 1998, but the availability of such production quantities
may be delayed until the first quarter of fiscal 1999.
YEAR 2000
- ---------
The company, like most other major companies, is currently addressing a
universal problem commonly referred to as "Year 2000 Compliance," which relates
to the ability of computer programs and systems to properly recognize and
process date sensitive information before and after January 1, 2000. The
following discussion is based on information currently available to the company.
The company has analyzed and continues to analyze its internal computer-
based systems to identify any computer programs that are not Year 2000 compliant
and implement any changes required to make such systems Year 2000 compliant.
The company believes that its critical internal computer-based systems currently
are capable of functioning without substantial Year 2000 Compliance problems,
or, if not currently capable, will be capable in a time frame that will avoid
any material adverse effect on the company. Also, the company does not believe
that the expenditures related to replacing or upgrading any of its internal
computer-based systems to make them Year 2000 compliant will have a material
adverse effect on the financial condition of the company.
Certain products currently sold by the company contain computer programs
that perform date functions or date calculations. The company is currently
evaluating each of its products and, based on its investigation to date,
believes that the products it currently sells are Year 2000 compliant, provided
that they have been upgraded to include all recommended engineering changes.
The company's products are often used by its customers in systems that contain
third party products. Therefore, even though the company's products may be Year
2000 compliant, the failure of such third party products to be Year 2000
compliant, or to properly interface with the company's products, may result in a
system failure. Certain products that the company no longer offers for sale are
not Year 2000 compliant, and the company has no plans to upgrade them.
9
The company is investigating each of its vendors, suppliers, financial
service organizations, service providers and customers to confirm that the
company's operations will not be materially adversely affected by the failure of
any such third party to have Year 2000 compliant computer programs.
The company does not currently believe that any of the foregoing will have
a material adverse effect on its financial condition or its results of
operations. However, the process of evaluating the company's products and third
party products and systems is ongoing.
FORWARD-LOOKING STATEMENTS
- --------------------------
Any of the above statements 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-Q
for a description of the various risks and uncertainties that could cause the
company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the company'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.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
- ------ -----------------------------------------------------------
This information is not yet required, per the Instructions to Item 305 of
Regulation S-K.
Explorer is a registered trademark and PRISMA is a trademark of Scientific-
Atlanta, Inc.
10
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) Exhibits.
Exhibit No. Description
----------- -----------
11 Computation of Earnings Per Share
27 Financial Data Schedule
99 Cautionary Statements
(b) No reports on Form 8-K were filed during the quarter ended
March 27, 1998.
Date: May 8, 1998 /s/ Wallace G. Haislip
----------- ----------------------
Wallace G. Haislip
Senior Vice President-Finance,
Chief Financial Officer and Treasurer
(Principal Financial Officer and duly
authorized signatory of the Registrant)
11
EXHIBIT 11
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 27, 1998 MARCH 28, 1997
------------------------------ -------------------------------
PER SHARE PER SHARE
EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT
-------- ------ --------- -------- ------ ---------
BASIC EARNINGS PER
COMMON SHARE
Earnings from continuing operations
available to common stockholders $17,137 78,725 $0.22 $16,461 77,345 $0.21
EFFECT OF DILUTIVE SECURITIES
Options -- 939 -- -- 1,355 --
------- ------ ----- ------- ------ -----
DILUTED EARNINGS PER
COMMON SHARE
Earnings from continuing operations
available to common stockholders
and assumed conversions $17,137 79,664 $0.22 $16,461 78,700 $0.21
======= ====== ===== ======= ====== =====
NINE MONTHS ENDED NINE MONTHS ENDED
MARCH 27, 1998 MARCH 28, 1997
------------------------------ -------------------------------
PER SHARE PER SHARE
EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT
-------- ------ --------- -------- ------ ---------
BASIC EARNINGS PER
COMMON SHARE
Earnings from continuing operations
available to common stockholders $48,453 78,619 $0.62 $41,023 77,226 $0.53
EFFECT OF DILUTIVE SECURITIES
Options -- 1,294 -- -- 1,174 --
------- ------ ----- ------- ------ -----
DILUTED EARNINGS PER
COMMON SHARE
Earnings from continuing operations
available to common stockholders
and assumed conversions $48,453 79,913 $0.62 $41,023 78,400 $0.53
======= ====== ===== ======= ====== =====
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 options' exercise price was greater than the average market price of
the common shares:
March 27, 1998 March 28, 1997
-------------- --------------
Number of options outstanding 3,915 2,923
Weighted average exercise price $21.67 $20.72
EXHIBIT 99
CAUTIONARY STATEMENTS
From time to time, the company may publish, verbally or in written form,
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, technological developments, new products,
research and development activities and similar matters. In fact, this
Form 10-Q (or any other periodic reporting documents required by the 1934 Act)
may contain forward-looking statements reflecting the current views of the
company concerning potential future events or developments. The Private
Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor"
for forward-looking statements. These Cautionary Statements are being made
pursuant to the provisions of the Act and with the intention of obtaining the
benefits of the "safe harbor" provisions of the Act. In order to comply with the
terms of the "safe harbor," the company cautions investors that any forward-
looking statements made by the company are not guarantees of future performance
and that a variety of factors could cause the company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the company's forward-looking statements. The risks
and uncertainties which may affect the operations, performance, development and
results of the company's business include, but are not limited to, the
following: uncertainties relating to the development and ownership of
intellectual property; uncertainties relating to the ability of the company and
other companies to enforce their intellectual property rights; uncertainties
relating to economic conditions (including, but not limited to, the continued
weak economic conditions in the Asia/Pacific region); uncertainties relating
to government and regulatory policies; uncertainties relating to customer plans
and commitments; the company's dependence on the cable television industry and
cable television spending; signal security; the pricing and availability of
equipment, materials and inventories; technological developments; performance
issues with key suppliers and subcontractors; governmental export and import
policies; global trade policies; worldwide political stability and economic
growth; regulatory uncertainties; delays in testing of new products; rapid
technology changes; the highly competitive environment in which the company
operates; the entry of new, well-capitalized competitors into the company's
markets; reliance on software programs used by the company or its suppliers
containing problems related to computations that must be made in 1999, 2000, and
beyond ("Year 2000 Problems") and Year 2000 Problems that may exist in products
sold currently or historically to customers of the company; changes in the
financial markets relating to the company's capital structure and cost of
capital; and uncertainties inherent in international operations and foreign
currency fluctuations. The words "believe," "expect," "anticipate," "project,"
"plan" and similar expressions identify forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date the statement was made.