Scientific-Atlanta Reports Record Fourth Quarter and Record Fiscal Year Results - Company Financial Information

Cambridge Telcom Report, August 23, 1999

Scientific-Atlanta (NYSE: SFA) has reported all-time record bookings and revenues for its fiscal fourth quarter ended July 2, 1999. Increased revenues were driven by shipments of the company's transmission networks products and Explorer 2000 interactive digital set-tops.

Bookings of $388.7 million in the fiscal fourth quarter represented an increase of 22% over the previous year's fourth quarter.

Revenues of $355.2 million increased 17% over the prior year's fourth quarter.

Net earnings for the quarter were $47.3 million, or $0.59 per share, including $20.9 million of previously announced one-time, after-tax gains on marketable securities. Excluding the gains, net earnings for the quarter were $26.4 million, or $0.33 per share, a 32% profit increase over the previous year's comparable quarter. In the prior year, the company reported net earnings of $32.3 million, or $0.40 per share, which included one-time charges and one-time gains. Excluding these one-time special items, net earnings in the fourth quarter of the previous year were $20.1 million, or $0.25 cents per share. Backlog at fiscal year end was $529.4 million, a record for any fourth quarter and the second highest in the company's history.

Record fiscal year

Fiscal year bookings were a record $1.28 billion. Sales for the year were a record $1.24 billion. Net earnings for the fiscal year were a record $102.3 million, or $1.30 per share, including realized and unrealized gains on marketable securities. Excluding the gains, net income was $60.7 million, or $0.77 per share.

Strong balance sheet

The company's balance sheet remains strong with record cash and marketable securities of $302.9 million at the end of the fiscal year, an increase of $31.6 million from the end of the prior fiscal year. The company continues to have no significant debt.

James F. McDonald, Scientific-Atlanta's CEO said, "Record sales in our Broadband Segment, in both the transmission and subscriber businesses, are being driven by the cable industry's accelerating moves into Internet-Protocol based digital interactive services. Our transmission business grew to $145.0 million in sales in the fourth quarter, a 28% increase compared to last year's fourth quarter, and our subscriber business increased 26% over last year's fourth quarter to $164.2 million. It is increasingly clear that the cable industry is entering a new phase of growth, and Scientific-Atlanta is well positioned to benefit. Early on, we bet on Hybrid Fiber Coax, or HFC, architecture and on the cable industry, and now it is becoming evident that HFC is the architecture of choice.

"We were particularly pleased with our North American sales in the fourth quarter. Our transmission sales increased 34% versus last year's fourth quarter, while our subscriber business increased 31% over the same period."

Digital deployments increase 5-fold in six months

Seventy-nine Scientific-Atlanta digital interactive cable systems have been installed at customer sites to date. Of those installed, 58 cable systems have launched commercial services to paying customers. This compares to 24 systems launched at the end of the previous quarter and 8 systems at the end of the second quarter. "It is evident that the rate of deployment is accelerating as our customers respond to growing consumer demand," McDonald said.

* More than a half million Explorer 2000 digital set-tops shipped in fiscal * year * During the fourth quarter the company shipped 178,000 Explorer 2000

digital interactive set-tops, making a total of 511,000 shipped during the fiscal year. Approximately 230,000 units have been installed in homes with the remainder, less than 6,000 per system, held in cable operators' inventories. Customers are installing the set-tops in subscriber homes at a rate of approximately 20,000 per week compared to 4,000 per week at the beginning of the fourth quarter.

Digital set-top production to double again

The company announced during the quarter that it would double production capacity for digital interactive set-tops from 1 million units annually to 2 million units. A year ago, annual capacity was doubled from 500,000 units to 1 million. "This second increase is the result of customer assessments of their future needs based on extremely favorable initial consumer reaction," McDonald said.

Analog shipments remain strong

The company shipped 472,000 analog set-tops in the fourth quarter compared to 503,000 in the previous quarter as customers continued to implement the transition to digital technology. Analog subscriber sales continue to be a significant profit contributor and complement to the company's digital strategy. As indicated previously, the company anticipates some decline in domestic analog shipments in the future as customers move to digital technology, and the company is managing the business accordingly.

Transmission has banner quarter

The company's transmission business had an outstanding quarter with bookings up 67% in the fourth quarter compared to the previous year's fourth quarter. Sales increased 28% over the same period. The company began shipments of its Prisma(TM) DWDM, Dense Wavelength Division Multiplexing, system to AT&T Broadband Internet Services and to Charter Communications. The DWDM product has gained acceptance for its ability to expand the capacity of fiber-optic cable by delivering up to 16 unique data streams on a single fiber. The company also received an order from AT&T Broadband Internet Services for its baseband digital reverse products.