UNITED STATES
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 December 26, 1993
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 0-2251
SCI SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0583436
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
c/o SCI Systems (Alabama), Inc.
2101 West Clinton Avenue
Huntsville, Alabama 35805
(Address of principal executive offices) (Zip Code)
______________________________________________
(302) 998-0592
(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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, $.10 par value - 27,147,832 Shares
Outstanding as of January 18, 1994
SCI SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 26, June 30,
1993 1993
(In thousands of dollars) (*)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 20,866 $ 15,846
Accounts receivable 228,362 208,777
Inventories - NOTE C 308,556 341,348
Refundable income taxes 6,583 6,814
Deferred federal and foreign income taxes 5,127 5,555
Other current assets 7,747 1,702
------- -------
TOTAL CURRENT ASSETS 577,241 580,042
PROPERTY, PLANT AND EQUIPMENT
(Less accumulated depreciation and amortization
of $197,969 at December 26, 1993 and $175,097
at June 30, 1993) 182,048 184,032
GOODWILL
(Less accumulated amortization of $9,510 at
December 26, 1993 and $8,265 at June 30, 1993) 7,092 7,915
INVESTMENTS HELD IN TRUST FOR
DEFERRED COMPENSATION PLAN 3,607 -0-
OTHER NONCURRENT ASSETS 8,848 8,350
-------- --------
TOTAL ASSETS $778,836 $780,339
======== ========
* Condensed from audited consolidated financial statements.
See notes to condensed consolidated financial statements.
SCI SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 26, June 30,
1993 1993
(In thousands of dollars) (*)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $171,278 $214,773
Accrued payroll and related expenses 15,099 15,920
Federal, foreign, and state income taxes 5,397 8,735
Current maturities of long-term debt 4,825 4,098
-------- --------
TOTAL CURRENT LIABILITIES 196,599 243,526
DEFERRED INCOME TAXES 3,893 3,893
NONCURRENT ACCRUED PENSION COSTS 5,821 5,821
DEFERRED COMPENSATION 3,607 -0-
LONG-TERM DEBT - NOTE D
Industrial revenue bonds 23,277 23,742
Long-term notes 212,142 186,643
Convertible subordinated debentures 38,878 38,858
------- -------
TOTAL LONG-TERM DEBT 274,297 249,243
COMMITMENTS AND CONTINGENCIES - NOTE E
SHAREHOLDERS' EQUITY
Preferred stock, 500,000 shares authorized
but unissued -0- -0-
Common stock, $.10 par value: authorized
50,000,000 shares; issued 27,127,832 shares
at December 26 ,1993 and 27,085,282 shares
at June 30 ,1993 2,713 2,709
Capital in excess of par value 123,118 122,785
Retained earnings 176,411 160,791
Currency translation adjustment (7,282) (8,027)
------- -------
294,960 278,258
Less treasury stock (at cost): 29,683 shares
at December 26, 1993 and 35,000 shares
at June 30, 1993 (341) (402)
------- -------
TOTAL SHAREHOLDERS' EQUITY 294,619 277,856
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $778,836 $780,339
======== ========
* Condensed from audited consolidated financial statements.
See notes to condensed consolidated financial statements.
SCI SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Quarter Ended:
(In thousands of dollars except
for per share data) December 26, December 27,
1993 1992
Net sales $447,652 $450,629
Cost and expenses 431,641 436,497
Goodwill amortization 433 500
------- -------
OPERATING INCOME 15,578 13,632
Other income/(expense):
Interest expense (3,645) (4,796)
Other income (expenses), net (249) (54)
-------- ------
INCOME BEFORE INCOME TAXES 11,684 8,782
Income taxes - NOTE B 3,913 2,371
------- -------
NET INCOME $ 7,771 $ 6,411
======== ========
Earnings per share - NOTE A:
Primary $.28 $.30
Fully diluted .28 .27
Weighted average number of shares used
in computation:
Primary 27,699,465 21,550,361
Fully diluted 27,699,465 29,422,250
See notes to condensed consolidated financial statements.
SCI SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended:
(In thousands of dollars except
for per share data) December 26, December 27,
1993 1992
Net sales $874,296 $800,156
Cost and expenses 842,787 775,734
Goodwill amortization 865 971
------- -------
OPERATING INCOME 30,644 23,451
Other income/(expense):
Interest expense (7,568) (8,854)
Other income (expenses), net (17) (48)
------- -------
INCOME BEFORE INCOME TAXES 23,059 14,549
Income taxes - NOTE B 7,439 3,928
NET INCOME $ 15,620 $ 10,621
======== ========
Earnings per share - NOTE A:
Primary $.56 $.49
Fully diluted .56 .47
Weighted average number of shares used
in computation:
Primary 27,697,126 21,464,321
Fully diluted 27,697,126 29,427,747
See notes to condensed consolidated financial statements.
SCI SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended:
(In thousands of dollars) December 26, December 27,
1993 1992
OPERATING ACTIVITIES
Net income $ 15,620 $ 10,621
Adjustments to reconcile net income
to cash used for operations:
Depreciation and amortization 24,374 20,006
Effect of property, plant and equipment
disposals 60 109
Unrealized foreign currency exchange gain (108) -0-
Deferred income taxes 427 -0-
Other 59 -0-
Changes in current assets and liabilities:
Accounts receivable (19,071) (59,288)
Inventories 33,272 (82,027)
Refundable income taxes 231 (68)
Other current assets (6,044) 718
Accounts payable and accrued expenses (44,901) 40,238
Income taxes (4,052) 17
--------- ---------
NET CASH USED FOR OPERATING ACTIVITIES (133) (69,674)
--------- ---------
INVESTING ACTIVITIES
Purchase of property, plant, and equipment (21,282) (38,109)
Proceeds from sale of property, plant
and equipment 109 258
Increase in noncurrent assets (608) (46)
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (21,781) (37,897)
--------- ---------
FINANCING ACTIVITIES
Net increase in commercial paper 49,179 26,903
Payments on long-term debt (1,451,367) (426,409)
Proceeds from long-term debt 1,427,909 490,711
Issuance of common stock 337 877
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 26,058 92,082
--------- ---------
Effect of exchange rate changes on cash 876 4,601
--------- ---------
Net increase (decrease) in cash and
cash equivalents 5,020 (10,888)
Cash and cash equivalents at
beginning of period 15,846 38,722
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,866 $ 27,834
========= =========
Cash equivalents consist of short-term deposits and liquid
marketable securities which are stated at cost that approximates
market value.
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 26, 1993
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries
after elimination of significant intercompany accounts and transactions.
The financial statements have been prepared in accordance with instructions
to Form 10-Q and do not include all the information and footnotes required
by generally accepted accounting principles for complete financial
statements. The statements (and all other information in this report) have
not been examined by independent auditors, but in the opinion of the Company
all adjustments, which consist of normal recurring accruals necessary for
a fair presentation of the results for the period, have been made. The
results of operations for the period ended December 26, 1993, are not
necessarily indicative of the results of operations for the year ending
June 30, 1994. For further information, refer to the financial statements
and footnotes included in the Company's annual report on Form 10-K for the
year ended June 30, 1993.
Primary earnings per share are based on the weighted average number of common
stock and dilutive common stock equivalents outstanding during each period.
Common stock equivalents consist of stock options whose exercise price is
less than the stipulated market price using the Treasury-stock method for
both primary and fully diluted earnings per share. The fully diluted
computation, when required, assumes the dilutive conversion of the Company's
outstanding convertible debenture issues, after adding back the debentures'
after-tax interest expense. In the second quarter and first six months of
fiscal year 1994, the assumed conversion of outstanding convertible
debentures was not dilutive.
NOTE B - INCOME TAXES
The Company provides U.S. income taxes on that portion of its foreign
subsidiaries' earnings that it does not consider permanently invested.
U.S. income taxes are not provided on certain undistributed earnings of
foreign subsidiaries aggregating approximately $46,400,000 at December 26,
1993. Otherwise, approximately $13,100,000 of cumulative deferred income
taxes would have been provided. Income tax provision for the first six
months of fiscal year 1994 differs from the U.S. statutory income tax rate,
primarily due to lower effective income taxes on foreign earnings considered
permanently invested.
NOTE C - INVENTORIES
Program related costs (excluding A-12 related costs as described in Note E)
in excess of currently negotiated contracts and included in inventory
approximated $5,800,000 and $7,630,000 at December 26, 1993, and June 30,
1993, respectively. The Company's policy is to defer only those costs in
excess of current contract value that relate to government programs entered
into before December 31, 1990, that it believes will be continued, or in the
case of pending claims, that it believes are fully recoverable.
NOTE D - CHANGES IN AMOUNT OUTSTANDING OF SECURITIES OR INDEBTEDNESS
Outstanding borrowings under the Company's Revolving Credit and Commercial
Paper agreements were approximately $29,000,000 greater at December 26, 1993,
than at June 30, 1993. Total unused credit facilities available to the
Company at December 26, 1993, approximated $119,000,000.
The Company has two interest rate swap agreements that effectively converted
$19,400,000 of its variable prime interest rate borrowings outstanding at
December 26, 1993, to a fixed rate of 7.29% per annum. The agreements expire
on October 1, 2003. The initial notional amount of the agreements was
$20,000,000, which declines $600,000 each quarter through the expiration date.
NOTE E - TERMINATION OF A-12 AIRCRAFT PROGRAM SUBCONTRACTS
The Company was a subcontractor to General Dynamics Corporation (GD) and
McDonnell Aircraft Company (McDonnell) for development of certain subsystems
for the U.S. NAVY A-12 aircraft. The Government in January 1991 announced
cancellation (for default) of the A-12 prime contracts. GD canceled for
convenience its two subcontracts with the Company; negotiations were completed
during fiscal year 1993's first quarter at the approximate amount previously
accrued for by the Company as settlement on those two subcontracts.
Cancellations for convenience were also received from McDonnell and another
A-12 aircraft subcontractor on an additional nine subcontracts, with settle-
ment negotiations ongoing. In October 1991, McDonnell filed a sealed suit in
Federal Court in St. Louis, Missouri claiming default on seven other sub-
contracts, which account for the majority of the Company's A-12 program ex-
posure of approximately $22,200,000. Based upon the advice of special counsel,
the Company believes it has meritorious defenses, although no assurance can
be given to that effect, and intends to vigorously pursue its counter claims
against McDonnell through the courts.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Sales for the second quarter of fiscal year 1994 were $447.7 million compared
with $450.6 million in fiscal year 1993's second quarter. Sales for the
first six months of fiscal year 1994 were $874.3 million, up 9% from $800.2
million in the prior year. Substantially all the sales increase resulted
from increased volume as the Company experienced improved business conditions
from the prior year.
Exchange rate fluctuations over the last twelve months, especially in the
Company's European Region, had a small negative impact on the Company's
revenue and profits. The Company primarily uses the U.S. Dollar as the
functional currency for its foreign operations.
Operating income for fiscal year 1994 second quarter was $15.6 million
compared to $13.6 million in the preceding year. The second quarter's
operating margin was 3.5% as compared to 3.0% in fiscal year 1993's second
quarter. Operating income for the first six months was $30.6 million
compared to $23.5 million in the previous year. Fiscal year 1994 first
six months' operating margin was 3.5% compared to 2.9% a year ago.
The operating margin improvement on a year-to-year basis principally resulted
from improved efficiencies as sales volume increased in the Company's
domestic operations, after considering an approximate $4 million increase in
depreciation and amortization expense.
Foreign sales represented 37% of fiscal year 1994 first six months' sales,
as compared with 45% of fiscal year 1993's sales. Foreign operating income
accounted for 19% of fiscal year 1994 first six months' operating income, as
compared to 30% in fiscal year 1993. These declines resulted primarily from
a softening in demand from the disk drive industry in the Company's Asian
plants .
The Company believes an important indicator of its performance is Asset
Turnover (Sales divided by Total Assets). Turnover on average assets for the
first six months of fiscal year 1994 was 2.2 times; slightly below the 2.4
times in fiscal year 1993's first six months. The minor decline is mainly
attributable to the higher investment in property, plant and equipment at
December 26, 1993, as compared to a year ago ($182 million versus
$159 million).
Interest expense for the second quarter of fiscal year 1994 was $1.2 million
lower than the $4.8 million incurred in fiscal year 1993's second quarter.
Fiscal year 1994 first six month's interest expense was $1.3 million lower
than that incurred in the same period last fiscal year. These declines
occurred even though average borrowings increased. The Company has been able
to lower its effective borrowing rate through greater utilization of its
available Commercial Paper facility, and through conversion (primarily in
fiscal year 1993's fourth quarter) of $70 million 9% convertible subordinated
debentures.
Fiscal year 1994's estimated effective income tax rate differs from the U.S.
statutory rate primarily due to lower effective income taxes on foreign
earnings considered permanently invested. The estimated effective income tax
rate for the first six months of fiscal year 1994 was 32% as compared to 27%
in the prior year. The increase mainly resulted from the absence of income
tax credit carryforwards that were fully utilized in fiscal year 1993, and
expiration of foreign income tax holidays.
Deferred income tax assets primarily relate to inventory valuation allowances
that are not currently tax deductible. Sufficient taxable income exists to
afford the Company the ability to carry back any excess of the future tax
deduction for such items over future taxable income.
CAPITAL RESOURCES AND LIQUIDITY
At December 26, 1993, the Company had working capital of $381 million versus
$337 million at June 30, 1993, a 13% increase. The ratio of Current Assets
to Current Liabilities (current asset ratio) was 2.9 at December 26, 1993,
compared with 2.4 at June 30, 1993.
"Available funds" at December 26, 1993, were approximately $140 million
($21 million in cash and $119 million in unused credit facilities). Increased
borrowings may be required in the next six months to finance higher levels of
working capital required to support anticipated revenue growth.
During the first six months of fiscal year 1994, the Company's capital expend-
itures were $3.1 million less than depreciation and amortization. Fiscal year
1994's capital expenditures are currently anticipated to approximate deprec-
iation and amortization expense (currently estimated to be $52 million).
OTHER FINANCIAL INFORMATION
The dollar amount of order backlog at December 26, 1993, believed by the
Company to be firm was approximately $977 million, as compared to $952
million a year earlier, and $906 million a quarter earlier.
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the Company's annual meeting of shareholders held on October 29, 1993,
the following individuals were elected as Class III Directors:
Votes in Favor Votes Against Abstentions
G. Robert Tod 24,960,239 1,180 63,700
A. E. Sapp, Jr. 24,957,761 3,658 63,700
Joseph C. Moquin 24,956,350 5,069 63,700
The only other matter voted on at the meeting, was the selection of Ernst &
Young as the Company's independent auditors for the fiscal year ending
June 30, 1994; 24,921,126 votes were cast in favor of their selection,
with 28,964 against, and 75,029 abstentions.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Computation of primary and fully diluted
earnings per share.
(b) Reports
No reports on Form 8-K were filed by the Company during the
period of September 27, 1993, to December 26, 1993.
SIGNATURES
Pursuant to the requirements 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.
SCI SYSTEMS, INC.
-----------------
(REGISTRANT)
Date: February 7, 1994 By: Olin B. King /s/
---------------
Olin B. King
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
(Acting Principal Financial and
Accounting Officer)
SCI SYSTEMS, INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE
EXHIBIT 11
Quarter Ended: Six Months Ended:
December 26, December 27, December 26, December 27,
1993 1992 1993 1992
PRIMARY EARNINGS
PER SHARE
Net income $7,771,000 $6,411,000 $15,620,000 $10,621,000
========== ========== =========== ===========
Weighted average
number of shares out-
standing during period 27,082,931 21,013,920 27,071,375 21,026,435
Applicable number of
shares for common stock
equivalents (stock
options) outstanding
for period, using
Treasury Stock Method
based on average
market price for period 616,534 536,441 625,751 437,886
---------- ---------- ---------- -----------
Weighted average number
of shares used in
computation 27,699,465 21,550,361 27,697,126 21,464,321
========== ========== ========== ==========
Primary earnings
per share $0.28 $0.30 $0.56 $0.49
========== ========== ========== ==========
FULLY DILUTED EARNINGS
PER SHARE (A) (A)
Net income $6,411,000 $10,621,000
Add back after- tax
interest expense for
convertible debentures:
1987's 5 5/8 %
debentures 407,000 831,000
1990's 9%
debentures 1,165,000 2,330,000
---------- -----------
Adjusted net income
used in fully diluted
computation $7,983,000 $13,782,000
========== ===========
Weighted average number
of shares outstanding
during period 21,013,920 21,026,435
Applicable number of
shares for common stock
equivalents (stock
options) outstanding for
period, using Treasury
Stock Method based on
the higher of average
market price for period
or ending market price 662,866 655,848
Number of shares to be
issued if convertible
debentures were converted:
1987's 5 5/8 %
debentures 1,850,727 1,850,727
1990's 9%
debentures 5,894,737 5,894,737
---------- ----------
Weighted number of shares
used in computation 29,422,250 29,427,747
========== ==========
Fully diluted earnings
per share $0.27 $0.47
========= =========
(A) The potential conversion of outstanding convertible
debentures were less than 2% for this period.
