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 September 25, 1994
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 - 27,350,382 Shares
Outstanding as of November 2, 1994
SCI Systems, Inc.
Condensed Consolidated Balance Sheets
September 25, June 30,
1994 1994
(In thousands of dollars) (Unaudited) (*)
Assets
Current Assets
Cash and cash equivalents $ 26,470 $ 35,822
Accounts receivable 224,344 247,004
Inventories 438,077 400,595
Refundable and deferred federal and foreign income taxes 7,808 7,811
Assets associated with discontinued operations - Note E 2,818 12,504
Other current assets 14,297 17,749
--------- --------
Total Current Assets 713,814 721,485
Property, Plant and Equipment
(Less accumulated depreciation of $224,672 at September 25,
1994 and $216,466 at June 30, 1994 187,845 182,768
Goodwill
(Less accumulated amortization of $8,436 at September 25,
1994 and $8,239 at June 30, 1994) 3,485 3,682
Deferred Compensation Assets Held in Trust 4,025 3,548
Other Noncurrent Assets- Note E 13,655 8,729
--------- --------
Total Assets $922,824 $920,212
========= =========
* Derived from audited financial statements but does not include
all the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See notes to condensed consolidated financial statements.
SCI Systems, Inc.
Condensed Consolidated Balance Sheets
September 25, June 30,
1994 1994
(In thousands of dollars except per share data) (Unaudited) (*)
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $273,045 $292,351
Accrued payroll and related expenses 18,540 18,997
Federal, foreign, and state income taxes 12,912 6,697
Accrued liabilities relating to plant and business
unit disposals- Note E 947 1,930
Current maturities of long-term debt 5,734 5,882
--------- --------
Total Current Liabilities 311,178 325,857
Deferred Income Taxes 1,091 1,091
Pension Liability, less current portion 6,681 6,681
Deferred Compensation 4,025 3,548
Long-term Debt - Note C
Industrial revenue bonds 22,939 23,306
Long-term notes 222,244 216,202
Convertible subordinated debentures 38,902 38,893
--------- --------
Total Long-term Debt 284,085 278,401
Commitments and Contingencies - Note D
Shareholders' Equity
Preferred stock, 500,000 shares authorized but unissued -0- -0-
Common stock, $.10 par value: authorized 50,000,000 shares;
issued 27,345,382 shares at September 25,1994
and 27,335,782 shares at June 30, 1994 2,735 2,734
Capital in excess of par value 125,001 124,926
Retained earnings 192,009 181,952
Currency translation adjustment (3,640) (4,637)
Treasury stock of 29,683 shares at cost (341) (341)
--------- --------
Total Shareholder's Equity 315,764 304,634
--------- --------
Total Liabilities and Shareholders' Equity $922,824 $920,212
========= ========
* Derived from audited financial statements but does not include
all the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See notes to condensed consolidated financial statements.
SCI Systems, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands of dollars except for per share data)
Quarter Ended:
September 25, September 26,
1994 1993
Net sales - Note A $618,421 $420,986
Cost and expenses - Note A and E 598,064 403,329
Goodwill amortization 197 298
-------- --------
Operating Income 20,160 17,359
Other income/(expense):
Interest expense (4,348) (3,923)
Other income (expenses), net 675 468
-------- --------
Income from Continuing Operations Before Income Taxes 16,487 13,904
Income taxes - Note B 6,430 4,730
-------- --------
Income from Continuing Operations 10,057 9,174
Discontinued Operations - Note E:
Loss from operations (net of income tax benefit of
$604 in 1993) -0- (1,325)
-------- --------
Net Income $ 10,057 $ 7,849
========= ==========
Earnings (loss) per share - Note A:
From continuing operations $ .36 $ .33
From discontinued operations -0- (.05)
----- -----
$ .36 $ .28
===== =====
Weighted average number of shares used in computation
27,775,619 27,692,581
See notes to condensed consolidated financial statements.
SCI Systems, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Quarter Ended:
September 25, September 26,
(In thousands of dollars) 1994 1993
Operating Activities
Net income $ 10,057 $ 7,849
Adjustments to reconcile net income to cash
provided by (used for) operations:
Depreciation and amortization 11,805 11,901
Effect of property, plant and equipment disposals (34) 25
Unrealized foreign currency exchange gain (381) (162)
Changes in current assets and liabilities:
Accounts receivable 23,142 (19,574)
Inventories (36,907) 2,553
Refundable and deferred income taxes -0- 108
Discontinued and other current assets 13,296 (9,571)
Accounts payable and accrued expenses (20,987) (11,763)
Income taxes 6,213 960
---------- ----------
Net Cash Provided by (Used for) Operating Activities 6,204 (17,674)
---------- ----------
Investing Activities
Purchase of property, plant, and equipment (16,115) (13,643)
Proceeds from sale of property, plant and equipment 38 -0-
Increase in noncurrent assets (4,956) (362)
---------- ----------
Net Cash Used for Investing Activities (21,033) (14,005)
---------- ----------
Financing Activities
Net increase in commercial paper and other
short-term notes 272 49,431
Payments on long-term debt (1,719,400) (793,078)
Proceeds from long-term debt 1,724,614 782,077
Issuance of common stock 76 114
---------- ----------
Net Cash Provided by Financing Activities 5,562 38,544
---------- ----------
Effect of exchange rate changes on cash (85) (106)
---------- ----------
Net increase (decrease) in cash and cash equivalents (9,352) 6,759
Cash and cash equivalents at beginning of period 35,822 15,846
---------- ----------
Cash and Cash Equivalents at End of Period $ 26,470 $ 22,605
========== ========
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
September 25, 1994
(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 September 25, 1994, are not
necessarily indicative of the results of operations for the year
ending June 30, 1995. 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, 1994.
Fiscal year 1994 first quarter's income statement has been
reclassified to correspond to current presentation for
discontinued operations (see Note E).
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.
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 $52,000,000 at September 25, 1994.
Otherwise, approximately $15,000,000 of cumulative deferred
income taxes would have been provided. Income tax provision for
the first quarter of fiscal year 1995 differs from the U.S.
statutory income tax rate primarily due to state income taxes.
Note C - Changes in Amount Outstanding of Securities or Indebtedness
Outstanding borrowings under the Company's Revolving Credit and
Commercial Paper agreements were approximately $10,000,000
greater at September 25, 1994, than at June 30, 1994, to support
increased business. Total unused credit facilities available
to the Company at September 25, 1994, approximated $128,000,000.
Note D - 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 termination (for default)
of the A-12 prime contracts. GD terminated for convenience its
two subcontracts with the Company. Additionally, terminations
for convenience were received from McDonnell and another A-12
Aircraft subcontractor on an additional nine subcontracts.
Settlements have been concluded for all subcontracts terminated
for convenience, at the approximate amounts previously accrued
by the Company. In October 1991, McDonnell filed a sealed suit
in Federal Court in St. Louis, Missouri claiming default on
seven other subcontracts, with a remaining exposure of
approximately twenty-two million dollars. Based upon the advice
of special counsel, the Company believes it has meritorious
defenses, although no assurance can be given to that effect, and
is pursuing counter claims against McDonnell through the courts.
Note E - Plant Closure and Discontinued Operations
The previously announced planned closure of a domestic plant
associated with the Company's government business was completed
during the quarter. No significant costs associated with this
closure beyond those provided for in fiscal year 1994's third
quarter were incurred or are anticipated to be incurred.
During March 1994, the Company adopted plans for sale of certain
business units. These units generally manufacture and sell
proprietary products to consumer and commercial end-users. These
business units are accounted for as discontinued operations, and
accordingly, their operations are segregated in the accompanying
statement of income. Net sales, operating costs and expenses,
other income and expense, and income taxes for fiscal year
1994's first quarter have been reclassified for amounts
associated with the discontinued operations.
Sales, related losses and income tax benefits associated with
the discontinued business units for fiscal year 1994's first
quarter were as follows:
(In thousands of dollars)
Sales $5,658
======
Loss from operations before
income tax benefit ($1,929)
Income tax benefit 604
------
Loss from operations ($1,325)
======
On August 26, 1994, the Company entered into an agreement for
the sale of Cambridge Computer, Ltd. (a substantial part of the
discontinued operations) for approximately $7,000,000 plus
future royalties. Of this amount, $3,080,000 was received at
closing with the remaining amount to be paid over three years.
Other noncurrent assets include $4,392,000 for the accrual of
the unpaid sales proceeds and estimated royalties to be received
beyond the next twelve months.
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
Sales for the first quarter of fiscal year 1995 were a record
$618.4 million, 46.9% over $421.0 million in 1994's first
quarter. A substantial portion of increase resulted from
increased finished product assembly. Geographically, domestic
sales during fiscal year 1995's first quarter increased 37% over
a year ago, while foreign sales increased 61.5%. Domestic and
foreign sales remained at approximately the same percentages of
total sales as that experienced in fiscal year 1994.
Exchange rate fluctuations over the past year, especially in
Europe, have had a minor impact on the Company's revenue and
profits. The Company uses the U.S. Dollar as the functional
currency of a majority of its foreign operations.
Operating income for fiscal year 1995's first quarter was $20.2
million compared to $17.4 million in the preceding year. The
somewhat lower operating margin largely resulted from increased
sales of finished product assembly which yields lower operating
margins accompanied by higher asset turnover. Additionally,
several foreign plants experienced reduced operating margins as
a result of local market conditions.
Interest expense for the first quarter of fiscal year 1995
increased 10.8% ($.4 million) over the prior year's first
quarter in spite of a 46.9% sales increase. The increase
resulted from higher average debt outstanding and increased
interest rates.
Other income increased in the first quarter of fiscal year 1995
from the corresponding prior fiscal year's amount as a result of
increased investment income.
Fiscal year 1995's estimated effective income tax rate differs
from the U.S. statutory rate primarily due to the effects of
state income taxes. The estimated effective income tax rate for
the first quarter was 39% as compared to 34% in the prior year.
This increase mainly resulted from higher state income taxes,
and higher foreign income taxes as certain tax holidays expired.
No material adjustments are currently anticipated to the
estimated disposal losses on discontinued operations previously
provided for by the Company in fiscal year 1994.
Average asset turnover was 2.7 times in fiscal year 1995's first
quarter compared with 2.2 times experienced for all of fiscal
year 1994. The improved asset turnover resulted primarily from
increased finished product assembly business.
Current deferred income taxes of approximately $6 million
represent costs not currently deductible for income tax
purposes. Current taxable income is available to realize
those benefits.
Capital Resources and Liquidity
The Company's working capital of $402 million at September 25,
1994, approximated June 30, 1994, $396 million amount. The
ratio of Current Assets to Current Liabilities (current asset
ratio) was 2.3 at September 25, 1994, compared with 2.2 at June
30, 1994.
"Available funds" at September 25, 1994, were approximately $154
million ($26 million in cash and $128 million in unused credit
facilities). Fiscal year 1995's capital expenditures are
currently budgeted at estimated depreciation and amortization
for the fiscal year of $50 million. No significant impact is
currently anticipated on the Company's liquidity as a result of
the discontinued operations.
Other Financial Information
The dollar amount of order backlog at September 25, 1994,
believed by the Company to be firm was approximately $1,171
million, as compared to $865 million a year earlier (after
restatement for discontinued operations), and $1,235 million a
quarter earlier. Backlog period reduction during the quarter
was a planned event in the interest of customer satisfaction.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(1) Exhibit 11 - Computation of primary and fully diluted earnings per share.
(2) Exhibit 27 - Financial Data Schedule
(b) Reports
No reports on Form 8-K were filed by the Company during the
period of July 1, 1994, to September 25, 1994.
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: November 9, 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.
EXHIBIT 11 - Computation of Primary and Fully Diluted Earnings Per Share
(In thousands of dollars except number of shares and per share
amounts)
Quarter Ended:
September 25, September 26,
1994 1993
Primary Earnings (Loss) Per Share
- - ----------------------------------
Income from continuing operations $10,057 $9,174
Loss from discontinued operations -0- (1,325)
------ -----
Net income $10,057 $7,849
======= ======
Weighted average number of shares outstanding
during period 27,311,028 27,057,612
Applicable number of shares for common stock
equivalents (stock options) outstanding for period,
using Treasury Stock Method based on average market
price for period 464,591 634,969
---------- ----------
Weighted average number of shares used
in computation 27,775,619 27,692,581
========== ==========
Primary earnings per share:
From continuing operations $.36 $.33
From discontinued operations -0- (.05)
---- ----
Net income $.36 $.28
==== ====
Fully Diluted Earnings (Loss) Per Share
- - ---------------------------------------
Income from continuing operations $10,057 $9,174
Loss from discontinued operations -0- (1,325)
------ -----
Net income 10,057 7,849
Add back after-tax interest expense for outstanding
5 5/8% convertible subordinated debentures 317 384
------ -----
Adjusted net income used in fully diluted computation $10,374 $8,233
====== =====
Weighted average number of shares outstanding
during period 27,311,028 27,057,612
Applicable number of shares for common stock
equivalents (stock options) outstanding for period,
using Treasury Stock Method based on period ended
market price 464,591 634,969
Number of shares to be issued if 5 5/8% convertible
subordinated debentures were converted 1,850,727 1,850,727
---------- ----------
Weighted average number of shares used
in computation 29,626,346 29,543,308
========== ==========
Fully diluted earnings per share:
From continuing operations $.35 $.32
From discontinued operations -0- (.04)
---- ---
Net income $.35 $.28
==== ====
(*) (*)
(*) The potential conversion of the convertible debentures represented less
than 3%; consequently, fully diluted earnings per share are not presented
on the income statement.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
September 25, 1994's Balance Sheet and the Income Statement for the quarter
then ended and is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> SEP-25-1995
<CASH> 26,470
<SECURITIES> 0
<RECEIVABLES> 224,344 <F1>
<ALLOWANCES> 4,267
<INVENTORY> 438,077
<CURRENT-ASSETS> 713,814
<PP&E> 187,845 <F2>
<DEPRECIATION> 224,672
<TOTAL-ASSETS> 922,824
<CURRENT-LIABILITIES> 311,178
<BONDS> 284,085
<COMMON> 2,735
0
0
<OTHER-SE> 313,029
<TOTAL-LIABILITY-AND-EQUITY> 922,824
<SALES> 618,421
<TOTAL-REVENUES> 618,421
<CGS> 598,064
<TOTAL-COSTS> 598,261
<OTHER-EXPENSES> (675)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,348
<INCOME-PRETAX> 16,487
<INCOME-TAX> 6,430
<INCOME-CONTINUING> 10,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,057
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
<FN>
<F1> NET OF ALLOWANCES
<F2> NET
<F3> INCLUDED ALL OPERATING COSTS AND EXPENSES SUCH AS G&A, SELLING AND R&D
<F4> REPRESENTS (NET OTHER INCOME)
</FN>
</TABLE>
