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 March 27, 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 - 27,306,099 Shares
Outstanding as of April 28, 19941
SCI SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 27, June 30,
1994 1993
(In thousands of dollars) (*)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 30,013 $ 15,846
Accounts receivable 189,530 201,919
Inventories - NOTE C 343,923 321,607
Refundable income taxes 1,545 6,814
Deferred federal and foreign income taxes 10,284 5,555
Net current assets of discontinued operations - NOTE G 22,134 26,599
Other current assets 6,396 1,702
------- -------
TOTAL CURRENT ASSETS 603,825 580,042
PROPERTY, PLANT AND EQUIPMENT
(Less accumulated depreciation of $209,144 at
March 27, 1994 and $175,097 at June 30, 1993) 178,265 184,032
GOODWILL
(Less accumulated amortization of $12,658 at
March 27, 1994 and $8,265 at June 30, 1993) 3,945 7,915
INVESTMENTS HELD IN TRUST FOR
DEFERRED COMPENSATION PLAN 3,607 -0-
OTHER NONCURRENT ASSETS 9,151 8,350
------- -------
TOTAL ASSETS $798,793 $780,339
======== ========
* Condensed from audited consolidated financial statements after
reclassification of net current assets for discontinued
operations.
See notes to condensed consolidated financial statements.
SCI SYSTEMS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
March 27, June 30,
1994 1993
(In thousands of dollars) (*)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $200,137 $214,773
Accrued payroll and related expenses 13,897 15,920
Federal, foreign, and state income taxes 1,791 8,735
Accrued liabilities relating to discontinued
plant and business units - NOTES F AND G 7,066 -0-
Current maturities of long-term debt 5,372 4,098
------- -------
TOTAL CURRENT LIABILITIES 228,263 243,526
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 23,295 23,742
Long-term notes 205,461 186,643
Convertible subordinated debentures 38,884 38,858
------- -------
TOTAL LONG-TERM DEBT 267,640 249,243
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 27,199,282 shares at March 27,1994
and 27,085,282 shares at June 30 ,1993 2,720 2,709
Capital in excess of par value 123,711 122,785
Retained earnings 170,880 160,791
Currency translation adjustment (7,401) (8,027)
------- -------
289,910 278,258
Less treasury stock (at cost): 29,683 shares at
March 27, 1994 and 35,000 shares at June 30, 1993 (341) (402)
------- -------
TOTAL SHAREHOLDERS' EQUITY 289,569 277,856
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $798,793 $780,339
======== ========
* Condensed from audited consolidated financial statements after
reclassification of net current assets for discontinued
operations.
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) March 27, March 28,
1994 1993
Net sales - NOTE A $424,092 $450,687
Cost and expenses - NOTES A and F 419,806 433,539
Goodwill amortization 299 298
------- -------
OPERATING INCOME 3,987 16,850
Other income/(expense):
Interest expense (3,733) (4,688)
Other income, net - NOTE A 479 189
------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 733 12,351
Income taxes - NOTES A and B 257 3,399
------- -------
INCOME FROM CONTINUING OPERATIONS 476 8,952
DISCONTINUED OPERATIONS - NOTE G:
Loss from operations (net of income tax benefit
of $798 in 1994, and $678 in 1993) (1,515) (1,596)
Loss on disposal of discontinued operations (net of
income tax benefit of $4,358 in 1994) (4,492) -0-
-------- ------
(6,007) (1,596)
-------- ------
NET (LOSS) INCOME $ (5,531) $ 7,356
======== =======
Earnings (loss) per share - NOTE A:
Primary
From continuing operations $ .02 $ .41
From discontinued operations (.22) (.07)
-------- -------
$ (.20) $ .34
======== =======
Fully diluted
From continuing operations $ .02 $ .36
From discontinued operations (.22) (.06)
------- -------
$ (.20) $ .30
======= =======
Weighted average number of shares used in computation:
Primary 27,731,133 21,969,588
Fully diluted 27,731,133 29,608,740
See notes to condensed consolidated financial statements.
SCI SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended:
(In thousands of dollars except for per share data) March 27, March 28,
1994 1993
Net sales - NOTE A $1,267,955 $1,238,008
Cost and expenses - NOTES A and F 1,228,264 1,195,368
Goodwill amortization 895 948
--------- ---------
OPERATING INCOME 38,796 41,692
Other income/(expense):
Interest expense (11,301) (13,542)
Other income, net - NOTE A 947 751
--------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 28,442 28,901
Income taxes - NOTES A and B 9,578 7,906
--------- --------
INCOME FROM CONTINUING OPERATIONS 18,864 20,995
DISCONTINUED OPERATIONS - NOTE G:
Loss from operations (net of income tax benefit of
$1,480 in 1994, and $1,257 in 1993) (4,283) (3,018)
Loss on disposal of discontinued operations (net of
income tax benefit of $4,358 in 1994) (4,492) -0-
-------- --------
(8,775) (3,018)
-------- --------
NET INCOME $ 10,089 $ 17,977
========= =========
Earnings (loss) per share - NOTE A:
Primary
From continuing operations $ .68 $ .97
From discontinued operations (.32) (.14)
-------- --------
$ .36 $ .83
======== ========
Fully diluted
From continuing operations $ .68 $ .87
From discontinued operations (.32) (.10)
-------- --------
$ .36 $ .77
======== ========
Weighted average number of shares used in computation:
Primary 27,708,817 21,714,133
Fully diluted 27,708,817 29,547,474
See notes to condensed consolidated financial statements.
SCI SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended:
March 27, March 28,
(In thousands of dollars) 1994 1993
OPERATING ACTIVITIES
Net income $ 10,089 $ 17,977
Adjustments to reconcile net income to cash
used for operations:
Depreciation and amortization 40,938 30,167
Effect of property, plant and equipment disposals 69 201
Unrealized foreign currency exchange gain (6) -0-
Deferred income taxes (4,728) -0-
Other 61 -0-
Changes in current assets and liabilities:
Accounts receivable 12,859 (54,513)
Inventories (22,121) (66,117)
Refundable income taxes 6,814 (159)
Discontinued and other current assets 145 (8,562)
Accounts payable and accrued expenses (11,529) 62,057
Income taxes (7,141) 1,341
--------- ---------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 25,450 (17,608)
--------- --------
INVESTING ACTIVITIES
Purchase of property, plant, and equipment (31,128) (61,713)
Proceeds from sale of property, plant and equipment 418 355
Change in noncurrent assets (941) 107
--------- --------
NET CASH USED FOR INVESTING ACTIVITIES (31,651) (61,251)
--------- --------
FINANCING ACTIVITIES
Net increase in commercial paper 49,394 27,868
Payments on long-term debt (2,625,592) (687,698)
Proceeds from long-term debt 2,595,625 720,295
Issuance of common stock 937 2,476
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,364 62,941
--------- --------
Effect of exchange rate changes on cash 4 3,686
--------- --------
Net increase (decrease) in cash and cash equivalents 14,167 (12,232)
Cash and cash equivalents at beginning of period 15,846 38,722
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 30,013 $ 26,490
========= ========
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
March 27, 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 March 27, 1994, 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.
June 30, 1993's current assets as originally reported, have been
reclassified to correspond to current presentation for net
current assets of discontinued operations. Additionally, fiscal
year 1993's income statements have been reclassified to
correspond to current presentation for discontinued operations
(see Note G).
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
third quarter and first nine 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 $46,000,000 at March 27, 1994.
Otherwise, approximately $12,800,000 of cumulative deferred
income taxes would have been provided. Income tax provision for
the first nine 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.
The provision for state income taxes provided in fiscal year
1994's first six months ($1,200,000) has been reclassified from
operating costs and expenses to the income tax provision for the
first nine months of fiscal year 1994. In fiscal year 1993, the
provision for state income taxes included in operating costs and
expenses was not material.
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 $5,790,000 and $7,630,000 at
March 27, 1994, 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 $13,500,000
greater at March 27, 1994, than at June 30, 1993 (approximately
the amount of the cash increase). Total unused credit
facilities available to the Company at March 27, 1994,
approximated $122,000,000.
The Company has two interest rate swap agreements that
effectively convert $19,400,000 of variable prime interest rate
borrowings 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 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 Company 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 F - CHARGES TO OPERATING INCOME
During March 1994, the Company adopted a plan for disposition
through sale or closure of a domestic plant associated with its
government business. The plant's revenue currently represents
less than 1% of consolidated sales. Operating income for the
third quarter and first nine months of fiscal year 1994 reflect
operating losses and disposal charges associated with this plant
and write-down of certain assets to estimated net realizable
values, aggregating $7,900,000 and $9,200,000, respectively.
NOTE G - DISCONTINUED OPERATIONS
During March 1994, the Company adopted plans for sale of certain
business units. These units 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
income statements. Fiscal year 1993's sales, operating costs
and expenses, other income and expense, and income taxes have
been reclassified for amounts associated with the discontinued
units.
Sales, related losses and income tax benefits associated with
the discontinued business units for the third quarter of fiscal
years 1994 and 1993, and for the first nine months of fiscal
years 1994 and 1993 were as follows:
(In thousands of dollars) Third Quarter First Nine Months
1994 1993 1994 1993
Sales $ 11,692 $ 4,902 $ 42,125 $ 17,737
=======================================
Loss from operations before
income tax benefit $ (2,313) $ (2,274) $(5,763) $(4,275)
Income tax benefit 798 678 1,480 1,257
---------------------------------------
Loss from operations (1,515) (1,596) (4,283) (3,018)
---------------------------------------
Loss on disposal of discontinued
operations before income tax
benefit:
Estimated unrecovered costs
through disposal date (4,335) -0- (4,335) -0-
Goodwill adjustment (2,715) -0- (2,715) -0-
Asset valuation adjustment (1,800) -0- (1,800) -0-
----------------------------------------
(8,850) -0- (8,850) -0-
Income tax benefit 4,358 -0- 4,358 -0-
----------------------------------------
Loss on disposal of
discontinued operations (4,492) -0- (4,492) -0-
----------------------------------------
Total loss from
discontinued operations $ (6,007) $ (1,596) $ (8,775) $ (3,018)
========================================
The effective income tax benefit rate for discontinued
operations differs from the statutory rate primarily as a result
of recognizing for book purposes net operating loss
carryforwards associated with the discontinued operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Sales for the third quarter of fiscal year 1994 were $424.1
million compared with $450.7 million in fiscal year 1993's third
quarter. Sales for the first nine months of fiscal year 1994
were $1,268.0 million, compared to $1,238.0 million in the
prior year. The comparative quarterly sales decline was
attributable to the Company's foreign operations, and resulted
primarily from softness in the disk drive market. The Company
believes its fiscal year 1994's fourth quarter revenues will be
significantly above the plateau of recent quarters.
Exchange rate fluctuations over the past year, especially in
Europe, 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's third quarter was $4.0
million compared to $16.9 million in the preceding year. The
third quarter's operating margin was 0.9%, after charges for
disposition of a domestic plant and asset write-downs as
compared to 3.7% in fiscal year 1993's third quarter. (See Note
F to the condensed consolidated financial statements.)
Operating income for the first nine months was $38.8 million
compared to $41.7 million in the previous year. Fiscal year
1994 first nine months' operating margin was 3.1%, after effects
of charges, compared to 3.4% a year earlier. Fiscal year 1994
results were adversely impacted by decline in orders from two
large customers who experienced market difficulties.
Interest expense for the third quarter of fiscal year 1994 was
$1.0 million lower than the $4.7 million incurred in fiscal year
1993's third quarter. Fiscal year 1994 first nine months'
interest expense was $2.2 million lower than that incurred in
the same period of the previous fiscal year. These declines
largely resulted from a lower effective borrowing rate and
conversion (primarily in fiscal year 1993's fourth quarter) of a
$70 million 9% convertible subordinated debenture issue.
Other income increased in the third quarter and first nine
months of fiscal year 1994 from the corresponding prior fiscal
year periods' amounts, mainly as a result of increased
investment income.
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 fiscal year 1994 first nine months'
effective income tax rate for continuing operations was 34% as
compared to 27% in the prior year. The increase mainly resulted
from the absence of tax credits and loss carryforwards that
were available in fiscal year 1993 and expiration of foreign tax
holidays.
Current deferred income tax assets represent costs not currently
deductible for income tax purposes. Approximately $5 million
relates to inventory valuation provisions. The remainder
relates to losses for discontinued operations, that are expected
to be deductible in the U.S. after revising the corporate
structure of certain foreign subsidiaries. Current taxable
income is available to realize tax benefits.
CAPITAL RESOURCES AND LIQUIDITY
At March 27, 1994, the Company had working capital of $376
million versus $337 million at June 30, 1993, a 11.6% increase.
The ratio of Current Assets to Current Liabilities (current
asset ratio) was 2.7 at March 27, 1994, compared with 2.4 at
June 30, 1993.
Sales to asset ratio for the first nine months of fiscal year
1994 was 2.2 times as compared with 2.5 times in fiscal year
1993's first nine months. The change is primarily attributable
to higher period-end inventories to support higher projected
sales levels.
"Available funds" at March 27, 1994, were approximately $152
million ($30 million in cash and $122 million in unused credit
facilities). Increased borrowings may be utilized to support
anticipated revenue growth, including a previously announced
planned plant acquisition.
Fiscal year 1994's capital expenditures are not anticipated to
be greater than depreciation and amortization expense (currently
estimated to be $54 million).
The planned disposition of certain business units and a plant is
not expected to have material impact on the Company's liquidity,
cash requirements or borrowings.
OTHER FINANCIAL INFORMATION
The dollar amount of order backlog at March 27, 1994, believed
by the Company to be firm was approximately $1,015 million, as
compared to $988 million a year earlier, and $937 million a
quarter earlier. Comparative year and quarter earlier figures
have been adjusted to eliminate amounts associated with
discontinued operations.
PART II. OTHER INFORMATION
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 December 27, 1993, to March 27, 1994. <PAGE>
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: May 11, 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: Nine Months Ended:
March 27, March 28, March 27, March 28,
1994 1993 1994 1993
PRIMARY EARNINGS (LOSS)
PER SHARE
Net income (loss) ($5,531,000) $7,356,000 $10,089,000 $17,977,000
Add back after-tax interest
for debentures converted
during March 1993 -0- 24,000 -0- 72,000
------------------------------------------------
Adjusted net income (loss)
used in primary computation ($5,531,000) $7,380,000 $10,089,000 $18,049,000
===============================================
Weighted average number of
shares outstanding during
period 27,127,549 21,228,668 27,090,455 21,175,236
Applicable number of shares
for common stock equivalents
(stock options) outstanding
for period, using Treasury
Stock Method based on
average market price
for period 603,584 740,920 618,362 538,897
------------------------------------------------
Weighted average number
of shares used in
computation 27,731,133 21,969,588 27,708,817 21,714,133
=================================================
Primary earnings (loss)
per share ($0.20) $0.34 $0.36 $0.83
=================================================
FULLY DILUTED EARNINGS
(LOSS) PER SHARE (A) (A)
Net income (loss) ($5,531,000) $7,356,000 $10,089,000 $17,977,000
Add back after-tax interest
for debentures converted
during March 1993 -0- 24,000 -0- 72,000
Add back after-tax interest
expense for outstanding
convertible debentures:
1987's 5 5/8 % debentures 380,000 406,000 1,143,000 1,237,000
1990's 9% debentures -0- 1,140,000 -0- 3,420,000
------------------------------------------------
Adjusted net income (loss)
used in fully diluted
computation ($5,151,000) $8,926,000 $11,232,000 $22,706,000
================================================
Weighted average number of
shares outstanding during
period 27,122,232 21,228,668 27,086,280 21,175,235
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 591,612 760,499 619,227 752,666
Number of shares to be
issued if convertible
debentures were
converted:
1987's 5 5/8 % debentures 1,850,727 1,850,727 1,850,727 1,850,727
1990's 9% debentures -0- 5,768,846 -0- 5,768,846
-------------------------------------------------
Weighted number of shares
used in computation 29,564,571 29,608,740 29,556,234 29,547,474
==================================================
Fully diluted earnings
(loss) per share ($0.17) $0.30 $0.38 $0.77
==================================================
(A) The potential conversion of the convertible debentures are
antidilutive for this period.
