[DESCRIPTION] FY 1996 FORM 10-Q FOR Q1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 24, 1995
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
incorporation or organization) Identification No.)
c/o SCI Systems (Alabama), Inc.
2101 West Clinton Avenue
Huntsville, Alabama 35805
(Address of principal executive offices) (Zip Code)
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(302) 998-0592
(Registrant's telephone number, including area code)
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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 - 29,489,595 Shares
Outstanding at October 31, 1995
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SCI Systems, Inc.
Condensed Consolidated Balance Sheets
<CAPTION>
September 24, June 30,
1995 1995
(In thousands of dollars) (Unaudited) (*)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 20,097 $ 10,277
Accounts receivable 270,438 259,308
Inventories 632,935 456,107
Refundable and deferred federal and foreign income taxes 8,475 7,869
Other current assets 14,642 11,491
----------- ----------
Total Current Assets 946,587 745,052
Property, Plant and Equipment
(Less accumulated depreciation of $255,381 at September 24, 1995, and
$242,953 at June 30, 1995) 221,642 214,025
Goodwill
(Less accumulated amortization of $9,235 at September 24, 1995, and
$9,026 at June 30, 1995) 2,786 2,995
Deferred Compensation Assets Held in Trust 5,509 5,040
Other Noncurrent Assets 12,685 14,180
----------- ----------
Total Assets $1,189,209 $ 981,292
=========== ==========
* 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.
</TABLE>
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<TABLE>
SCI Systems, Inc.
Condensed Consolidated Balance Sheets
<CAPTION>
September 24, June 30,
1995 1995
(In thousands of dollars except share data) (Unaudited) (*)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 525,354 $ 417,495
Accrued payroll and related expenses 22,550 22,634
Federal, foreign and state income taxes 25,131 19,079
Current maturities of long-term debt 5,728 5,720
----------- ----------
Total Current Liabilities 578,763 464,928
Deferred Income Taxes 1,134 509
Pension Liability, less current portion 4,669 4,669
Deferred Compensation 5,509 5,040
Long-term Debt - Note C
Industrial revenue bonds 21,280 21,306
Long-term notes 172,719 96,138
Convertible subordinated debentures -0- 38,926
----------- ----------
Total Long-term Debt 193,999 156,370
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 29,489,595
shares at September 24, 1995, and 27,465,675 shares at June 30, 1995 2,949 2,747
Capital in excess of par value 166,552 126,123
Retained earnings 242,317 227,195
Currency translation adjustment (6,342) (5,948)
Treasury stock of 29,683 shares, at cost (341) (341)
Total Shareholders' Equity 405,135 349,776
----------- ----------
Total Liabilities and Shareholders' Equity $1,189,209 $ 981,292
=========== ==========
* 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.
</TABLE>
3
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<TABLE>
SCI Systems, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
<CAPTION>
Quarter Ended:
September 24, September 25,
(In thousands of dollars except per share data) 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 876,623 $ 618,421
Cost and expenses 846,603 598,064
Goodwill amortization 209 197
----------- ----------
Operating Income 29,811 20,160
Other income (expense):
Interest expense (4,698) (4,348)
Other income, net 302 675
----------- ----------
Income before Income Taxes 25,415 16,487
Income taxes - Note B 10,293 6,430
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Net Income $ 15,122 $ 10,057
=========== ==========
Earnings per share - Note A: $ .51 $ .36
Weighted average number of shares used in computation 30,025,734 27,775,619
See notes to condensed consolidated financial statements.
</TABLE>
4
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<TABLE>
SCI Systems, Inc.
Condensed Consolidated Statements Of Cash Flows
(Unaudited)
<CAPTION>
Quarter Ended:
September 24, September 25,
(In thousands of dollars) 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 15,122 $ 10,057
Adjustments to reconcile net income to cash
(used for) provided by operations:
Depreciation and amortization 14,431 11,805
Undistributed equity earnings (246) (515)
Effect of property, plant and equipment disposals (102) (34)
Unrealized foreign currency exchange loss (gain) 359 (381)
Changes in current assets and liabilities:
Accounts receivable (11,422) 23,142
Inventories (177,098) (36,907)
Refundable and deferred income taxes 99 -0-
Discontinued and other current assets (3,182) 13,296
Accounts payable and accrued expenses 108,168 (20,987)
Income taxes 5,964 6,213
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Net Cash (Used for) Provided by Operating Activities (47,907) 5,689
----------- ----------
Investing Activities
Purchase of property, plant and equipment (21,892) (16,115)
Proceeds from sale of property, plant and equipment 149 38
Decrease (increase) in noncurrent assets 1,741 (4,441)
----------- ----------
Net Cash Used for Investing (20,002) (20,518)
----------- ----------
Financing Activities
Net increase in commercial paper and other short-term notes 64,635 272
Payments on long-term debt (1,776,177) (1,719,400)
Proceeds from long-term debt 1,787,728 1,724,614
Issuance of common stock 1,806 76
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Net Cash Provided by Financing Activities 77,992 5,562
----------- ----------
Effect of exchange rate changes on cash (263) (85)
----------- ----------
Net increase (decrease) in cash and cash equivalents 9,820 (9,352)
Cash and cash equivalents at beginning of period 10,277 35,822
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Cash and Cash Equivalents at End of Period $ 20,097 $ 26,470
=========== ===========
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.
</TABLE>
5
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Notes to Condensed Consolidated Financial Statements
September 24, 1995
(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 24, 1995, are not necessarily indicative of the results of operations
for the year ending June 30, 1996. 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, 1995.
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. Fiscal year 1995's fully diluted
computations, when applicable, assumed the dilutive conversion of the Company's
outstanding convertible debenture issue, after adding back their after-tax
interest expense. Shares issued upon conversion of the 5 5/8% Convertible
Subordinated Debentures on September 1, 1995, have been treated as outstanding
from July 1, 1995, for purposes of the computation; fiscal year 1996's related
after-tax interest expense for the converted debentures have been added back to
net income for computational purposes.
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 $49,000,000 at September 24, 1995.
Otherwise, approximately $15,000,000 of cumulative deferred income taxes would
have been provided. Income tax provision for fiscal year 1996 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 at September 24, 1995, under the Company's Revolving
Credit and Commercial Paper and other long-term debt agreements increased
approximately $78,000,000 from the June 30, 1995 balance. At September 24, 1995,
the Company had $100,000,000 outstanding under its Asset Securitization
Agreement, a $50,000,000 increase from the June 30, 1995 amount. Total unused
credit facilities available to the Company at September 24, 1995, approximated
$236,000,000.
The June 30, 1995 5 5/8% Convertible Subordinated Debentures in the amount of
$38,825,000 were converted into 1,847,120 shares of the Company's common stock
on September 1, 1995.
Note D - Termination of A-12 Aircraft Program Subcontracts
The Company was a subcontractor 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. Terminations for convenience were
received for eleven of the Company's A-12 subcontracts, of which the majority
were with McDonnell Aircraft Company (McDonnell). 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 inventory exposure of approximately
$22,000,000. Based upon the advice of special counsel, the Company believes it
has meritorious defenses, although no assurance can be given to that effect, and
is pursuing counterclaims against McDonnell through the courts.
6
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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 1996 were $876.6 million, a 42%
increase over $618.4 million in fiscal year 1995's first quarter. Substantially
all of the increased sales resulted from increased unit volumes. Geographically,
foreign sales increased 45% during fiscal year 1996's first quarter from fiscal
year 1995 first quarter's sales. Domestic sales increased 39% during fiscal year
1996's first quarter over the same period in the prior fiscal year.
Operating income for fiscal year 1996's first quarter was $29.8 million compared
to $20.2 million in the same period of the preceding year. Operating profit
primarily improved because of increased production volumes.
Interest expense for fiscal year 1996's first quarter increased slightly over
the preceding year's first quarter expense. As a percent of sales, fiscal year
1996 first quarter's interest expense declined to 0.5% from 0.7% in the
preceding fiscal year's first quarter. Aggregate quarter-end borrowings and
amounts securitized remained at the same approximate level in fiscal year 1996
as that at the end of fiscal year 1995's first quarter, although sales increased
42%.
Fiscal year 1996'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 increased to 40.5% in fiscal year 1996 from 39% in
fiscal year 1995's first quarter as a result of higher state income taxes and
higher foreign income taxes as certain tax holidays expired.
Average asset turnover for fiscal year 1996's first quarter was 3.2 times
compared with 2.8 times for fiscal year 1995's first quarter. The higher
turnover resulted from increased percentage of finished product assembly
business and improved asset management.
Capital Resources and Liquidity
The Company had working capital of $368 million at September 24, 1995, compared
with $280 million at June 30, 1995. September 24, 1995's ratio of current assets
to current liabilities (current ratio) was 1.6, the same level as at June 30,
1995.
Available funds at September 24, 1995, were approximately $256 million. Fiscal
year 1996's capital expenditures are currently estimated to be between 80 and 90
million dollars.
The dollar amount of order backlog at September 24, 1995, believed by the
Company to be firm was approximately $2.502 billion, as compared to $1.174
billion a year earlier, and $2.135 billion a quarter earlier.
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
The Company during the period of July 1, 1995, to September 24, 1995, filed one
report on Form 8-K. The report, filed on August 22, 1995, dealt with the Company
calling for redemption on September 1, 1995, all of its outstanding 5 5/8 %
Convertible Subordinated Debentures due on March 1, 2012.
7
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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 7, 1995 By: Olin B. King /s/
---------------- -----------------
Olin B. King
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer and
Principal Financial and Accounting Officer)
8
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SCI Systems, Inc
Exhibit 11 - Computation of Primary and Fully Diluted Earnings Per Share
(In thousands of dollars except for number of shares and per share amounts)
<CAPTION>
Quarter Ended:
--------------
September 24, September 25,
1995 1994
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<S> <C> <C>
Primary Earnings Per Share
Net income $ 15,122 $ 10,057
Add back after-tax interest for debentures converted during period 218 N/A
----------- ----------
Adjusted net income used in primary computation $ 15,340 $ 10,057
=========== ==========
Weighted average number of shares outstanding during period 29,350,460 27,311,028
Applicable number of shares for common stock equivalents
(stock options) outstanding for period, using Treasury Stock
Method based on average market price for period 675,274 464,591
----------- ----------
Weighted average number of shares used in computation 30,025,734 27,775,619
=========== ==========
Primary earnings per share $ .51 $ .36
=========== ==========
Fully Diluted Earnings Per Share
Net income $ 15,122 $ 10,057
Add back after-tax interest for debentures converted during period 218 N/A
Add back after-tax interest expense for outstanding
convertible debentures: N/A 317
----------- ----------
Adjusted net income used in fully diluted computation $ 15,340 $ 10,374
=========== ==========
Weighted average number of shares outstanding during period 29,350,460 27,311,028
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 or
ending market price 741,141 464,591
Number of shares to be issued if 5 5/8 % convertible
debentures were converted: N/A 1,850,727
----------- -----------
Weighted number of shares used in computation 30,091,601 29,626,346
=========== ==========
Fully diluted earnings per share $ .51 $ .35
(*) (*)
=========== ==========
(*) The additional dilution effect of the common stock equivalents and potential
conversion of any outstanding convertible debentures represent less than 3%;
consequently, fully diluted earnings per share are not presented on the income
statement for this period.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SEPTEMBER 24, 1995'S BALANCE SHEET AND THE INCOME STATEMENT FOR THE
QUARTER THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-24-1995
<CASH> 20,097
<SECURITIES> 0
<RECEIVABLES> 270,438
<ALLOWANCES> 0
<INVENTORY> 632,935
<CURRENT-ASSETS> 946,587
<PP&E> 477,023
<DEPRECIATION> 255,381
<TOTAL-ASSETS> 1,189,209
<CURRENT-LIABILITIES> 578,763
<BONDS> 193,999
<COMMON> 2,949
0
0
<OTHER-SE> 402,186
<TOTAL-LIABILITY-AND-EQUITY> 1,189,209
<SALES> 876,623
<TOTAL-REVENUES> 876,623
<CGS> 846,603
<TOTAL-COSTS> 846,812
<OTHER-EXPENSES> (302)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,698
<INCOME-PRETAX> 25,415
<INCOME-TAX> 10,293
<INCOME-CONTINUING> 15,122
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,122
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
</TABLE>
