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 26, 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)
______________________________________________
(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 - 27,353,349 Shares
Outstanding at April 27, 1995
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SCI Systems, Inc.
Condensed Consolidated Balance Sheets
March 26, June 30,
1995 1994
(In thousands of dollars) (Unaudited) (*)
Assets
Current Assets
Cash and cash equivalents $ 4,469 $ 35,822
Accounts receivable 258,109 247,004
Inventories 355,102 400,595
Refundable and deferred federal and foreign income taxes 5,919 7,811
Assets associated with discontinued operations - Note E -0- 12,504
Other current assets 17,009 17,749
------- -------
Total Current Assets 640,608 721,485
Property, Plant and Equipment
(Less accumulated depreciation of $239,102 at March 26,
1995 and $216,466 at June 30, 1994) 183,533 182,768
Goodwill(Less accumulated amortization of $8,829 at
March 26, 1995 and $8,239 at June 30, 1994) 3,092 3,682
Deferred Compensation Assets Held in Trust 4,237 3,548
Other Noncurrent Assets- Note E 13,574 8,729
------- -------
Total Assets $845,044 $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
March 26, June 30,
1995 1994
(In thousands of dollars except per share data) (Unaudited) (*)
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $261,636 $292,351
Accrued payroll and related expenses 19,408 18,997
Federal, foreign and state income taxes 14,138 6,697
Accrued liabilities relating to plant and
business unit disposals - Note E 413 1,930
Current maturities of long-term debt 7,614 5,882
------- -------
Total Current Liabilities 303,209 325,857
Deferred Income Taxes 1,091 1,091
Pension Liability, less current portion 6,681 6,681
Deferred Compensation 4,237 3,548
Long-Term Debt - Note C
Industrial revenue bonds 21,297 23,306
Long-term notes 134,099 216,202
Convertible subordinated debentures 38,919 38,893
------- -------
Total Long-Term Debt 194,315 278,401
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 27,366,436 shares at March 26, 1995
and 27,335,782 shares at June 30,1994 2,737 2,734
Capital in excess of par value 125,188 124,926
Retained earnings 213,149 181,952
Currency translation adjustment (5,222) (4,637)
Treasury stock of 29,683 shares, at cost (341) (341)
------- -------
Total Shareholders' Equity 335,511 304,634
------- -------
Total Liabilities and Shareholders' Equity $845,044 $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)
Quarter Ended:
March 26, March 27,
(In thousands of dollars except per share data) 1995 1994
Net sales $591,465 $424,092
Cost and expenses 570,920 419,806
Goodwill amortization 197 299
------- -------
Operating Income 20,348 3,987
Other income (expense):
Interest expense (4,110) (3,733)
Other income (expenses), net 1,701 479
------- -------
Income From Continuing Operations Before Income Taxes 17,939 733
Income taxes - Note B 6,996 257
------- -------
Income From Continuing Operations 10,943 476
Discontinued Operations - Note E:
Loss from operations (net of income tax benefit of
$798 in 1994) -0- (1,515)
Loss on disposal (net of income taxes benefit of
$4,358 in 1994) -0- (4,492)
------- -------
-0- (6,007)
------- -------
Net Income (Loss) $ 10,943 $ (5,531)
======= =======
Earnings (loss) per share - Note A:
From continuing operations $ .39 $ .02
From discontinued operations -0- (.22)
---- -----
$ .39 $ (.20)
====== ========
Weighted average number of shares used in computation 27,775,166 27,731,133
See notes to condensed consolidated financial statements.
SCI Systems, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Nine Months Ended:
March 26, March 27,
(In thousands of dollars except per share data) 1995 1994
Net sales $1,831,431 $1,267,955
Cost and expenses 1,769,291 1,228,264
Goodwill amortization 590 895
--------- ---------
Operating Income 61,550 38,796
Other income (expense):
Interest expense (13,334) (11,301)
Other income (expenses), net 2,927 947
--------- ---------
Income From Continuing Operations Before Income Taxes 51,143 28,442
Income taxes - Note B 19,946 9,578
--------- ---------
Income From Continuing Operations 31,197 18,864
Discontinued Operations - Note E:
Loss from operations (net of income tax benefit of
$1,480 in 1994) -0- (4,283)
Loss on disposal (net of income taxes benefit of
$4,358 in 1994) -0- (4,492)
--------- ---------
-0- (8,775)
--------- ---------
Net Income $ 31,197 $ 10,089
========= =========
Earnings (loss) per share - Note A:
From continuing operations $ 1.12 $ .68
From discontinued operations -0- (.32)
----- -----
$ 1.12 $ .36
===== =====
Weighted average number of shares used in computation 27,789,250 27,708,817
See notes to condensed consolidated financial statements.
SCI Systems, Inc.
Condensed Consolidated Statements Of Cash Flows
(Unaudited)
Nine Months Ended:
March 26, March 27,
(In thousands of dollars) 1995 1994
Operating Activities
Net income $ 31,197 $ 10,089
Adjustments to reconcile net income to cash
provided by operations:
Depreciation and amortization 35,778 40,938
Undistributed equity earnings (1,677) (612)
Effect of property, plant and equipment disposals (225) 69
Unrealized foreign currency exchange gain (1,516) (6)
Deferred income taxes (10) (4,728)
Other -0- 61
Changes in current assets and liabilities:
Accounts receivable (9,779) 12,859
Inventories 46,376 (22,121)
Refundable and deferred income taxes 1,920 6,814
Discontinued and other current assets 13,589 145
Accounts payable and accrued expenses (32,393) (11,529)
Income taxes 7,437 (7,141)
---------- ----------
Net Cash Provided by Operating Activities 90,697 24,838
---------- ----------
Investing Activities
Purchase of property, plant and equipment (36,251) (31,128)
Proceeds from sale of property, plant and equipment 537 418
Increase in noncurrent assets (3,249) (329)
---------- ----------
Net Cash Used for Investing Activities (38,963) (31,039)
---------- ----------
Financing Activities
Net (decrease) increase in commercial paper
and other short-term notes (73,035) 49,394
Payments on long-term debt (5,285,444) (2,625,592)
Proceeds from long-term debt 5,275,794 2,595,625
Issuance of common stock 265 937
---------- ----------
Net Cash (Used for) Provided by Financing Activities (82,420) 20,364
---------- ----------
Effect of exchange rate changes on cash (667) 4
---------- ----------
Net (decrease) increase in cash and cash equivalents (31,353) 14,167
Cash and cash equivalents at beginning of period 35,822 15,846
---------- ----------
Cash and Cash Equivalents at End of Period $ 4,469 $ 30,013
========== ==========
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 26, 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 March 26, 1995, 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.
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 $53,000,000 at March 26, 1995.
Otherwise, approximately $18,600,000 of cumulative deferred income taxes
would have been provided. Income tax provision for 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 Agreement were approximately $97,000,000 less at March 26, 1995, than
at June 30, 1994. Increased borrowings are anticipated by fiscal year-end as
business levels increase. Total unused credit facilities available to the
Company at March 26, 1995, approximated $226,000,000.
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 counterclaims 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 first quarter of
fiscal year 1995. 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. The plant's revenue represented 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.
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 condensed consolidated statements of income.
Sales, related losses and income tax benefits associated with the discontinued
business units for fiscal year 1994's third quarter and first nine months
were as follows:
(In thousands of dollars) Third First Nine
Quarter Months
Sales $11,692 $42,125
======= =======
Loss from operations before income tax benefit ($2,313) ($5,763)
Income tax benefit 798 1,480
----- -----
Loss from operations (1,515) (4,283)
----- -----
Loss on disposal of discontinued operations
before income tax benefit (8,850) (8,850)
Income tax benefit 4,358 4,358
----- -----
Loss on disposal of discontinued operations (4,492) (4,492)
----- -----
Total loss from discontinued operations ($6,007) ($8,775)
===== =====
On August 26, 1994, the Company sold the business associated with 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 third quarter of fiscal year 1995 were $591.5 million, 39% over
$424.1 million in 1994's third quarter. Substantially all of the increased
sales resulted from increased volumes. Sales for the first nine months of
fiscal year 1995 of $1,831.4 million increased 44% over $1,268.0 million a
year earlier. This increase also mainly resulted from increased volumes,
especially in finished product assembly. Geographically, foreign sales
increased 78% during fiscal year 1995's first nine months over a year earlier,
as market conditions affecting international operations improved and an April
1994 French acquisition contributed to revenues. Domestic sales during fiscal
year 1995's first nine months increased 27% over the same period in the prior
fiscal year.
Exchange rate fluctuations over the past year had a moderate impact on the
Company's revenue and profits. The impact of the devaluation of the Mexican
Peso was not material, since the majority of the Company's Mexican operational
transactions are conducted in the U.S. Dollar. (The Company uses the U.S.
Dollar as the functional currency of a majority of its foreign operations.)
Net foreign exchange gains for fiscal year 1995's first nine months
approximated $.4 million, compared to $.1 million for the same period a year
earlier.
Operating income for fiscal year 1995's third quarter was $20.3 million
compared to $4.0 million in the same period of the preceding year. Operating
income for the first nine months was $61.6 million in fiscal year 1995 and
$38.8 million in fiscal year 1994, respectively. Operating profit primarily
improved because of increased production volumes. Additionally, fiscal year
1994's operating profit included charges of $7.9 million and $9.2 million for
the third quarter and first nine months, respectively, relating to operating
losses and disposal charges for a closed domestic plant associated with the
Company's government business, and for write-down of certain assets to
estimated realizable values. Depreciation and amortization for the first
nine months of fiscal year 1995 declined to 2.0% of sales compared to 2.8% in
the prior year and continued to approximate capital expenditures. Moderate
reduction of the Company's historical operating margins are being experienced
as finished product assembly revenue increases, although incremental
improvements were achieved in the latest quarters. Conversely to typically
lower operating margins is the higher asset turnover of such business with
resulting lower capital requirements.
Interest expense for fiscal year 1995's third quarter and first nine months
increased 10% ($.4 million), and 18% ($2.0 million), respectively, over the
prior fiscal year's periods as compared to a 39% sales increase in the third
quarter and a 44% sales increase in the first nine months. Increased interest
expense resulted from higher interest rates on lower average borrowings.
Interest expense for fiscal year 1995's first nine months represented 0.7% of
sales, compared to 0.9% for the prior year's similar period.
Other income increased in the third quarter and first nine months of fiscal
year 1995 from the corresponding prior fiscal year's amounts as a result of
increased interest and 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 increased to 39% in fiscal year 1995
from 35% in fiscal year 1994's third quarter and 34% in its first six months.
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 in fiscal year 1994.
Asset turnover (annualized revenue divided by total assets) was 2.8 times in
fiscal year 1995's third quarter and first nine months, compared with 2.2 times
for fiscal year 1994. The higher turnover resulted from an increased finished
product assembly business mix and improved asset management.
Deferred income tax assets of approximately $6 million at quarter end
represent costs not currently deductible for income tax purposes. Taxable
income is available to realize those benefits.
Capital Resources and Liquidity
The Company had working capital of $337 million at March 26, 1995, compared
with $396 million at June 30, 1994. The ratio of Current Assets to Current
Liabilities (current ratio) was 2.1 at March 26, 1995, compared with 2.2
at June 30, 1994. The Company continues to focus upon reduced number of days
of sales in current assets and correspondingly reduced debt.
"Available funds" at March 26, 1995, were approximately $230 million
($4 million in cash and $226 million in unused credit facilities).
Fiscal year 1995's capital expenditures are currently forecast to exceed an
estimated $50 million in depreciation and amortization by approximately
$30 million as the result of a planned acquisition. No significant impact
is currently anticipated on the Company's liquidity as a result of
discontinued operations.
The dollar amount of order backlog at March 26, 1995, believed by the Company
to be firm was approximately $1,778 million, as compared to $1,015 million a
year earlier, and $1,230 million 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
No reports on Form 8-K were filed by the Company during the period of
December 26, 1994, to March 26, 1995.
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 System, Inc.
---------------
(Registrant)
Date: May 9, 1995 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 for number of shares Quarter Ended: Nine Months Ended:
and per share amounts) March 26, March 27, March 26, March 27,
Primary Earnings Per Share
Income from continuing operations $10,943 $ 476 $31,197 $18,864
Loss from discontinued operations -0- (6,007) -0- (8,775)
------ ------ ------ ------
Net income (loss) $10,943 ($5,531) $31,197 $10,089
====== ===== ====== ======
Weighted average number of shares
outstanding during period 27,333,404 27,127,549 27,322,527 27,090,455
Applicable number of shares for
common stock equivalents(stock
options) outstanding for period,
using Treasury StockMethod based
on average market price
for period 441,762 603,584 466,723 618,362
---------- ---------- --------- ----------
Weighted average number of
shares used in computation 27,775,166 27,731,133 27,789,250 27,708,817
========== ========== ========== ==========
Primary earnings per share $.39 ($.20) $1.12 $.36
==== ==== ===== ====
Fully Diluted Earnings Per Share
Net income $10,943 ($5,531) $31,197 $10,089
Add back after-tax interest
expense for outstanding
convertible debentures 344 384 1,009 1,143
------ ------ ------ ------
Adjusted net income (loss) used in
fully diluted computation $11,287 ($5,147) $32,206 $11,232
====== ===== ====== ======
Weighted average number of shares
outstanding during period 27,333,404 27,122,232 27,322,527 27,086,280
Applicable number of shares for
common stock equivalents (stock
options) outstanding for period,
using Treasury StockMethod based
on the higher of average market
price or ending market price 441,762 591,612 466,723 619,227
Number of shares to be issued if
5 5/8 % convertible debentures
were converted: 1,850,727 1,850,727 1,850,727 1,850,727
---------- ---------- ---------- ----------
Weighted number of shares used
in computation 29,625,893 29,564,571 29,639,977 29,556,234
========== ========== ========== ==========
Fully diluted earnings (loss)
per share $.38 ($.17) $1.09 $.38
=== === ==== ===
(*) (**) (*) (**)
(*) The potential conversion of the convertible debentures represent less than
3%; consequently, fully diluted earnings per share are not presented on the
income statement for this period.
(**) The potential conversion of the convertible debentures is antidilutive
for this period.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-26-1995
<CASH> 4,469
<SECURITIES> 0
<RECEIVABLES> 258,109<F1>
<ALLOWANCES> 0
<INVENTORY> 355,102
<CURRENT-ASSETS> 640,608
<PP&E> 183,533<F2>
<DEPRECIATION> 239,102
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<CURRENT-LIABILITIES> 303,209
<BONDS> 194,315
<COMMON> 2,737
0
0
<OTHER-SE> 332,774
<TOTAL-LIABILITY-AND-EQUITY> 845,044
<SALES> 1,831,431
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<F1>NET OF ALLOWANCES
<F2>NET
<F3>INCLUDES ALL OPERATING COSTS AND EXPENSES SUCH AS G&A, SELLING AND R&D
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