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 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 incorporation or organization)1
(I.R.S. Employer 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 - 27,360,832 Shares
Outstanding as of January 26, 1995
SCI Systems, Inc.
Condensed Consolidated Balance Sheets
December 25, June 30,
1994 1994
(In thousands of dollars) (Unaudited) (*)
Assets
Current Assets
Cash and cash equivalents $ 7,815 $ 35,822
Accounts receivable 241,718 247,004
Inventories 374,318 400,595
Refundable and deferred federal and
foreign income taxes 7,778 7,811
Assets associated with discontinued operations
- - Note E -0- 12,504
Other current assets 15,570 17,749
---------- --------
Total Current Assets 647,199 721,485
Property, plant and equipment
(Less accumulated depreciation of $233,940 at
December 25, 1994 and $216,466
at June 30, 1994) 180,118 182,768
Goodwill
(Less accumulated amortization of $8,633 at
December 25, 1994 and $8,239 at June 30, 1994) 3,288 3,682
Deferred Compensation Assets Held In Trust 4,017 3,548
Other Noncurrent Assets- Note E 14,138 8,729
------- --------
Total Assets $848,760 $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
December 25, June 30,
1994 1994
(In thousands of dollars except
per share data) (Unaudited) (*)
Liabilities and and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $186,391 $292,351
Accrued payroll and related expenses 17,415 18,997
Federal, foreign, and state income taxes 10,647 6,697
Accrued liabilities relating to plant and
business unit disposals - NOTE E -0- 1,930
Current maturities of long-term debt 5,802 5,882
------- -------
Total Current Liabilities 220,255 325,857
Deferred Income Taxes 1,091 1,091
Pension Liability, less current portion 6,681 6,681
Deferred Compensation 4,017 3,548
Long-term Debt - Note C
Industrial revenue bonds 22,949 23,306
Long-term notes 229,545 216,202
Convertible subordinated debentures 38,911 38,893
------- -------
Total Long-Term Debt 291,405 278,401
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 27,356,632 shares at
December 25,1994 and 27,335,782 shares at
June 30,1994 2,735 2,734
Capital in excess of par value 125,100 124,926
Retained earnings 202,206 181,952
Currency translation adjustment (4,389) (4,637)
Treasury stock of 29,683 shares at cost (341) (341)
------- -------
Total Shareholders' Equity 325,311 304,634
------- -------
Total Liabilities and Shareholdrs' Equity $848,760 $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
(Unuadited)
Quarter Ended:
(In thousands of dollars except for
per share data) December 25, December 26,
1994 1993
Net sales - Note A $621,545 $422,877
Cost and expenses - Note A and E 600,307 405,129
Goodwill amortization 196 298
------- -------
Operating Income 21,042 17,450
Other income/(expense):
Interest expense (4,876) (3,645)
Other income (expenses), net 551 -0-
------- -------
Income From Continuing Operations
Before Income Taxes 16,717 13,805
Income taxes - Note B 6,520 4,591
------- -------
Income From Continuing Operations 10,197 9,214
Discontinued Operations - Note E:
Loss from operations (net ofincome tax benefit
of $78 in 1993) -0- (1,443)
-------- ---------
Net Income $ 10,197 $ 7,771
======== =========
Earnings (loss) per share - Note A:
From continuing operations $ .37 $ .33
From discontinued operations -0- (.05)
---- ----
$ .37 $ .28
===== ====
Weighted average number of shares used
in computation 27,816,460 27,699,465
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 25, December 26,
1994 1993
Net sales - Note A $1,239,966 $843,863
Cost and expenses - Note A and E 1,198,371 808,458
Goodwill amortization 393 596
--------- --------
Operating Income 41,202 34,809
Other income/(expense):
Interest expense (9,224) (7,568)
Other income (expenses), net 1,226 468
--------- ---------
Income from Continuing Operations
Before Income Taxes 33,204 27,709
Income taxes - Note B 12,950 9,321
-------- ---------
Income from Continuing Operations 20,254 18,388
Discontinued Operations - Note E:
Loss from operations (net of income tax
benefit of $682 in 1993) -0- (2,768)
--------- ---------
Net Income $ 20,254 $ 15,620
========= =========
Earnings (loss) per share - Note A:
From continuing operations $ .73 $ .66
From discontinued operations -0- (.10)
----- -----
$ .73 $ .56
===== =====
Weighted average number of shares used
in computation 27,796,171 27,697,126
See notes to condensed consolidated financial statements.
SCI Systems, Inc.
Condensed Consolidated Statments Of Cash Flow
(Unaudited)
Six Months Ended:
December 25, December 26,
(In thousands of dollars) 1994 1993
Operating Activities
Net income $ 20,254 $ 15,620
Adjustments to reconcile net income to cash
used for operations:
Depreciation and amortization 24,643 24,374
Undistributed equity earnings (937) (224)
Effect of property, plant and equipment disposals (444) 60
Unrealized foreign currency exchange gain 97 (108)
Deferred income taxes -0- 427
Other -0- 59
Changes in current assets and liabilities:
Accounts receivable 5,360 (19,071)
Inventories 26,439 33,272
Refundable and deferred income taxes 37 231
Discontinued and other current assets 14,777 (6,044)
Accounts payable and accrued expenses (109,593) (44,901)
Income taxes 3,949 (4,052)
------------ -------------
Net Cash Used for Operating Activities (15,418) (357)
------------ -------------
Investing Activities
Purchase of property, plant and equipment (21,212) (21,282)
Proceeds from sale of property, plant
and equipment 487 109
Increase in noncurrent assets (4,534) (384)
------------ -------------
Net Cash Used for Investing Activities (25,259) (21,557)
------------ -------------
Financing Activities
Net increase in commercial paper and
other short-term notes 186 49,179
Payments on long-term debt (4,172,192) (1,451,367)
Proceeds from long-term debt 4,184,780 1,427,909
Issuance of common stock 175 337
------------ -------------
Net Cash Provided by Financing Activities 12,949 26,058
------------ -------------
Effect of exchange rate changes on cash (279) 876
------------ -------------
Net increase (decrease) in cash and
cash equivalents (28,007) 5,020
Cash and cash equivalents at beginning of
period 35,822 15,846
------------ -------------
Cash and Cash Equivalents at End of
Period $ 7,815 $ 20,866
=========== ============
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 Statments
December 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 December 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 second quarter's and first six months' income
statements have 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 December 25, 1994.
Otherwise, approximately $15,000,000 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 agreements were approximately $19,000,000
greater at December 25, 1994, than at June 30, 1994, to support
increased revenue volume. Total unused credit facilities
available to the Company at December 25, 1994, approximated
$125,000,000.
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 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.
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. Net sales,
operating costs and expenses, other income and expense, and
income taxes for fiscal year 1994's second quarter and first six
months 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 second
quarter and first six months were as follows:
(In thousands of dollars) Second First
Quarter Six Months
Sales $24,775 $30,433
====== ======
Loss from operations before income tax benefit ($1,521) ($3,450)
Income tax benefit 78 682
----- -----
Loss from operations ($1,443) ($2,768)
===== =====
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 second quarter of fiscal year 1995 were $621.5
million, 47% over $422.9 million in 1994's second quarter.
Sales for the first six months of fiscal year 1995 also
increased 47 % over fiscal year 1994's $843.9 million.
Substantially all of the increased sales resulted from increased
volumes, especially in finished product assembly.
Geographically, domestic sales during fiscal year 1995's first
six months increased 32% over a year earlier, while foreign
sales increased 76%. Foreign sales represented 41% of total
sales for the first six months fiscal year 1995.
Exchange rate fluctuations over the past year have had a
moderate impact on the Company's revenue and profits. The
impact of the recent devaluation of the Mexican Peso was minor,
since the majority of the Company's Mexican operational
transactions are conducted using the U.S. Dollar. (The Company
uses the U.S. Dollar as the functional currency of a majority of
its foreign operations.) Foreign exchange losses for fiscal
year 1995's second quarter approximated $1 million, compared
with $.6 million for the same period last fiscal year. For the
first six months of fiscal year 1995, foreign exchange losses
approximated $.6 million, compared with a gain of $.3 million in
fiscal year 1994's similar period.
Operating income for fiscal year 1995's second quarter was
$21.0 million compared to $17.5 million in the same period of
the preceding year. Operating income for the first six months
was $41.2 million in fiscal year 1995, and $34.8 million in
fiscal year 1994, respectively. The somewhat lower operating
margins largely resulted from increased sales of finished
product assembly that typically yield lower operating margins
accompanied by higher asset turnover. Additionally, certain
foreign plants experienced reduced operating margins as a result
of local market conditions.
Interest expense for fiscal year 1995's second quarter and
first six months increased 34% ($1.2 million), and 22% ($1.6
million), respectively, over the prior fiscal year's periods in
comparison to a 47% sales increase. The interest expense
increase resulted from increased interest rates and higher
average debt outstanding to support increased revenues.
Interest expense for fiscal year 1995's first six months
represented 0.7% of sales, compared to 0.9% for the
similar period of fiscal year 1994.
Other income increased in the second quarter and first six
months of fiscal year 1995 from the corresponding prior fiscal
year's amounts 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
increased to 39% in fiscal year 1995 from 33% in fiscal year
1994's second 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 by the Company in fiscal year 1994.
Average asset turnover was 2.8 times in fiscal year 1995's
second quarter and first six months, compared with 2.2 times
experienced for all of fiscal year 1994. The higher asset
turnover resulted from increased finished product assembly
business 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 $427 million at December 25,
1994, compared with $396 million at June 30, 1994. The ratio of
Current Assets to Current Liabilities (current asset ratio) was
2.9 at December 25, 1994, compared with 2.2 at June 30, 1994.
"Available funds" at December 25, 1994, were approximately $133
million ($8 million in cash and $125 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
discontinued operations.
The dollar amount of order backlog at December 25, 1994,
believed by the Company to be firm was approximately $1,230
million, as compared to $937 million a year earlier (after
restatement for discontinued operations), and $1,171 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
28, 1994, the following individuals were elected as Class I
Directors:
Votes in Favor Votes Against Abstentions
Olin B. King 26,351,748 1,400 86,289
Howard H. Callaway 26,355,179 600 83,658
The only other matters voted on at the meeting were: 1.) SCI
Systems, Inc. 1994 Stock Option Incentive Plan (18,284,391 votes
were cast in favor of the Plan, with 7,029,319 against, and
1,125,727 abstentions): and 2.) the selection of Ernst & Young
LLP as the Company's independent auditors for the fiscal year
ending June 30, 1995 (26,205,172 votes were cast in favor of
their selection, with 77,750 against, and 156,509 abstentions).
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 September 26, 1994, to December 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: February 8, 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 number of shares and per share
amounts)
[CAPTION]
Quarter Ended: Six Months Ended:
-------------- -----------------
---------------------------------------------------
December 25, December 26, December 25, December 26,
1994 1993 1994 1993
---------------------------------------------------
[S] [C] [C] [C] [C]
Primary Earnings (Loss)
Per Share
- --------------------------
Income from continuing
operations $10,197 $9,214 $20,254 $18,388
Loss from discontinued
operations -0- (1,443) -0- (2,768)
---------------------------------------------------
Net income $10,197 $7,771 $20,254 $15,620
===================================================
Weighted average number of
shares outstanding during
period 27,322,644 27,082,931 27,316,967 27,071,375
Applicable number of shares
for common stock equi-
valents (stock options)
outstanding for period,
using Treasury Stock
Method based on average
market price for period 493,816 616,534 479,204 625,751
---------------------------------------------------
Weighted average number of
shares used in computation 27,816,460 27,699,465 27,796,171 27,697,126
===================================================
Primary earnings per share:
From continuing operations $0.37 $0.33 $0.73 $0.66
From discontinued
operations -0- (0.05) -0- (0.10)
---------------------------------------------------
Net income $0.37 $0.28 $0.73 $0.56
===================================================
Fully Diluted Earnings
(Loss) Per Share
- -------------------------
Income from continuing
operations $10,197 $9,214 $20,254 $18,388
Loss from discontinued
operations -0- (1,443) -0- (2,768)
---------------------------------------------------
Net income 10,197 7,771 20,254 15,620
Add back after-tax interest
expense for outstanding
5 5/8% convertible
subordinated debentures 348 384 665 759
---------------------------------------------------
Adjusted net income used in
fully diluted computation $10,545 $8,155 $20,919 $16,379
===================================================
Weighted average number of
shares outstanding during
period 27,322,644 27,082,931 27,316,967 27,071,375
Applicable number of shares
for common stock equi-
valents (stock options)
outstanding for period,
using Treasury Stock
Method based on period
ended market price 493,831 616,534 479,336 625,751
Number of shares to be
issued if 5 5/8%
convertible subordinated
debentures were converted 1,850,727 1,850,727 1,850,727 1,850,727
---------------------------------------------------
Weighted average number of
shares used in computation 29,667,202 29,550,192 29,647,030 29,547,853
===================================================
Fully diluted earnings
per share:
From continuing
operations $0.36 $0.33 $0.71 $0.65
From discontinued
operations -0- (0.05) -0- (0.10)
---------------------------------------------------
Net income $0.36 $0.28 $0.71 $0.55
===================================================
(*) (*) (*) (*)
(*)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
December 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> 3-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> DEC-25-1994
<CASH> 7,815
<SECURITIES> 0
<RECEIVABLES> 241,718 <F1>
<ALLOWANCES> 0
<INVENTORY> 374,318
<CURRENT-ASSETS> 647,199
<PP&E> 180,118 <F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 848,760
<CURRENT-LIABILITIES> 220,255
<BONDS> 291,405
<COMMON> 2,735
0
0
<OTHER-SE> 322,576
<TOTAL-LIABILITY-AND-EQUITY> 848,760
<SALES> 1,239,966
<TOTAL-REVENUES> 1,239,966
<CGS> 1,198,377 <F3>
<TOTAL-COSTS> 1,198,764
<OTHER-EXPENSES> ( 1,226)<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,224
<INCOME-PRETAX> 33,204
<INCOME-TAX> 12,950
<INCOME-CONTINUING> 20,254
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,254
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.00
<FN>
<F1> Net of allowances
<F2> Net
<F3> Includes all operating costs and expenses such as G&A, selling and R&D
<F4> Represents (net other income)
