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 24, 1996
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)
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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 - 29,543,145 Shares
Outstanding at April 30, 1996
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SCI Systems, Inc.
Condensed Consolidated Balance Sheets
<CAPTION>
March 24, June 30,
1996 1995
(In thousands of dollars) (Unaudited) (*)
- ----------------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 17,753 $ 10,277
Accounts receivable 308,674 259,308
Inventories 650,665 456,107
Refundable and deferred federal and foreign income taxes 7,627 7,869
Other current assets 11,058 11,491
-----------------------------------
Total Current Assets 995,777 745,052
Property, Plant and Equipment
(Less accumulated depreciation of $280,686 at March 24, 1996, and
$242,953 at June 30, 1995) 233,884 214,025
Other Noncurrent Assets 14,156 22,215
-----------------------------------
Total Assets $1,243,817 $ 981,292
===================================
<FN>
* Derived from audited financial statements, but does not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
</FN>
See notes to condensed consolidated financial statements.
<PAGE>
</TABLE>
<TABLE>
SCI Systems, Inc.
Condensed Consolidated Balance Sheets
<CAPTION>
March 24, June 30,
1996 1995
(In thousands of dollars except share data) (Unaudited) (*)
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
<S> <C> <C>
Accounts payable and accrued expenses $ 453,259 $ 417,495
Accrued payroll and related expenses 24,346 22,634
Federal, foreign and state income taxes 15,750 19,079
Current maturities of long-term debt 5,803 5,720
----------------------------------
Total Current Liabilities 499,158 464,928
Deferred Income Taxes 1,134 509
Pension Liability, less current portion 4,669 4,669
Deferred Compensation 6,723 5,040
Long-term Debt - Note C
Industrial revenue bonds 21,240 21,306
Long-term notes 264,080 96,138
Convertible subordinated debentures -0- 38,926
----------------------------------
Total Long-term Debt 285,320 156,370
Commitments and Contingencies - Note E
Shareholders' Equity
Preferred stock, 500,000 shares authorized but unissued -0- -0-
Common stock, $.10 par value: authorized 100,000,000; issued 29,539,945
shares at March 24, 1996 and 27,465,675 shares at June 30,1995 2,954 2,747
Capital in excess of par value 167,350 126,123
Retained earnings 283,584 227,195
Currency translation adjustment (6,734) (5,948)
Treasury stock of 29,683 shares, at cost (341) (341)
----------------------------------
Total Shareholders' Equity 446,813 349,776
----------------------------------
Total Liabilities and Shareholders' Equity $1,243,817 $ 981,292
==================================
<FN>
* Derived from audited financial statements, but does not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
</FN>
See notes to condensed consolidated financial statements.
<PAGE>
</TABLE>
<TABLE>
SCI Systems, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
<CAPTION>
Quarter Ended:
March 24, March 25,
(In thousands of dollars except per share data) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $1,112,744 $591,465
Costs and expenses 1,073,251 570,920
Goodwill amortization 209 197
-------------------------------------
Operating Income 39,284 20,348
Other income (expense):
Interest expense (7,246) (4,110)
Other income, net 79 1,701
-------------------------------------
Income before Income Taxes 32,117 17,939
Income taxes - Note B 13,007 6,996
-------------------------------------
Net Income $ 19,110 $ 10,943
=====================================
Earnings per share - Note A $.63 $.39
Weighted average number of shares used in computation 30,131,917 27,775,166
See notes to condensed consolidated financial statements.
<PAGE>
</TABLE>
<TABLE>
SCI Systems, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
<CAPTION>
Nine Months Ended:
March 24, March 26,
(In thousands of dollars except per share data) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $3,192,873 $1,831,431
Costs and expenses 3,080,766 1,769,291
Goodwill amortization 627 590
-------------------------------------
Operating Income 111,480 61,550
Other income (expense):
Interest expense (17,861) (13,334)
Other income, net 1,153 2,927
-------------------------------------
Income before Income Taxes 94,772 51,143
Income taxes - Note B 38,383 19,946
-------------------------------------
Net Income $ 56,389 $ 31,197
=====================================
Earnings per share - Note A $1.88 $1.12
Weighted average number of shares used in computation 30,094,608 27,789,250
See notes to condensed consolidated financial statements.
<PAGE>
</TABLE>
<TABLE>
SCI Systems, Inc.
Condensed Consolidated Statements Of Cash Flows
(Unaudited)
<CAPTION>
Nine Months Ended:
March 24, March 26,
(In thousands of dollars) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Operating Activities
<S> <C> <C>
Net income $ 56,389 $ 31,197
Adjustments to reconcile net income to cash provided
by (used for) operations:
Depreciation and amortization 44,402 35,778
Changes in current assets and liabilities:
Accounts receivable (49,910) (9,779)
Inventories (214,908) 46,376
Other current assets (621) 13,589
Accounts payable and accrued expenses 57,328 (32,393)
Income taxes (2,480) 9,357
Other non cash items - net (282) (3,428)
---------------------------------
Net Cash Provided by (Used for) Operating Activities (110,082) 90,697
---------------------------------
Investing Activities
Purchase of property, plant and equipment (63,372) (36,251)
Proceeds from sale of property, plant and equipment 281 537
Decrease (increase) in noncurrent assets 10,014 (3,249)
---------------------------------
Net Cash Used for Investing Activities (53,077) (38,963)
---------------------------------
Financing Activities
Net increase (decrease) in commercial paper and other short-term notes 84,573 (73,035)
Payments on long-term debt (9,474,439) (5,285,444)
Proceeds from long-term debt 9,557,590 5,275,794
Issuance of common stock 2,609 265
---------------------------------
Net Cash Provided by (Used for) Financing Activities 170,333 (82,420)
---------------------------------
Effect of exchange rate changes on cash 302 (667)
---------------------------------
Net increase (decrease) in cash and cash equivalents 7,476 (31,353)
Cash and cash equivalents at beginning of period 10,277 35,822
---------------------------------
Cash and Cash Equivalents at End of Period $ 17,753 $ 4,469
=================================
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.
<PAGE>
</TABLE>
================================================================================
Notes to Condensed Consolidated Financial Statements
================================================================================
March 24, 1996
(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. Independent auditors
have not examined the statements (and all other information in this report), 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 24, 1996 are not
necessarily indicative of the results of operations for the year ending June 30,
1996. For further information, refer to the consolidated 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 $58,000,000 at March 24, 1996. Otherwise,
approximately $14,500,000 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 March 24, 1996 under the Company's Revolving Credit
and Commercial Paper, and other long-term debt agreements increased
approximately $129,000,000 from the June 30, 1995 balance. At March 24, 1996 the
Company had $150,000,000 outstanding under its Asset Securitization Agreement, a
$100,000,000 increase from the June 30, 1995 amount. Total unused credit
facilities available to the Company at March 24, 1996 approximated $142,500,000.
An additional $50,000,000 of availability was added subsequently to quarter end
to the Company's asset securitization agreement bringing the total amount of
accounts receivable eligible for sale to $200,000,000.
Subsequently to quarter end, the Company privately placed in April 1996
$287,500,000 of 5% Convertible Subordinated Notes that will mature on May 1,
2006. The notes are convertible into common stock at $48.75 per share and are
non-callable for three years.
The $38,825,000 of 5 5/8% Convertible Subordinated Debentures outstanding at
June 30, 1995 were substantially converted into 1,847,120 shares of the
Company's common stock on September 1, 1995.
Note D - Pending Purchase of Apple Computer, Inc. Plant
In April 1996 the Company entered into an agreement with Apple Computer, Inc.
(Apple) for the purchase of its Fountain, Colorado manufacturing facility,
including certain related equipment and inventory. In conjunction with this
purchase, the Company and Apple intend to enter into a three-year manufacturing
agreement whereby the Company will produce certain products for Apple. The
purchase is expected to be finalized by fiscal year-end.
Note E - 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, which have 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.
<PAGE>
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 1996 increased 88% to $1.113 billion
from $591 million in fiscal year 1995's third quarter. Sales for fiscal year
1996's first nine months were $3.193 billion compared with $1.831 billion in
fiscal year 1995's corresponding period, a 74% increase. Predominantly, the
sales increase resulted from higher unit volumes, especially in finished product
manufacturing services. Fiscal 1996 year-to-date sales were favorably impacted
by fiscal second quarter seasonal factors and by nonrecurring pipeline filling
for certain products during that quarter. Geographically, foreign sales
increased 45% during fiscal year 1996's first nine months from that in the
corresponding period of the prior fiscal year, with domestic sales increasing
95% during the same period. Foreign sales represented 35% of total sales for the
first nine months of fiscal year 1996, compared with 41% for total fiscal year
1995.
Operating income for fiscal year 1996's third quarter increased 93% to $39.3
million from $20.3 million in fiscal year 1995's third quarter. Fiscal 1996's
first nine months operating profit of $111.5 million was an 81% increase from
the year earlier period's $61.6 million. The higher percentage increases in
operating profit as compared with the corresponding sales increases are
attributable to improved manufacturing efficiencies and greater absorption of
fixed costs. Operating margins for fiscal year 1996's third quarter and first
nine months improved to 3.5% from 3.4% in the prior fiscal year's corresponding
periods in spite of product mix changes.
Third quarter interest expense as a percentage of sales declined slightly to
.65% in fiscal year 1996 from the .69% in fiscal year 1995. First nine months
interest expense declined to .56% in fiscal 1996 compared with .73% in fiscal
year 1995. The dollar amount increase in interest expense is mainly attributable
to higher borrowing levels in support of increased sales levels.
Fiscal year 1996 third quarter's asset turnover increased to 3.2 times (before
impact of an asset securitization program begun in June 1995) compared with 2.8
times in fiscal year 1995's third quarter. The improved asset turnover is
primarily correlated with the larger finished product manufacturing sales that
inherently yield higher asset turnover to offset lower operating margins. Ending
debt to annualized sales ratio for the first nine months of fiscal year 1996
declined to .07 from .08 in the first nine months of fiscal year 1995.
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% for fiscal year 1996 from 39.0% for
fiscal year 1995's first nine months, as a result of higher state income taxes
and higher foreign income taxes as certain tax holidays expired.
Capital Resources and Liquidity
The Company had working capital of $497 million at March 24, 1996, compared with
$280 million at June 30, 1995. March 24, 1996's ratio of current assets to
current liabilities (current ratio) was 2.0 compared with 1.6 at June 30, 1995.
The Company believes that, based on credit agreements existing as of April 30,
1996, issuance of convertible subordinated notes in April 1996, increase in the
permitted amount of its asset securitization agreement in April 1996, and
planned offering of up to $100,000,000 of senior unsecured notes, sufficient
available funds exist for it to fund its planned growth. Fiscal year 1996's
capital expenditures are currently estimated to be between $110 and $120 million
after giving effect to the pending Apple plant acquisition. (See Note D to the
condensed consolidated financial statements which is incorporated herein by
reference).
The dollar amount of order backlog at March 24, 1996, believed by the Company to
be firm was $2.451 billion, as compared with $1.778 billion a year earlier.
<PAGE>
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 filed no reports on Form 8-K during the period of December 25, 1995
to March 24, 1996.
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 8, 1996 By: /s/ Olin B. King
----------- ----------------
Olin B. King
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer and
Principal Financial and Accounting Officer)
<PAGE>
<TABLE>
===================================================================================================================
===================================================================================================================
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: Nine Months:
March 24, March 26, March 24, March 26,
1996 1995 1996 1995
--------------- -------------- --------------- --------------
Primary Earnings Per Share
<S> <C> <C> <C> <C>
Net income $19,110 $10,943 $56,389 $31,197
Add back after-tax interest for debentures converted
during N/A N/A 218 N/A
period
--------------- -------------- --------------- --------------
Adjusted net income used in primary computation $19,110 $10,943 $56,607 $31,197
=============== ============== =============== ==============
Weighted average number of shares outstanding during 29,493,375 27,333,404 29,439,307 27,322,527
period
Applicable number of shares for common stock equivalents
(stock options) outstanding for period using
Treasury-stock 638,542 441,762 655,301 466,723
method based on average market price for period
=============== ============== =============== ==============
Weighted average number of shares used in computation 30,131,917 27,775,166 30,094,608 27,789,250
=============== ============== =============== ==============
Primary earnings per share $.63 $.39 $1.88 $1.12
=============== ============== =============== ==============
Fully Diluted Earnings Per Share
Net income $19,110 $10,943 $56,389 $31,197
Add back after-tax interest for debentures converted
during period N/A N/A 218 N/A
Add back after-tax interest expense for outstanding
convertible debentures: N/A 344 N/A 1,009
=============== ============== =============== ==============
Adjusted net income used in fully diluted computation $19,110 $11,287 $56,607 $32,206
=============== ============== =============== ==============
Weighted average number of shares outstanding during period 29,493,375 27,333,404 29,439,307 27,322,527
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 681,969 441,762 702,266 466,723
ending market price
Number of shares to be issued if 5 5/8 % convertible
debentures were converted: N/A 1,850,727 N/A 1,850,727
=============== ============== =============== ==============
Weighted number of shares used in computation 30,175,344 29,625,893 30,141,573 29,639,977
=============== ============== =============== ==============
Fully diluted earnings per share $.63 $.38 $1.88 $1.09
=============== ============== =============== ==============
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 the periods presented.
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 24,
1996'S BALANCE SHEET AND THE INCOME STATEMENT FOR THE NINE MONTHS THEN ENDED,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-1-1995
<PERIOD-END> MAR-24-1996
<CASH> 17,753
<SECURITIES> 0
<RECEIVABLES> 312,941
<ALLOWANCES> 4,267
<INVENTORY> 650,665
<CURRENT-ASSETS> 995,777
<PP&E> 514,570
<DEPRECIATION> 280,686
<TOTAL-ASSETS> 1,243,817
<CURRENT-LIABILITIES> 499,158
<BONDS> 285,320
0
0
<COMMON> 2,954
<OTHER-SE> 4,443,859
<TOTAL-LIABILITY-AND-EQUITY> 1,243,817
<SALES> 3,192,873
<TOTAL-REVENUES> 3,192,873
<CGS> 3,081,393
<TOTAL-COSTS> 3,081,393
<OTHER-EXPENSES> (1,153)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,861
<INCOME-PRETAX> 94,772
<INCOME-TAX> 38,383
<INCOME-CONTINUING> 56,389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,389
<EPS-PRIMARY> 1.88
<EPS-DILUTED> 1.88
</TABLE>
