UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1996
Commission File No. 0-2251
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SCI SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0583436
(State or other jurisdiction of (IRS 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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Securities registered pursuant to Section 12 (b) of the Act:
None
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Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.10 Par Value
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. Yes .X. No ....
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [....]
At August 22, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $1,266,816,000. At August 22,
1996, there were 29,608,112 outstanding shares of the registrant's Common Stock.
Documents Incorporated By Reference Portions of the registrant's 1996
Annual Report to Shareholders are incorporated by reference into Parts I
and II. Portions of the registrant's definitive Proxy Statement for its
October 25, 1996, Annual Meeting of Shareholders are incorporated by
reference into Part III.
<PAGE>
PART I AND II DOCUMENTS INCORPORATED BY REFERENCE
The following information required by Parts I and II is incorporated herein
by reference to the Company's 1996 Annual Report to Shareholders, included
herein as Exhibit 13: Excerpts from
Form 10-K
(contained in the 1996
Annual Report to
Annual Shareholders)
Report Page (s)
Pages
PART I.
ITEM 1. Business Inside Front 1 to 3
Cover and 4 to
14
ITEM 2. Properties 3
ITEM 3. Legal Proceedings 3
ITEM 4. Submission of Matters to
a Vote of Security Holders 3
PART II.
ITEM 5. Market for Registrant's Common
Equity and Related Stockholder
Matters 3 and 10
ITEM 6. Selected Financial Data 1
ITEM 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 2 to 14 3 and 4
ITEM 8. Consolidated Financial Statements
and Supplementary Data 5 to 12
ITEM 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure Not Applicable
PART III
DOCUMENT INCORPORATED BY REFERENCE
The following information required by Part III is incorporated herein by
reference to the Company's definitive Proxy Statement pursuant to Regulation 14A
for the October 25, 1996 Annual Meeting of Shareholders, filed with The
Securities and Exchange Commission within 120 days after close of the fiscal
year:
Proxy Statement
Page (s)
ITEM 10. Directors and Executive Officers
of the Registrant 2, 3 and 5
ITEM 11. Executive Compensation 5 to 7
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management 1 and 2
ITEM 13. Certain Relationships and Related Transactions None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Index to exhibits, financial statements and schedules
1. Financial Statements
The following consolidated financial statements of the registrant
are included in Item 8:
Excerpts from
Form 10-K
(contained in
the 1996 Annual
Report to
Shareholders)
Page (s)
------------------
Consolidated Balance Sheets as of June 30, 1996,
1995, and 1994 5
For the years ended June 30, 1996, 1995 and 1994:
Consolidated Statements of Income 6
Consolidated Statements of Shareholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8 to 12
Report of Ernst & Young LLP, Independent Auditors 12
<PAGE>
2. Schedules
The following consolidated financial statement schedule of the
registrant is included hereafter:
Schedule II - Valuation and qualifying accounts
All other schedules are omitted as inapplicable or because the
required information is included in the consolidated financial
statements or notes thereto.
3. Exhibits
Number DESCRIPTION
2 Purchase Agreement between the Company and Apple Computer,
Inc. concerning purchase of Fountain, Colorado plant and
certain other assets. (Incorporated by reference to Exhibit
2 to Form 8-K filed on June 14, 1996.)
3.1 Second Restated Certificate of Incorporation, as amended,
and Certificate of Amendment of the Second Restated
Certificate of Incorporation as filed with the Secretary of
State of Delaware on January 26, 1996. (Incorporated herein
by reference to Exhibit 4.1 to Registration Statement on
Form S-3, File No. 333-05917, as amended.)
3.2 By-laws of the Registrant, as amended. (Incorporated herein
by reference to Exhibit 4.2 to Registration Statement on
Form S-3, File No. 333-05917, as amended.)
4.1 Indenture dated as of April 23, 1996 between the Company
and PNC Bank, Kentucky, Inc., as trustee, relating to the
Company's 5% Convertible Subordinated Notes due 2006.
(Incorporated herein by reference to Exhibit 4.3 to
Registration Statement on Form S-3, File No. 333-05917,
as amended.)
4.2 Registration Agreement dated April 23, 1996 by and
among the Company, Salomon Brothers Inc, Merrill Lynch
& Co., and Montgomery Securities, as initial purchasers
of the Company's 5% Convertible Subordinated Notes due
2006. (Incorporated herein by reference to Exhibit 4.4 to
Registration Statement on Form S-3, File No.333-05917,
as amended.)
10(a)(1) Credit Agreement dated June 25, 1993, by and between the
Registrant, its Obligated Subsidiaries and its Lenders.
(Incorporated herein by reference to exhibit of the same
number to the Registrant's Annual Report on Form 10-K for
the year ended June 30, 1993.)
(2) Amended and Restated Credit Agreement dated as of
August 3, 1995, by and between the Registrant, its
Obligated Subsidiaries and its Lenders. (Incorporated
herein by reference to exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the year ended
June 30, 1995.)
(3) First Modification of Amended and Restated Credit Agreement
(dated as of August 3, 1995) made as of December 8, 1995
between the Registrant, its Obligated Subsidiaries and its
Lenders.(Incorporated by reference to Exhibit 10 to Form
10-Q for the quarter ended December 24, 1995.)
(4) Second Modification of Amended and Restated Credit
Agreement (dated as of August 3, 1995) made as of March 26,
1996 between the Registrant, its Obligated Subsidiaries and
its Lenders.
(5) Third Modification of Amended and Restated Credit Agreement
(dated as of August 3, 1995) made as of June 28, 1996
between the Registrant, its Obligated Subsidiaries and its
Lenders.
(b)(1) Receivable Purchase Agreement dated as of June 30, 1995,
among SCI Technology, Inc., as Seller, SCI Systems, Inc.,
as Guarantor, and Receivables Capital Corporation, as
Purchaser, and Bank of America National Trust and Savings
Association, as Administrative Agent.(Incorporated herein
by reference to exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the year
ended June 30, 1995.)
(2) First Amendment to Receivable Purchase Agreement dated
as of July 14,1995
(3) Second Amendment to Receivable Purchase Agreement dated
as of August 30,1995
(4) Third Amendment to Receivable Purchase Agreement dated
as of December 15,1995
(5) Fourth Amendment to Receivable Purchase Agreement dated
as of April 1, 1966
(c)(1) Directors and Officers Liability Insurance Policies
<PAGE>
3. Exhibits
Number DESCRIPTION
(d)(1) SCI Systems, Inc. 1994 Stock Option Incentive Plan.
(Management contracts or compensatory plan) (Incorporated
herein by reference to exhibit of the same number to the
Registrant's Annual Report on Form 10-K for the year
ended June 30, 1995.)
(e)(1) Savings Plan of the SCI Systems, Inc. Employee Financial
Security Program, dated July 1, 1991.(Management
contracts or compensatory plan)(Incorporated herein by
reference to Exhibit 10 (i)(1) to the Registrant's Report
on Form 10-K for the fiscal year ended June 30, 1994.)
(f)(1) Deferred Compensation Plan of SCI Systems Employee
Financial Security Program, as amended and restated January
1, 1992.(Management contracts or compensatory plan)
(Incorporated herein by reference to Exhibit 10(j)(1) to
the Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1994.)
(g)(1) Supplemental Retirement Plan of the SCI Systems, Inc.
Employee Financial Security Program, as amended and
restated April 1994. (Management contracts or
compensatory plan) (Incorporated herein by reference
to Exhibit 10 (k)(1) to the Registrant's Report on
Form 10-K for the fiscal year ended June 30, 1994.)
(h)(1) Adjustable Rate Senior Notes due 2006 Purchase Agreement,
made as of June 28, 1996.
11 Computation of primary and fully diluted earnings per share
for the years ended June 30, 1996, 1995 and 1994.
13 1996 Annual Report to Shareholders. Except for the parts
of the SCI Systems, Inc. Annual Report expressly
incorporated into this Form 10-K by reference, the Annual
Report is not to be deemed filed with the Securities and
Exchange Commission.
21 Subsidiaries of Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule
(b) Two reports on Form 8-K were filed by the Registrant for the period
March 25, 1996 through June 30, 1996. The report on Form 8-K dated April
15,1996 dealt with the issuance of convertible subordinated notes. The
other report on Form 8-K, dated June 14, 1996, dealt with the purchase of
Apple Computers, Inc.'s Fountain, Colorado plant and certain equipment and
inventory.
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands of dollars)
<CAPTION>
Balance Additions Additions Deductions Balance End of
Beginning Charged to Costs Charged to Other (1) Year
Description of Year and Expenses Accounts
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1996:
Allowance for doubtful accounts $4,267 $1,843 $ -0- $ 110 $6,000
Year ended June 30, 1995:
Allowance for doubtful accounts $4,267 $1,018 $ -0- $1,018 $4,267
Year ended June 30, 1994:
Allowance for doubtful accounts $4,600 $4,192 $ -0- $4,525 $4,267
(1) Uncollectible accounts written off, net of recoveries
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
Date: September 24, 1996 By:/s/Olin B. King
Olin B. King
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
DATE SIGNATURE TITLE
September 24, 1996 /s/Olin B. King Chairman of the Board and
Olin B. King Chief Executive Officer
(Principal Executive Officer)
(Principal Financial and
Accounting Officer)
September 24, 1996 /s/A. Eugene Sapp, Jr. Director, President, and
A. Eugene Sapp, Jr. Chief Operating Officer
(Principal Operating Officer)
September 24, 1996 /s/Howard H. Callaway Director
Howard H. Callaway
September 24, 1996 /s/William E. Fruhan Director
William E. Fruhan
September 24, 1996 /s/Joseph C. Moquin Director
Joseph C. Moquin
September 24, 1996 /s/Wayne Shortridge Director
Wayne Shortridge
September 24, 1996 /s/G. Robert Tod Director
G. Robert Tod
September 24, 1996 /s/Jackie M. Ward Director
Jackie M. Ward
<PAGE>
[ EXHIBIT 10 (a) (4)]
SECOND MODIFICATION OF AMENDED AND RESTATED
CREDIT AGREEMENT
THIS SECOND MODIFICATION OF AMENDED AND RESTATED CREDIT AGREEMENT (this
"Modification") is made as of this 29th day of March, 1996, by and among SCI
SYSTEMS, INC., a Delaware corporation (the "Borrower"), the banks and other
financing institutions which are signatories to this Modification (the "Banks"),
CITIBANK, N.A., acting in its capacity as agent for the Banks (the "Agent") and
ABN-AMRO BANK N.V., acting through its Atlanta Agency and in its capacity as
co-agent for the Banks (the "Co-Agent").
Statement of Facts
Borrower, the Agent, the Co-Agent and the Banks are parties to that
certain Amended and Restated Credit Agreement, dated as of August 3, 1995, as
amended by First Modification of Amended and Restated Credit Agreement dated as
of December 8, 1995 (as same may hereinafter be amended, restated, supplemented
or otherwise modified from time to time, the "Credit Agreement"), pursuant to
which the Banks committed to loan certain amounts to the Borrower and the
Co-Agent (acting for the Commercial Paper Banks, as defined in the Credit
Agreement) has issued a Letter of Credit for the benefit of the Borrower.
Borrower has requested that the Agent, the Co-Agent and the Banks
consent to the purchase by the Borrower, or one of its Subsidiaries, of Apple
Computer, Inc.'s manufacturing, assembly and distribution facility in Fountain,
Colorado, including certain real property, plant, equipment and inventory
pertaining thereto and the operations therein and any equipment to be located
therein, and the Agent, the Co-Agent and the Banks are willing to grant such
consent, subject to the terms and conditions hereinafter provided.
Borrower has also requested that the Agent, the Co-Agent and the Banks
consent to an increase of up to $90,000,000 in the Total Commitment comprised of
an increase of up to $60,000,000 in the Total Revolving Commitment and an
increase of up to $30,000,000 in the Total Commercial Paper Commitment and the
Agent, the Co-Agent and the Banks are willing to grant such consent, subject to
the terms and conditions of this Modification.
Borrower has also requested that the Agent, the Co-Agent and the Banks
agree to (I) a $50,000,000 increase in the Receivables Purchase Facility, (ii) a
$25,000,000 increase in the Term Note Facility, and (iii) an increase in the
amount of the Permitted Subordinated Debentures (as defined in the Credit
Agreement) to an aggregate principal amount not to exceed $287,500,000, and the
Agent, the Co-Agent and the Banks are willing to agree to such requests, subject
to the terms and conditions of this Modification.
NOW, THEREFORE, in consideration of the premises, the covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, Borrower, the Agent, the
Co-Agent and the Banks do hereby agree as follows:
Statement of Terms
1. Definitions. All capitalized terms used in this Modification but not
otherwise defined or limited herein shall have the meanings set forth in the
Credit Agreement, as amended hereby. 2. Consent to Transactions. Subject to the
fulfillment of the conditions precedent to the effectiveness of this
Modification which are set forth below, the Agent, Co-Agent and Banks hereby
consent to the consummation of the Fountain Acquisition all on the terms and
conditions set forth in this Modification, and agree that the Fountain
Acquisition does not constitute a Permitted Transaction for purposes of the
calculation of the Permitted Transaction Amount. In addition, subject to the
fulfillment of the conditions precedent to the effectiveness of this
Modification which are set forth below, and pursuant to Section 15.09 of the
Credit Agreement, the Agent, the Co-Agent and the Banks hereby consent to the
increase in the Total Commitment, the Total Commercial Paper Commitment and the
Total Revolving Credit Commitment all on the terms and conditions set forth in
this Modification.
3. Amendment to Credit Agreement. Subject to the fulfillment of the
conditions precedent to the effectiveness of this Modification which are set
below, the parties hereby agree as follows:
(a) The Credit Agreement is modified by adding to Section 1.01 thereof the
following new definitions:
"Fountain Acquisition: the purchase by the Borrower or one of its
Subsidiaries of Apple Computer, Inc.'s manufacturing, assembly and distribution
facility in Fountain, Colorado, including certain real property, plant,
equipment and inventory pertaining thereto and the operations therein and any
equipment to be located therein, pursuant to acquisition documents which comply,
at a minimum, to the Fountain Acquisition Required Standards.
Fountain Acquisition Loan: an acquisition loan (a) in an aggregate amount
not to exceed $200,000,000 minus the aggregate amount of the Permitted
Subordinated Debentures which have been issued pursuant to the terms of this
Agreement, and (b) incurred by the Borrower in connection with the Fountain
Acquisition so long as on the date that such loan is incurred, and after giving
effect thereto, (I) all representations and warranties of the Borrower and the
other Credit Parties in the Credit Agreement are true, correct and complete in
all material respects and no Default or Event of Default has occurred and is
continuing (including, without limitation, any Default or Event of Default under
any of the financial covenants specified in Section 9.12(b)-(f) of the Credit
Agreement), (ii) the credit documents evidencing such loan are in form and
substance reasonably satisfactory to the Agent and the Co-Agent in all respects,
(iii) the proceeds of such loan are used to consummate the Fountain Acquisition,
and (iv) the Borrower has delivered to Agent a certificate with respect to the
foregoing signed by its Chairman or President.
Fountain Acquisition Required Standards: with respect to the Fountain
Acquisition, (I) a purchase price not in excess of $275,000,000 (whether in
cash, stock, property other than stock, or assumption of indebtedness including
trade liabilities, or a combination of any of the foregoing), (ii) consummation
of the Fountain Acquisition by August 1, 1996, (iii) an agreement by Apple
Computer, Inc. to purchase inventory pursuant to the terms of the Fountain
Supply Contract, and (iv) the execution of acquisition documents whose terms
(including any assumption of liabilities by any Credit Party and any
indemnification provided by any Credit Party) are (x) consistent with terms to
which a Person exercising reasonable business judgment would agree and (y)
reasonably consistent with the past business practices of the Borrower and its
Subsidiaries.
Fountain Supply Contract : the supply contract or contracts between the
Borrower or one of its Subsidiaries and Apple Computer, Inc., executed in
connection with the Fountain Acquisition, which are for terms in excess of one
year and whose terms are (x) consistent with terms to which a Person exercising
reasonable business judgment would agree and (y) reasonably consistent with the
past business practices of the Borrower and its Subsidiaries, as such contracts
may be amended from time to time."
(b) The Credit Agreement is further modified by amending the definitions of
"Intercreditor Agreement," "Receivables Purchase Transaction," "Term Note
Facility," "Total Commercial Paper Commitment," "Total Commitment" and "Total
Revolving Credit Commitment," in their entirety to read as follows:
"Intercreditor Agreement: The Intercreditor Agreement dated as of December
2, 1994, among the Agent, the Co-Agent, the Banks, C and I (Division) Holdings
and the Bank of Ireland and consented to and acknowledged by the Borrower and
the Subsidiaries as such Intercreditor Agreement may be amended or supplemented
from time to time, together with any other intercreditor agreement which may be
entered into among the Agent, the Co-Agent, the Banks, C and I (Division)
Holdings, the Bank of Ireland and the holders of the Term Note Facility, and
consented to and acknowledged by the Borrower and the Subsidiaries providing for
the pro rata sharing of the proceeds of any collateral pledged by the Borrower
or any Subsidiary realized upon by any party to such intercreditor agreement, as
such intercreditor agreement may be amended or supplemented from time to time.
Receivables Purchase Transaction: a revolving trade receivable
securitization facility not to exceed $200,000,000 (or $250,000,000 in the event
that the Foreign Receivables Transaction is combined with the Receivables
Purchase Transaction) whereby a Person purchases from time to time and on a
Non-Recourse basis, accounts receivable or undivided fractional interests in one
or more pools of accounts receivable of a Credit Party or Credit Parties or a
Bankruptcy Remote Subsidiary.
Term Note Facility: an unsecured term note facility or any refinancings
thereof, in each case to be entered into by Borrower not to exceed $100,000,000,
to be privately placed with institutional investors and which provides that such
facility is subject to the Intercreditor Agreement and will mature after
December 8, 2000.
Total Commercial Paper Commitment: At any time, the sum of the Commercial
Paper Commitments, which amount is subject to reduction pursuant to Section
3.01.
Total Commitment: At any time, the sum of the Commitments of each of the
Banks at such time, which amount is subject to reduction pursuant to Section
3.01.
Total Revolving Credit Commitment: At any time, the sum of the Revolving
Credit Commitments, which amount is subject to reduction pursuant to Section
3.01." (c) The Credit Agreement is hereby further modified by deleting Section
3.01(a) in its entirety and substituting in lieu thereof the following new
Section 3.01(a): "(a) The initial Total Commitment will be no greater than
$410,000,000. The initial Total Revolving Credit Commitment will be no greater
than $260,000,000. The initial Total Commercial Paper Commitment will be no
greater than $150,000,000."
(d) The Credit Agreement is hereby further modified by adding to the end of
Section 9.07 thereof the following new paragraph:
"In addition, within ten (10) Business Days after the Borrower or any of
its Subsidiaries has knowledge of (x) any material write-offs in connection with
the Fountain Supply Contract or (y) any change in, or any default or event of
default under, or any event, which with the giving of notice or the passage of
time or both, would be a default or event of default under, the Fountain Supply
Contract, which change, default, event of default or event could have a material
adverse effect on the business, prospects, properties, assets, liabilities,
financial condition or operations of the Borrower and its Subsidiaries taken as
a whole, the Borrower will furnish to the Agent and the Co-Agent an Officer's
Certificate setting forth the details thereof and the action which the
applicable Credit Party proposes to take with respect thereto."
(e) The Credit Agreement is further modified by adding to
Section 10.02 the following new Section 10.02(xiii), with the intent being that
the Indebtedness described in Section 10.02(xiii) is permitted:
"(xiii) The Fountain Acquisition Loan."
(f) The Credit Agreement is further modified by adding to Section 10.03A
the following new Section 10.03A(iv), with the intent being that the acquisition
described in Section 10.03A(iv) is permitted subject to the terms set forth in
Section 10.03(A)(iv):
"(iv) Consummate the Fountain Acquisition so long as on the date that the
Fountain Acquisition is consummated, and after giving effect thereto, (I) all
representations and warranties of the Borrower and the other Credit Parties in
the Credit Agreement are true, correct and complete in all material respects and
no Default or Event of Default has occurred and is continuing (including,
without limitation, any Default or Event of Default under any of the financial
covenants specified in Section 9.12(b)-(f) of the Credit Agreement) and (ii) the
Borrower has delivered to Agent a certificate with respect to the foregoing
signed by its Chairman or President."
(g) The Credit Agreement is hereby further modified by deleting Sections
10.14(a), (c) and the last paragraph of Section 10.14 in their entirety and
substituting in lieu thereof the following new Sections 10.14(a), (c) and last
paragraph thereto:
"(a) Issue any Permitted Subordinated Debentures or any other Subordinated
Debt without the express prior written consent of the Agent, the Co-Agent and
the Required Banks; provided, however, that Borrower may issue Permitted
Subordinated Debentures from time to time which in the aggregate do not exceed
$287,500,000 so long as (A) such Permitted Subordinated Debentures are
subordinated in writing to all Obligations of the Borrower and each Subsidiary,
such subordination provisions to be on terms and conditions satisfactory in all
respects to the Agent and the Co-Agent, (B) the maturity date of such Permitted
Subordinated Debentures occurs after the then current Credit Expiration Date,
and (C) the proceeds from the issuance of the Permitted Subordinated Debentures
are used first to pay in full the Fountain Acquisition Loan.
(c) Redeem, repurchase, defease, consummate an exchange for or otherwise
acquire for consideration any Subordinated Debt, or give irrevocable written
notice to take any such action, except as required by the indenture, debentures
or other instruments evidencing such Subordinated Debt or to the extent issued,
any Permitted Subordinated Debentures.
Notwithstanding the foregoing, Borrower may repurchase up to the lesser of
(A) fifty percent (50%) of the aggregate amount of the Permitted Subordinated
Debentures or (B) $84,000,000 of the Permitted Subordinated Debentures provided
that (I) immediately prior to such repurchase and after giving effect to such
repurchase, the ratio of Borrower's Total Debt to Total Capital (calculated in
percentage terms) shall not be more than sixty-five percent (65%), (ii) prior to
and after giving effect to such repurchase, no Default or Event of Default
exists or would be created by such repurchase, (iii) the repurchase price of the
Permitted Subordinated Debentures has been discounted by at least twenty percent
(20%) to par and (iv) no direct proceeds of the Loans are used to repurchase
such Permitted Subordinated Debentures."
(h) The Credit Agreement is hereby further modified by deleting Section
10.15(a) in its entirety and substituting in lieu thereof the following new
Section 10.15(a):
"(a) Agree to any amendment to or a modification of the terms or conditions
of any Asset Securitization Document executed in connection with a Permitted
Asset Securitization Transaction that would in any way cause such transaction to
not be on a Non-Recourse basis or cause the total facility amount of such
transaction to exceed (a) if done as separate transactions, $50,000,000 (in the
case of the Foreign Receivables Transaction) or $200,000,000 (in the case of the
Receivables Purchase Transaction) and (b) $250,000,000 in the event the Foreign
Receivables Transaction is combined into the Receivables Purchase Transaction as
a single securitization facility."
(I) The Credit Agreement is further modified by deleting the amount
"$75,000,000" appearing in Section 10.15(c)(I) and replacing it with the amount
"$100,000,000".
(j) The Credit Agreement is further modified by adding to Article X thereof
the following new Section 10.16:
"10.16. Term Note Facility. Make or agree to make any voluntary or
mandatory principal payment or prepayment on the note or notes evidencing the
Indebtedness owing by Borrower under the Term Note Facility on or before
December 8, 2000 without the prior written consent of the Agent, Co-Agent and
the Required Banks."
4. No Other Amendments. Except for the amendments expressly set forth
and referred to in Section 3 above, the Credit Agreement remains unchanged and
in full force and effect; provided, however that the Banks, the Agent and the
Co-Agent hereby authorize the Agent to enter into or obtain from the Credit
Parties such modifications to the Credit Documents as the Agent may deem to be
necessary or appropriate in order to reflect the amendments set forth herein.
Nothing in this Modification is intended, or shall be construed, to constitute a
novation or an accord and satisfaction of any of the Borrower's indebtedness or
any indebtedness of any other Credit Party to the Banks, the Agent or the
Co-Agent under or in connection with the Credit Agreement (collectively, the
"Obligations") or to modify, affect or impair the perfection or continuity of
the security interests in, security titles to or other liens on any collateral
for the Obligations.
5. Representations and Warranties. To induce the Agent, the Co-Agent
and the Banks to enter into this Modification, the Borrower does hereby warrant,
represent and covenant to such parties that: (a) each representation or warranty
of the Borrower set forth in the Credit Agreement is hereby restated and
reaffirmed as true and correct on and as of the date hereof as if such
representation or warranty were made on and as of the date hereof (except to the
extent that any such representation or warranty expressly relates to a prior
specific date or period and except as otherwise disclosed on Schedule 1 attached
hereto), and no Default or Event of Default has occurred and is continuing as of
this date under the Credit Agreement as amended by this Modification; and (b)
Borrower has the power and is duly authorized to execute, deliver and perform
its obligations under this Modification and this Modification is the legal,
valid and binding obligation of Borrower enforceable against it in accordance
with its terms.
6. Conditions Precedent to Effectiveness of this Modification. The
effectiveness of this Modification and the consents and amendments provided in
Section 2 and Section 3 above are subject to the fulfillment of the following
additional conditions precedent:
(a) the Agent shall have received one or more counterparts of this
Modification duly executed and delivered by the Borrower, the Agent, the
Co-Agent and the Banks;
(b) any and all Guarantors of the Obligations shall have consented
to the execution, delivery and performance of this Modification and all
of the transactions contemplated hereby by signing one or more counterparts
of a Confirmation of Guaranty in the form of Attachment 1 attached hereto and
returning the same to the Agent;
(c) the Agent shall have received one or more counterparts of an Officer's
Certificate in form and substance acceptable to the Agent executed by the
Borrower and each Guarantor;
(d) the Agent shall have received an opinion of Borrower's and Guarantors'
counsel in form and substance reasonably satisfactory to the Agent and an
opinion of in-house counsel to the Borrower and the Guarantors in form and
substance reasonably satisfactory to the Agent;
(e) Each and every representation and warranty of the Borrower set forth in
Section 5 above shall be true and correct in all material respects as of the
date of and after giving effect to this Modification; and
(f) There shall not exist as of the date of and after giving effect to this
Modification any Default or Event of Default under the Credit Agreement as
amended by this Modification.
Notwithstanding the foregoing, the increase of the Total Commitment, the
Total Commercial Paper Commitment and the Total Revolving Credit Commitment are
subject to the fulfillment of the following additional conditions precedent:
(1) the Agent and the Co-Agent shall have received written commitments from
each of the Banks electing to increase its Commitment, and, if applicable,
written commitments from any new Bank which meets the requirements of an
Eligible Assignee, within the meaning specified in Section 15.04(b)(v) of the
Credit Agreement with respect to such new Bank's commitment;
(2) With respect to any new Bank, the Agent shall have received an
agreement from such new Bank in form and substance satisfactory to the Agent and
the Borrower with respect to its status as a "Bank" under the Credit Agreement;
(3) each Revolving Credit Bank shall have received a replacement Series A
Master Note duly executed and delivered by the Borrower;
(4) each Commercial Paper Bank shall have received a replacement Series B
Master Note and a replacement Series C Master Note duly executed and delivered
by the Borrower;
(5) the Agent shall have received a replacement Subsidiary Note in an
original principal amount equal to the new Total Commitment duly executed and
delivered by each Subsidiary;
(6) the Agent shall have received a consent and reaffirmation from each
Credit Party in form and substance satisfactory to the Agent;
(7) the Agent shall have received one or more counterparts of an Officer's
Certificate in form and substance acceptable to the Agent executed by the
Borrower and each Guarantor;
(8) the Agent shall have received opinions of (I) Borrower's and the Credit
Parties' counsel in form and substance reasonably satisfactory to the Agent,
(ii) in-house counsel to the Borrower and the Credit Parties in form and
substance reasonably satisfactory to the Agent, (iii) foreign counsel to the
Foreign Subsidiaries in form and substance reasonably satisfactory to the Agent,
and (iv) an update of the August 3, 1995 opinions of Maynard, Cooper & Gale,
P.C. in form and substance reasonably satisfactory to the Agent;
(9) the Agent shall have received a fully executed counterpart of an
amendment to the Letter of Credit increasing the face amount thereunder to the
revised Total Commercial Paper Commitment;
(10) the Agent shall have received a fully executed counterpart of an
amendment to the Depository Agreement;
(11) the Agent shall have received written confirmation from Moody's
Investor Services, Inc. and Standard & Poor's Ratings Service of their ratings
of at least "P-1" and "A-1 plus", respectively, after giving effect to the
increase of the Total Commitment, the Total Commercial Paper Commitment and the
Total Revolving Credit Commitment as contemplated by this Modification;
(12) the Agent shall have received certificates of good standing for each
of the Credit Parties in the jurisdictions set forth on Schedule 8.01 and, with
respect to the Credit Party which is a party to the Fountain Acquisition, a
certificate of good standing from such Credit Party from the jurisdiction of its
incorporation and the Colorado Secretary of State;
(13) the Agent shall have received (i) updates to the lien search results
conducted in connection with the August 3, 1995 closing of the Credit Agreement
with a search date within fifteen days of the effective date of the increase in
the commitments, which updates will be in form and substance reasonably
satisfactory to the Agent and (ii) lien searches under the names of Apple
Computer, Inc., any subsidiary of Apple Computer, Inc. involved in the Fountain
Acquisition and the Credit Party which is a party to the Fountain Acquisition
from the Colorado Secretary of State and the Office of the County Clerk and
Recorder of El Paso County, Colorado in form and substance satisfactory to the
Agent;
(14) Each and every representation and warranty of the Borrower set forth
in Section 5 above shall be true and correct in all material respects as of the
date of and after giving effect to the increases in the Total Commitment, the
Total Commercial Paper Commitment and the Total Revolving Credit Commitment as
contemplated by the Modification; and
(15) There shall not exist as of the date of, and after giving effect to,
the increase in the Total Commitment, the Total Commercial Paper Commitment and
the Total Revolving Credit Commitment any Default or Event of Default under the
Credit Agreement as amended by this Modification.
7. Evidence of Effectiveness of Increase in Total Commitment, Total
Commercial Paper Commitment and Total Revolving Credit Commitment.
(a) Upon the effectiveness of the increase in the Total Commitment, Total
Commercial Paper Commitment and Total Revolving Credit Commitment, the Agent
will deliver to the Co-Agent, the Banks and the Borrower a revised Annex I,
which annex will detail the revised Total Commitment, the revised Total
Commercial Paper Commitment and the revised Revolving Credit Commitment. The
Agent shall also deliver to the Co-Agent, the Banks and the Borrower, a revised
Exhibit D-1(a) (Notice of Borrowing - Base Rate Advance), a revised Exhibit
D-1(b) (Notice of Borrowing - Eurodollar Rate Advance), and a revised Exhibit
E-2 (Form of Subsidiary Note), each of which shall reflect the increase in the
Total Commitment, Total Commercial Paper Commitment and the Total Revolving
Credit Commitment, as the case may be. Upon such delivery, the revised Annex I,
Exhibit D-1(a), Exhibit D-1(b) and Exhibit E-2 will supersede and replace the
current counterpart of such annex or exhibit, and will automatically be deemed
to be incorporated into the Credit Agreement without further action of any party
to the Credit Agreement.
(b) Upon the effectiveness of any increase in the Total Commercial Paper
Commitment, the Co-Agent will cause an amendment to the Letter of Credit to be
issued to reflect such increase and the Co-Agent will deliver a copy of such
amendment to the Agent, the Banks and the Borrower.
8. Counterparts. This Modification may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which
when taken together shall constitute one and the same instrument.
9. Delivery of Material Asset Securitization Documents and Material
Fountain Acquisition Agreements.
(a) Borrower shall deliver, or cause to be delivered, to the Agent and the
Co-Agent, a copy of the material Asset Securitization Documents executed in
connection with a Permitted Asset Securitization Transaction promptly after the
consummation of such Permitted Asset Securitization Transaction.
(b) Borrower shall also use its best use reasonable efforts to deliver, or
cause to be delivered, to the Agent and the Co-Agent, a copy of the material
agreements in substantially final form (including all available exhibits and
schedules thereto) to be executed in connection with the Fountain Acquisition,
including without limitation, the Fountain Supply Contract, within a reasonably
sufficient time prior to the signing of so that the Agent and the Co-Agent may
review such documents.such material agreements.
(c) Borrower shall also deliver, or cause to be delivered, to the Agent and
the Co-Agent, a copy of the material agreements (including all exhibits and
schedules thereto) executed in connection with the Fountain Acquisition,
including without limitation, the Fountain Supply Contract, promptly after the
execution thereof.
(d) Nothing contained in this Section 9 will give the Agent and the
Co-Agent any right to request changes to the agreements to be executed in
connection with the Fountain Acquisition unless the terms of such documents do
not meet the Fountain Acquisition Required Standards.
(e) Failure to comply with this paragraph 9 shall be deemed to be an Event
of Default under the Credit Agreement, if such failure is not cured within
thirty (30) days after receipt by the Borrower of written notice of such default
from the Agent or the Co-Agent.
10. GOVERNING LAW. THIS MODIFICATION SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE.
(Remainder of page intentionally left blank)
IN WITNESS WHEREOF, the parties hereto have caused this Modification to be
duly executed and delivered as of the day and year specified at the beginning
hereof.
BORROWER:
SCI SYSTEMS, INC.
(CORPORATE SEAL)
By:
Title:
AGENT:
CITIBANK, N.A.
By:
Name:
Title:
CO-AGENT:
ABN-AMRO BANK N.V., ATLANTA
AGENCY
By:
Name:
Title:
By:
Name:
Title:
(Signatures continued on next page)
(Signatures continued from preceding page)
BANKS:
ABN-AMRO BANK N.V., ATLANTA
AGENCY
By:
Name:
Title:
By:
Name:
Title:
CIBC, INC.
By:
Name:
Title:
CITIBANK, N.A.
By:
Name:
Title:
BANK OF AMERICA ILLINOIS
By:
Name:
Title:
(Signatures continued on next page)
(Signatures continued from preceding page)
FIRST ALABAMA BANK, N.A.
By:
Name:
Title:
MELLON BANK, N.A.
By:
Name:
Title:
NBD BANK
By:
Name:
Title:
THE BANK OF TOKYO, LTD.
ATLANTA AGENCY
By:
Name:
Title:
(Signatures continued on next page)
(Signatures continued from preceding page)
THE DEVELOPMENT BANK OF
SINGAPORE, LTD.
By:
Name:
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED
By:
Name:
Title:
[END OF EXHIBIT 10(a)(4)]
[EXHIBIT 10(a)(5)]
THIRD MODIFICATION OF AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD MODIFICATION OF AMENDED AND RESTATED CREDIT AGREEMENT (this
"Modification") is made as of this 28th day of June, 1996, by and among SCI
SYSTEMS, INC., a Delaware corporation (the "Borrower"), the banks and other
financing institutions listed on Annex I attached to the Credit Agreement as
modified by this Modification (the "Banks"), CITIBANK, N.A., acting in its
capacity as agent for the Banks (the "Agent") and ABN-AMRO BANK N.V., acting
through its Atlanta Agency and in its capacity as co-agent for the Banks (the
"Co-Agent").
Statement of Facts
Borrower, the Agent, the Co-Agent and the Banks are parties to that certain
Amended and Restated Credit Agreement, dated as of August 3, 1995, as amended by
the First Modification of Amended and Restated Credit Agreement dated as of
December 8, 1995 and the Second Modification of Amended and Restated Credit
Agreement dated as of March 29, 1996 (the "Second Modification") (as same may
hereinafter be amended, restated, supplemented or otherwise modified from time
to time, the "Credit Agreement"), pursuant to which the Banks committed to loan
certain amounts to the Borrower and the Co-Agent (acting for the Commercial
Paper Banks, as defined in the Credit Agreement) has issued a Letter of Credit
for the benefit of the Borrower.
Borrower, the Agent, the Co-Agent and the Banks are also parties to that
certain Master Assignment and Acceptance Agreement dated as of the date hereof
(the "Master Assignment") pursuant to which all the Banks (other than
Commerzbank Aktiengesellschaft, Atlanta Agency, and PNC Bank, Kentucky, Inc.
(collectively, the "New Banks")) assigned certain Commitments and Loans to the
New Banks and certain other Banks.
Pursuant to the terms of the Second Modification, the Agent, the Co-Agent
and the Banks consented to an increase of up to $90,000,000 in the Total
Commitment comprised of an increase of up to $60,000,000 in the Total Revolving
Commitment and an increase of up to $30,000,000 in the Total Commercial Paper
Commitment (collectively, the "Commitment Increase") subject to the satisfaction
of the terms and conditions set forth in the Second Modification.
The parties are entering into this Modification in order to effectuate the
Commitment Increase, all in accordance with and subject to the terms and
conditions hereinafter set forth in this Modification. Borrower also desires to
enter into a $100,000,000 receivables purchase and secured loan facility.
Borrower has requested that the Agent, the Co-Agent and the Banks consent
to Borrower and any other Credit Party entering into a $100,000,000 receivables
purchase and secured loan facility, and the Agent, the Co-Agent and the Banks
are willing to give their consent, subject to the terms and conditions of this
Modification.
NOW, THEREFORE, in consideration of the premises, the covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties do hereby
agree as follows:
Statement of Terms
1. Definitions. All capitalized terms used in this Modification but not
otherwise defined or limited herein shall have the meanings set forth in the
Credit Agreement, as amended hereby.
2. Consent to Transaction. Subject to the fulfillment of the conditions
precedent to the effectiveness of this Modification which are set forth below,
the Banks hereby consent to the consummation of the Loan/Purchase Transaction.
3. Amendment to Credit Agreement. Subject to the fulfillment of the
conditions precedent to the effectiveness of this Modification which are set
forth below, the parties hereby agree as follows:
(a) The Credit Agreement is hereby modified by adding to Section 1.01
thereof, the following new definitions:
"Inventory Loan: Any loan made from time to time to Borrower or any other
Credit Party by a receivables securitization company managed by Bank of
Tokyo-Mitsubishi Trust Company in an aggregate amount not to exceed $30,000,000
secured by a Lien on (a) the interest of Borrower or another Credit Party in the
Toshiba Agreement, and (b) a Credit Party's Inventory which has been ordered
pursuant to the Toshiba Agreement and pursuant to which the obligations of
Borrower or such other Credit Party to repay the principal of such loans will
become Non-Recourse to Borrower and the other applicable Credit Parties if such
Inventory has resulted in Borrower's or any such Credit Party's issuance of an
invoice to Toshiba.
Loan/Purchase Transaction: The three-tranche facility, not to exceed
$100,000,000 in the aggregate, provided to Borrower or any other Credit Party by
a receivables securitization company managed by Bank of Tokyo-Mitsubishi Trust
Company, consisting of (I) a revolving facility of up to $100,000,000 for the
purchase on a Non-Recourse basis of trade receivables arising from the sale of
computer equipment to Toshiba pursuant to the Toshiba Agreement, (ii) the
Inventory Loan, and (iii) a facility of up to $60,000,000 whereby a receivables
securitization company managed by Bank of Tokyo-Mitsubishi Trust Company
purchases on a Non-Recourse basis the obligations of Toshiba with respect to
Inventory which has been ordered pursuant to the Toshiba Agreement and which is
evidenced by an invoice but which has not resulted in a sales or purchase order.
Toshiba: Toshiba America Information Services, Inc. or any of its
affiliates, and such party's successors and assigns.
Toshiba Agreement: That certain Agreement to be entered into between
Toshiba and Borrower or any other Credit Party with respect to the sale of
computer equipment to Toshiba, as the same may be amended, supplemented or
restated from time to time."
(b) The Credit Agreement is further modified by amending the definitions of
"Non-Recourse" and "Permitted Asset Securitization Transactions" in their
entirety to read as follows:
"Non-Recourse: means (I) that the terms and conditions applicable to the
Receivables Purchase Transaction, the Foreign Receivables Transaction and the
Loan/Purchase Transaction (other than the Inventory Loan) provide that the
recourse of a purchaser of accounts receivable or any interest therein or any
invoice for losses resulting from an obligor's failure to pay due to credit
problems is limited to such accounts receivable or interests therein or such
invoice (as the case may be), together in each case with any related security,
if any, and, (ii) that the terms and conditions applicable to the Inventory Loan
provide that the recourse of the receivables securitization company managed by
the Bank of Tokyo-Mitsubishi Trust Company to recover against the Borrower or
any other Credit Party for losses resulting from Toshiba's failure to pay a
related invoice due to credit problems of Toshiba is limited to the interest of
the Borrower or such Credit Party in the collateral for the Inventory Loan;
provided, however, that the terms and conditions applicable to the Receivables
Purchase Transaction, the Foreign Receivables Transaction and the Loan/Purchase
Transaction may also provide for additional bases of non-recourse.
Permitted Asset Securitization Transactions: The Receivables Purchase
Transaction, the Foreign Receivables Transaction and the Loan/Purchase
Transaction."
(c) The Credit Agreement is hereby further modified by deleting Section
10.01(ix) in its entirety and replacing it with the following:
"(ix) Liens granted by Borrower or any Credit Party in connection with the
Loan/Purchase Transaction on the rights of Borrower or such Credit Party under
the Toshiba Agreement and Liens granted by any Credit Party in connection with
the Loan/Purchase Transaction on such Credit Party's Inventory which shall have
been ordered pursuant to the Toshiba Agreement and"
(d) The Credit Agreement is hereby further modified by deleting from
Section 10.02(xi) the phrase "the Foreign Receivables Transaction" and replacing
it with the phrase "the Foreign Receivables Transaction, the Loan/Purchase
Transaction".
(e) The Credit Agreement is further modified by adding to Section 10.03 the
following new Section 10.03(xii):
"(xii) The borrowing of any Inventory Loan by Borrower or any other Credit
Party."
(f) The Credit Agreement is hereby further modified by deleting Section
10.15(a) in its entirety and substituting in lieu thereof the following new
Section 10.15(a):
"(a) Agree to any amendment to or a modification of the terms or conditions
of any Asset Securitization Document executed in connection with a Permitted
Asset Securitization Transaction that would in any way cause such transaction to
not be on a Non-Recourse basis or cause the total facility amount of such
transaction to exceed (a) if done as separate transactions, $50,000,000 (in the
case of the Foreign Receivables Transaction), $100,000,000 (in the case of the
Loan/Purchase Transaction) or $150,000,000 (in the case of the Receivables
Purchase Transaction), and (b) $200,000,000 in the event the Foreign Receivables
Transaction is combined into the Receivables Purchase Transaction as a single
securitization facility."
(g) The Credit Agreement is hereby further modified by deleting each of
Annex I, Exhibit D-1(a), Exhibit D-1(b) and Exhibit E-2 attached thereto in
their entireties and by substituting in lieu thereof the new Annex I, Exhibit
D-1(a), Exhibit D-1(b) and Exhibit E-2 attached hereto and incorporated herein
and therein by reference.
4. No Other Amendments. Except for the amendments expressly set forth and
referred to in Section 3 above, the Credit Agreement remains unchanged and in
full force and effect; provided, however that the Banks, the Agent and the
Co-Agent hereby authorize the Agent to enter into or obtain from the Credit
Parties such modifications to the Credit Documents as the Agent may deem to be
necessary or appropriate in order to reflect the amendments set forth herein.
Nothing in this Modification is intended, or shall be construed, to constitute a
novation or an accord and satisfaction of any of the Borrower's indebtedness or
any indebtedness of any other Credit Party to the Banks, the Agent or the
Co-Agent under or in connection with the Credit Agreement (collectively, the
"Obligations") or to modify, affect or impair the perfection or continuity of
the security interests in, security titles to or other liens on any collateral
for the Obligations.
5. Representations and Warranties of Borrower. To induce the Agent, the
Co-Agent and the Banks to enter into this Modification, the Borrower does hereby
warrant, represent and covenant to such parties that: (a) each representation or
warranty of the Borrower set forth in the Credit Agreement is hereby restated
and reaffirmed as true and correct on and as of the date hereof as if such
representation or warranty were made on and as of the date hereof (except to the
extent that any such representation or warranty expressly relates to a prior
specific date or period and except as otherwise disclosed on Schedule 1 attached
hereto), and no Default or Event of Default has occurred and is continuing as of
this date under the Credit Agreement as amended by this Modification; and (b)
Borrower has the power and is duly authorized to execute, deliver and perform
its obligations under this Modification and this Modification is the legal,
valid and binding obligation of Borrower enforceable against it in accordance
with its terms.
6. Conditions Precedent to Effectiveness of this Modification. The
effectiveness of this Modification and the amendments provided in Section 3
above are subject to the fulfillment of the following additional conditions
precedent:
(a) the Agent shall have received one or more counterparts of this
Modification and the Master Assignment duly executed by the Borrower, the Agent,
the Co-Agent and the Banks;
(b) each Revolving Credit Bank shall have received a replacement Series A
Master Note duly executed and delivered by the Borrower in an original principal
amount equal to the amount set forth as such Bank's Revolving Credit Commitment
on Annex I attached hereto;
(c) each Commercial Paper Bank shall have received a replacement Series B
Master Note and a replacement Series C Master Note duly executed and delivered
by the Borrower in an original principal amount equal to the amount set forth as
such Bank's Commercial Paper Commitment on Annex I attached hereto ;
(d) the Agent shall have received a replacement Subsidiary Note in an
original principal amount equal to $410,000,000 duly executed and delivered by
each Subsidiary;
(e) the Agent shall have received a consent and reaffirmation from each
Credit Party in form and substance satisfactory to the Agent;
(f) the Agent shall have received one or more counterparts of an Officer's
Certificate in form and substance acceptable to the Agent executed by the
Borrower and each Guarantor;
(g) the Agent shall have received opinions of (I) Borrower's and the Credit
Parties' counsel in form and substance reasonably satisfactory to the Agent,
(ii) in-house counsel to the Borrower and the Credit Parties in form and
substance reasonably satisfactory to the Agent, (iii) foreign counsel to the
Foreign Subsidiaries in form and substance reasonably satisfactory to the Agent,
and (iv) an update of the August 3, 1995 opinions of Maynard, Cooper & Gale,
P.C. in form and substance reasonably satisfactory to the Agent;
(h) the Agent shall have received a fully executed counterpart of an
amendment to the Letter of Credit increasing the face amount thereunder to the
revised Total Commercial Paper Commitment;
(i) the Agent shall have received a fully executed counterpart of an
amendment to the Depository Agreement;
(j) the Agent shall have received written confirmation from Moody's
Investor Services, Inc. and Standard & Poor's Ratings Service of their ratings
of at least "P-1" and "A-1 plus", respectively, after giving effect to the
increase of the Total Commitment, the Total Commercial Paper Commitment and the
Total Revolving Credit Commitment as contemplated by this Modification;
(k) the Agent shall have received certificates of good standing for each of
the Credit Parties in the jurisdictions set forth on Schedule 8.01 and, with
respect to the Credit Party which is a party to the Fountain Acquisition, a
certificate of good standing from such Credit Party from the jurisdiction of its
incorporation and the Colorado Secretary of State;
(l) the Agent shall have received (I) updates to the lien search results
conducted in connection with the August 3, 1995 closing of the Credit Agreement
with a search date within fifteen days of the effective date of the increase in
the commitments, which updates will be in form and substance reasonably
satisfactory to the Agent and (ii) lien searches under the names of Apple
Computer, Inc., any subsidiary of Apple Computer, Inc. involved in the Fountain
Acquisition and the Credit Party which is a party to the Fountain Acquisition
from the Colorado Secretary of State and the Office of the County Clerk and
Recorder of El Paso County, Colorado in form and substance satisfactory to the
Agent;
(m) Each and every representation and warranty of the Borrower set forth in
Section 4 above shall be true and correct in all material respects as of the
date of and after giving effect to the increases in the Total Commitment, the
Total Commercial Paper Commitment and the Total Revolving Credit Commitment as
contemplated by the Modification; and
(n) There shall not exist as of the date of, and after giving effect to,
the increase in the Total Commitment, the Total Commercial Paper Commitment and
the Total Revolving Credit Commitment any Default or Event of Default under the
Credit Agreement as amended by this Modification.
7. Counterparts. This Modification may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which
when taken together shall constitute one and the same instrument.
8. Delivery of Material Asset Securitization Documents. Borrower shall
deliver, or cause to be delivered, to the Agent and the Co-Agent, a copy of the
material Asset Securitization Documents executed in connection with the
Loan/Purchase Transaction promptly after the consummation of the Loan/Purchase
Transaction. Failure to comply with this paragraph 8 shall be deemed to be an
Event of Default under the Credit Agreement if such failure is not cured within
thirty (30) days after receipt by the Borrower of written notice of such default
from the Agent or the Co-Agent.
9. GOVERNING LAW. THIS MODIFICATION SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE.
(Remainder of page intentionally left blank)
IN WITNESS WHEREOF, the parties hereto have caused this Modification to be
duly executed and delivered as of the day and year specified at the beginning
hereof.
BORROWER:
SCI SYSTEMS, INC.
(CORPORATE SEAL)
Attest:
By:
Cindy A. Brazell, Assistant Secretary
Michael M. Sullivan,
authorized signatory
AGENT:
CITIBANK, N.A.
By:
Name:
Title:
CO-AGENT:
ABN-AMRO BANK N.V., ATLANTA
AGENCY
By:
Name:
Title:
By:
Name:
Title:
(Signatures continued on next page)
(Signatures continued from preceding page)
BANKS:
ABN-AMRO BANK N.V., ATLANTA
AGENCY
By:
Name:
Title:
By:
Name:
Title:
BANK OF AMERICA ILLINOIS
By:
Name:
Title:
CIBC, INC.
By:
Name:
Title:
CITIBANK, N.A.
By:
Name:
Title:
(Signatures continued on next page)
(Signatures continued from preceding page)
COMMERZBANK
AKTIENGESELLSCHAFT, ATLANTA
AGENCY
By:
Name:
Title:
By:
Name:
Title:
FIRST ALABAMA BANK, N.A.
By:
Name:
Title:
MELLON BANK, N.A.
By:
Name:
Title:
NBD BANK
By:
Name:
Title:
PNC BANK, KENTUCKY, INC.
By:
Name:
Title:
(Signatures continued on next page)
(Signatures continued from preceding page)
THE BANK OF TOKYO-MITSUBISHI,
LTD., ATLANTA AGENCY
By:
Name:
Title:
THE DEVELOPMENT BANK OF
SINGAPORE, LTD.
By:
Name:
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED
By:
Name:
Title:
<PAGE>
SCHEDULE 1
TO
THIRD MODIFICATION OF AMENDED AND RESTATED
CREDIT AGREEMENT DATED AS OF JUNE 28, 1996
Changes to Schedule 8.01: Jurisdictions of Incorporation of Borrower and its
Subsidiaries.
SCI Systems Colorado, Inc., incorporated in the State of Colorado,
is a Subsidiary and is hereby added to Schedule 8.01.
EXHIBIT E-2 to Credit Agreement
SUBSIDIARY (INTERCOMPANY) NOTE
$410,000,000 June 28, 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of SCI
Systems, Inc., a Delaware corporation (the "Parent"), or any subsidiary thereof
(a "Subsidiary", and together with the Parent or any other holder hereof, the
"Holder") at its registered office in Wilmington, Delaware (or at such other
place as the Holder may designate in writing to the undersigned) the principal
amount of FOUR HUNDRED TEN MILLION AND NO/100 U.S. DOLLARS ($410,000,000) or so
much thereof as has been advanced to the undersigned by each payee hereunder,
plus interest as hereinafter provided.
The principal amount of this Subsidiary Note shall be due and payable in
the amounts and at the times determined by the Holder to be necessary to allow
the Parent to make any payment of principal due and payable under the Notes (as
such term is defined in the Amended and Restated Credit Agreement (as amended,
extended, modified or supplemented from time to time, the "Credit Agreement"),
dated as of August 3, 1995, by and among the Parent, Citibank, N.A., as agent
(the "Agent"), ABN AMRO Bank N.V., as Co-Agent, and the Banks (the "Banks")
which are signatories to such Credit Agreement, and any assignees which become
Banks under such Credit Agreement).
The undersigned shall pay interest on the principal amount outstanding
hereunder from time to time at the effective rate of interest being paid by the
Parent under the Notes and the Credit Agreement. Interest hereunder shall be due
and payable as and when interest from the Parent is due under the Credit
Agreement in an amount determined by the Holder, based on the ratio of the
amount outstanding hereunder at the time of any interest payment, to the total
amount outstanding under the Credit Agreement from the Parent.
Any payment of principal or interest which is not timely made shall bear
interest at a per annum rate equal to the interest rate for overdue advances
provided in the Credit Agreement.
It is contemplated that the original principal sum evidenced by this
Subsidiary Note may be reduced from time to time and that additional advances
may be made from time to time.
In no event shall the amount of interest due or payable hereunder exceed
the maximum rate of interest allowed by applicable law, and in the event any
such payment is inadvertently paid by the undersigned or inadvertently received
by the Holder, then such excess sum shall be credited as a payment of principal,
unless the undersigned shall notify the Holder, in writing, that the undersigned
elects to have such excess sum returned to it forthwith. It is the express
intent hereof that the undersigned not pay and the Holder not receive, directly
or indirectly, in any manner whatsoever, interest in excess of that which may be
lawfully paid by the undersigned under applicable law.
Should any payment of principal and interest not be paid when due under
this Subsidiary Note, or should an Event of Default occur under the Credit
Agreement or any other document or agreement executed and delivered in
connection herewith or therewith, then, and at any time thereafter, the Holder
shall have the right and option, in its sole discretion, to declare the
principal and interest outstanding hereunder to be forthwith due and payable.
All parties now or hereafter liable with respect to this Subsidiary Note,
whether the undersigned, any guarantor, endorser or any other person or entity,
hereby expressly waive presentation, demand of payment, protest, notice of
demand of payment, protest and notice of non-payment, or any other notice of any
kind with respect hereto.
No delay or failure on the part of the Holder in the exercise of any right
or remedy hereunder, under any loan agreement or security agreement, or at law
or in equity, shall operate as a waiver thereof, and no single or partial
exercise by the Holder of any right or remedy hereunder, under any loan
agreement or security agreement, or at law or in equity shall preclude or estop
another or further exercise thereof or the exercise of any other right or
remedy.
Principal and interest on this Subsidiary Note shall be payable and paid in
lawful money of the United States of America.
Time is of the essence of this Subsidiary Note and, in case this Subsidiary
Note is collected by or through an attorney at law, or under advice therefrom,
the undersigned agrees to pay all costs of collection including reasonable
attorneys' fees.
The provisions of this Subsidiary Note shall be construed and interpreted
and all rights and obligations of the parties hereunder determined in accordance
with the laws of the State of New York.
THIS SUBSIDIARY NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN
AMENDED AND RESTATED ASSIGNMENT OF INTERCOMPANY LOANS DATED AS OF AUGUST 3,
1995, AS AMENDED, BY AND AMONG THE AGENT, THE UNDERSIGNED AND ITS AFFILIATES.
This Note supersedes and replaces that certain Subsidiary (Intercompany)
Note dated as of August 3, 1995 executed by the undersigned in favor of the
Parent and any Subsidiary in the original principal amount of $320,000,000 (the
"Prior Note") and this Note is not intended (and shall not be construed) to be a
novation of the indebtedness evidenced by the Prior Note.
IN WITNESS WHEREOF, the undersigned has caused this Subsidiary Note to be
executed, sealed and delivered by and through its duly authorized
representatives, as of the day and year first above written.
[NAME OF SUBSIDIARY]
By:
Name:
Title:
[END OF EXHIBIT 10(a)(5)]
[EXHIBIT 10(b)(2)]
FIRST AMENDMENT TO
RECEIVABLES PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT,
dated as of July 14, 1995 (this "Amendment"), is among SCI
TECHNOLOGY, INC., ("Seller"), SCI SYSTEMS, INC. ("Guarantor"),
RECEIVABLES CAPITAL CORPORATION ("Purchaser") and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, as administrative agent
for Purchaser (the "Administrative Agent").
BACKGROUND
i. Seller, Guarantor, Purchaser and the Administrative Agent, entered into the
Receivables Purchase Agreement, dated as of June 30, 1995 (the "Purchase
Agreement").
ii. The parties hereto desire to amend the Purchase Agreement in certain
respects as set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Definitions. Capitalized terms used in this Amendment and
not otherwise defined herein shall have the meanings assigned thereto in the
Purchase Agreement.
SECTION 2. Excluded Obligors. The definition of "Excluded Obligors"
that appears in Appendix A to the Purchase Agreement is hereby deleted in its
entirety. The definition of "Designated Obligor" that appears in Appendix A to
the Purchase Agreement is hereby amended by deleting the phrase "Excluded
Obligors and" where it appears in the second line thereof.
SECTION 3. Eligible Receivable. The definition of "Eligible
Receivable" where it appears in Appendix A to the Purchase Agreement is hereby
amended by adding to paragraph (a) thereof after the phrase "an Affiliate of
Seller" the phrase ", is not a Governmental Authority".
SECTION 4. Miscellaneous. Seller hereby agrees promptly to execute
and deliver amendments to the Uniform Commercial Code Financing Statements that
were filed in connection with the Purchase Agreement in order to reflect the
amendments set forth herein. The Purchase Agreement, as amended hereby, remains
in full force and effect. Any reference to the Purchase Agreement from and
after the date hereof shall be deemed to refer to the Purchase Agreement as
amended hereby unless otherwise expressly stated. This Amendment shall be
governed by, and construed in accordance with, the internal laws of the State
of Illinois. This Amendment may be executed in any number of counterparts, and
by the different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
RECEIVABLES CAPITAL CORPORATION
By:
Name Printed:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent
By:
Name Printed:
Title:
SCI TECHNOLOGY, INC.
By:
Name Printed:
Title:
SCI SYSTEMS, INC.
By:
Name Printed:
Title:
[END OF EXHIBIT 10(b)(2)]
[EXHIBIT 10(b)(2)]
SECOND AMENDMENT TO
RECEIVABLES PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT, dated as of
August 30, 1995 (this "Amendment"), is among SCI TECHNOLOGY, INC., ("Seller"),
SCI SYSTEMS, INC. ("Guarantor"), RECEIVABLES CAPITAL CORPORATION ("Purchaser")
and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as administrative
agent for Purchaser (the "Administrative Agent").
BACKGROUND
1. Seller, Guarantor, Purchaser and the Administrative Agent,
entered into the Receivables Purchase Agreement, dated as of June 30, 1995, as
amended by the First Amendment to Receivables Purchase Agreement, dated as of
July 14, 1995 (the "Purchase Agreement").
2. The parties hereto desire to amend the Purchase Agreement in
certain respects as set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Definitions. Capitalized terms used in this Amendment and
not otherwise defined herein shall have the meanings assigned thereto in the
Purchase Agreement.
SECTION 2. Financial Covenants. Section 7.04(a) of the Purchase
Agreement is hereby amended by deleting the phrase "0.8 to 1.0" where it
appears in the third line thereof, and substituting therefor the phrase
"1.25 to 1.0". Section 7.04(b) of the Purchase Agreement is hereby amended
by deleting the phrase "eighty percent (80%)" where it appears therein, and
substituting therefor the phrase "seventy percent (70%)". Section 7.04(c) of
the Purchase Agreement is hereby amended by deleting the number"1.20" where
it appears therein, and substituting therefor the number "1.70".
SECTION 3. Schedule B-1. Schedule B-1 to the Receivables Purchase
Agreement is hereby deleted in its entirety, and the schedule attached hereto as
Schedule B-1 is hereby substituted therefor.
SECTION 4. Miscellaneous. Seller hereby agrees promptly to execute
and deliver amendments to the Uniform Commercial Code Financing Statements that
were filed in connection with the Purchase Agreement in order to reflect the
amendments set forth herein. The Purchase Agreement, as amended hereby,
remains in full force and effect. Any reference to the Purchase Agreement from
and after the date hereof shall be deemed to refer to the Purchase Agreement as
amended hereby unless otherwise expressly stated. This Amendment shall be
governed by, and construed in accordance with, the internal laws of the
State of Illinois. This Amendment may be executed in any number of counterparts,
and by the different parties hereto in separate counterparts, each of which when
so executed shall be deemed to be an original and all of which when taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
RECEIVABLES CAPITAL CORPORATION
By:
Name Printed:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent
By:
Name Printed:
Title:
SCI TECHNOLOGY, INC.
By:
Name Printed:
Title:
SCI SYSTEMS, INC.
By:
Name Printed:
Title:
[END OF EXHIBIT 10(b)(2)]
[EXHIBIT 10(b)(4)]
THIRD AMENDMENT TO
RECEIVABLES PURCHASE AGREEMENT
THIS THIRD AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT, dated as of
December 15, 1995 (this "Amendment"), is among SCI TECHNOLOGY, INC., ("Seller"),
SCI SYSTEMS, INC. ("Guarantor"), RECEIVABLES CAPITAL CORPORATION ("Purchaser")
and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as administrative
agent for Purchaser (the "Administrative Agent").
BACKGROUND
1. Seller, Guarantor, Purchaser and the Administrative Agent, entered into
the Receivables Purchase Agreement, dated as of June 30, 1995, as amended by the
First Amendment to Receivables Purchase Agreement, dated as of July 14, 1995 and
the Second Amendment to Receivables Purchase Agreement, dated as of August 30,
1995 (the "Purchase Agreement").
2. The parties hereto desire to amend the Purchase Agreement in certain
respects as set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Definitions. Capitalized terms used in this Amendment and not
otherwise defined herein shall have the meanings assigned thereto in the
Purchase Agreement.
SECTION 2. Purchase Limit. Section 1.02(a) of the Purchase Agreement is
hereby amended by deleting the number "$100,000,000" where it appears therein
and substituting therefor the number "$150,000,000".
SECTION 3. Special Concentration Limit. Schedule 2.04(c) of the Purchase
Agreement is hereby amended with respect to Hewlett-Packard Company by (i)
inserting the words "Commercial Paper/" in the heading of the second column of
Schedule 2.04(c) so that the heading reads in its entirety as follows
"Commercial Paper/Short Term Debt Rating*", (ii) deleting the phrase "or better"
in the first line of the column labelled "Commercial Paper/Short-Term Debt
Rating" thereon and (iii) adding a new first line to each of the columns
labelled "Commercial Paper/ Short-Term Debt Rating" and "Special Concentration
Limit", respectively, as follows: A1+/P1 50%
SECTION 4. Schedule 6.01(k) of the Purchase Agreement is hereby deleted in
its entirety and Schedule 6.01(k) in the form attached hereto as Exhibit A is
hereby substituted therefor.
SECTION 5. Representations and Warranties. Each of Seller and Guarantor
hereby represent and warrant that the representations and warranties set forth
in Sections 6.01 and 6.02, respectively, are true and correct on and as of the
date hereof, after giving effect to this Amendment, except to the extent they
relate only to an earlier date, and shall be deemed to have been made on and as
of the date hereof as if fully set forth herein, except to the extent they
relate only to an earlier date.
SECTION 6. Effectiveness. This Amendment shall become effective, as of the
date hereof, upon receipt by the Administrative Agent of (i) certified
resolutions of each of Seller and Guarantor approving the execution, delivery
and performance of this Amendment; (ii) the written consent of the Liquidity
Banks to this Amendment; and (iii) the fee payable by Seller to the
Administrative Agent pursuant to the letter from the Administrative Agent to
Seller dated as of December 15, 1995.
SECTION 7. Miscellaneous. The Purchase Agreement, as amended hereby,
remains in full force and effect. Any reference to the Purchase Agreement from
and after the date hereof shall be deemed to refer to the Purchase Agreement as
amended hereby unless otherwise expressly stated. This Amendment shall be
governed by, and construed in accordance with, the internal laws of the State of
Illinois. This Amendment may be executed in any number of counterparts, and by
the different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
RECEIVABLES CAPITAL CORPORATION
By
Name Printed:
Title:
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent
By:
Name Printed:
Title:
SCI TECHNOLOGY, INC.
By:
Name Printed:
Title:
SCI SYSTEMS, INC.
By:
Name Printed:
Title:
[END OF EXHIBIT 10(b)(4)]
[EXHIBIT 10(b)(5)]
FOURTH AMENDMENT TO
RECEIVABLES PURCHASE AGREEMENT
THIS FOURTH AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT,
dated as of April 1, 1996 (this "Amendment"), is among SCI TECHNOLOGY, INC.,
("Seller"), SCI SYSTEMS, INC. ("Guarantor"), RECEIVABLES CAPITAL
CORPORATION ("Purchaser") and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as administrative agent for Purchaser (the "Administrative
Agent").
BACKGROUND
1. Seller, Guarantor, Purchaser and the Administrative Agent, entered into
the Receivables Purchase Agreement, dated as of June 30, 1995, as amended by the
First Amendment to Receivables Purchase Agreement, dated as of July 14, 1995,
the Second Amendment to Receivables Purchase Agreement, dated as of August 30,
1995 and the Third Amendment to Receivables Purchase Agreement, dated as of
December 15, 1995 (the "Purchase Agreement").
2. The parties hereto desire to amend the Purchase Agreement in certain
respects as set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Definitions. Capitalized terms used in this Amendment and not
otherwise defined herein shall have the meanings assigned thereto in the
Purchase Agreement.
SECTION 2. Purchase Limit. Section 1.02(a) of the Purchase Agreement is
hereby amended by deleting the number "$150,000,000" where it appears therein
and substituting therefor the number "$200,000,000".
SECTION 3. Representations and Warranties. Each of Seller and Guarantor
hereby represent and warrant that the representations and warranties set forth
in Sections 6.01 and 6.02, respectively, are true and correct on and as of the
date hereof, after giving effect to this Amendment, except to the extent they
relate only to an earlier date, and shall be deemed to have been made on and as
of the date hereof as if fully set forth herein, except to the extent they
relate only to an earlier date.
SECTION 4. Effectiveness. This Amendment shall become effective, as of the
date hereof, upon receipt by the Administrative Agent of (i) certified
resolutions of each of Seller and Guarantor approving the execution, delivery
and performance of this Amendment; (ii) the written consent of the Liquidity
Banks to this Amendment; and (iii) the fee payable by Seller to the
Administrative Agent pursuant to the letter from the Administrative Agent to
Seller dated as of April 1, 1996.
SECTION 5. Miscellaneous. The Purchase Agreement, as amended hereby,
remains in full force and effect. Any reference to the Purchase Agreement from
and after the date hereof shall be deemed to refer to the Purchase Agreement as
amended hereby unless otherwise expressly stated. This Amendment shall be
governed by, and construed in accordance with, the internal laws of the State of
Illinois. This Amendment may be executed in any number of counterparts, and by
the different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
RECEIVABLES CAPITAL CORPORATION
By:
Name Printed:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent
By:
Name Printed:
Title:
SCI TECHNOLOGY, INC.
By:
Name Printed:
Title:
SCI SYSTEMS, INC.
By:
Name Printed:
Title:
[END OF EXHIBIT 10(b)(5)]
[EXHIBIT 10 (c) (1)]
SUMMARY OF DIRECTORS AND OFFICERS LIABILITY
INSURANCE POLICIES
Primary Coverage:
Carrier: Fidelity and Casualty
Insurance Company
Coverage: $5,000,000
Deductibles: None
Policy Number: DNO 002 (5/93)
Policy period: 8/01/95 to 10/01/96
Secondary Coverage:
Carrier: St Paul Surplus Lines
Insurance Company
Coverage: $5,000,000
Deductibles: $175,000
Policy Number: 6357
Policy period: 8/01/95 to 10/01/96
[END OF EXHIBIT 10 (c) (1)]
<TABLE>
EXHIBIT 11 - COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(In thousands of dollars except number of shares and per share amounts)
Year Ended:
<CAPTION>
June 30, June 30, June 30,
1996 1995 1994
<S> <C> <C> <C>
Primary Earnings Per Share
Income from continuing operations $ 80,955 $ 45,243 $29,936
Loss from discontinued operations -0- -0- (8,775)
---------------------------------------------
Net income 80,955 45,243 21,161
Add back after-tax interest expense for debentures converted 218 N/A N/A
---------------------------------------------
Adjusted net income used in primary computation $ 81,173 $45,243 $21,161
==============================================
Weighted average number of shares outstanding during period 29,467,359 27,334,551 27,138,945
Applicable number of shares for common stock equivalents
(stock options) outstanding for period, using Treasury
Stock Method based on average market price for period 673,113 486,247 564,218
--------------------------------------------
Weighted average number of shares used in computation 30,140,472 27,820,798 27,703,163
=============================================
Primary earnings per share:
From continuing operations $2.69 $1.63 $1.08
From discontinued operations -0- -0- (.32)
-------------------------------------------
Net income $2.69 $1.63 $ .76
===========================================
Fully Diluted Earnings Per Share
Income from continuing operations $80,955 $45,243 (A)
Loss from discontinued operations -0- -0-
---------------------------
Net income 80,955 45,243
Add back after-tax interest expense for debentures converted 218 N/A
Add back after-tax interest expense for outstanding
convertible subordinated notes and debentures 1,657 1,339
--------------------------
Adjusted net income used in fully diluted computation $82,830 $46,582
===========================
Weighted average number of shares outstanding during period 29,467,359 27,334,551
Applicable number of shares for common stock equivalents
(stock options) outstanding for period, using Treasury
Stock Method based on period ended market price 686,712 639,676
Number of shares to be issued if convertible
subordinated notes and debentures were converted 1,111,812 1,850,344
----------------------------
Weighted average number of shares used in computation 31,265,883 29,824,571
============================
Fully diluted earnings per share:
From continuing operations $2.65 $1.56
From discontinued operations -0- -0-
---------------------------
Net income $2.65 $1.56
============================
(A) The potential conversion of the convertible debentures were anti-dilutive
for this period.
</TABLE>
[EXHIBIT 13]
BEGINNING OF 1996 ANNUAL REPORT TO SHAREHOLDERS
(INSIDE FRONT COVER OF 1996 ANNUAL REPORT TO SHAREHOLDERS)
SCI SYSTEMS, INC.
Annual Report 1996
The Company
SCI Systems, Inc. is a diversified, international electronics manufacturer
with multibillion dollar annual sales. It designs, manufactures, markets,
distributes, and services electronic products principally for the computer,
aerospace, defense, telecommunications, medical, and entertainment industries,
as well as the U.S. Government. SCI, the world's largest electronics
manufacturing services provider, operates the largest surface mount technology
(SMT) production capacity in the merchant market.
The Company conducts its operations through a Commercial Division and a
Government Division. The Commercial Division operates five geographically
organized business units: the Eastern, Central, and Western Regions in North
America and the European and Asian Regions. Serving a large and diversified
customer base throughout the world, the Regions operate multiple plants which
manufacture components, subassemblies, and finished products, primarily for
original equipment manufacturers. The Regions also offer a wide range of design,
engineering, purchasing, distribution, and support services. The Government
Division provides data management, instrumentation, communication, and computer
systems and subsystems to the U.S. Government and its prime contractors, and to
several foreign governments.
Although the Company derives a majority of its revenues from hardware
manufacturing and maintains a broad technology base, it is primarily a
vertically integrated engineering and manufacturing services provider with
dedication to close customer interaction forming the cornerstone of its
activities. The key elements of SCI's operating philosophy -- quality products,
competitive pricing, and customer responsiveness -- are a proven foundation for
success and will continue to guide the Company as it addresses its growth
opportunities.
- --------------------------------------------------------------
Picture of the Company's new mainframe computer
- --------------------------------------------------------------
Information Systems
The Company continues to place emphasis upon enhancing its information
systems. During fiscal 1996 significant upgrades and expansions of system
hardware and software were implemented at the mainframe, server, and desktop
computer levels. A significant event was the purchase of a new mainframe
computer. A latest generation IBM System/390 Processor was installed. Its CMOS
(Complementary Metal-Oxide Semiconductor) technology is the basis for a parallel
architecture which will provide a high level of modularity to readily and
economically support dynamic future growth, while enhancing performance and
reliability with major savings in energy, facilities, and maintenance costs. The
latest mainframe operating system software was also acquired for a phased
conversion during fiscal year 1997. Continued evolution of new systems
applications at the plant and headquarters levels is an important driver of
Company infrastructure development.
<PAGE>
[PAGE 1 OF ANNUAL REPORT TO SHAREHOLDERS]
Financial Highlights
Annual Report for the Year ended June 30, 1996
(Dollars in thousands except for per share data)
No cash dividends were declared in the periods presented.
1992 to 1993 amounts have been restated for 1994's discontinued operations.
(See Part II, Items 7 and 8 of Excerpts from Form 10-K for Fiscal 1996,
bound herein.)
<TABLE>
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Net Sales $4,544,759 $2,673,783 $1,852,478 $1,672,115 $1,038,454
Income from Continuing Operations 80,955 45,243 29,936 30,615 9,061
Per Common Share (Fully Diluted) 2.65 1.56 1.08 1 .21 .43
Net Income 80,955 45,243 21,161 26,559 3,825
Per Common Share (Fully Diluted) 2.65 1.56 .76 1.07 .18
Interest Expense 25,907 18,400 15,423 16,793 15,479
Taxes on Income from
Continuing Operations 55,103 30,418 16,980 12,268 (2,259)
Total Assets 1,283,195 981,292 920,212 780,339 612,962
Borrowings 343,738 162,090 284,283 253,341 224,876
Cash and Cash Equivalents 46,493 10,277 35,822 15,846 38,722
Working Capital 549,650 280,124 395,628 336,516 255,270
Capital Expenditures 109,912 80,316 46,488 84,084 29,822
Depreciation and Amortizaon 60,972 49,839 48,623 41,303 38,682
Net Property, Plant, and Equipment 264,054 214,025 182,768 184,032 143,687
Shareholders' Equity 472,261 349,776 304,634 277,856 192,349
Per Common Share 15.96 12.75 11.16 10.27 9.17
New Orders Received 5,248,926 3,574,820 2,074,205 1,922,366 1,150,708
Order Backlog $2,840,003 $2,135,836 $1,234,800 $1,013,073 $762,822
Common Shares Outstanding 29,592,212 27,435,992 27,306,099 27,050,282 20,977,670
Employees 15,524 13,185 12,027 10,811 9,512
Sales ($) Per Employee 316,609 212,104 162,228 164,554 107,757
Manufacturing Plants 21 20 19 18 17
Facility Square Footage 3,510,000 3,021,600 2,834,000 2,745,000 2,678,000
Sales ($) Per Square Foot 1,392 913 664 619 396
Automated Assembly Lines 198 169 154 139 109
Pin-in-Hole Technology 43 40 42 38 34
Surface Mount Technology 155 129 112 101 75
Asset Turnover Ratio 4.0 2.8 2.2 2.4 1.8
</TABLE>
- -----------------------------------------------------------------------
4 Bar Charts of New Orders Received, Net Sales, Order
Backlog and Total Assets
- -----------------------------------------------------------------------
[PAGE 2 OF ANNUAL REPORT TO SHAREHOLDERS]
Executive Letter
To the Shareholders:
The fiscal year ended June 30, 1996 was one of remarkable progress for SCI
Systems, Inc. Excellent sales and earnings growth were achieved. A multifaceted
financing program provided increased liquidity. A major plant was acquired and
two plant expansions were constructed. Equipment addition was continued.
Internal systems and personnel were upgraded. Importantly, the Company focused
upon planning for, and investing in, ongoing growth.
Revenues. Sales for the year were $4.545 billion, 70% above the $2.674
billion of the prior year, in spite of markedly lower component prices.
Favorable market conditions, strong customer relationships, and timely
availability of capacity each contributed to the rapid revenue expansion.
The overall electronic equipment market in which SCI participates is
estimated to be above $400 billion in size and is growing at a rate in excess of
10% per year. The electronic manufacturing services (EMS) industry which SCI
leads is estimated to be above $40 billion in size and is growing at a rate in
excess of 20% per year. SCI has approximately an 11% market share and is growing
at more than 40% per year. This growth environment is a vigorous one in which
the Company is performing well.
Income and Returns. Net income for the year was $81 million, 79% above $45
million a year earlier. Primary earnings per share were $2.69 compared to $1.63
in the prior year; fully diluted earnings per share were $2.65, 70% above $1.56
in the previous year. Operating margin for the year increased by ten basis
points in spite of adverse product mix shift. Return on average shareholders'
equity for the year was 19.7%, compared to 13.8% in the prior year. Return on
equity was 21.3% in both the second and fourth quarters, reaching the 20% plus
level which has been an important Company profitability objective.
Orders and Backlog. New orders received during the year were $5.249 billion
compared to $3.575 billion in fiscal 1995. Incoming orders exceeded a billion
dollars for six consecutive quarters. Year-end order backlog stood at $2.840
billion compared to $2.135 billion a year earlier. Ending backlog reflected the
effects of much shortened component lead times and significantly lower average
selling prices. While semiconductor industry book-to-bill ratios have fallen
below unity, SCI's fiscal 1996 book- to-bill ratio was a healthy 1.15.
Balance Sheet. Asset turnover (the ratio of revenues to total assets)
continued to receive close management attention during the year. Asset turnover
for fiscal 1996 was 4.0 as compared to 2.8 in the prior year. The 4.0 level has
been a key continuous improvement goal and was achieved a full year ahead of
plan. Days of sales outstanding in every asset category were reduced with
favorable effect on working capital needs. Improved asset turnover was the
primary contributor to return on equity improvement.
Major growth opportunities, coupled with a rising stock price, prompted the
Company to implement a multielement financing program during the second half of
the year. A $287.5 million convertible note issue was sold; revolving credit,
commercial paper, and asset securitization facilities were upsized by a total of
$165 million; and a $100 million issue of senior notes was marketed. (With the
successful closing of the senior note issue, July 1996 available liquidity
reached $761 million.) All balance sheet ratios were well within their target
ranges.
Facilities and Equipment. During the fourth quarter the Company acquired a
modern and well- equipped 360,000 square foot facility in Fountain, Colorado,
from Apple Computer. A 75,000 square foot building addition was constructed in
Colorado Springs, Colorado, and a 35,000 square foot building addition was
completed in Guadalajara, Mexico. A site was acquired and construction begun of
a new 110,000 square foot first phase building in Penang, Malaysia; when
completed in December 1996 it will be the Company's twenty-second plant.
Construction of a 50,000 square foot addition was begun in Irvine, Scotland, for
fall 1996 completion. Preliminary work was set in motion for an additional plant
expansion and establishing SCI's twenty-third plant, both at international
locations. Twenty-six surface mount technology and three pin-in-hole automated
assembly lines were added during the year. Infrastructure and capacity
investment kept pace with planned growth through record capital expenditures of
$110 million ($49 million in excess of depreciation and amortization).
Product Mix. For several years the proportion of SCI's revenues derived
from finished products (as opposed to subassemblies) has steadily increased. In
fiscal year 1996 shipment of finished products
[PAGE 3 OF ANNUAL REPORT TO SHAREHOLDERS]
increased to 44% of total sales. Finished product manufacturing is
typically characterized by higher asset turnover ratios and lower operating
margins. While restricting operating margin growth, mix shift has clearly
assisted in attaining the asset turnover ratio and return on equity goals which
management consider most important. It is perceived that the investment
community's sometimes single-minded focus on operating margins per se is
steadily being eroded by competitive reality.
Personnel. Company employment grew 18% in fiscal 1996, to 15,524, while
supporting 70% revenue growth. (Sales per employee grew 50% to $316,609.)
Several new officers were elected during the year to the position of Vice
President. They include: James P. Bilodeau, Warren F. Cline Jr., Robert P.
Eisenberg, David L. Lengel, Joseph A. Tilmant, John R. Wilkins, Jr., and F. M.
Wong.
Expansion Strategy. The Company has a variety of growth opportunities.
Numerous new programs are emerging for which SCI will compete. They include both
subassembly and finished product projects from a variety of existing and new
customers. The majority of these can be accommodated with existing plant
infrastructure but from time to time capacity will need to be supplemented by
"brick and mortar" additions. Two such projects were built in fiscal 1996; two
such projects are planned for fiscal 1997. From time to time opportunities also
present themselves which require "green field" plants to serve new markets or to
address specific programs. Such a plant is scheduled for completion in Malaysia
in fiscal 1997; two additional ones are being planned for fiscal 1998. Several
other sites are under study as candidates for future expansions at geographic
locations consistent with low-cost production.
As most young industries mature, a consolidation process evolves. Such
consolidation is in progress in the EMS industry and presents a number of
acquisition options. In general the Company will be very cautious about these
because of the goodwill premiums associated with the quality ones and the
problems associated with those of lesser quality. SCI's management strongly
believes the key to its future success is maintaining and enhancing its status
as a low-cost producer. Most of the "consolidation" acquisition candidates
simply do not have the low-cost structures required to justify sizable premiums
over book value.
As the trend to outsourcing continues to accelerate, large original
equipment manufacturers (OEMs) are expected to accelerate their shedding of
capacity. SCI has now made five successive "divestiture" acquisitions (from
Control Data, Tandem Computer, Hewlett-Packard, Digital Equipment, and Apple
Computer). Such acquisitions generally involve sizable ongoing business,
excellent management, well-trained work forces, partially depreciated
facilities, and little or no goodwill. If the plant locations are suitable,
these can be excellent vehicles for growth. SCI's size and experience make it a
logical choice as a "divestiture" acquirer and a variety of candidates are
expected to emerge for the Company's evaluation.
Outlook. The "outlook" paragraph of this letter in 1994 remains as valid
today as it was one and two years ago. It is thus again reiterated: "The macro
industry trend towards outsourcing in general continues to develop in SCI's best
interest. Additional trends to finished product outsourcing and increased
supplier participation in engineering and distribution likewise favor SCI. The
Company's now proven capabilities in "lot size of one" custom manufacturing are
unique and are expected to lead to significant new programs. Demand for small
computers and new multimedia and interactive systems is expected to continue to
provide high industry unit volume growth, accompanied by unrelenting price
emphasis that will favor low-cost producers such as SCI. Although its markets
are becoming increasingly competitive, the Company has a broad customer base,
good order momentum, a record high backlog, well-positioned facilities, modern
equipment, and an excellent staff with which to address market pressures. The
Company's management looks forward with anticipation to capitalizing upon the
opportunities ahead." SCI did well with its opportunities in fiscal years 1995
and 1996. Although recent growth rates are obviously not sustainable, continued
growth and much progress lie ahead.
/s/ Olin B. King /s/ A. Eugene Sapp, Jr.
Olin B. King A. Eugene Sapp, Jr.
Chairman of the Board and President and
Chief Executive Officer Chief Operating Officer
[PAGE 4 OF ANNUAL REPORT TO SHAREHOLDERS]
Government Division
The Government Division provides specialty hardware and services to U.S.
and foreign governments, defense and aerospace companies, and others requiring
high-performance equipment. Its primary facilities are located in Huntsville and
Lacey's Spring, Alabama. The Division designs and manufactures electronic and
electromechanical systems and subsystems for launch vehicle, satellite,
aircraft, and surface applications.
During the year production continued on mission critical voice and
communications control systems for the F-15, F-16, F-18, and AV-8 aircraft and
the Government's Global Positioning System (GPS) User Equipment. Digital audio
intercommunications equipment for the V-22 Osprey tilt rotor helicopter and the
C-130J Hercules transport aircraft entered production and a contract was
received to adapt this technology for use on the RAH-66 helicopter. A new
development contract was also received for the Integrated Digital Operator
Control System for the Army's Patriot Missile. The Communications Interface Unit
for the Apache helicopter is nearing the start of long-term production. The
Company continues to produce the Advanced Interference Blanker Unit, a special
purpose processor for the F-16 aircraft. The first development units of the
System and Weapons Processors for the Apache Longbow helicopter have been
delivered; these computers are expected to be the Division's largest ever
production program. Production began of a work station for the U.S. Navy, a
nonvolatile memory system for the Japanese F-2 and USAF F-16 aircraft, and the
Threshold Memory Unit for the DSP satellite.
SCI provides the Air Force's standard Advanced Airborne Test
Instrumentation System. This system is in ongoing production and development
activities are focused on a number of enhancements for future applications.
Production was started during the year of the Digital Data Acquisition System
for the Titan Launch vehicle.
A number of additional ongoing programs have resulted from broad
application of the Division's technologies. Product examples are fiber bobbins,
gunner's consoles and local area networks for the U.S. Army Enhanced Fiber Optic
Guided Missile; ARINC-629 Current Mode Couplers and Standard Interface Modules
for the fly-by-wire Boeing 777 aircraft; Lighting Control Units for the C130H
aircraft; proofing printers for the graphic arts industry; and chemical cabinets
and wet process equipment for semiconductor manufacturing.
Contract manufacturing expanded in missile electronics, transportation
products, and ruggedized portable computer assemblies. The Division's
engineering resources continue to support a number of Commercial Division
customers from which company-wide growth is expected.
- ----------------------------------------------------------------------------
Three pictures on the page with the captions:
1.) Automated systems test completed user equipment for the U.S. military's
Global Positioning System.
2.) Production has begun of a new line of color proofing printers for the
graphic arts industry.
3.) High-density electronic assemblies populate the Weapons Processor for
the Apache Longbow helicopter.
- -----------------------------------------------------------------------------
[PAGE 5 OF ANNUAL REPORT TO SHAREHOLDERS]
Commercial Division
The Commercial Division conducts the Company's mainstream commercial
activities. Its multinational business is organized into plant groups within
five geographical regions: the Central, Eastern, and Western Regions of North
America, the Asian Region, and the European Region.
SCI is the leading international supplier of manufacturing and engineering
services to the electronics industry. It is benefiting from the ongoing shift to
outsourcing as original equipment manufacturers (OEMs) seek solutions to the
problems of rapid change in manufacturing technologies, new product
proliferation, shortened product life cycles, intense cost pressures, and
heightened user reliability and quality expectations. In response the Commercial
Division performs computer-aided design, component procurement and test,
subassembly and finished unit production, software development, product test,
distribution, after sales service, and a full range of engineering support for a
sizable number of customers.
The Company is expert in the automation of traditional pin-in-hole (PIH)
electronics assembly using printed circuit boards and leaded components.
Although conceptually several decades old, there remains a significant,
continuing market for this technology. SCI operates a total of 43 automated PIH
assembly lines in its various plants.
Surface mount technology (SMT) is the assembly technique of current
preference. It offers smaller size, lower cost, and higher reliability. Barriers
to entry into SMT are high, as it is process sensitive, design critical, and
capital intensive. The Company currently operates 155 automated SMT assembly
lines in eight countries, making SCI one of the highest capacity producers in
the world and clearly the leader in the merchant market.
The Company remains committed to the latest manufacturing technologies.
Ongoing equipment additions focus on evolving SMT processes. Capabilities for a
range of emerging microelectronic assembly processes are now operational.
An expanded number of production lines for finished product assembly,
burn-in, and test are operational to meet a growing number of customers'
requirements, including rapid direct shipment to customers. SCI anticipates
significant growth, as well as company-wide deployment, of these capabilities.
Quality programs remain a key focus. All of the Company's plants are
certified to the rigorous quality requirements of the International Organization
for Standardization (ISO 9002). Engineering intensive plants additionally comply
with ISO 9001.
- -----------------------------------------------------------------------------
Picture with the caption:
SCI operates 155 automated Surface Mount Technology (SMT) assembly lines around
the world.
- -----------------------------------------------------------------------------
[PAGE 6 OF ANNUAL REPORT TO SHAREHOLDERS]
Central Region
The Central Region operates plants in Huntsville and Arab, Alabama, and
Guadalajara, Mexico. The plants serve customers from the Southeastern and
Southwestern U.S. and Latin America. Nonregional customers are attracted to
Mexico as a low-cost manufacturing alternative and to the Region's expanding
final assembly and distribution capabilities.
One Huntsville plant serves a diversified customer base with electronic
assemblies and a mix of finished products. Certification to Food and Drug
Administration standards is important to its success as a supplier of medical
devices and instruments. Its active contracts are in the computer,
telecommunications, medical product, and digital television arenas. The plant
continues to experience considerable growth in final assembly activities
including the production of video terminals and networked client computers,
patient monitoring equipment, modem products, and digital television reception
units. This plant is also one of the Company's primary technology development
centers.
A second Huntsville plant provides a full range of design, engineering
support, manufacturing, and distribution services. The Company's rapid growth
has been aided by this plant's innovative personal computer products which are
brought to market in minimum time, custom manufactured in large volumes, and
shipped directly to multiple market channels as well as directly to end users.
SCI's systems, which process orders electronically, track all manufacturing
activities on line, and support direct shipment to customers have proved
important to the success of finished product activities. The business base for
this plant has resulted in subassembly and finished product work for several
other SCI plants. The Huntsville plant provides domestic manufacturing of
personal computers and serves as the engineering lead activity supporting other
SCI plants at both domestic and international manufacturing sites.
The Arab plant has long been a leading producer of high-volume electronic
assemblies. This plant is also a key supplier of the subsystem electronics for
the finished products produced in other plants. The facility was selected during
the year to manufacture and distribute personal computers for a major new
customer's retail channel. This product family, which will be marketed in North
America, Europe, and Asia, represents an attractive multinational growth
opportunity for SCI.
The Guadalajara plant has grown rapidly due to increased demand from
existing customers and the addition of new ones. The plant produces electronic
assemblies for computers, printers, modems, scanners, and digital television
receivers. It was expanded during the year and equipment additions have raised
the plant's SMT capacity to the largest in the Company. The attractiveness of
this low-cost manufacturing location, coupled with the plant's excellent record,
is expected to lead to further expansion during fiscal 1997.
- -----------------------------------------------------------------------------
Two pictures with the captions:
1.) The Central Region produces thousands of multimedia personal computers
each day for a major customer.
2.) Sophisticated blood glucose meters for diabetics are manufactured in
an FDA approved facility.
- -----------------------------------------------------------------------------
[PAGE 7 OF ANNUAL REPORT TO SHAREHOLDERS]
- --------------------------------------------------------------------------------
Three pictures with the captions:
1.) Hundreds of thousands of a major customer's personal computers are
produced for direct distribution.
2.) Automated equipment performs exhaustive tests on complex computer
assemblies in high-volumes.
3.) Digital television receivers for satellite direct broadcast to the home are
aligned before shipment.
- --------------------------------------------------------------------------------
[PAGE 8 OF ANNUAL REPORT TO SHAREHOLDERS]
Eastern Region
The Eastern Region has well-established plants in Graham, North Carolina;
Hooksett, New Hampshire; Dorval, Quebec, Canada; and Augusta, Maine. The Region
serves customers in the Eastern United States and Canada.
The North Carolina facility has continued to focus on manufacturing Local
Area Network (LAN) and Wide Area Network (WAN) interfaces, routers, and bridges.
Office products and automotive electronics have emerged as significant plant
activities with high-growth potential. Growth has also resulted from an increase
in outsourcing by major telecommunications companies. The plant is noted for its
process innovations in support of its customers' new products.
The New Hampshire plant serves the electronics community of the Boston area
as well as others throughout the Northeast. The markets for communications
products, computers and related peripheral devices, and medical instruments
offer significant opportunity for this plant as well as the Company. The
recovery of the New England electronics industry has fueled steady growth for
the plant's existing customers. Growth remains strong with successful emerging
companies which require a responsive and flexible contract manufacturing source.
The plant has successfully coordinated the transfer of numerous products and
customers to other SCI plants for customers' expanding requirements for
worldwide capacity. A key strength of the plant will be the continued
development of regional customers and the transition of manufacturing to other
SCI plants when appropriate.
The Augusta, Maine, plant acquired from Digital Equipment Corporation in
late fiscal 1995, experienced growth from its major customer's North American
requirements and also supported new product start-ups at the customer's
international plants. The plant's technical depth supports a high mix of complex
products during all stages of a product's life cycle. The plant is ideally
suited for the final assembly activities which will be targeted for growth at
this location.
The Canadian facility is growing, with requirements coming from an
expanding number of Canadian customers as well as multinational customers
requiring Canadian content. The plant continues to provide a variety of computer
assemblies, interface devices, and data and voice telecommunications equipment.
The plant has experienced a significant increase in its business with large
telecommunications equipment providers which remain a focus area.
- ------------------------------------------------------------------------------
Captions for pictures on page 8 and page 9:
Opposite page: Statistical control systems provide real time analysis
to ensure highest production quality.
[PAGE 9 OF ANNUAL REPORT TO SHAREHOLDERS]
Left: Interface cards for notebook computers require
very high-density surface mount technology.
Below: Complex telecommunications products are produced
in the Company's Augusta, Maine, facility.
- ------------------------------------------------------------------------------
[PAGE 10 OF ANNUAL REPORT TO SHAREHOLDERS]
Western Region
SCI's rapidly expanding Western Region provides a broad range of
manufacturing and engineering services from its five manufacturing plants
located in California, Colorado, and South Dakota.
The Western Region's plants in San Jose and Watsonville, California, are
ideally located to serve the strategic West Coast and Pacific Northwest markets.
The Watsonville facility, located just 50 miles from the concentrated
high-technology activities of Silicon Valley, continues to serve its large
principal customer while focusing on new product introductions for that customer
and diversification of the plant's customer base.
The San Jose plant, located in the heart of the Silicon Valley, is uniquely
positioned to serve its customers directly or in cooperation with other SCI
plants in Asia, Europe, or other North American locations. The San Jose plant is
recognized for excellence in front-end design support, prototyping, and quantity
manufacturing covering low-volume/high mix and high-volume/low mix requirements.
Rocky Mountain and Midwestern markets are supported from plants in Colorado
Springs, Colorado, and Rapid City, South Dakota. To accommodate rapid growth
from a number of customers located along the Front Range of Colorado, the Colo-
[PAGE 11 OF ANNUAL REPORT TO SHAREHOLDERS]
rado Springs plant was almost doubled in size during the year. The Company
is well positioned to meet the rapidly expanding requirements of its growing
customer base at this location.
In the fourth quarter SCI acquired Apple Computer's Fountain, Colorado,
manufacturing plant and entered into a multiyear agreement to provide both
circuit board assemblies and finished systems for Apple's North American desktop
and notebook markets. The plant adds significant new capacity in SMT
manufacturing and final assembly to the Company. Its expertise in notebook
computers is of strategic importance to SCI's objectives in serving the notebook
segment of the personal computer market.
The Rapid City plant has continued its strong performance in manufacturing
technology leadership and customer service. Sophisticated products utilizing
increasingly high pin count Ball Grid Array (BGA) devices are produced in volume
at this location. Additionally, this plant has continued its product
diversification strategy by expanding from a wide variety of computer and
computer related products into the medical and industrial control markets.
- ---------------------------------------------------------------------------
Captions for pictures on pages 10 and 11:
Systems boards for Macintosh computers are produced in quantity in
Fountain, Colorado.
Highly automated production machinery operates around the clock
for maximum efficiency.
Notebook personal computers combine powerful functions with light weight
and ease of portability.
Process control and product quality are enhanced by x-ray inspection equipment.
- -------------------------------------------------------------------------------
[PAGE 12 OF ANNUAL REPORT TO SHAREHOLDERS]
Asian Region
The Asian Region operates facilities in the Republic of Singapore and
Pathum Thani Province, Thailand, a suburb of Bangkok. A third Asian facility is
under construction in Malaysia's Penang State. These facilities support regional
customers from Japan to Indonesia as well as U.S. and European multinationals
that desire Asian sources of manufacturing.
The Singapore plant achieved excellent operating results during the year
due to strong demand from existing multinational computer and communications
customers. The plant also won substantial new business from modem, printer, and
copier OEMs. Memory module manufacturing continued successfully with the
addition of new customers and capacity grew to approximately one million
assemblies per month. The plant received a Government grant to enhance its
physical and human resources in product development activities. Initial
development efforts in support of local and multinational customers include
modem, multimedia, and storage product designs. The Singapore plant continued to
enhance its management
[PAGE 13 OF ANNUAL REPORT TO SHAREHOLDERS]
and manufacturing process efficiencies to improve its Asian competitiveness
despite the maturing of the Singaporean economy.
The Thailand plant's rapid growth rate of previous years leveled off as a
result of consolidation within its disk drive customer base. New customers and
markets were aggressively pursued including power management, automotive,
telecommunications, and Internet appliances for the Japanese, Thai, European,
and U.S. markets. These opportunities will provide future diversification and
independence from periodic downturns within single markets.
The new Penang facility will initially include 110,000 square feet of floor
space and construction is expected to be complete by the end of calendar 1996.
The building's expandable design will be suitable for the manufacture of both
printed circuit board assemblies and finished products. This green field
facility will complement SCI's current operations in Singapore and Thailand by
providing cost-effective capacity for a growing customer base in Malaysia while
addressing export opportunities to Japanese, Taiwanese, European, and U.S.
markets.
- ------------------------------------------------------------------------------
Captions for pictures on pages 12 and 13:
1.) Automated in-process handling equipment reduces labor requirements
to a minimum.
2.) In-line inspection compliments process controls to ensure high levels
of quality.
3.) Memory components are assembled into subsystems in high quantities.
4.) A multifunction placement machine handles odd-form surface mount
technology components.
- ------------------------------------------------------------------------------
[PAGE 14 OF ANNUAL REPORT TO SHAREHOLDERS]
European Region
The European Region operates facilities in Irvine, Scotland; Fermoy, County
Cork, Ireland; and Grenoble, France. These plants continue to serve respective
in-country customers while collectively supporting large multinationals'
European operations and local customers throughout Continental Europe and
Scandinavia.
The Scottish plant has a long history of supplying a wide range of computer
assemblies and finished products. During the year significant growth occurred in
the plant's mobile and fixed telecommunications business. Other business from
new customers included producing monitor and network assemblies and establishing
the plant as a European manufacturing source for a major medical equipment
company. Military business was also introduced to the plant for the first time
in support of a Government Division foreign sales initiative. A facility
expansion is currently under construction to house efficient finished product
assembly capability to support the European market for a variety of product
types.
The Region's Design Center, also located in Irvine, provides product
development support and engineering services to the European Market. Existing
and new customers benefit from this Center's design-for-cost and
design-for-manufacturability and testability expertise. Customers served
participate in the consumer, automotive, medical, computer and
telecommunications industries.
The Irish plant continued diversification of its subassembly customer base
and now serves customers in the computer, medical, telecommunications, and
consumer product markets. During the year the plant began final assembly of
personal computers on a build to order basis for a U.S.-based multinational also
being served by one of SCI's U.S. plants. The Company's internal systems, which
have successfully supported finished product assembly in the U.S., have been
transferred and installed and production has commenced.
The French facility continued to serve multiple divisions of its
established major customer with both manufacturing and new product introduction
engineering services. The plant has introduced a range of new customers in the
automotive, telecommunications, industrial, and instrumentation market sectors.
The plant's activities have also broadened into systems integration as an
addition to its traditional SMT production business.
The European Region is well-positioned to support anticipated growth in
outsourcing by global OEMs operating in Europe and by European OEMs seeking
lower costs, increased flexibility, and other benefits of manufacturing
outsourcing.
- -------------------------------------------------------------------------------
Captions for pictures on pages 14 and 15:
1.) Finished personal computers are produced in the Company's Fermoy, County
Cork, Ireland facility.
2.) Latest generation computer-aided design systems speed product design and
reduce time-to-market.
3.) Traditional assembly technologies have been highly refined to reduce
manufacturing cost.
4.) Computerized automatic test equipment monitors product quality and
performance at various stages of production.
- -------------------------------------------------------------------------------
[PAGE 16 OF ANNUAL REPORT TO SHAREHOLDERS]
Facility Additions
- -------------------------------------------------------------------------------
Captions for pictures:
1.) The Colorado Springs, Colorado, facility was expanded to 155,000 square
feet during the year.
2.) The Guadalajara, Mexico, facility was expanded to 121,000 square feet
during the year.
3.) A 360,000 square foot plant in Fountain, Colorado, was purchased from
Apple Computer in June 1996.
4.) An Irvine, Scotland, facility addition of 50,000 square feet was in
progress at year-end.
5.) The 110,000 square foot first phase of a new Penang, Malaysia, facility
was in progress at year-end.
- ------------------------------------------------------------------------------
<PAGE>
[BEGINNING OF EXCERPTS FROM FORM 10-K FOR THE YEAR ENDED JUNE 30, 1996]
[PAGE 1 OF EXCERPTS FROM FORM 10-K]
EXCERPTS FROM FORM 10-K
FOR FISCAL 1996 (Except for the parts of SCI Systems, Inc. Annual Report to
Shareholders expressly incorporated in the Form 10-K by reference, the Annual
Report to Shareholders is not to be deemed filed with the Securities and
Exchange Commission)
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[...X...] ANNUAL REPORT TO SHAREHOLDERS PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
-- Commission File No. 0-2251
SCI SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
PART I
Item 1. Business.
See inside front cover and pages 4 to 14 of the 1996 Annual Report to
Shareholders ("Annual Report to Shareholders"), incorporated herein by
reference.
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Act of 1995 including, without limitation,
statements regarding backlog, seasonality, government programs, and the
sufficiency of the Company's liquidity and capital resources. These
forward-looking statements are subject to certain risks, uncertainties, and
other factors which could cause actual results to differ materially from those
anticipated, including, without limitation, the risks described under the
captions "Marketing, Customer Concentration, and Dependence on the Electronics
Industry," "Growth Management," "Seasonality," "Global Business Considerations,"
"Competition and Other Factors," "Component Availability," and "Possible
Termination of Government Programs."
Order Backlog
At June 30, 1996 order backlog believed firm was approximately $2.8
billion, compared with $2.1 billion a year earlier. As a portion of the backlog
is subject to customer releases, there is some variability as to actual shipment
date. Current indications are that approximately $2.7 billion dollars of this
backlog will be shipped during fiscal 1997.
Marketing, Customer Concentration, and Dependence on the Electronics Industry
A majority of the Company's revenues are derived from direct sales to
original equipment manufacturers. Marketing is conducted primarily by
factory-based personnel in Canada, France, Ireland, Mexico, Singapore, Thailand,
the United Kingdom, and the United States. The Company advertises on a limited
scale and participates in various industry trade shows.
Although the Company has several hundred customer accounts, a significant
percentage of sales is derived from a limited group of customers in any
particular period. Sales to individual customers that exceeded 10% of annual
sales in any of the last three fiscal years were: Hewlett-Packard, $2,152
million in 1996, $1,049 million in 1995, and $436 million in 1994; and IBM, $326
million in 1994. In fiscal year 1996 the Company's ten largest customers
contributed more than 70% of revenues. Significant reductions in sales to any of
these customers could have a material adverse effect on the Company's results of
operations. Customer contracts can be canceled and volume levels changed or
delayed at any time. Timely replacement of canceled, delayed, or reduced
contracts with new business cannot be assured. These risks are exacerbated as a
majority of the Company's sales are to customers in the electronics industry,
which is subject to rapid technological change and product obsolescence. Factors
affecting the electronics industry in general, or any of the Company's major
customers in particular, could have a materially adverse effect on the Company's
results of operations.
The majority of the Company's receivables are from high technology industry
customers. Credit terms are extended to customers after performing credit
evaluations. When significant credit risk exists, letters of credit or other
security are generally requested. However, credit losses have occurred in the
past, and no assurances can be given that credit losses, which could be
material, will not reoccur.
<PAGE>
Growth Management
The Company has experienced rapid growth in recent years. It has acquired
facilities in several locations and may acquire or build additional facilities
from time to time in the future. There can be no assurance that historical
revenue growth will continue or that the Company will successfully manage other
future plants it may acquire or build. As the Company manages existing
operations and expands geographically, it may experience certain inefficiencies
as it integrates new operations and manages geographically dispersed operations.
The Company could be adversely affected if its new facilities do not achieve
growth sufficient to offset increased expenditures associated with geographic
expansion. Should
[PAGE 2 OF EXCERPTS FROM FORM 10-K]
the Company increase expenditures in anticipation of future sales levels which
do not materialize, profitability could be adversely affected. On occasion
customers may require rapid production increases which can stress the Company's
resources. (See Note I to the Company's 1996 Consolidated Financial Statements,
incorporated herein by reference.)
Seasonality
The Company has historically not considered its business to be consistently
seasonal, although seasonal demands for its customers' products sold to
consumers may impact quarterly revenues. In recent periods the proportion of the
Company's products ultimately sold at retail has expanded, which has increased
seasonality in the Company's sales. The Company believes this trend may
continue.
Global Business Considerations
The Company operates internationally, with the majority of revenue generated
in the United States, but with significant foreign activities. U.S. export and
foreign sales from continuing operations were $1.611 billion in 1996, $1.187
billion in 1995, and $778 million in 1994, representing 35% of total sales in
1996, 44% in 1995, and 42% in 1994. Much of the Company's material is sourced
from international suppliers. The Company is subject to the risks of currency
fluctuations, possible fund transfer restrictions, and the burden of compliance
with a variety of laws. To date these factors have not had a material adverse
impact on the Company, but may in the future. (See Note H to the Company's 1996
Consolidated Financial Statements, incorporated herein by reference.)
Patents and Licenses
Patents are not significant to the Company's business. The Company believes
that its success depends more upon the creativity of its personnel than upon
patent ownership. Because of rapid technological change and rate of new patent
issuance, certain of the Company's products may inadvertently infringe others'
patents. If such occurs the Company believes that, based upon industry practice,
necessary licenses could be obtained without material adverse impact, however,
there can be no assurance given to that effect.
Competition and Other Factors
The Company competes against numerous domestic and foreign companies. It
also faces competition from current and prospective customers, which evaluate
the Company's capabilities against the merits of internal manufacturing.
Competition varies depending on the type of service sought and the geographic
area of competition. Competition is intense and will continue. A number of
competitors are larger than the Company and have significantly greater
resources, while a number of competitors are smaller with fewer resources. The
Company could be adversely affected if its competitors introduce superior or
lower priced services or products. During the last three fiscal years,
electronics manufacturing services accounted for approximately 90% of total
revenues.
The Company devotes considerable resources to designing and developing new
products, internal information systems and advanced manufacturing processes.
Computer aided design centers are employed at strategic regional plants. New
product development is usually undertaken in support of customer requirements.
(See Note A to the Company's 1996 Consolidated Financial Statements,
incorporated herein by reference.)
The Company has developed internal systems to support manufacturing of
customized finished products for delivery to distribution channels, or directly
to end users. The Company believes these systems to be important to obtaining
future, and maintaining existing, finished product assembly contracts.
To remain competitive the Company must continue to develop and provide
technologically advanced engineering and manufacturing services, maintain high
quality levels, offer flexible delivery schedules, deliver finished products on
a timely basis, and continue to be price competitive. The Company believes that
maintaining and updating internal systems are important to obtaining future, and
maintaining existing, contracts. Failure to satisfy any of the foregoing
requirements could adversely affect the Company.
<PAGE>
Component Availability
Components are sourced on a global basis. Component availability is
periodically subject to constraints, shortages, and abundances. Although no
assurances can be given, the Company has generally been able to obtain adequate
supply to maintain production when shortages occur. However, shipment delays
have occurred and may reoccur. Significant component constraints could adversely
affect the Company. When shortages and excesses have occurred the Company has
generally passed on price adjustments to its customers.
Possible Termination of Government Programs
The Company's contracts with the U.S. Government and
its prime contractors are subject to audit and termination at the election of
the Government. The Government in January 1991 terminated the U.S. NAVY A-12
Aircraft prime contracts. Litigation continues over seven canceled subcontracts
from McDonnell Douglas Corporation. The Company seeks to recover the full amount
of its claims, however no assurance can be given to that result. The carrying
value of A-12 program residuals was less than 5% of
[PAGE 3 OF EXCERPTS FROM FORM 10-K]
June 30, 1996 inventories. The Company believes that its ongoing principal
government programs will continue to be funded, but there can be no assurance
given to that effect. No current government program accounts for more than 1% of
consolidated revenue.
Employees
At June 30, 1996 the Company employed 15,524 persons, of which 8,863 were
based in the United States. Except for two foreign plants, employees are not
subject to collective bargaining agreements. There have been no work stoppages
caused by employee activities. The Company believes that its employee relations
are good.
The Company's success depends largely upon the efforts and abilities of key
managerial and technical employees. The loss of services of certain key
personnel could adversely affect the Company. The Company's business depends
upon its ability to recruit, train and retain senior managers, skilled
professional and technical salaried personnel, and skilled and semiskilled
hourly employees at competitive costs, for which there is intense competition.
Failure to do so could adversely affect the Company's results of operations.
Item 2. Properties.
Domestically the Company owns, or finances with Industrial Revenue Bonds and
treats as purchases for financial statement purposes, facilities in Alabama,
California, Colorado, Maine, New Hampshire, New York, North Carolina, and South
Dakota, with total area of 2,780,300 square feet. Internationally, the Company
owns facilities in France, Ireland, Mexico, Singapore, Thailand, and the United
Kingdom, with total area of 636,500 square feet and leases space in Canada and
Hong Kong with total area of 50,000 square feet. Miscellaneous space amounting
to 43,200 square feet is leased in various locations. Construction is in
progress of a 110,000 square foot facility in Penang, Malaysia and a 50,000
square foot addition in Irvine, Scotland. The Company believes its facilities
are modern, in good repair, and suitable for its operations.
Item 3. Legal Proceedings.
The Company is a party to several lawsuits incidental to its various
activities and incurred in the ordinary course of business. The Company believes
that it has meritorious claims and defenses in each case. After consultation
with counsel, it is the opinion of management that, although there can be no
assurance given, none of the associated claims, when resolved, will have a
material adverse effect upon the Company.
The Company is subject to a variety of environmental regulations relating to
the use, storage, discharge and disposal of hazardous materials used in its
manufacturing processes. Failure by the Company to comply with present and
future regulations could subject it to future liabilities or the suspension of
production. In addition, such regulations could restrict the Company's ability
to expand its facilities or could require the Company to acquire costly
equipment or to incur other significant expenses to comply with environmental
regulations. The Company is not involved in any material environmental
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders. --None
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
The Company's Common Stock is traded under the "SCIS" symbol in the NASDAQ
National Market System. At August 22, 1996 there were 2,119 shareholders of
record. See Note G to the Company's 1996 Consolidated Financial Statements,
incorporated herein by reference, for fiscal year 1996 and 1995 quarterly high
and low bid stock prices.
The Company has not paid cash dividends on its Common Stock to date. Payment
of dividends is restricted as described in Note B to the Company's 1996
Consolidated Financial Statements, incorporated herein by reference.
Item 6. Selected Financial Data.
See page 1 of the Company's 1996 Annual Report to Shareholders, incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
1996 Results Compared With 1995
Sales in 1996 increased 70% to $4.545 billion from $2.674 billion in 1995 as
demand for the Company's services increased, especially in finished product
assembly. The Company purchased plants from Apple Computer in June 1996 and from
Digital Equipment Corporation in April 1995. While these acquisitions added to
fiscal 1996 revenue, the bulk of the sales gain came from the Company's other
facilities.
Operating income increased 75% to $159.475 million in fiscal 1996 from $91.044
million a year earlier. Operating margins improved during the year to 3.5% from
3.4% in fiscal year 1995. Operating margins improved in spite of larger finished
product revenues, which typically carry lower operating margins, as absorption
of fixed costs and manufacturing efficiencies improved.
The Company operates principally in the Electronics Manufacturing Services
(EMS) industry, servicing the same and similar customers of its domestic and
foreign operations. The Company's management views geographic areas not only by
individual operating results,
[PAGE 4 OF EXCERPTS FROM FORM 10-K]
but by strategic relationships in servicing customers worldwide. Thus, the
presented geographic data in Note H to the Company's 1996 Consolidated Financial
Statements, incorporated herein by reference, is not equitable as to the effect
each geographic area has on consolidated operating results.
Operating margins were lower in foreign areas than in domestic ones as intense
competition and local economic conditions affected individual plants. Operating
results in international areas increased from the prior year as the result of
higher demand for Mexican services and improved cost performance by the
Singaporean plant. Europe continued to be intensely competitive for the Company.
Currency exchange rate fluctuations during fiscal year 1996 had minor impact on
the consolidated operating results as the majority of the Company's foreign
operations use the U.S. Dollar as their functional currency.
Interest expense for the year, net of interest income, declined to 0.5% of
sales from 0.7% in fiscal year 1995. This decline resulted from an improved
asset turnover ratio, which increased to 4.0 from 2.8 a year earlier. Asset
turnover improvement resulted from increased finished product assembly, that
inherently yields higher turnover to offset its lower operating margins, and
from improved working capital management. The higher interest expense amount
resulted from higher levels of borrowings to support revenue growth.
June 30, 1996 debt balance as a ratio of annualized sales (.09) is higher than
earlier periods due to issuance of Convertible Notes in May 1996. The $287.5
million of that financing funded acquisition of Apple Computer's Fountain,
Colorado facility and increased
liquidity.
Return on equity increased to 19.7% in 1996 from 13.8% in the previous year.
The improvement resulted primarily from improved asset turnover.
Fiscal year 1996's effective income tax rate differed from the U.S. statutory
rate mainly due to state income taxes. The effective income tax rate increased
to 40.5% for fiscal year 1996 from 40.2% for fiscal year 1995 due to higher
income taxes on certain foreign earnings.
See pages 2 to 14 of the Company's 1996 Annual Report to Shareholders, which
is incorporated herein by reference, for further management discussion and
analysis.
Capital Resources and Liquidity
June 30, 1996's working capital was $550 million compared with $280 million
at June 30, 1995. June 30, 1996's current ratio was 2.2 as compared with 1.6 a
year earlier.
June 30, 1996's available liquidity was $640 million, $594 in unused credit
facilities and $46 million in cash. Increased average borrowings are anticipated
during fiscal 1997 to finance expanded working capital and capital expenditures
to support planned revenue growth. The Company believes that its existing credit
lines are sufficient to finance near term growth.
Fiscal year 1997's capital expenditures are currently estimated at $90
million, $20 million more than estimated depreciation.
Inflationary trends are not expected to have a material impact on operations
as relatively high asset turnover and sizable fixed rate long-term financing
minimize the effects of inflationary conditions.
1995 Results Compared with 1994
Fiscal year 1995 was a period of rapid expansion for the Company. Fiscal
1995's 44% sales increase resulted from strong end user market conditions,
increased outsourcing trends, and the Company's available infrastructure of
facilities, equipment, and internal systems. Domestically, sales increased 37%,
while foreign sales increased 57%. The foreign sales increase was aided by the
Grenoble, France, plant's first full year of operations, and higher demand for
Asian and Mexican plants' services. Domestic sales growth was aided by the
fourth quarter acquisition of Digital Equipment Corporation's Augusta, Maine,
plant.
Operating margins increased incrementally throughout fiscal 1995, even as
finished product assembly business increased. Operating margin for fiscal 1995
was 3.4%, a modest improvement over 3.3% in the prior year.
Domestic and foreign operating margins improved incrementally in fiscal
1995. Fiscal 1995 foreign results were adversely affected by a $2.2 million
exchange loss, offset by $1.7 million domestic gain. Foreign operating profits
were adversely impacted by significant customer and product transitions; a
plant's acquisition, conversion, and physical move; intense competition from new
market entrants; and lingering recession in Europe.
Exchange rate fluctuations during the year moderately impacted consolidated
profits. The devaluation of the Mexican Peso was not material, as the majority
of transactions in Mexico are conducted in the U.S. Dollar.
Fiscal 1995's interest expense declined to 0.7% of sales from 0.8% in fiscal
1994, even though average interest rates increased. This lower level of interest
expense resulted from improved asset management that led to lower borrowing
requirements. Other income increased $1.4 million in fiscal 1995 from that of
the previous fiscal year as a result of increased investment income.
The effective income tax rate increased to 40.2% in fiscal 1995 from 36.2%
in fiscal 1994. The increase resulted from higher state and foreign income
taxes.
Average asset turnover in fiscal 1995 was 2.8 times compared to 2.2 times in
fiscal 1994. The improvement was aided by a product mix shift towards finished
products.
<PAGE>
[PAGE 5 OF EXCERPTS FROM FORM 10-K]
Item 8. Financial Statements and Supplementary Data.
Consolidated Balance Sheets
(In thousands of dollars except share data)
<TABLE>
<S> <C> <C> <C>
June 30,
Assets 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 46,493 $ 10,277 $ 35,822
Accounts receivable, less allowances of $6,000 in 1996,
and $4,267 in 1995 and 1994 372,058 259,308 247,004
Inventories 554,090 456,107 400,595
Refundable and deferred federal and foreign income taxes 16,480 7,869 7,811
Other current assets 15,244 11,491 30,253
- ------------------------------------------------------------------------------------------------------------------------------
Total Current Assets 1,004,365 745,052 721,485
- ------------------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment - Note B
Land 19,830 16,731 15,115
Buildings, including construction in process 109,847 92,402 83,087
Equipment 419,122 347,845 301,012
Less accumulated depreciation and amortization (284,745) (242,953) (216,446)
- ------------------------------------------------------------------------------------------------------------------------------
Net Property, Plant, and Equipment 264,054 214,025 182,768
- ------------------------------------------------------------------------------------------------------------------------------
Other Noncurrent Assets 14,776 22,215 15,959
- ------------------------------------------------------------------------------------------------------------------------------
Total Assets $1,283,195 $981,292 $920,212
==============================================================================================================================
Liabilities and Shareholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 400,682 $417,495 $294,281
Accrued payroll and related expenses 26,845 22,634 18,997
Federal, foreign, and state income tax 22,223 19,079 6,697
Current maturities of long-term debt 4,965 5,720 5,882
- ------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 454,715 464,928 325,857
- ------------------------------------------------------------------------------------------------------------------------------
Deferred Income Taxes 5,313 509 1,091
Noncurrent Pension Liability 4,533 4,669 6,681
Deferred Compensation 7,600 5,040 3,548
Long-term Debt - Note B
Industrial revenue bonds 21,310 21,306 23,306
Long-term notes 35,846 96,138 216,202
Convertible subordinated notes 281,617 38,926 38,893
- -----------------------------------------------------------------------------------------------------------------------------
Total Long-term Debt 338,773 156,370 278,401
- ------------------------------------------------------------------------------------------------------------------------------
Commitments - Note B
Shareholders' Equity
Preferred Stock, 500,000 shares authorized but unissued -0- -0- -0-
Common Stock, $.10 par value: authorized 100,000,000 shares; issued 29,621,895
shares in 1996; 27,465,675 shares in 1995; and 27,335,782 shares in 1994 2,962 2,747 2,734
Capital in excess of par value 168,139 126,123 124,926
Retained earnings 308,150 227,195 181,952
Currency translation adjustment (6,649) (5,948) (4,637)
Treasury stock - 29,683 shares at cost (341) (341) (341)
- ----------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 472,261 349,776 304,634
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,283,195 $981,292 $920,212
============================================================================================================================
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
[PAGE 6 OF EXCERPTS FROM FORM 10-K]
<TABLE>
<S> <C> <C> <C>
Consolidated Statements of Income
(In thousands of dollars except per share data)
Years ended June 30,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
Net sales $4,544,759 $2,673,783 $1,852,478
Costs and expenses 4,384,374 2,581,953 1,790,612
Goodwill amortization 910 786 1,158
- ---------------------------------------------------------------------------------------------------------------------
Operating Income 159,475 91,044 60,708
- ---------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (25,907) (18,400) (15,423)
Other income, net 2,490 3,017 1,631
- ---------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations before Income Taxes 136,058 75,661 46,916
Income taxes - Note E 55,103 30,418 16,980
- ---------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 80,955 45,243 29,936
- ---------------------------------------------------------------------------------------------------------------------
Discontinued Operations - Note F:
Loss from operations (net of income tax benefit of $1,480 in 1994) -0- -0- (4,283)
Loss on disposal (net of income tax benefit of $4,358 in 1994) -0- -0- (4,492)
- ----------------------------------------------------------------------------------------------------------------------
Loss from Discontinued Operations -0- -0- (8,775)
- ----------------------------------------------------------------------------------------------------------------------
Net Income $ 80,955 $ 45,243 $ 21,161
======================================================================================================================
Earnings (loss) per share - Note C:
- ----------------------------------------------------------------------------------------------------------------------
Primary
From continuing operations $2.69 $1.63 $1.08
From discontinued operations -0- -0- (.32)
--------------------------------------------------------------------------------------------------------------
$2.69 1.63 .76
==============================================================================================================
Fully diluted
From continuing operations $2.65 $1.56 $1.08
From discontinued operations -0- -0- (.32)
--------------------------------------------------------------------------------------------------------------
$2.65 $1.56 $ .76
=========================================================================================================
See notes to Consolidated Financial Statements.
Consolidated Statements of Shareholders' Equity
(In thousands of dollars)
Years ended June 30,
-------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock
Balance at July 1 $ 2,747 $ 2,734 $ 2,709
Conversion of debt - Note B 184 -0- -0-
Stock options exercised 31 13 25
- ----------------------------------------------------------------------------------------------------------------------------
Balance at June 30 $ 2,962 $ 2,747 $ 2,734
============================================================================================================================
Capital in excess of par value
Balance at July 1 $126,123 $124,926 $122,785
Conversion of debt - Note B 38,640 -0- -0-
Stock options exercised 3,376 1,197 2,141
- ---------------------------------------------------------------------------------------------------------------------------
Balance at June 30 $168,139 $126,123 $124,926
===========================================================================================================================
Retained earnings
Balance at July 1 $227,195 $181,952 $160,791
Net income for the year 80,955 45,243 21,161
- ---------------------------------------------------------------------------------------------------------------------------
Balance at June 30 $308,150 $227,195 $181,952
===========================================================================================================================
Currency translation adjustment
Balance at July 1 $(5,948) $ (4,637) $ (8,027)
Translation (loss) gain (701) (1,311) 2,508
Deferred income taxes -0- -0- 882
- ---------------------------------------------------------------------------------------------------------------------------
Balance at June 30 $(6,649) $ (5,948) $ (4,637)
===========================================================================================================================
See notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
[PAGE 7 OF EXCERPTS FROM FORM 10-K]
<TABLE>
<S> <C> <C> <C>
Consolidated Statements of Cash Flows
(In thousands of
dollars)
Years ended June 30,
----------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 80,955 $ 45,243 $ 21,161
Adjustments to reconcile net income to net cash (used for) provided
by operating activities:
Depreciation and amortization 60,972 49,839 48,623
Undistributed equity earnings -0- (2,180) (1,018)
Noncurrent pension expense (136) (2,012) 860
Unrealized foreign currency exchange gain (683) (1,557) (406)
Deferred income taxes (4,587) (1,228) (7,754)
Other (139) (176) 529
Changes in current assets and liabilities:
Accounts receivable (113,093) (10,982) (47,155)
Inventories (99,032) (54,637) (79,694)
Refundable income taxes 763 607 4,894
Other current assets (5,004) 19,124 11,054
Accounts payable and accrued expenses (11,788) 125,992 81,107
Income taxes 3,145 12,380 83
- -----------------------------------------------------------------------------------------------------------------------
Net Cash (Used for) Provided by Operating Activities (88,627) 180,413 32,284
- -----------------------------------------------------------------------------------------------------------------------
Investing Activities
Purchase of property, plant, and equipment (109,912) (80,316) (46,488)
Proceeds from sale of property, plant, and equipment 826 647 400
Change in noncurrent assets 9,956 (3,451) 47
- -----------------------------------------------------------------------------------------------------------------------
Net Cash (Used for) Investing Activities (99,130) (83,120) (46,041)
- -----------------------------------------------------------------------------------------------------------------------
Financing Activities
Net (decrease) increase in commercial paper and short-term financing (34,790) (84,273) 49,287
Payments on long-term debt (10,739,220) (6,901,801) (2,242,630)
Proceeds from long-term debt 10,994,667 6,863,287 2,223,480
Issuance of common stock 3,407 1,210 2,166
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used for) Financing Activities 224,064 (121,577) 32,303
- -----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (91) (1,261) 1,430
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 36,216 (25,545) 19,976
Cash and cash equivalents at beginning of year 10,277 35,822 15,846
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 46,493 $ 10,277 $ 35,822
=======================================================================================================================
</TABLE>
Cash equivalents are primarily short-term interest bearing deposits.
Interest paid was $22,564 in 1996, $18,131 in 1995, and $14,776 in 1994.
Income taxes paid were $53,763 in 1996, $17,512 in 1995, and $14,781 in 1994.
See notes to Consolidated Financial Statements.
<PAGE>
[PAGE 8 OF EXCERPTS FROM FORM 10-K]
Notes to Consolidated Financial Statements
Note A - Accounting Policies
Consolidated Financial Statements include accounts of the Company and its
subsidiaries after elimination of material intercompany accounts and
transactions, and are based on management estimates. The functional currency of
the majority of the Company's foreign operations is the U.S. Dollar.
Inventories are stated at the lower of cost (principally first-in, first-out
method) or market. Inventories primarily consist of costs incurred in support of
customer contracts.
Property, Plant, and Equipment are recorded at cost. The provision for
depreciation is computed on the straight-line method over the estimated useful
lives of individual assets.
Goodwill, included in other noncurrent assets, is the unamortized excess of
cost over underlying net tangible assets of companies acquired. Goodwill is
amortized on a straight-line basis over ten years. Goodwill, net of
amortization, amounted to $2,084,000, $2,995,000 and $3,682,000 at June 30,
1996, 1995, and 1994, respectively.
Deferred income taxes are provided on temporary differences as certain
revenues and expenses are reported in periods which differ from those in which
they are taxed. U.S. income taxes have not been provided on certain
undistributed earnings of foreign subsidiaries aggregating $44 million at June
30, 1996, which are considered to be permanently invested. Otherwise, $9 million
of additional deferred taxes would have been provided.
Costs and expenses principally represent engineering, manufacturing, and other
costs incurred in support of customer contracts.
Research and Development is conducted by the Company under both customer
sponsored and company sponsored programs. Company sponsored programs include
research and development related to government products and services, which are
allocable and recoverable in the same manner as general and administrative
expense under U.S. Government regulations. Customer sponsored research and
development costs are accounted for as any other program cost. Total research
and development costs incurred by the Company were $33,556,000 in 1996,
$30,888,000 in 1995, and $30,074,000 in 1994. General and administrative expense
included in costs and expenses approximated $18,965,000 in 1996, $16,508,000 in
1995, and $15,281,000 in 1994.
Note B - Long-term Debt
Industrial Revenue Bonds. The Company is obligated by lease or guarantee for
$21,738,000 at June 30, 1996 ($21,815,000 at June 30, 1995, and $24,286,000 at
June 30, 1994) of industrial revenue bonds maturing through the year 2015. The
majority of such borrowings currently bear variable interest ranging between
3.5% to 7.75%. Such obligations are secured by related properties and
irrevocable letters of credit.
Long-term Notes. The Company is obligated under mortgages and notes maturing
through the year 2004 amounting to $41,791,000 at June 30, 1996 ($47,658,000 at
June 30, 1995, and $51,990,000 at June 30, 1994), and primarily bearing variable
interest rates ranging between 5.0% and 7.7% at June 30, 1996. $21,445,000 of
the outstanding balance is collateralized by the related properties.
The Company has a credit facility with a group of domestic and international
banks, consisting of a $260 million revolving credit line and a $150 million
commercial paper agreement. The initial renewal date for this facility is
December 8, 2000. Borrowings under the revolving credit line, at the Company's
option, bear interest at a rate based upon either a defined Base Rate or the
London Interbank Offered Rate (LIBOR) plus or minus applicable margins. The
agreement allows the Company to enhance the marketability of its commercial
paper with an irrevocable letter of credit in order to borrow at rates generally
below revolving credit rates. Conversion privileges are provided in the event of
nonsalability of commercial paper. At June 30, 1996 no amounts were outstanding
under the facility, compared to totals of $54,690,000 at June 30, 1995, and
$170,596,000 at June 30, 1994. Under the credit agreement, the Company must
maintain certain financial ratios and meet certain balance sheet tests. Under
the most restrictive provision of the credit agreement, $53,480,000 of June 30,
1996's retained earnings are available for the payment of cash dividends. A
commitment fee of 0.25% is paid under the agreement on unused revolving credit.
No compensating balances are required under the facility.
Short-term borrowings may be drawn under the credit agreement. Because of the
Company's ability and intent to refinance such borrowings, total borrowings
under the agreement and other short-term borrowings expected to be refinanced,
including commercial paper, are classified as long-term debt.
The Company has an asset securitization agreement under which up to
$200,000,000 of certain accounts receivable can be sold with limited recourse.
As funds are collected, additional eligible receivables may be sold to bring the
outstanding balance to the desired level. At June 30, 1996 outstanding
receivables sold totaled $190,000,000 ($50,000,000 at June 30, 1995).
As of June 28, 1996 the Company entered into Senior Note purchase agreements
with a group of institutional lenders. On July 19, 1996 the Company closed the
agreements and borrowed $100,000,000. The Notes bear interest at 7.59%, and are
payable in six annual installments
[PAGE 9 OF EXCERPTS FROM FORM 10-K]
of $16,667,000 beginning in July 2001. The interest rate may be adjusted
upwards by .75% if the Company fails to meet certain financial ratios.
At June 30, 1996 unused credit facilities and commitments (including the
senior notes issued in July 1996) approximated $594 million.
Convertible Subordinated Notes. In May 1996 the Company issued $287,500,000 of
5% Convertible Subordinated Notes due May 1, 2006. The Notes are convertible
into Common Stock at $48.75 per share and are redeemable beginning in May 1999.
June 30, 1995's $39,474,000 of 5 5/8% Convertible Subordinated Debentures were
called by the Company in August 1995, and substantially converted in September
1995 into 1,847,120 shares of Common Stock.
Deferred charges netted against total long-term debt were $7,291,000 at June
30, 1996, $1,547,000 at June 30, 1995, and $2,063,000 at June 30, 1994.
Debt, Lease, and Rental Payments. Long-term debt maturities for the next five
fiscal years are: $5,823,000 in 1997; $3,204,000 in 1998; $2,932,000 in 1999;
$4,746,000 in 2000; and $18,358,000 in 2001. Rental expense was $1,377,000 in
1996, $2,050,000 in 1995, and $1,146,000 in 1994. Minimum future rental payments
for leased facilities and land are: $707,000 in 1997; $642,000 in 1998; $653,000
in 1999; $666,000 in 2000; $521,000 in 2001; and thereafter a land lease with an
obligation of $461,000 in the year 2001 with an annual 7.6% escalation through
2019.
Note C - Earnings Per Share
Primary earnings per share are based on the weighted average number of common
shares 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 computations
assume dilutive conversion of the Company's outstanding convertible notes, after
adding back their after-tax interest expense. The number of shares used in
computation were: primary earnings per share -- 30,140,472 in 1996, 27,820,798
in 1995, and 27,703,163 in 1994; and fully diluted earnings per share --
31,265,883 in 1996 and 29,824,571 in 1995. Assumed conversion of outstanding
convertible debentures was anti-dilutive in 1994's computation.
Note D - Fair Value of Financial Instruments June 30, 1996's estimated fair
values of the financial
instruments represented by cash and cash equivalents, and interest and currency
exchange rate swaps, approximated their recorded values. Convertible Notes had a
June 30, 1996 trading price of 105 on the Private Offerings, Resale and Trading
through Automated Linkages
("PORTAL") Market.
Note E - Income taxes
Continuing operations' income tax provision is summarized as follows:
1996 1995 1994
(In thousands of dollars)
- ------------------------------------------------------------
Income from continuing
operations before income
taxes:
Domestic $105,103 $72,811 $53,307
Foreign 30,955 2,850 (6,391)
- ------------------------------------------------------------
Total $136,058 $75,661 $46,916
============================================================
Taxes currently payable:
Domestic $68,215 $32,750 $17,940
Foreign 2,857 2,045 3,097
Deferred taxes:
Domestic (16,772) (2,636) (2,521)
Foreign 803 (1,741) (2,418)
Deferred taxes allocated
to translation adjustment -0- -0- 882
- ------------------------------------------------------------
Total $55,103 $30,418 $16,980
============================================================
<PAGE>
The reconciliation of the provision for income taxes
and that based on the U.S. statutory rate is:
(In thousands of dollars) 1996 1995 1994
--------------------------------------------------------------------
Income taxes at
U.S. statutory rate $47,620 $26,481 $16,421
Effects of U.S. state income taxes
net of federal benefits 2,925 3,575 1,054
Effects of loss carryforwards 1,685 351 (147)
Effects of foreign operations 802 (657) (3,068)
Permanent differences 2,071 668 2,720
- --------------------------------------------------------------------
Income taxes $55,103 $30,418 $16,980
====================================================================
At June 30, 1996 the net deferred tax asset was:
Deferred
(In thousands of dollars) Asset
Temporary Difference Amount (Liability)
- ------------------------------------------------------------------------------
Expenses not currently deductible:
Bad debt provision $ 5,845 $ 2,046
Accrued expenses 29,470 10,315
Inventory adjustments 38,486 13,341
Depreciation (3,220) (966)
Income not currently taxable:
Undistributed foreign earnings (33,500) (10,765)
Long-term contracts (9,021) (3,157)
Other (756) (274)
Net operating loss carryforwards 6,781 304
Valuation allowance:
Beginning of year (5,742) (814)
Net change for year (523) 588
- ------------------------------------------------------------------------------
Total $ 27,820 $ 10,618
==============================================================================
Note F - Discontinued Plant and Operations
During March 1994 the Company adopted a closure plan for a domestic plant
associated with its government business. Operating income for fiscal 1994
reflects operating losses and disposal charges associated with that plant and
write-down of certain assets to estimated
[PAGE 10 OF EXCERPTS FROM FORM 10-K]
net realizable values, aggregating $9,200,000. The plant was closed in
August 1994.
The Company also adopted in March 1994 plans for sale of certain of its
proprietary product business units. The units are accounted for as discontinued
operations and are so segregated in fiscal 1994's income statement. Post
measurement date operating losses and disposal costs for these operations
approximated amounts provided for. The discontinued business units' fiscal year
1994 sales were $49,370,000; their loss from operations, net of a $1,480,000
income tax benefit, was $4,283,000; and their loss on disposal, net of a
$4,358,000 income tax benefit, was $4,492,000. Substantially all discontinued
business units have been sold at approximate values assigned to them at disposal
determination date.
Note G - Selected Quarterly Financial Data (Unaudited)
Quarterly financial results and stock prices for the last two fiscal years
were:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995
-------------------------------------------------------------------------------------------------
(In thousands of dollars except Fourth Third Second First Fourth Third Second First
per share data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------------------------------------------------------------------------------------------------
Net sales $1,351,886 $1,112,744 $1,203,506 $876,623 $842,352 $591,465 $621,545 $618,421
Gross profit 48,278 39,493 42,594 30,020 29,690 20,545 21,238 20,357
Net income 24,565 19,110 22,158 15,122 14,046 10,943 10,197 10,057
Fully diluted earnings per share $.77 $.63 $.74 $.51 $.48 $.39 $.37 $.36
Market stock price range:
High $ 49 $43 3/8 $37 3/4 $38 $26 $19 1/2 $22 $22 1/4
Low 35 1/8 25 23 7/8 28 5/8 17 1/2 17 16 14 3/4
</TABLE>
Quarterly and annual earnings per share are independently computed using the
estimated effective income tax rate and Common Stock market prices applicable
for that period. Consequently, the sum of quarterly fully diluted earnings per
share for fiscal 1995 does not equal the total for the year, as the increased
effective income tax rate for the year impacted the annualized dilutive effect
of Convertible Debentures. Additionally, the substantially higher June 30, 1995,
closing market price for the Company's Common Stock, as compared to the previous
three quarter's closing price, impacted the annualized dilutive effect of
outstanding stock options. In the first three quarters of fiscal 1996 and fiscal
year 1995, the combined dilutive effect of Convertible Debentures and stock
options was less than three percent.
Note H - Geographic Data
The Company operates principally in the Electronics Manufacturing Services
(EMS) Industry, servicing the same and similar customers of its domestic and
foreign operations. The following table summarizes the Company's geographic
data. It is based on a required presentation format that does not consider
equitably the interrelationship between geographic regions as to customer
manufacturing, engineering, marketing, and management activities. The Company's
management views geographic areas not only by their individual operating
results, but by their strategic relationships in servicing customers on a
worldwide basis.
<TABLE>
<PAGE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands of
dollars) Identifiable Assets Sales Operating Income
1996 1995 1994 1996 1995 1994 1996 1995 1994
Domestic $ 820,044 $558,227 $516,453 $3,063,460 $1,581,671 $1,155,211 $125,303 $85,609 $60,368
Foreign 397,410 388,516 361,363 1,481,299 1,092,112 697,267 34,172 5,435 340
Corporate 65,741 34,549 42,396 N/A N/A N/A N/A N/A N/A
----------------------------- ----------------------------------- ----------------------------
Consolidated $1,283,195 $981,292 $920,212 $4,544,759 $2,673,783 $1,852,478 159,475 91,044 60,708
============================== ==================================
Corporate net other expense (23,417) (15,383) (13,792)
---------------------------
Consolidated income from continuing
operations before income taxes $136,058 $75,661 $46,916
=============================
</TABLE>
Intergeographic transfers are not significant. Corporate assets include
domestic cash and cash equivalents, refundable and deferred income taxes, "rabbi
trust" assets, and notes receivable. Major customer data, including credit risk
concentration, is incorporated by reference from Part I, Marketing and
Customers, of the Company's Form 10-K for the year ended June 30, 1996. U.S.
export sales approximated $130,000,000, $95,000,000, and $81,000,000 for the
years ended June 30, 1996, 1995, and 1994, respectively.
[PAGE 11 OF EXCERPTS FROM FORM 10-K]
Note I - Plant Acquisition
On May 31, 1996 the Company finalized an agreement with Apple Computer,
Inc. (Apple) to purchase Apple's 360,000 square foot Fountain, Colorado
manufacturing plant, related equipment, and certain inventory for approximately
$195,000,000. In conjunction with this asset purchase, the Company entered into
a related multiyear manufacturing agreement with Apple for agreed upon levels of
designated Apple products.
Note J - Employee Benefit and Stock Option Plans
Employee Benefit Plans. The Company provides retirement benefits to its
domestic employees who meet certain age and service requirements through three
plans: a defined benefit pension plan, a qualified employee savings plan, and a
deferred compensation plan. Pension plan benefits are computed based upon
compensation earned during the member's career at the Company, or its
subsidiaries, and years of credited service. The Company funds its retirement
benefits annually at an amount that approximates the maximum deductible for
income taxes. Company contributions to savings and deferred compensation plans
are equal to a percentage of employees' contributions and are fully funded when
the liability is incurred. The Company's and employees' contributions to the
deferred compensation plan are held in an irrevocable "rabbi trust". Nonemployee
Directors also participate in an irrevocable "rabbi trust" deferred compensation
plan. The Company also has defined contribution pension plans for its European
employees who meet certain requirements. The following table sets forth the
defined benefit pension plan's status and the amounts reflected in the Company's
Consolidated Financial Statements at June 30.
Defined benefit pension plan's status is as follows: (In thousands of dollars)
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Actuarial present value of benefit obligations:
Accumulated benefit obligation (including vested benefits
of $13,502 in 1996, $12,383 in 1995, and $9,459 in 1994 ) $ (14,677) $(13,785) $(10,842)
=======================================
Projected benefit obligation for service rendered to date $ (20,692) $(20,548) $(16,254)
Plan assets at fair market value 15,333 11,454 9,030
--------------------------------------
Projected benefit obligation in excess of plan assets (5,359) (9,094) (7,224)
Unrecognized net obligations existing at transition 395 435 475
Unrecognized prior service cost 296 329 427
Unrecognized net (gain)/loss (2,879) 631 (1,442)
--------------------------------------
Accrued pension liability $ (7,547) $(7,699) $(7,764)
======================================
Net pension cost included the following components:
Service cost - benefits earned during the period $ 2,162 $ 1,964 $ 1,779
Interest cost on projected benefit obligation 1,464 1,328 1,125
Actual return on plan assets (2,382) (1,837) (206)
Net amortization and deferral 1,365 1,009 (553)
--------------------------------------
Net periodic pension cost $ 2,609 $ 2,464 $ 2,145
======================================
Rates used in computing periodic pension costs:
Actual weighted-average discount rate used for computing projected
benefit obligation's present value 8.0% 8.0% 8.0%
Expected long-term rate of return on plan assets 9.0% 9.0% 9.0%
Future compensation increase 5.5% 5.5% 5.5%
Charges to operations for Company sponsored retirement benefits $ 5,983 $ 5,161 $ 4,478
</TABLE>
At June 30, 1996, domestic pension plan assets were invested 72% in equity
based mutual funds, 18% in corporate bond mutual funds, and 10% in cash and
money market funds.
Option Plans. The Company has a stock option plan that grants options to
key employees at not less than 100% of market value on date of grant. Options
vest 20% upon granting and 20% per annum for the next four years. Options expire
ten years from the grant date. The Company accounts for its stock options in
accordance with APB Opinion 25 and related Interpretations. Accordingly, no
nonmonetary fair value compensation costs associated with options have been
recorded. The amount of fair value compensation computed under FASB Statement
123 for options granted during 1996 is not material to the Company's
consolidated net income. Such costs may in the future become material as the
initial phase-in period of FASB Statement 123 expires. Information relating to
the changes in the Company's stock options follows:
[PAGE 12 OF EXCERPTS FROM FORM 10-K]
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(Shares in thousands) 1996 1995 1994
------------------------------ --------------------------- ---------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding at beginning of year 1,225.1 $12.19 1,145.0 $10.56 1,188.4 $ 8.49
Granted 294.0 $34.79 251.7 $18.92 270.0 $18.10
Exercised (309.1) $11.02 (129.8) $ 9.31 (250.5) $ 8.65
Canceled (27.0) $21.18 (41.8) $16.61 (62.9) $10.77
------------------------------ ---------------------------- ---------------------------
Outstanding at end of year 1,183.0 $17.81 1,225.1 $12.19 1,145.0 $10.56
============================== ============================ ===========================
Exercisable at June 30 699.4 $12.37 801.9 $ 9.69 700.0 $ 8.75
============================== ============================ ===========================
</TABLE>
Stock option shares available for additional granting at June 30 were 823.1
in 1996, 1,090.1 in 1995, and 305.6 in 1994.
The following table summarizes June 30, 1996's outstanding stock option
information (shares in thousands):
<TABLE>
<C> <C> <C> <C> <C> <C>
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercisable Price
$6.00 - $11.88 405.8 4.25 years $ 6.98 404.8 $ 6.97
$12.65 - $17.75 128.4 6.55 $13.36 87.6 $13.11
$18.25 - $21.13 374.4 7.88 $18.65 155.0 $18.58
$29.38 - $31.38 15.0 9.47 $30.04 3.0 $30.17
$35.00 - $37.00 259.4 9.34 $35.03 49.0 $35.00
- ---------------- ----------- ----------------- ---------------- ------------- -----------------
$ 6.00 - $37.00 1,183.0 6.83 years $17.81 699.4 $12.37
================ =========== ================= ================ ============= =================
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
SCI Systems, Inc.
We have audited the accompanying consolidated balance sheets of SCI
Systems, Inc. as of June 30, 1996, 1995 and 1994, and the related consolidated
statements of income, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of SCI Systems, Inc. at June 30, 1996, 1995 and 1994, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
August 2, 1996
[END OF EXCERPTS FROM FORM 10-K]
<PAGE>
[INSIDE BACK COVER OF ANNUAL REPORT TO SHAREHOLDERS]
[LEFT COLUMN]
Corporate Directory
Board of Directors
Olin B. King (1)
Chairman of the Board of the Company
Huntsville, Alabama
Howard H. Callaway (2)(4)
CEO, Crested Butte Mountain
Resort, Inc.
Crested Butte, Colorado
Chairman
Callaway Gardens Resort, Inc.
Pine Mountain, Georgia
William E. Fruhan (2)(3)
Professor of Business Administration
Harvard University
Cambridge, Massachusetts
Joseph C. Moquin (1)(4)
Retired CEO
Teledyne Brown Engineering
Madison, Alabama
A. Eugene Sapp, Jr. (1)(3)
President of the Company
Huntsville, Alabama
Wayne Shortridge (2)(3)
Partner
Paul, Hastings, Janofsky & Walker
Atlanta, Georgia
G. Robert Tod (2)(4)
President, CML Group, Inc.
Acton, Massachusetts
Jackie M. Ward (3)(4)
Chief Executive Officer
Computer Generation Incorporated
Atlanta, Georgia
Director Emeritus
Thomas H. Lenagh
Financial Advisor
Greenwich, Connecticut
Committees of the Board
(1) Executive Committee
(2) Audit Committee
(3) Investment Committee
(4) Compensation Committee
[MIDDLE COLUMN]
Officers
Chairman of the Board and
Chief Executive Officer
Olin B. King
President and Chief Operating
Officer
A. Eugene Sapp, Jr.
Senior Vice Presidents
Richard A. Holloway
David F. Jenkins
Jeffrey L. Nesbitt
Peter M. Scheffler
Jerry F. Thomas
Alexander A.C. Wilson
Vice Presidents
Charles Barnhart
Patrick R. Barry
James P. Bilodeau
C.T. Chua
Warren F. Cline, Jr.
Joseph J. Cosgrove
Robert P. Eisenberg
James H. Ferry
Francis X. Henry
George J. King
David L. Lengel
LeRoy H. Mackedanz
Michael P. McCaughey
James H. McElroy
Raymond E. Minter
Michael H. Missios
B. William Nelson
Charles N. Parks
P. William Quinn
Francois M. Thionet
Joseph A. Tilmant
Christopher J. White
John R. Wilkins, Jr.
F. M. Wong
Secretary
Michael M. Sullivan
Treasurer
Ronald G. Sibold, Jr.
[RIGHT COLUMN]
General Counsel
Powell, Goldstein, Frazer & Murphy
Atlanta, Georgia
Auditors
Ernst & Young LLP
Birmingham, Alabama
Transfer Agent and Registrar
Chase Mellon Shareholder Services
1-800-756-3353
Security Trading Markets
Common Stock
NASDAQ National Market System
Symbol SCIS
Common Stock Options
Chicago Board Options Exchange
Symbol SSQ
1-800-OPTIONS
Agent Banks
Revolving Credit
Citibank, N.A.
Commercial Paper ABN AMRO Bank, N.V.
Asset Securitization
Bank of America, N.T. & S.A.
Annual Shareholders' Meeting
Fourth Friday in October
Shareholder Inquiries
By Mail:
Shareholder Relations
2000 Ringwood Avenue
San Jose, California 95131
By Telephone:
1-888-SCI-FAXX (Toll Free)
By Fax:
1-408-943-6123
Annual Report to the S.E.C.
The annual report to the Securities and Exchange
Commission on Form 10-K provides complete exhibits and
schedules. Copies will be furnished upon written request
to Shareholder Relations at the address above.
SCI SYSTEMS, INC.
Printed by free enterprise in the USA
[END OF ANNUAL REPORT TO SHAREHOLDERS]
[END OF EXHIBIT 13]
EXHIBIT 21--SUBSIDIARIES OF REGISTRANT
Listed below are the principal subsidiaries of the Company and the
percentage of voting securities owned by the Company. The Company's other
subsidiaries, taken in the aggregate, would not constitute a significant
subsidiary.
Jurisdiction in which Percentage
Incorporated or Organized of Voting
Securities Owned
SCI Systems (Alabama), Inc. Alabama 100%
SCI Technology, Inc. Alabama 100%
SCI Systems Colorado, Inc. Colorado 100%
SCI Foreign Sales, Inc. U.S. Virgin Islands 100%
SCIMEX, Inc. Alabama 100%
SCI Systems de Mexico S.A. Mexico 100%
SCI Holdings, Inc. Delaware 100%
SCI Manufacturing Singapore Pte. Ltd. Singapore 100%
SCI Systems (Thailand) Limited Thailand 100%
SCI Irish Holdings Republic of Ireland 100%
SCI Ireland Limited Republic of Ireland 100%
SCI Alpha Limited Republic of Ireland 100%
SCI Systems (Canada), Inc. Canada 100%
Newport, Inc. Georgia 100%
SCI Holding France, S.A. France 100%
SCI France, S.A. France 100%
SCI Manufacturing (Malaysia) SDN BHD Malaysia 100%
<PAGE>
Exhibit 23- Consent of Independent Auditor
We consent to the incorporation by reference in this Annual Report (Form
10-K) of SCI Systems, Inc. of our report dated August 2, 1996, included in the
1996 Annual Report to Shareholders of SCI Systems, Inc.
Our audits also included the financial statement schedule of SCI Systems,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in (i) the Registration
Statement (Form S-8 No. 2-86230) and related Prospectus pertaining to the
Savings Plan of the SCI Systems, Inc. Employee Financial Security Program; (ii)
the Registration Statement (Form S-8 No. 2-91587) and related Prospectus
pertaining to the Incentive Stock Option Plan of SCI Systems, Inc.; and (iii)
the Registration Statement (Form S-8 No. 33-11894) and related Prospectus
pertaining to the Non-Qualified Stock Option Plan of SCI Systems, Inc.
of our report dated August 2, 1996, with respect to the consolidated financial
statements and schedule of SCI Systems, Inc. incorporated by reference in this
Annual Report for the year ended June 30, 1996.
/S/ Ernst & Young LLP
Birmingham, Alabama
September 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1996'S BALANCE SHEET AND THE INCOME STATEMENT FOR THE YEAR THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-1-1995
<PERIOD-END> JUN-30-1996
<CASH> 46,493
<SECURITIES> 0
<RECEIVABLES> 378,058
<ALLOWANCES> 6,000
<INVENTORY> 554,090
<CURRENT-ASSETS> 1,004,365
<PP&E> 548,799
<DEPRECIATION> 284,745
<TOTAL-ASSETS> 1,283,195
<CURRENT-LIABILITIES> 454,715
<BONDS> 338,773
0
0
<COMMON> 2,962
<OTHER-SE> 469,299
<TOTAL-LIABILITY-AND-EQUITY> 1,283,195
<SALES> 4,544,759
<TOTAL-REVENUES> 4,544,759
<CGS> 4,384,374
<TOTAL-COSTS> 4,385,284
<OTHER-EXPENSES> (2,490)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,907
<INCOME-PRETAX> 136,058
<INCOME-TAX> 55,103
<INCOME-CONTINUING> 80,955
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,955
<EPS-PRIMARY> 2.69
<EPS-DILUTED> 2.65
</TABLE>
