UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission file Number 0-2251
SCI SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0583436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o SCI Systems (Alabama), Inc.
2101 West Clinton Avenue
Huntsville, Alabama 35805
(Address of principal executive offices) (Zip Code)
______________________________________________
(302) 998-0592
(Registrant's telephone number, including area code)
______________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.10 par value - 29,760,895 shares
Outstanding at October 28, 1996
<PAGE>
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SCI Systems, Inc.
Condensed Consolidated Balance Sheets
September 29, June 30,
1996 1996
(In thousands of dollars) (Unaudited) (*)
- -------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 65,899 $ 46,493
Accounts receivable 654,894 372,058
Inventories 640,231 554,090
Refundable and deferred federal and
foreign income taxes 16,838 16,480
Other current assets 14,484 15,244
-----------------------------
Total Current Assets 1,392,346 1,004,365
Property, Plant, and Equipment
(Less accumulated depreciation of $297,298 at
September 29, 1996, and $284,745
at June 30, 1996) 266,448 264,054
Other Noncurrent Assets 12,985 14,776
-----------------------------
Total Assets $1,671,779 $ 1,283,195
=============================
* Derived from audited financial statements, but does not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See notes to condensed consolidated financial statements.
2
September 29, June 30,
1996 1996
(Unaudited) (*)
- -------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 642,822 $ 400,682
Accrued payroll and related expenses 32,250 26,845
Federal, foreign and state income taxes 36,995 22,223
Current maturities of long-term debt 4,492 4,965
------------------------------
Total Current Liabilities 716,559 454,715
Deferred Income Taxes 5,302 5,313
Noncurrent Pension Liability 4,533 4,533
Deferred Compensation 7,836 7,600
Long-term Debt - Note C
Industrial revenue bonds 21,288 21,310
Long-term notes 134,082 35,846
Convertible subordinated notes 281,701 281,617
------------------------------
Total Long-term Debt 437,071 338,773
Shareholders' Equity
Preferred stock, 500,000 shares authorized but
unissued -0- -0-
Common stock, $.10 par value: authorized
100,000,000; issued 29,746,395 shares at
September 29, 1996, and 29,621,895 shares
at June 30,1996 2,975 2,962
Capital in excess of par value 171,171 168,139
Retained earnings 333,175 308,150
Currency translation adjustment (6,502) (6,649)
Treasury stock of 29,683 shares, at cost (341) (341)
-------------------------------
Total Shareholders' Equity 500,478 472,261
-------------------------------
Total Liabilities and Shareholders' Equity $1,671,779 $1,283,195
===============================
* Derived from audited financial statements, but does not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See notes to condensed consolidated financial statements.
3
SCI Systems, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Quarter Ended:
September 29, September 24,
(In thousands of dollars except per share data) 1996 1995
- -------------------------------------------------------------------------------
Net sales $1,420,005 $876,623
Costs and expenses 1,372,516 846,812
---------------------------
Operating Income 47,489 29,811
Other income (expense):
Interest expense (6,793) (4,698)
Other income, net 1,362 302
--------------------------
Income before Income Taxes 42,058 25,415
Income taxes - Note B 17,033 10,293
--------------------------
Net Income $ 25,025 $ 15,122
===========================
Earnings per share - Note A:
Primary $.83 $.51
Fully diluted $.75 $.51
Weighted average number of shares used in computation:
Primary 30,283,449 30,025,734
Fully diluted 36,281,189 30,091,601
See notes to condensed consolidated financial statements.
4
SCI Systems, Inc.
Condensed Consolidated Statements Of Cash Flows
(Unaudited)
Quarter Ended:
September 29, September 24,
(In thousands of dollars) 1996 1995
- -------------------------------------------------------------------------------
Operating Activities
Net income $ 25,025 $ 15,122
Adjustments to reconcile net income to cash
used for operations:
Depreciation and amortization 18,078 14,431
Changes in current assets and liabilities:
Accounts receivable (282,629) (11,422)
Inventories (86,229) (177,098)
Other current assets 431 (3,083)
Accounts payable and accrued expenses 247,285 108,168
Income taxes 16,631 5,964
Other non cash items - net 98 11
-----------------------------
Net Cash Used for Operating Activities (61,310) (47,907)
-----------------------------
Investing Activities
Purchase of property, plant, and equipment (19,717) (21,892)
Proceeds from sale of property, plant,
and equipment 6 149
Decrease in noncurrent assets 1,893 1,741
-----------------------------
Net Cash Used for Investing Activities (17,818) (20,002)
-----------------------------
Financing Activities
Net increase in commercial paper and
other short-term notes -0- 64,635
Payments on long-term debt (37,303) (1,776,177)
Proceeds from long-term debt 134,822 1,787,728
Issuance of common stock 1,183 1,806
-----------------------------
Net Cash Provided by Financing Activities 98,702 77,992
-----------------------------
Effect of exchange rate changes on cash (168) (263)
-----------------------------
Net increase in cash and cash equivalents 19,406 9,820
Cash and cash equivalents at beginning of period 46,493 10,277
-----------------------------
Cash and Cash Equivalents at End of Period $ 65,899 $ 20,097
==============================
Cash equivalents consist of short-term deposits and liquid marketable securities
which are stated at cost that approximates market value.
See notes to condensed consolidated financial statements.
5
Notes to Condensed Consolidated Financial Statements
September 29, 1996
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries after elimination
of significant intercompany accounts and transactions. The financial statements
have been prepared in accordance with instructions to Form 10-Q and do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. Independent auditors
have not examined the statements (and all other information in this report), but
in the opinion of the Company all adjustments, which consist of normal recurring
accruals necessary for a fair presentation of the results for the period, have
been made. The results of operations for the period ended September 29, 1996 are
not necessarily indicative of the results of operations for the year ending June
30, 1997. For further information, refer to the consolidated financial
statements and footnotes included in the Company's annual report on Form 10-K
for the year ended June 30, 1996.
Primary earnings per share are based on the weighted average number of common
stock and dilutive common stock equivalents outstanding during each period.
Common stock equivalents consist of stock options whose exercise price is less
than the stipulated market price using the Treasury-stock method for both
primary and fully diluted earnings per share. Fully diluted computations, when
applicable, assume the dilutive conversion of the Company's outstanding
convertible subordinated notes, after adding back their after-tax interest
expense.
Note B - Income Taxes
U.S. income taxes are not provided on certain undistributed earnings of foreign
subsidiaries aggregating approximately $44 million at September 29, 1996, which
are considered permanently invested.. Otherwise, approximately $9 million of
cumulative deferred income taxes would have been provided. Income tax provision
for fiscal year 1997 differs from the U.S. statutory income tax rate primarily
due to state income taxes.
Note C - Changes in Amount Outstanding of Securities or Indebtedness
Outstanding borrowings at September 29, 1996 under the Company's Revolving
Credit, Commercial Paper facility, and other long-term debt agreements increased
approximately $99 million from the June 30, 1996 balance. The increase resulted
from the issuance in July 1996 of $100 million of senior notes, payable in six
annual installments of $16.7 million beginning in July 2001 and currently
bearing a 7.59% interest rate.
At September 29, 1996 the Company had no amount outstanding under its asset
securitization agreement, compared with $190 million at June 30, 1996. The
Company can sell up to $200 million of certain accounts receivable with limited
recourse under the agreement.
Total unused credit facilities available to the Company at September 29, 1996,
including that available under the asset securitization agreement, approximated
$684 million.
6
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
From time to time, the Company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects,
technological developments, new products, and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In compliance with such safe harbor terms, the
Company notes that a variety of factors could cause the Company's actual results
and experience to differ materially from anticipated results or other
expectations expressed in the Company's forward-looking statements or from past
performances. The risks and uncertainties that may affect operations,
performance, development and results of the Company's business include
statements regarding anticipated pricing and production volumes; and various
factors, including component price fluctuation, noted in Item 1. of the
Company's Annual Report on Form 10-K for the year ended June 30, 1996.
Results of Operations
Revenue and net income reached record quarterly highs in fiscal year 1997's
first quarter. Sales increased 62% to $1.42 billion from $877 million in the
same period a year earlier. Net income increased 65% to $25 million from $15
million in fiscal year 1996's first quarter. Such growth rates are not believed
by management to be substantiable for extended periods.
Increased sales primarily resulted from increased volume especially in finished
product assembly.
The average selling prices of many of the Company's products are declining as
electronic components experience substantial unit cost reductions. The decline
is estimated to continue throughout the coming quarter, and may continue
thereafter depending upon whether component price reductions continue. Average
selling price declines tend to reduce revenue growth rates.
Operating margins were slightly lower during the quarter than a year earlier as
result of higher finished product mix, startup costs of several major new
programs, and integration costs of a recently acquired plant. Return on average
shareholders' equity increased to 20.6 percent from 16.0 percent a year earlier,
primarily due to improved asset management.
Earnings per share for the quarter were $.83 on a primary basis and $.75 on a
fully diluted basis, compared with $.51 in the prior year on both a primary and
fully diluted basis. The first quarter of fiscal year 1997 was the initial
quarter in which the full dilution effect of the Convertible Subordinated Notes
issued in May 1996 was experienced.
First quarter interest expense, net of approximately one million dollars in
interest income, declined to .41% of sales from .52% in the first quarter of
fiscal 1996. This decrease mainly resulted from improved asset turnover. The
dollar amount of increase in interest expense is mainly attributable to higher
total borrowing levels in support of higher revenue.
A 3.8 asset turnover ratio was experienced in fiscal year 1997's first quarter
compared with 3.1 a year earlier. Asset turnover improvement resulted from
increased finished product assembly which inherently yields higher turnover to
offset its lower operating margins. The ratio of ending debt (net of cash) to
annualized quarterly sales for the first quarter declined to .066 from .080 for
the same period a year earlier.
7
Estimated effective income tax rate differs from the U.S. statutory rate
primarily due to the effects of state income taxes. Currently, the estimated
effective income tax rate for fiscal year 1997 is estimated to approximate that
of fiscal 1996.
Capital Resources and Liquidity
The Company's working capital increased to $676 million at September 29, 1996
from $550 million at June 30, 1996, mainly as a result of reduced usage of asset
securitization programs. September 29, 1996's ratio of current assets to current
liabilities (current ratio) was 1.9 compared with 2.2 at June 30, 1996.
The Company believes that its available unused credit lines and cash
(aggregating $750 million at September 29, 1996) are sufficient to finance near
term growth. Fiscal year 1997's capital expenditures are currently estimated to
approximate $90 million, $20 million more than estimated depreciation.
The dollar amount of order backlog at September 29, 1996 believed by the Company
to be firm was $2.80 billion, as compared with $2.50 billion a year earlier and
$2.84 billion a quarter earlier.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(1) Exhibit 11 - Computation of primary and fully diluted earnings per share.
(2) Exhibit 27 - Financial Data Schedule
(b) Reports
The Company filed no reports on Form 8-K during the period of July 1, 1996 to
September 29, 1996.
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SCI Systems, Inc.
(Registrant)
Date: November 12, 1996 By: /s/ Olin B. King
-------------------
Olin B. King
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer
and Principal Financial
and Accounting Officer)
9
SCI Systems, Inc
Exhibit 11 - Computation of Primary and Fully Diluted Earnings Per Share
(In thousands of dollars except for number of shares and per share amounts)
Quarter Ended:
September 29, September 24,
1996 1995
---------------- --------------
Primary Earnings Per Share
- --------------------------
Net income $25,025 $15,122
Add back after-tax interest for debentures
converted during period N/A 218
------------- -------------
Adjusted net income used in
primary computation $25,025 $15,340
============= =============
Weighted average number of shares
outstanding during period 29,619,671 29,350,460
Applicable number of shares for common stock
equivalents (stock options) outstanding for
period using Treasury-stock method based
on average market price for period 663,778 675,274
------------ ------------
Weighted average number of shares used
in computation 30,283,449 30,025,734
============ ============
Primary earnings per share $.83 $.51
============ ============
Fully Diluted Earnings Per Share
- --------------------------------
Net income $25,025 $15,122
Add back after-tax interest for debentures
converted during period N/A 218
Add back after-tax interest expense for
outstanding convertible subordinated notes 2,238 N/A
------------ -------------
Adjusted net income used in fully
diluted computation $27,263 $15,340
============ =============
Weighted average number of shares
outstanding during period 29,619,671 29,350,460
Applicable number of shares for common stock
equivalents (stock options) outstanding for
period, using Treasury-stock method based
on the higher of average market price or ending
market price 764,082 741,141
Number of shares to be issued if outstanding
convertible subordinated notes were converted 5,897,436 N/A
----------- -----------
Weighted number of shares used
in computation 36,281,189 30,091,601
=========== ===========
Fully diluted earnings per share $.75 $.51
=========== ===========
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
29, 1996'S BALANCE SHEET AND THE INCOME STATEMENT FOR THE NINE MONTHS THEN
ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> SEP-29-1996
<CASH> 65,899
<SECURITIES> 0
<RECEIVABLES> 660,894
<ALLOWANCES> 6,000
<INVENTORY> 640,231
<CURRENT-ASSETS> 1,392,346
<PP&E> 563,746
<DEPRECIATION> 297,298
<TOTAL-ASSETS> 1,671,779
<CURRENT-LIABILITIES> 716,559
<BONDS> 281,701
0
0
<COMMON> 2,975
<OTHER-SE> 497,503
<TOTAL-LIABILITY-AND-EQUITY> 1,671,779
<SALES> 1,420,005
<TOTAL-REVENUES> 1,420,005
<CGS> 1,372,516
<TOTAL-COSTS> 1,372,516
<OTHER-EXPENSES> (1,362)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,793
<INCOME-PRETAX> 42,058
<INCOME-TAX> 17,033
<INCOME-CONTINUING> 25,025
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,025
<EPS-PRIMARY> .83
<EPS-DILUTED> .75
</TABLE>
