UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 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 - 29,794,320 shares
Outstanding at February 6, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SCI Systems, Inc.
Condensed Consolidated Balance Sheets
December 29, June 30,
1996 1996
(In thousands of dollars) (Unaudited) (*)
- --------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 341,725 $ 46,493
Accounts receivable 500,312 372,058
Inventories 523,092 554,090
Refundable and deferred federal and
foreign income taxes 16,827 16,480
Other current assets 7,200 15,244
--------------------------------
Total Current Assets 1,389,156 1,004,365
Property, Plant, and Equipment
(Less accumulated depreciation of $318,697
at December 29, 1996, and $284,745
at June 30, 1996) 274,100 264,054
Other Noncurrent Assets
14,988 14,776
--------------------------------
Total Assets $1,678,244 $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.
SCI Systems, Inc.
Condensed Consolidated Balance Sheets
December 29, June 30,
1996 1996
(In thousands of dollars) (Unaudited) (*)
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 626,575 $ 400,682
Accrued payroll and related expenses 24,716 26,845
Federal, foreign and state income taxes 28,744 22,223
Current maturities of long-term debt 3,410 4,965
--------------------------------
Total Current Liabilities 683,445 454,715
Deferred Income Taxes 5,302 5,313
Noncurrent Pension Liability 4,533 4,533
Deferred Compensation 10,057 7,600
Long-term Debt - Note C
Industrial revenue bonds 21,297 21,310
Long-term notes 139,192 35,846
Convertible subordinated notes 281,863 281,617
--------------------------------
Total Long-term Debt 442,352 338,773
Shareholders' Equity
Preferred stock, 500,000 shares authorized
but unissued -0- -0-
Common stock, $.10 par value: authorized
100,000,000; issued 29,773,895 shares at
December 29, 1996, and 29,621,895 shares
at June 30,1996 2,977 2,962
Capital in excess of par value 172,037 168,139
Retained earnings 362,806 308,150
Currency translation adjustment (4,924) (6,649)
Treasury stock of 29,683 shares, at cost (341) (341)
--------------------------------
Total Shareholders' Equity 532,555 472,261
--------------------------------
Total Liabilities and Shareholders' Equity $1,678,244 $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
SCI Systems, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Quarter Ended:
December 29, December 24,
(In thousands of dollars except per share data) 1996 1995
- --------------------------------------------------------------------------------
Net sales $1,481,837 $1,203,506
Costs and expenses 1,428,419 1,161,121
--------------------------------
Operating Income 53,418 42,385
Other income (expense):
Interest expense (7,708) (5,917)
Other income, net 4,090 772
--------------------------------
Income before Income Taxes 49,800 37,240
Income taxes - Note B 20,169 15,082
--------------------------------
Net Income $ 29,631 $ 22,158
================================
Earnings per share - Note A:
Primary $.97 $.74
Fully diluted $.88 $.74
Weighted average number of shares used in computation:
Primary 30,442,494 30,121,293
Fully diluted 36,339,930 30,121,293
See notes to condensed consolidated financial statements.
SCI Systems, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Six Months Ended:
December 29, December 24,
(In thousands of dollars except per share data) 1996 1995
- --------------------------------------------------------------------------------
Net sales $2,901,842 $2,080,129
Costs and expenses 2,800,935 2,007,933
--------------------------------
Operating Income 100,907 72,196
Other income (expense):
Interest expense (14,501) (10,615)
Other income, net 5,452 1,074
--------------------------------
Income before Income Taxes 91,858 62,655
Income taxes - Note B 37,202 25,375
--------------------------------
Net Income $ 54,656 $ 37,280
================================
Earnings per share - Note A:
Primary $1.80 $1.24
Fully diluted $1.63 $1.24
Weighted average number of shares used in computation:
Primary 30,362,975 30,135,192
Fully diluted 36,310,548 30,135,192
See notes to condensed consolidated financial statements.
SCI Systems, Inc.
Condensed Consolidated Statements Of Cash Flows
(Unaudited)
Six Months Ended:
December 29, December 24,
(In thousands of dollars) 1996 1995
- --------------------------------------------------------------------------------
Operating Activities
Net income $ 54,656 $ 37,280
Adjustments to reconcile net income to cash
used for operations:
Depreciation and amortization 37,098 29,084
Changes in current assets and liabilities:
Accounts receivable (126,232) 16,432
Inventories 32,705 (277,957)
Other current assets 7,862 (9,977)
Accounts payable and accrued expenses 220,745 156,951
Income taxes 8,377 3,387
Other non cash items - net (957) (1,494)
------------------------------
Net Cash Provided by(Used for)Operating Activities 234,254 (46,294)
------------------------------
Investing Activities
Purchase of property, plant, and equipment (44,378) (47,606)
Proceeds from sale of property, plant, and equipment 128 228
Decrease in noncurrent assets 1,841 1,741
------------------------------
Net Cash Used for Investing Activities (42,409) (45,637)
------------------------------
Financing Activities
Net increase in commercial paper and
other short-term notes -0- 71,615
Payments on long-term debt (57,055) (4,653,517)
Proceeds from long-term debt 157,611 4,669,520
Issuance of common stock 2,053 2,037
------------------------------
Net Cash Provided by Financing Activities 102,609 89,655
------------------------------
Effect of exchange rate changes on cash 778 1,111
------------------------------
Net increase (decrease) in cash and
cash equivalents 295,232 (1,165)
Cash and cash equivalents at beginning of period 46,493 10,277
------------------------------
Cash and Cash Equivalents at End of Period $341,725 $9,112
==============================
Cash equivalents consist of short-term deposits and liquid marketable securities
which are stated at cost that approximates market value.
See notes to condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
December 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 December 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 December 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 December 29, 1996 under the Company's Revolving
Credit, Commercial Paper facility, and other long-term debt agreements increased
approximately $102 million from the June 30, 1996 balance. The increase
primarily 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 bearing a 7.59% interest rate.
At December 29, 1996 the Company had $50 million outstanding under its asset
securitization agreements, compared with $190 million at June 30, 1996. The
Company can sell up to $250 million of certain accounts receivable with limited
recourse under the agreements.
Total unused credit facilities available to the Company at December 29, 1996,
including availability under asset securitization agreements, approximated
$662 million. That amount combined with cash balances, provides available
liquidity of a billion dollars.
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. Risks and uncertainties that may affect operations, performance,
development and results of the Company's business include pricing and production
cost variations; and other 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
Quarterly revenue and net income again reached record highs in fiscal year
1997's second quarter. Sales for the second quarter were $1.48 billion compared
to $1.20 billion in the same period a year earlier, a 23.1 percent increase. Net
income increased 33.7 percent to $29.6 million from $22.2 million in fiscal year
1996's second quarter. The Company believes that seasonal trends indicate fiscal
year 1997's third quarter sales will likely be lower than the second quarter
sales.
Sales for the first six months of fiscal year 1997 increased 39.5 percent to
$2.9 billion from $2.1 billion for the prior fiscal year's first six months.
Net income increased 46.6 percent to $54.7 million compared with $37.3 million a
year earlier.
Sales increased because of increased volume, especially in finished product
assembly, which accounted for over one half of the Company's sales in the first
six months. The average selling prices of many of the Company's products
declined in the second quarter as electronic components experienced substantial
unit cost reductions.
Consolidated operating margins were higher in the second quarter than a year
earlier as a result of improved foreign operations. Domestic operating margins
decreased slightly from the prior fiscal year's period because of a higher
finished product mix.
Sales generated by the Company's foreign operations accounted for 24 percent of
total sales for the first six months of fiscal year 1997 compared with 33
percent for all of fiscal year 1996.
Return on average shareholders' equity increased to 23.0 percent for the second
quarter from 21.3 percent a year earlier. For the first six months of fiscal
year 1997, return on equity increased to 21.8 percent from 19.2 percent for the
same period last fiscal year. The improvements mainly resulted from greater
asset turnover ratio for noncash assets.
Second quarter interest expense, net of interest income, declined to .31
percent of sales from .48 percent in the second quarter of fiscal 1996. For the
first six months of fiscal year 1997 net interest expense represented .36
percent of sales compared with .50 percent in fiscal year 1996. The increased
dollar amount in interest expense is mainly attributable to higher total
borrowing levels in support of higher revenue. The higher interest income in
fiscal year 1997 is attributable to investing larger available cash generated by
operations because of greater asset turnover. In fiscal year 1996 the Company
used cash from operations to fund the 68 percent sales growth experienced in the
first six months. Finished product assembly, which inherently yields higher
asset turnover to offset lower operating margins, contributed significantly to
higher noncash asset turnover.
The ratio of aggregate ending debt and amounts outstanding under asset
securitization agreements, net of cash, to the first six months' annualized
sales declined to .027 in fiscal year 1997 from .085 for the same period a year
earlier. Because of the greater cash generated by operations, a lower borrowings
level in relationship to sales resulted.
The estimated effective income tax rate differs from the U.S. statutory rate
primarily due to the effects of state income taxes and is currently estimated to
approximate that of fiscal 1996.
Capital Resources and Liquidity
The Company's working capital increased to $705 million at December 29, 1996
from $550 million at June 30, 1996, primarily as a result of higher cash
balances. December 29, 1996's ratio of current assets to current liabilities
(current ratio) was 2.0 compared with 2.2 at June 30, 1996.
The Company believes that unused credit lines and cash (aggregating $1 billion
at December 29, 1996) are sufficient to finance intermediate term growth. Fiscal
year 1997's capital expenditures are currently estimated to approximate $100
million, $20 million more than estimated depreciation.
The dollar amount of order backlog at December 29, 1996 believed by the Company
to be firm was $2.76 billion (in spite of both marked reduction in component
lead times and substantial reduction in component prices), as compared with
$2.43 billion a year earlier and $2.80 billion a quarter earlier.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At the Company's annual meeting of shareholders held on October 25, 1996, the
following individuals were elected as Class III Directors:
Votes in Favor Votes Withheld
G. Robert Tod 25,961,869 57,897
A. Eugene Sapp, Jr. 25,959,497 60,269
The other matters voted on at the meeting were:
Votes in Favor Votes Against Abstentions
Senior Executive Annual
Incentive Plan 25,311,422 223,287 485,057
Selection of Ernst & Young LLP
as the Company's independent
auditors for the fiscal year
ending June 30, 1997 25,699,799 38,681 281,286
Broker nonvotes for the October 25, 1996 meeting amounted to 329,810.
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 September 30, 1996
to December 29, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SCI Systems, Inc.
(Registrant)
Date: February 10, 1997 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)
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: Six Months Ended:
December 29, December 24, December 29, December 24,
1996 1995 1996 1995
--------------------------------------------------
Primary Earnings Per Share
Net income $29,631 $22,158 $54,656 $37,280
Add back after-tax interest
for debentures converted
during period N/A N/A N/A 218
--------------------------------------------------
Adjusted net income used
in primary computation $29,631 $22,158 $54,656 $37,498
==================================================
Weighted average number of
shares outstanding during
period 29,734,760 29,469,208 29,677,219 29,411,513
Applicable number of shares
for common stock equivalents
(stock options) outstanding
for period using
Treasury-stock method based
on average market price for
period 707,734 652,085 685,756 723,679
--------------------------------------------------
Weighted average number of
shares used in computation 30,442,494 30,121,293 30,362,975 30,135,192
==================================================
Primary earnings per share $.97 $.74 $1.80 $1.24
==================================================
Fully Diluted Earnings Per Share
Net income $29,631 $22,158 $54,656 $37,280
Add back after-tax interest
for debentures converted
during period N/A N/A N/A 218
Add back after-tax interest
expense for outstanding
convertible subordinated notes 2,238 N/A 4,476 N/A
--------------------------------------------------
Adjusted net income used
in fully diluted computation $31,869 $22,158 $59,132 $37,498
==================================================
Weighted average number of
shares outstanding during
period 29,734,760 29,469,208 29,677,219 29,411,513
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 707,734 732,980 735,893 729,059
Number of shares to be issued
if outstanding convertible
subordinated notes were
converted 5,897,436 N/A 5,897,436 N/A
--------------------------------------------------
Weighted number of shares
used in computation 36,339,930 30,202,188 36,310,548 30,140,572
==================================================
Fully diluted earnings per
share $.88 $.73 $1.63 $1.24
==================================================
The additional dilution of common stock equivalents was less than three
percent in the second quarter and first six months of fiscal year 1996;
consequently, fully diluted earnings per share were not presented on the income
statements for those periods.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER
29, 1996's BALANCE SHEET AND THE INCOME STATEMENT FOR THE SIX MONTHS THEN
ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> DEC-29-1996
<CASH> 341,725
<SECURITIES> 0
<RECEIVABLES> 511,512
<ALLOWANCES> 11,200
<INVENTORY> 523,092
<CURRENT-ASSETS> 1,389,156
<PP&E> 592,797
<DEPRECIATION> 318,697
<TOTAL-ASSETS> 1,678,244
<CURRENT-LIABILITIES> 683,445
<BONDS> 442,352
0
0
<COMMON> 2,977
<OTHER-SE> 529,578
<TOTAL-LIABILITY-AND-EQUITY> 1,678,244
<SALES> 2,901,842
<TOTAL-REVENUES> 2,901,842
<CGS> 2,800,935
<TOTAL-COSTS> 2,800,935
<OTHER-EXPENSES> (5,452)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,501
<INCOME-PRETAX> 91,858
<INCOME-TAX> 37,202
<INCOME-CONTINUING> 54,656
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,656
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.63
</TABLE>
