UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 28, 1997
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)
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(302) 998-0592
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.10 par value - 59,834,210 shares
Outstanding at November 3, 1997
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SCI Systems, Inc.
Condensed Consolidated Balance Sheets
September 28, June 30,
1997 1997
(In thousands of dollars) (Unaudited) (*)
- --------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 256,787 $ 290,809
Accounts receivable 716,522 630,867
Inventories 678,836 569,846
Refundable and deferred federal and
foreign income taxes 44,197 43,950
Other current assets 13,026 12,582
------------------------------------
Total Current Assets 1,709,368 1,548,054
Property, Plant, and Equipment
(Less accumulated depreciation of $364,796
at September 28,1997, and $347,943 at
June 30, 1997) 317,570 300,997
Other Noncurrent Assets 20,334 20,801
------------------------------------
Total Assets $2,047,272 $1,869,852
====================================
* 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.
<PAGE>
SCI Systems, Inc.
Condensed Consolidated Balance Sheets
September 28, June 30,
1997 1997
(Unaudited) (*)
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 853,307 $ 713,377
Accrued payroll and related expenses 34,667 28,084
Federal, foreign and state income taxes 59,449 47,977
Current maturities of long-term debt 1,894 4,394
------------------------------------
Total Current Liabilities 949,317 793,832
Deferred Income Taxes 10,149 9,901
Noncurrent Pension Liability 5,133 5,133
Deferred Compensation 12,881 12,015
Long-term Debt - Note C
Industrial revenue bonds 21,288 21,310
Long-term notes 135,725 150,801
Convertible subordinated notes 282,366 282,197
------------------------------------
Total Long-term Debt 439,379 454,308
Shareholders' Equity
Preferred stock, 500,000 shares authorized
but unissued -0- -0-
Common stock, $.10 par value: authorized
100,000,000; issued 59,794,590 shares at
September 28, 1997, and 59,774,790 shares
at June 30,1997 5,979 5,978
Capital in excess of par value 173,441 172,910
Retained earnings 457,246 420,863
Currency translation adjustment (5,912) (4,747)
Treasury stock of 59,366 shares, at cost (341) (341)
------------------------------------
Total Shareholders' Equity 630,413 594,663
------------------------------------
Total Liabilities and Shareholders' Equity $2,047,272 $1,869,852
====================================
* 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.
<PAGE>
SCI Systems, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Quarter Ended:
September 28, September 29,
(In thousands of dollars except per share data) 1997 1996
- --------------------------------------------------------------------------------
Net sales $1,741,765 $1,420,005
Costs and expenses 1,676,386 1,372,516
------------------------------------
Operating Income 65,379 47,489
Other income (expense):
Interest expense (net of interest income of
$3,526 in fiscal year 1998 and $1,008 in
fiscal year 1997) (4,212) (5,784)
Other, net (20) 353
------------------------------------
Income before Income Taxes 61,147 42,058
Income taxes - Note B 24,764 17,033
------------------------------------
Net Income $ 36,383 $ 25,025
====================================
Earnings per share - Note A:
Primary $.59 $.42
Fully diluted $.53 $.38
Weighted average number of shares used in computation:
Primary 61,358,347 60,306,898
Fully diluted 73,279,158 72,562,378
See notes to condensed consolidated financial statements.
<PAGE>
SCI Systems, Inc.
Condensed Consolidated Statements Of Cash Flows
(Unaudited)
Quarter Ended:
September 28, September 29,
(In thousands of dollars) 1997 1996
- --------------------------------------------------------------------------------
Operating Activities
Net income $ 36,383 $ 25,025
Adjustments to reconcile net income to cash provided by
(used for) operations:
Depreciation and amortization 22,047 18,078
Changes in current assets and liabilities:
Accounts receivable (87,179) (282,629)
Inventories (110,219) (86,229)
Other current assets (165) 431
Accounts payable and accrued expenses 148,569 247,285
Income taxes 11,612 16,631
Other non cash items - net 1,107 98
-------------------------------
Net Cash Provided by (Used for) Operating Activities 22,155 (61,310)
------------------------------------
Investing Activities
Purchase of property, plant, and equipment (33,555) (19,717)
Other 776 1,899
-------------------------------
Net Cash Used for Investing Activities (32,779) (17,818)
-------------------------------
Financing Activities
Payments on long-term debt (17,276) (37,303)
Proceeds from long-term debt -0- 134,822
Issuance of common stock 399 1,183
-------------------------------
Net Cash (Used for) Provided by Financing Activities (16,877) 98,702
-------------------------------
Effect of exchange rate changes on cash (6,521) (168)
-------------------------------
Net (decrease) increase in cash and cash equivalents (34,022) 19,406
Cash and cash equivalents at beginning of period 290,809 46,493
-------------------------------
Cash and Cash Equivalents at End of Period $256,787 $ 65,899
===============================
Cash equivalents consist of short-term deposits and liquid marketable securities
which are stated at cost that approximates market value.
See notes to condensed consolidated financial statements.
<PAGE>
Notes to Condensed Consolidated Financial Statements
September 28, 1997
(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 28, 1997 are
not necessarily indicative of the results of operations for the year ending June
30, 1998. 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, 1997.
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, 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 $42 million at September 28, 1997, which
are considered permanently invested. Otherwise, approximately $11 million of
cumulative deferred income taxes would have been provided. Income tax provision
for fiscal year 1998 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
At September 28, 1997 the Company had $32 million of certain accounts receivable
sold under its asset securitization agreement, compared with $36 million at June
30, 1997. The Company can sell up to $250 million of certain accounts receivable
with limited recourse under its asset securitization agreements.
Total unused credit facilities available to the Company at September 28, 1997,
including that available under the asset securitization agreements, approximated
$677 million.
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 future
cash use and other factors noted in Item 1. of the Company's Annual Report on
Form 10-K for the year ended June 30, 1997.
Results of Operations
Revenue and net income reached record quarterly highs in fiscal year 1998's
first quarter. Sales increased 22.7% to $1.74 billion from $1.42 billion in the
same period a year earlier. Net income increased 45.4% to $36.4 million from
$25.0 million in fiscal year 1997's first quarter.
Increased volume, which more than offset reduced average selling prices for the
Company's products, led to higher sales in fiscal year 1998 compared with fiscal
year 1997. Lower average selling prices resulted principally from lower
electronic component prices. Finished product assembly accounted for over one
half of the Company's sales in the first quarter of fiscal year 1998. Domestic
sales represented the same approximate ratio of consolidated sales in fiscal
year 1998's first quarter as they did in total for fiscal year 1997.
Operating margins for the first quarter of fiscal year 1998 improved to 3.75%
from 3.34% for the prior fiscal year's first quarter. Improved cost
efficiencies, especially in the Company's foreign operations, generated this
improvement.
Net interest expense for the quarter declined to .24% of sales from .41% for
fiscal year 1997's first quarter. This decrease resulted from increased interest
income earned on temporary investment of improved net cash provided by
operations over the last four quarters. The Company anticipates that interest
income will decline as the year progresses due to reduced short-term investments
as cash is used to support anticipated growth.
Estimated effective income tax rate differs from the U.S. statutory rate
primarily due to the effects of state income taxes.
Net income improved to 2.1% of sales from 1.8% a year earlier, as a result of
improved operating margin and lower net interest expense. Return on average
stockholder's equity for the quarter was 23.8% in fiscal 1998 compared with
20.6% in fiscal 1997.
Fully diluted earnings per share increased to a lesser degree (39.5%) than net
income (45.4%) because of increased weighted average number of shares
outstanding.
Capital Resources and Liquidity
September 28, 1997's working capital of $760 million approximated June 30,
1997's $754 million. September 28, 1997's current ratio (1.8) declined slightly
from June 30, 1997's ratio (2.0).
September 28, 1997's available liquidity was $934 million, comprised of $677
million in unused credit facilities and $257 million in cash. Lower available
liquidity is anticipated during the remainder of fiscal year 1998 as cash is
used to fund working capital and capital expenditures in support of planned
revenue growth. The Company believes that existing liquidity is sufficient to
support near term growth. Fiscal year 1998's capital expenditures are currently
estimated to be $150 million, $60 million more than estimated depreciation and
amortization.
Order backlog believed by the Company to be firm at September 28, 1997 was $3.15
billion, compared with $2.80 billion a year earlier and $3.19 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, 1997 to
September 28, 1997.
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 11, 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)
<PAGE>
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 28, September 29,
1997 1996
-------------------------------
Primary Earnings Per Share
Net income used in primary computation $36,383 $25,025
===============================
Weighted average number of shares outstanding
during period 59,732,046 59,239,342
Applicable number of shares for common stock
equivalents (stock options) outstanding for
period using Treasury-stock method based on
average market price for period 1,626,301 1,067,556
-------------------------------
Weighted average number of shares used in
computation 61,358,347 60,306,898
===============================
Primary earnings per share $.59 $.42
===============================
Fully Diluted Earnings Per Share
Net income $36,383 $25,025
Add back after-tax interest expense for
outstanding convertible subordinated notes 2,239 2,238
-------------------------------
Adjusted net income used in fully diluted
computation $38,622 $27,263
===============================
Weighted average number of shares outstanding
during period 59,732,046 59,239,342
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 1,752,240 1,528,164
Number of shares to be issued if outstanding
convertible subordinated notes were converted 11,794,872 11,794,872
-------------------------------
Weighted number of shares used in computation 73,279,158 72,562,378
===============================
Fully diluted earnings per share $.53 $.38
===============================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
28, 1997's BALANCE SHEET AND THE INCOME STATEMENT FOR THE THREE 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-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> SEP-28-1997
<CASH> 256,787
<SECURITIES> 0
<RECEIVABLES> 727,717
<ALLOWANCES> 11,195
<INVENTORY> 678,836
<CURRENT-ASSETS> 1,709,368
<PP&E> 682,366
<DEPRECIATION> 364,796
<TOTAL-ASSETS> 2,047,272
<CURRENT-LIABILITIES> 949,317
<BONDS> 439,379
0
0
<COMMON> 5,979
<OTHER-SE> 624,434
<TOTAL-LIABILITY-AND-EQUITY> 2,047,272
<SALES> 1,741,765
<TOTAL-REVENUES> 1,741,765
<CGS> 1,676,386
<TOTAL-COSTS> 1,676,386
<OTHER-EXPENSES> (3,506)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,738
<INCOME-PRETAX> 61,147
<INCOME-TAX> 24,764
<INCOME-CONTINUING> 36,383
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,383
<EPS-PRIMARY> .59
<EPS-DILUTED> .53
</TABLE>
