UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: Commission file number:
March 3, 1996 0-3362
SI HANDLING SYSTEMS, INC.
(Exact Name Of Registrant As Specified In Its Charter)
Pennsylvania 22-1643428
(State Or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation)
600 Kuebler Road, Easton, Pennsylvania 18040
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 610-252-7321
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $1.00 Per Share
(Title Of Class)
(1) Has the registrant 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
with the Commission? Yes.
(2) Has the registrant been subject to such filing requirements for the past 90
days? Yes.
(3) Number of shares of common stock, par value $1.00 per share, outstanding as
of March 3, 1996: 2,441,341.
(4) The aggregate market value of the voting stock held by non-affiliates as of
May 23, 1996 was: $22,323,000.
(5) Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K (ss. 229.405 of this chapter) 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. |X|
Documents incorporated by reference: the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on July 17, 1996 incorporated
partially in Part III hereof.
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PART I
Item 1. Business
SI Handling Systems, Inc. (the "Company" or "SI") is a systems integrator
that supplies automated materials handling systems to manufacturing, order
selection, and distribution operations. The systems are designed, sold,
manufactured, installed, and serviced by the Company, or by others for the
Company, at its direction, generally as labor-saving devices to improve
productivity and reduce costs. The Company's products are utilized to automate
the movement of products and are often integrated with other automated
equipment, such as robots. The Company's systems involve both standard and
specially designed components and include integration of non-proprietary
automated handling technologies so as to provide solutions for its customers'
unique materials handling needs. The Company develops and designs computer
control programs required for the efficient operation of the systems. Thus,
systems controls and product engineering are essential parts of the Company's
business.
The Company's backlog of orders at March 3, 1996 and February 26, 1995 was
$10,488,000 and $16,665,000, respectively. The rate of new orders for major
installations can vary substantially from month to month. Fluctuations in the
Company's sales and earnings will occur in the event of an increase or decrease
in major installations. The Company expects to fill, within the 1997 fiscal
year, all of the March 3, 1996 backlog indicated above.
Products
Cartrac(R). Cartrac is a highly modular conveyor system which is used in a
variety of applications. The system moves products to and through robotic and
other automated manufacturing operations in the automotive, appliance,
electronic, and other industries. Its features include high speed movement,
precise positioning of workloads, independent control of carriers, and a broad
range of size and load capacity. These features enable products to move rapidly
to and between operations, stopping precisely at the work stations, as opposed
to continuously moving production lines. Cartrac sales as a percent of total
sales were 32.6%, 22.9%, and 15.8% for fiscal 1996, 1995, and 1994,
respectively.
A system includes a set of parallel metal tracks and holding stations.
Carriers are propelled along the tracks by means of a spinning drive tube
located between the tracks which is in contact with a specially designed drive
wheel underneath the carrier. The speed of individual carriers can be changed by
control of the angle of the drive wheel under the carrier. This permits gentle
acceleration to speeds of up to 350 feet per minute and gentle deceleration to a
complete stop. The average speed of a carrier in the system is 200 feet per
minute.
Cartrac can be mounted on walls and ceilings as well as floors and is
suitable for installation in existing as well as new buildings. It is capable of
vertical as well as horizontal movement and of right angle turning, thus saving
space. Modular design also permits the system to be enlarged through the
addition of components when higher volume or expanded systems become necessary.
Cartrac has been installed in facilities in the United States, Europe,
Japan, and Australia. Cartrac systems can also be combined with the Company's
automated storage and retrieval systems ("AS/RS"), and with the Ordermatic order
selection system, described below. A typical Cartrac system takes six to nine
months to design, manufacture, and install.
The Company also offers a Mini-Cartrac(R) system which provides the key
features of the Cartrac system in a scaled-down version for the handling of
loads from less than one pound up to 200 pounds. During fiscal 1993, SI
introduced ROBOLITE Cartrac(R), the newest version of the Company's spinning
tube conveyor system. The
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new system features an extruded aluminum frame that is lightweight and modular.
This provides for flexibility and simplicity when designing systems.
The ROBOLITE system is extremely reliable as it has few moving parts and
requires little or no maintenance. ROBOLITE offers extremely accurate
positioning and repeatability so it is ideally suited for robotic assembly and
robotic welding systems. ROBOLITE offers a fast, accurate, reliable
transportation system with controlled acceleration and deceleration for smooth
operation with no vibration. The system can accommodate up to 500 pound loads at
varying speeds up to 180 feet per minute.
Switch-Cart(R). Switch-Cart systems are used in a wide variety of
applications in distribution centers, warehouses, newspaper printing, and
manufacturing plants. Switch-Cart sales as a percent of total sales were 2.5%,
2.8%, and 2.2% for fiscal 1996, 1995, and 1994, respectively.
A system consists of an endless tow chain which engages and pulls
four-wheel platform carts. Electronically or mechanically activated switches,
similar to railroad track switches, automatically change the cart's destination
or sidetrack it onto a spur. The tow chain and switches are imbedded in the
floor so as not to interfere with vehicular or foot traffic. The carts can be
manually operated when not engaged with the towline. Installations range from
relatively simple one-loop systems to highly sophisticated computer directed
multiple loop applications.
Of varying dimensions and configurations, Switch-Cart systems are used in
manufacturing operations ranging from soft goods to heavy industrial products.
Switch-Carts can serve as a traveling workbench or assembly platform. They can
be loaded and unloaded automatically and carry products through ovens, freezers,
or spray areas. They can move goods in process, products, packages, or other
materials horizontally and, through the use of ramps or elevators, vertically.
The systems are used in newspaper operations for roll handling as well as
in all types of warehouses; truck, rail, and freight terminals; and hospitals.
They vary in length from a few hundred feet to over seven miles and can connect
multi-building complexes. Switch-Cart systems can be integrated with other
advanced materials handling systems such as high-rise storage and retrieval
systems and automated production equipment to increase the utilization of those
tools.
Because the Company's Lo-Tow(R) tow chain used with the system is
approximately three inches deep, Switch-Cart systems can be installed in
existing one-story and multi-story buildings as well as newly constructed
facilities.
A typical Switch-Cart system requires approximately six months to engineer,
manufacture, and install.
Itematic(R). Itematic is an automated order selection system which selects
and delivers items to packing or assembly stations. The system has been used to
select or "pick" bottles, cassettes, automotive parts, and vials and can be used
for other items such as small boxes and cartons. In addition to applications in
the wholesale and chain drug field, Itematic is used for the selection of health
and beauty aids, cosmetics, electronic components and parts, automotive parts,
hardware, jewelry, contact lenses, and other products. Itematic technology
continues to evolve, providing state-of-the-art controls, and the Itematic is
one of the most advanced systems with the capacity to select and deliver
automatically a variety of products in less than full case quantities.
Modular in design, Itematic consists of storage shelves, adjustable lanes,
picking heads, and belt takeaway conveyors. Operating under electronic control,
Itematic selects the required number of pieces from the appropriate lanes. The
unit can respond to commands in milli-seconds. Sequences can be pre-determined
by invoice, family groups, optimum time sequence, or any other criteria
depending upon user requirements.
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The capacity of the system depends on the number of shelf modules and
picking heads. One picking head can serve from one to six shelf modules, and one
system may contain a number of picking heads. Itematic can be operated manually
using teletype input, semi-automatically using punched cards, punched or
magnetic tape, or fully automatically using computers or microprocessors.
The system is designed to provide greater speed and accuracy than manual or
less automated order selection methods and to reduce product damage, pilferage,
and labor costs.
A typical Itematic system requires approximately six to nine months to
engineer, manufacture, and install.
Ordermatic(R). Ordermatic is an automated order selection system used
primarily in large distribution centers. The system is designed to handle
products packaged in full cartons or cases rather than unpacked items.
The system consists of a series of tiered storage lanes which are inclined
to allow cases to advance along controlled friction runners. Release mechanisms
at the end of each lane allow the cases to escape in controlled amounts onto
takeaway conveyors for delivery to shipping stations. The release mechanisms are
activated electronically by computer and the merchandise arrives at the shipping
area in the sequence desired. Various methods, ranging from manual to automated,
are used to replenish the machines. Ordermatic systems can select cartons in
various sizes ranging in weight from 1 to 60 pounds. Lane widths can be adjusted
to fit various sizes.
A typical Ordermatic requires approximately one year to design, fabricate,
and install. Because of the large size of a typical system, an Ordermatic is
normally installed in a new warehouse. Ordermatic systems are operating on three
continents in such diverse applications as dry grocery, frozen foods, general
merchandise, and electronic and automotive parts.
The Company furnishes computer software programs as part of the Ordermatic
system. The Company's software integrates its order selection equipment with
other warehouse functions such as product receipt, storage location, inventory
control, and shipping.
Accupic(TM). SI introduced the Accupic System in February of 1995, as the
latest addition to the Automated Order Selection Systems product offering.
Accupic is a new, state-of-the-art, pick-to-light system. It is a paperless
picking system that increases the volume currently being picked manually in
distribution centers and greatly improves picking accuracy. Bright red LED
displays direct personnel through the picking sequence automatically. Pick lists
are eliminated, throughput is increased, and errors are dramatically reduced.
The system can be used for less-than-full case picking and for full case
picking.
Dispen-SI-matic(R). Dispen-SI-matic is an automated order selection system
for less than full case picking. The Company entered into a renewable five-year
licensing agreement effective August 22, 1989 with Knapp, an Austrian firm, to
acquire the exclusive right to sell, engineer, manufacture, and install the
Dispen-SI- matic product throughout North America. The licensing agreement,
which is automatically renewable for additional one-year terms, currently
extends through August 22, 1996. The system complements the Itematic rather than
replaces it. The most important feature of the Dispen-SI-matic is that it can
operate up to 10 times faster than the Itematic. The Itematic, however, can
handle a wider range of oddly shaped packages. Order Selection sales, which are
comprised of Ordermatic, Itematic, and Dispen-SI-matic sales (including sales of
Automated Mail Order Pharmacy Systems to the SI/BAKER, INC. ("SI/BAKER") joint
venture), as a percent of total sales were 40.9%, 46.1%, and 37.8% for fiscal
1996, 1995, and 1994, respectively.
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The Dispen-SI-matic is an A-frame modular structure style of automatic
picking machine. The machine is made up of individual blocks or modules, any
number of which can be integrated over the conveying belt at any desired
location. Every module contains a variable number of channels, with each channel
having its own dispensing unit. Product is dispensed onto a central gathering
belt which in turn deposits product into a tote bin. The number of orders which
the automatic picking line can handle at any one time depends on the size of the
line.
In fiscal 1992, the Company introduced the Dispen-SI-matic Medium Mover.
This machine was introduced because research of the movement data indicated that
in some applications it was not necessary to have a dispenser for each product
in the system. The concept was to have a single traveling dispenser serve
numerous channels of product, thereby decreasing the cost of a system and making
the system justifiable for smaller or slow-moving distribution operations.
The Dispen-SI-matic serves the same markets as the Itematic and the choice
of system is application specific. A typical Dispen-SI-matic system requires
approximately six to nine months to engineer, manufacture, and install.
Sortation Systems. The Company provides a high speed, computer-controlled
tilt-tray sortation system for sorting general merchandise. The system is
available with either Flat Tray or Gullwing (an SI exclusive) carriers and
offers both Bull Gear and Caterpillar drives. The Company offers a unique
Electro Mechanical Tripper that does not require air for operation. SI sortation
systems blend manual and automated induction with bar code reading and computed
destination.
In February of 1995, SI introduced a family of newly developed "small
parcel sorting systems". These systems consist of a family of diverters which
can sort packages up to 10 pounds in weight with a maximum size of 12" x 12" x
18". Sortation rates of up to two pieces per second can be achieved with each
sorter mechanism. Compressed air is not required as SI utilizes its proven
dispenser design which only requires electric power to operate. This product
will complement SI's other products in the order selection marketplace.
Sortation sales as a percent of total sales were 0.8%, 0.0%, and 2.9% for 1996,
1995, and 1994, respectively.
A typical sortation system requires approximately six to nine months to
engineer, manufacture, and install.
Automated Guided Vehicle Systems. See Item 3. Legal Proceedings for
information on the rescinded sale of the Company's AGVS product line to Apogee
Robotics, Inc. ("Apogee"). In mid-April, 1995, the balance of the Company's AGV
operations in Rochester Hills, Michigan, consisting primarily of parts and
service support, relocated to a more appropriately sized facility in Sterling
Heights, Michigan. With AGV's talented human resources depleted, except for
aftermarket capabilities, the Company has sought no new AGV systems business.
However, as the affirmed owner of the former BT Systems AGV technology, the
Company is currently assessing several alternatives to ascertain its best
strategic position for the product.
The Company has supplied Sideloading Forklift, Backloading Forklift, Unit
Load, Platform and Towing Automated Guided Vehicle Systems. Automated Guided
Vehicle Systems sales as a percent of total sales were 1.6%, 10.6%, and 22.2%
for fiscal 1996, 1995, and 1994, respectively.
Automated Storage/Retrieval Systems (AS/RS). On March 31, 1992 the Company
concluded the acquisition of all of the outstanding capital stock of BT Systems,
Inc. ("BT Systems"). BT Systems also offered a wide range of capability in
Automated Storage and Retrieval Systems ("AS/RS") for which the Company had
already possessed a strong technology base following its acquisition of the
Hartman product lines three years earlier, coupled with its long standing
technical partnership with Ishikawajima Harima Industries (IHI) in Japan.
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In June, 1989 the Company purchased certain assets of the SPS-Hartman
Systems Division from SPS Technologies. The acquired AS/RS products consist of
the Hartman(TM)unitload, Autocube(TM) miniload, man-aboard Hustler(TM) and
Autotrieve(TM) tote handling systems, along with the appropriate integrated
systems software. Existing customers, with well over 600 installed systems, are
fully supported by SI on their system expansion, service, and spare parts
requirements.
The acquired products and certain personnel were integrated into the
Company's existing Easton, PA facility where the functions of sales, system
engineering, system integration, manufacturing, installation, training, service
and spare parts are located.
This purchase represented an expansion of the product and system offerings
to the manufacturing, order selection, and distribution markets where the
Company is currently a leading supplier of automated computer integrated
materials handling systems. Automated Storage/Retrieval Systems sales as a
percent of total sales were 0.6%, 0.7%, and 2.6% for fiscal 1996, 1995, and
1994, respectively.
Computer Control Systems. The Company has the capability to offer a
materials handling system fully integrated with an information processing system
to regulate the materials handling process. The Company has control programs for
all of its products and possesses the ability to integrate its proprietary
equipment in combination with purchased components such as conveyors to provide
a total materials handling system, including the computer operations for
controlling, supervising, and monitoring the movement, storage, and inventory of
products in the system.
The Company is a recognized IBM Plant Operations Business Partner and all
systems operate on an IBM Industrial PS/2 platform.
The Company's materials handling products operate under computer direction
through SI software designed to integrate the components of factory automation
systems, and when integrated with robots and other high technology components,
provide computer controlled flexible manufacturing systems ("FMS").
Mail Order Pharmacy. On March 1, 1993, the Company and Automated
Prescription Systems, Inc. ("APS") of Pineville, Louisiana formed a joint
venture, SI/BAKER, INC. ("SI/BAKER"). SI/BAKER draws upon the automated
materials handling systems experience of the Company and the automated pill
counting and dispensing products of APS to provide automated pharmacy systems.
Each member company contributed $100,000 in capital to fund the joint venture.
Since 1976, the Company has provided order filling machines and systems to
the wholesale and retail distribution marketplace. Prior to fiscal 1994, the
Company installed automated pharmacy systems at five domestic sites and one
international site. The Company's proprietary products, Itematic and
Dispen-SI-matic, coupled with it's strong computer integration skills, provide
its customers with state-of-the-art split case order filling systems which lower
the cost of distributing products.
APS, the leading manufacturer of automated tablet and capsule counting and
dispensing machines since 1972, has systems in place in retail, hospital, and
mail order pharmacies throughout the United States and Canada. APS also markets
robotic, automated prescription filling systems primarily for use in high volume
pharmacy operations. APS' products have lowered the costs of filling
prescriptions and increased the time available to the pharmacist for customer
counseling.
The joint venture, SI/BAKER, was formed to address the rapidly evolving
automation needs of managed care pharmacy operations which fill prescriptions by
mail for the clients of health care provision plans. The demographics of the
aging population in the United States and the emphasis on reduced health care
costs, of which prescription costs are a major part, is the driving force behind
the automation of mail order pharmacy operations. The industry is expected to
continue to grow rapidly through the year 2000. SI/BAKER focuses on providing
technologically advanced, error free, automated prescription filling systems to
this growing market.
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Information pertaining to the SI/BAKER joint venture is included in Note 12 of
Notes to Financial Statements. See also Contingencies in Note 9 of Notes to
Financial Statements.
Product Warranty. The Company's products are warranted against defects in
materials and workmanship for a specified period.
Marketing
Sales of the Company's products in the United States and Canada are made
through the Company's own sales personnel and independent sales representative
firms and a licensee specializing in selling materials handling equipment.
Approximately 20 employees are engaged in sales, advertising, and marketing
activities. The Company's independent sales representatives and licensee, by
agreement, may not sell systems competitive with those of the Company.
The Company's systems are sold on a fixed price basis. Generally, contract
terms provide for progress payments and a portion of the purchase price is
withheld by the buyer until the system has been tested in place.
The Company's customers include major manufacturers and distributors of a
wide variety of products, as well as common carriers and national retail chains.
A substantial amount of repeat business has been achieved through the sale of
additional systems to the same customer, additions to systems already installed,
and parts and service.
Competition
The materials handling field includes many products, devices, and systems
competitive with those of the Company.
The Company's Cartrac system competes with various alternative materials
handling systems, including automatic dispatch cart, power and free, and belt
and roller conveyor systems; however, the Company believes that the Cartrac
system's advantages, such as controlled acceleration and deceleration, high
speed, individual carrier control, and right angle turning, are significant
distinctive features.
There are four principal competitors supplying equipment similar to the
Company's Switch-Cart system who are well established in terms of sales and
financial resources. Competition in the automatic dispatch cart field is
primarily in the areas of price, experience, and product performance.
The Itematic and Dispen-SI-matic systems compete primarily with manual
picking methods and the Dispen-SI-matic also competes with similar devices
provided by two other manufacturers. They are both general purpose "broken case"
automated order selection systems that have been sold for picking items of
non-uniform configuration. The Company believes that the Itematic and
Dispen-SI-matic systems provide greater speed and accuracy than manual methods
and reduce damage, pilferage, and labor costs. Pick-To-Light systems are
becoming more advanced and now provide higher picking rates than they have in
the past. In February of 1995, the Company introduced its own Pick-To-Light
system (Accupic) into the marketplace. Numerous companies now provide this type
of system which has resulted in more competition to the Company's own automated
systems offerings.
The Company's tilt-tray sortation system (encompassing both Flat Tray and
Gullwing) competes primarily with other tilt-tray sortation systems, as well as
belt sorters and roller conveyor sorters. Tilt-tray sorters, as opposed to belt
and roller sorters, are generally used when higher throughput is required. Slat
and shoe sorters are increasing throughput capabilities and are beginning to
realize gains in market share as compared to tilt-tray sorters. SI introduced
the family of small parcel sorters to participate in the markets that distribute
small, light weight packages. These sorters will be sold mainly to companies in
the mail order merchandise industry.
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There are approximately ten other companies that supply Automated
Storage/Retrieval Systems and approximately five other companies that supply
Automated Guided Vehicle Systems. The Company does not attempt to sell new AS/RS
or AGV systems, but concentrates its efforts on the parts, service, and rehab
business. Due to the decline in AGVS sales in the U.S. over the past two years,
competition on the basis of price has increased in an attempt to garner all
potential business.
The Company knows of no product comparable to its Ordermatic system. There
are other approaches to mechanizing and automating the storage and order picking
functions in warehouses and distribution centers, but the Company believes that
none is as fully automated as Ordermatic.
New technology is constantly being developed in the materials handling
field. As in the case of other technically oriented companies, there is a risk
that the Company's business may be adversely affected by technological advances
in the materials handling field; however, the Company believes that its
competitive advantages include its reputation in the materials handling field,
its patents, and its experience and proven capabilities in the markets in which
it concentrates. Its disadvantages include its relatively small size as compared
to certain of its larger competitors.
Raw Materials
The Company has not been adversely affected by energy or raw materials
shortages. Its principal plant uses natural gas for heating and electricity to
operate its machinery. The principal raw material purchased by the Company is
steel which the Company purchases from various suppliers.
Patents And Licenses
Significant design features of the Cartrac, Switch-Cart, Sortation, AGV,
Itematic, and Ordermatic systems are covered by patents or patent applications
in the United States.
The Company has approximately 120 patents with lives that expire through
September 2006. The Company believes that it has approximately 20 significant
patents. These patents when used in conjunction with the remaining 100 patents
enable the Company to build quality automated materials handling systems. The
perceived significant patents have useful lives expiring through January 2005.
The significant patents pertain mainly to the following areas: vehicles and
carrier design, loading and unloading products, speed and precision control,
track design and assembly, and accumulation of vehicles.
Of greater value than the protection provided by patents is the
intellectual knowledge assembled over many years of application experience into
a mass of accumulated technical expertise possessed by a stable and dedicated
work force.
During fiscal 1991, the Company entered into a 10-year licensing agreement
with Robotrac, Inc. (a company of Heico, Inc.) of Addison, Illinois whereby SI
markets and manufactures Robotrac products, systems, and services along with the
Company's complete line of materials handling solutions. Under the terms of the
license agreement, the Company pays royalties to Robotrac, Inc. based on net
sales of Cartrac products and services. Royalty expense relating to the Robotrac
licensing agreement for fiscal years 1996, 1995, and 1994 was $501,000,
$385,000, and $283,000, respectively.
During fiscal 1990, the Company entered into a renewable five-year
licensing agreement with Knapp to acquire the exclusive right to sell, engineer,
manufacture, and install the Dispen-SI-matic product throughout North America.
Under terms of the license agreement which is automatically renewable for
one-year terms and currently extends through August 22, 1996, the Company pays
royalties to Knapp based on the number of dispensers per system with a minimum
payment applicable
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to each system. Royalty expense relating to the Knapp licensing agreement for
fiscal years 1996, 1995, and 1994 was $125,000, $262,000, and $140,000,
respectively.
During fiscal 1988, the Company sold its European product rights and
technology to its former French licensee. However, as part of the sales
agreement, the Company acquired a 5% ownership position in a newly formed
company created by the buyer to conduct the materials handling business in
Europe. In fiscal 1994, the Company relinquished its 5% ownership position.
In June 1979, the Company entered into an agreement with its Japanese joint
venture partner (see "Business-Foreign Operations") to acquire technology for
totally integrated computer controlled transport and storage systems. The joint
venture was dissolved during fiscal 1989 and in return the Company acquired U.S.
market rights to the Japanese joint venture partner's products.
Product Development
Product development costs, including patent expense and amortization, were
$395,000, $490,000, and $182,000 for fiscal years 1996, 1995, and 1994,
respectively. In a continuation of programs initiated in fiscal 1995, the
Company's development efforts in fiscal 1996 were concentrated on the small
parcel sortation system and the Pick-To-Light technology. The small parcel
sorter is an essential and significant component of a large systems integration
contract that neared completion at the end of fiscal 1996. Orders for
Pick-To-Light systems have also been received, and it is expected that the
product will play a significant role in warehousing and distribution market
strategy. Fiscal 1995's development expenses also contained charges relating to
the AGV product incurred prior to the failed sale of that product to Apogee.
During fiscal 1994, the majority of the Company's development efforts had been
directed at the Automated Guided Vehicle, Dispen-SI-matic, and ROBOLITE Cartrac
systems.
Employees
The Company employs 124 persons in the United States. Its staff includes 6
executive employees, 88 office employees including salespersons, draftspersons
and engineers, and 30 production personnel. A reduction of 16 production
personnel occurred during the second half of fiscal 1996, reflecting both a
decline in backlog as well as a change in the mix of product sales from
manufactured to purchased. The decline in office employees during the previous
year, fiscal 1995, was due primarily to the termination of employees associated
with the AGVS product line formerly located in Rochester Hills, Michigan. In
addition, approximately ten positions were eliminated due to a business unit
restructuring program initiated at the end of fiscal 1995.
The production personnel were unionized in January 1971 by the United
Steelworkers of America. The Company's management and union personnel failed to
reach a new collective bargaining agreement when the union contract expired on
May 1, 1994. Production personnel were on strike through May 15, 1994 at the
Company's Easton, Pennsylvania location. Management and union personnel reached
a new three-year agreement, expiring April 27, 1997. The Company provides life
insurance, major medical insurance, retirement programs, and paid vacation and
sick leave benefits, and considers its relations with employees to be
satisfactory.
Business Foreign Operations
In order to reduce losses and focus on the large North American market, the
Company discontinued operations in Europe during fiscal 1988 and sold its
European product rights and technology to its former French licensee. However,
the Company acquired a 5% ownership position in the new European organization.
In fiscal 1994, the Company relinquished its 5% ownership position. An existing
licensing agreement covering the production and sale of the Company's products
in Australia
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has not been affected by the sale of product rights and technologies to the
French firm.
The Company was engaged in a joint venture with Ishikawajima-Harima Heavy
Industries Co. (IHI), a Japanese company. The joint venture was dissolved during
fiscal 1989 and a new agreement between the Company and IHI was adopted granting
a royalty-free license to manufacture and sell designated products.
Item 2. Properties and Leases
The Company's principal offices and its manufacturing facilities are
located in a 173,000 square foot concrete, brick, and steel facility in Easton,
Pennsylvania. The original building was constructed in 1963 and has been
expanded several times, the latest having been a 30,000 square foot addition
completed in September 1981. The Company holds the deed to its facilities and
the 20 acre site on which they are located. Financing for the property,
including construction and subsequent additions, was arranged by Easton Area
Industrial Developers, Inc., a non-profit industrial promotion corporation
organized by the Easton Area Chamber of Commerce, providing favorable interest
rates through the Pennsylvania Industrial Development Authority.
The Company also leased approximately 64,000 square feet of office and shop
space in Rochester Hills, Michigan. The lease ran through December 31, 1996;
however, the Company terminated the lease as of April 30, 1995. All assets
associated with this facility were either disposed of or transferred to the
Company's Easton location or a newly leased smaller facility in the Sterling
Heights, Michigan area from which the Company conducts AGV aftermarket business.
Substantially all of the machinery and equipment in the Easton location is
owned by the Company and is unencumbered.
Item 3. Legal Proceedings
During the fourth quarter of fiscal 1996, the litigation with Apogee
Robotics, Inc. ("Apogee") and AGV Acquisitions Corporation ("AGVA") previously
reported was settled pursuant to a Settlement Agreement which was approved by
the bankruptcy court, and the final Order of Dismissal was entered on December
1, 1995. As part of the Settlement Agreement, the parties agreed to the
following: during the fourth quarter of fiscal 1996, the Company paid Apogee
$150,000 and returned the original certificate for 100,000 of Apogee preferred
shares; Apogee transferred any right, title or interest it may have had in the
Company's automated guided vehicle assets to the Company and disclaimed any
interest in the assets; and the parties released all claims that they may have
had against each other.
On April 15, 1996, a competitor filed suit in the United States District
Court for the Northern District of Illinois against the Company, its SI/BAKER
joint venture, and APS alleging that certain of the products of SI/BAKER
infringe a patent held by the competitor. The competitor is seeking monetary
damages and a royalty related to future sales by SI/BAKER of its products. The
management of both the Company and SI/BAKER, supported by its legal counsel,
believe that SI/BAKER products do not infringe the competitor's patent, and it
is more likely than not that the Company and SI/BAKER will prevail if the matter
is adjudicated. The management of both the Company and SI/BAKER believe that the
ultimate resolution of this matter will not have a material adverse effect on
the Company and SI/BAKER whether resolved through adjudication or settlement.
The Company is presently engaged in certain other legal proceedings besides
the litigation noted above which, in the opinion of the Company counsel, present
no significant risk of material loss to the Company.
10
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 3, 1996.
Information with respect to the executive officers of the Company is
contained in Part III hereof and is incorporated by reference in this Part I.
11
<PAGE>
PART II
Item 5. Market For The Registrant's Common Stock And Related Security
Holder Matters
The Company's Common Stock trades on the Nasdaq National Market tier of the
Nasdaq Stock Market under the symbol "SIHS." The high and low sales prices for
the past two fiscal years are as follows:
<TABLE>
<CAPTION>
Fiscal 1996* Fiscal 1995*
High Low High Low
<S> <C> <C> <C> <C>
First Quarter............................... 7 5 23/32 9 1/2 6
Second Quarter.............................. 7 5/6 5 2/3 6 5/6 5 1/3
Third Quarter............................... 8 3/4 6 1/2 6 2/3 5
Fourth Quarter.............................. 8 5 3/4 6 5/6 5
<FN>
*Adjusted for three-for-two stock split that was distributed in August 1995.
</FN>
</TABLE>
The Company paid cash dividends of 6 2/3 cents per share in fiscal 1996,
1995, and 1994, after adjustment for the three-for-two stock split that was
distributed in August 1995.
The number of shareholders of the Company's Common Stock at March 3, 1996
was 1,352.
Closing market price on May 23, 1996 was 10 3/8.
Item 6. Selected Financial Data
(Dollars in thousands, except per share figures)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
Fiscal Year Ended 3/03/96 2/26/95 2/27/94 2/28/93 3/01/92
<S> <C> <C> <C> <C> <C>
Net sales............................. $25,786 28,631 29,282 28,998 20,840
Net earnings (loss)*.................. 1,625 ( 1,468) 206 524 1,237
Net earnings (loss) per
share**............................. .66 ( .60) .08 .21 .51
Total assets.......................... 12,570 13,136 13,204 15,197 13,945
Long-term obligations
including capital lease
obligations.......................... 150 665 137 136 144
Cash dividends per share***........... .07 .07 .07 .07 -
<FN>
* Fiscal 1995 included approximately $525,000 of expenses relating to the
rescinded Apogee transaction (see Note 8 of Notes to Financial Statements),
$1,700,000 of losses associated with the AGVS product line, and $190,000 in
corporate restructuring charges. Fiscal 1996 includes approximately
$436,000 of income relating to the rescinded Apogee transaction.
** On July 18, 1995, the Board of Directors declared a three-for-two stock
split that was distributed on August 11, 1995 to shareholders of record on
July 31, 1995. On October 9, 1991, the Board of Directors declared a 10%
stock dividend payable on November 4, 1991 to shareholders of record on
October 21, 1991. Net earnings (loss) per share for all periods presented
reflect the three-for-two stock split and the 10% stock dividend and are
based on the weighted average number of shares outstanding and equivalent
shares from dilutive stock options.
*** Adjusted from 10 cents per share for the three-for-two stock split that was
distributed in August 1995.
</FN>
</TABLE>
12
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Business Unit Restructuring
In February of 1995, a structural reorganization of the Company was
implemented whereby five distinct business units have been formed. The business
unit concept is intended to create focused business elements where objectives
and performance can be established and evaluated producing a synergistic impact
on the total corporate entity. The units consist of two that possess the
Company's products and which have responsibility for marketing, development, and
application of those products. The Warehousing and Distribution Systems ("WDS")
unit possesses Dispen-SI-matic(R), Sortation, Itematic(R), and Ordermatic(R),
while the Production and Assembly Systems ("PAS") unit offers Switch-Cart(R),
Cartrac(R), and Automated Storage/Retrieval Systems to its markets. The
Manufacturing and Assembly Services ("MAS") unit provides manufacturing,
inventory procurement and control service, on a competitive basis, to WDS and
PAS and also seeks to sell component manufacturing service to markets outside
the materials handling arena. The Customer and Software Services ("CSS") unit is
multi-faceted, providing customer services principally in the materials handling
aftermarket area, as well as software and controls engineering, and installation
services to WDS and PAS, on a competitive basis, or to other customers outside
the traditional materials handling market. A fifth business unit, Corporate
Services, provides accounting, general and corporate services, on a fee basis,
to the other business units and also derives some of its income by assessing a
royalty on the aftermarket business activity of CSS. Each of the units has an
approved plan against which its performance will be monitored and measured.
Liquidity And Capital Resources
The Company's cash and cash equivalents increased to $1,335,000 during
fiscal 1996 from $571,000 at the end of fiscal 1995. The increase resulted from
cash provided by operating activities totaling $4,049,000, proceeds of $170,000
from the disposition of equipment associated with Automated Guided Vehicle
("AGV") operations at the Company's former Rochester Hills, Michigan location,
and proceeds of $33,000 from the sale of treasury stock in connection with the
employee stock option plan. Partially offsetting the increase in cash and cash
equivalents were the repayments of long-term debt of $23,000 and the revolving
credit loan payable to bank of $500,000, purchases of short-term investments of
$2,414,000, purchases of capital equipment of $178,000, the payment of $164,000
in cash dividends to shareholders, and the payment of $208,000 in connection
with the repurchase and retirement of the Company's common stock. Funds used by
operating activities in fiscal 1995 were $195,000, while funds provided by
operating activities in fiscal 1994 were $397,000.
The Company has a $5,000,000 committed revolving credit facility which is
secured by a lien position on accounts receivable, land, and buildings and
contains various restrictive covenants relating to additional indebtedness,
asset acquisitions or dispositions, and maintenance of certain financial ratios.
The Company was in compliance with all covenants during fiscal 1996. The term of
the original agreement was for three years with an expiration date of July 31,
1996; however, effective March 1, 1996, the Company's principal bank amended
certain covenants to allow the Company greater operating flexibility and
extended the expiration date of the revolving credit facility to July 31, 1998.
During fiscal 1996, the highest level of borrowing under the committed revolving
credit facility was $500,000, with borrowings limited to approximately five days
in the first month of the fiscal year.
13
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations (Continued)
Liquidity and Capital Resources (Continued)
During fiscal 1995, the Company announced the sale of its Automated Guided
Vehicle Systems ("AGVS") product line to Apogee Robotics, Inc. ("Apogee") as
described in Note 8 of Notes to Financial Statements. The Company contended that
the closing occurred in escrow; that the conditions for consummating the closing
and terminating the escrow were never satisfied; and that, as a result the sale
never transpired. Litigation regarding the closing ensued between the Company
and Apogee; however, the Company negotiated a Settlement Agreement with Apogee
which was approved by the bankruptcy court, and the final Order of Dismissal was
entered on December 1, 1995.
As part of the Settlement Agreement, the parties agreed to the following:
during the fourth quarter of fiscal 1996, the Company paid Apogee $150,000 and
returned the original certificate for 100,000 of Apogee preferred shares; Apogee
transferred any right, title or interest it may have had in the Company's
Automated Guided Vehicle assets to the Company and disclaimed any interest in
the assets; and the parties released all claims that they may have had against
each other. At March 3, 1996, remaining costs of $80,000 are accrued for the
balance of lease costs and other expenses associated with the Settlement
Agreement.
The Company has not accepted new AGVS contracts since October 6, 1994, the
closing date of the failed sale of the AGV business to Apogee, but remains
liable to complete existing AGVS contracts. The Company believes that it will be
able to complete existing contracts and presently is continuing the sale of
parts and other services relative to AGVS.
On July 18, 1995, the Board of Directors of the Company declared a
three-for-two stock split that was distributed on August 11, 1995 to the
shareholders of record on July 31, 1995. The purpose of the stock split was to
increase the number of outstanding shares and broaden ownership and availability
of the Company's common stock.
The Company anticipates that its financial resources consisting of its
current assets, anticipated cash flow, and the available revolving credit
facility will adequately finance its operating requirements in the foreseeable
future.
The Company plans to consider expansion opportunities as they arise,
although ongoing operating results of the Company, the economics of the
expansion, and the circumstances justifying the expansion will be key factors in
determining the amount of resources the Company will devote to further
expansion. At this time, the Company does not have any material capital
commitments.
Results Of Operations - 1996 Compared To 1995
The Company's net earnings for fiscal 1996 were $1,625,000 compared to a
net loss of $1,468,000 for fiscal 1995. Backlog at the end of fiscal 1996 was
$10,488,000 with the majority of the backlog pertaining to Cartrac and
Dispen-SI- matic contracts.
Net sales of $25,786,000 for fiscal 1996 decreased 9.9% compared to net
sales of $28,631,000 for fiscal 1995. The sales decrease in fiscal 1996 was
primarily attributable to a decline in AGVS and Order Selection sales. The
decline in AGVS sales was due to the Company's reduced emphasis on the AGVS
product line, with selling efforts related to the product currently confined to
the parts and service business. The decline in Order Selection sales,
principally Dispen-SI-matic systems, was due to the fiscal 1995 period
containing several large contracts on which a significant amount of progress was
accomplished. Partially offsetting the decline in AGVS and Order Selection sales
was an increase in sales of the Company's Cartrac product, principally in the
automotive market.
14
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations (Continued)
Results Of Operations - 1996 Compared To 1995 (Continued)
Gross profit as a percentage of sales was 24.6% for fiscal 1996 compared to
19.5% for fiscal 1995. The increase in the gross profit percentage for fiscal
1996 is primarily attributable to reduced overhead expenses. The reduction is
largely accounted for by the elimination during the second half of fiscal 1995
of overhead expenses relating to the AGV systems operation in Rochester Hills,
Michigan. Further reductions in overheads, though deemed immaterial by the
Company's management, occurred as a result of the business unit restructuring
whereby certain personnel costs relating to indirect and support activities of
project engineering formerly charged to cost of sales are now classified with
the selling, general and administrative expenses of the business units to which
the efforts of those personnel are now directed. The dynamics of the business
unit structure requires members to be diversely engaged in all needs of the unit
and not be limited to cost of sales functions. Also contributing to fiscal
1996's improved gross profit is a change in mix favoring traditionally higher
margin, lower risk products and services, including aftermarket. Partially
offsetting the aforementioned increases in gross profit percentage for fiscal
1996 were additional costs associated with executing and concluding several AGVS
contracts and higher costs associated with first-time design inefficiencies
relating to the Company's new small parcel sortation system aimed at
improvements to mail order distribution operations. Contributing to the low
gross profit percentage in fiscal 1995 were difficulties in executing and
concluding several AGVS contracts as additional costs became necessary to meet
contractual throughput and durability requirements and overhead expenses related
to AGVS operations.
Selling, general, and administrative expenses of $5,153,000 were lower by
$905,000 in fiscal 1996 than in fiscal 1995. The favorable performance was
primarily due to a reduction in selling expenses pertaining to the Company's
AGVS product line. Also contributing to the favorable performance was the cost
improvement measure of personnel reductions associated with the restructuring
action that occurred during the fourth quarter of fiscal 1995.
During fiscal 1996, the Company recognized net income of $436,000
associated with the settlement of the litigation pertaining to the rescinded AGV
Asset Purchase Agreement. The net income included the impact of the favorable
and expeditious resolution of the Apogee dispute where the terms and legal costs
associated with the settlement were substantially more favorable than provided
in the prior year. During fiscal 1995, net expense of $525,000 associated with
the rescinded sale transaction and the AGV product line included estimated legal
fees, lease termination costs, and the reduction to net realizable value of
certain AGV related inventory and fixed assets offset by the remaining negative
goodwill associated with the AGVS product line.
Product development costs of $395,000 were lower by $95,000 in fiscal 1996
than in fiscal 1995. Development programs in fiscal 1996 included improvements
to the Order Selection and Sortation product lines, with particular emphasis
aimed at the Accupic Pick-To-Light and small parcel sortation systems. During
fiscal 1995, the Company concentrated its development efforts primarily in the
Sortation, Order Selection, and, prior to the failed sale of the AGV business to
Apogee, the Automated Guided Vehicle product lines. The Company introduced a
small parcel sortation system and the Accupic Pick-To-Light order management
system during fiscal 1995.
Interest expense of $17,000 was lower by $54,000 in fiscal 1996 than in
fiscal 1995. The decrease in interest expense was primarily attributable to the
low level of borrowings under the Company's revolving credit facility during
fiscal 1996.
15
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations (Continued)
Results Of Operations - 1996 Compared To 1995 (Continued)
Interest income of $175,000 was higher by $172,000 in fiscal 1996 than in
fiscal 1995. The increase in interest income was primarily attributable to the
higher level of funds provided by operations and available for short-term
investments during fiscal 1996.
Equity in income of joint venture represented the Company's proportionate
share of its investment in SI/BAKER, INC. which is being accounted for under the
equity method. The favorable variance in the equity in income of joint venture
was attributable to SI/BAKER's growth in revenues and gross profit percentage
reduced by increased royalty costs and selling, general, and administrative
expenses, including accrued legal costs associated with the patent infringement
litigation.
The favorable variance in other expense (income), net, was primarily
attributable to an increase in royalty income and service fees related to the
SI/BAKER, INC.
joint venture.
The Company incurred income tax expense of $212,000 during fiscal 1996
compared to the recognition of no income tax expense in fiscal 1995. During
fiscal 1996, income tax expense was less than the statutory rate of 34% due to
the recognition of previously unrecognized deferred tax assets which are
anticipated to be realizable due to the current and projected profitability of
the Company. The Company did not recognize an income tax benefit during fiscal
1995 due to the uncertainty of realization of additional deferred tax assets.
Results Of Operations - 1995 Compared To 1994
Net sales of $28,631,000 for fiscal 1995 decreased 2.2% compared to net
sales of $29,282,000 for fiscal 1994. The sales decrease in fiscal 1995 was due
to a low rate of new orders received during the early part of the 1994 calendar
year. However, the Company was the recipient of several large contracts
subsequent to the first quarter of fiscal 1995 and finished the year with a
backlog of $16,665,000. The majority of the backlog pertained to Cartrac and
Dispen-SI-matic contracts.
Gross profit as a percentage of sales was 19.5% for fiscal 1995 compared to
19.8% for fiscal 1994. The continued low level of gross profit performance
resulted primarily from difficulty in executing and concluding several AGVS
contracts. Also contributing to the low gross profit percentage were first-time
design inefficiencies associated with a new Cartrac application aimed at
improvements for automotive engine casting operations, added costs associated
with outside sourcing necessitated by a brief work stoppage, and an increasing
content of lower margin ancillary equipment and systems integration services
pertaining to two large Order Selection contracts.
Selling, general, and administrative expenses of $6,058,000 were higher by
$505,000 in fiscal 1995 than in fiscal 1994. The increase was attributable to
the addition of resources consistent with the Company's strategic plan to grow
the business as a systems integrator, facility costs pertaining to the Rochester
Hills location during its non-operating second half of fiscal 1995, and
severance costs associated with restructuring the Company's operations.
Partially offsetting the increase was a reduction in overhead-related salaries
associated with the Company's Automated Guided Vehicle Systems product line
which was sold effective August 26, 1994 and which was later rescinded. For more
information regarding this matter, see Note 8 of Notes to Financial Statements.
16
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations (Continued)
Results Of Operations - 1995 Compared To 1994 (Continued) Net expense of
$525,000 associated with the AGV Asset Purchase Agreement
pertained to legal and professional fees to vigorously prosecute the adversary
proceeding instituted by AGV Acquisitions Corporation ("AGVA"), reductions in
the net realizable values of certain assets, and facility charges related to the
closure of the Company's Rochester Hills, Michigan location due to the failure
of the closing process between the Company and AGVA for the sale of the
Company's Automated Guided Vehicle Systems product line. Partially offsetting
this charge was the recognition of the remainder of the unamortized balance of
the excess of acquired net assets over costs.
Product development costs of $490,000 were higher by $308,000 in fiscal
1995 than in fiscal 1994. During fiscal 1995, the Company concentrated its
development efforts primarily in the Sortation, Order Selection, and, prior to
the failed sale of the AGV business to Apogee, the Automated Guided Vehicle
Systems product lines. The Company continued its commitment as systems
integrators by introducing a small parcel sortation system and the Accupic
Pick-To-Light order management system. During fiscal 1994, the primary
development efforts were applied to gain competitive advantages in the Automated
Guided Vehicle Systems product line. Costs for product enhancements included as
part of contractual commitments were charged to cost of sales. During fiscal
1994, the Company developed an Automatic Reel Loading capability and improved
its systems integration strengths in this manner.
The increase in interest expense from fiscal 1994 to fiscal 1995 was due
primarily to the increased level of interest rates related to borrowings from
the Company's principal bank.
Interest income for fiscal 1995 declined as a result of lower invested
balances.
The unfavorable variance in other expense (income), net, was primarily
attributable to the fiscal 1994 comparable period containing non-recurring
income from foreign exchange transactions, collections on accounts receivable
previously recognized as uncollectible, and a refund of insurance premiums
relating to redundant policies cancelled in earlier periods due to the
consolidation of the Company's risk management function for both its operating
locations. Partially offsetting the unfavorable variance was royalty income
related to the SI/BAKER joint venture.
The Company did not recognize an income tax benefit during fiscal 1995 due
to the uncertainty of realization of additional deferred tax assets. During
fiscal 1994, there was no income tax expense due to the recognition of
previously unrecognized deferred tax assets.
17
<PAGE>
Item 8. Financial Statements and Supplementary Data
I N D E X
o Independent Auditors' Report.
o Financial Statements:
Balance sheets, March 3, 1996 and February 26, 1995.
Statements of operations for the years ended March 3, 1996, February 26,
1995, and February 27, 1994.
Statements of stockholders' equity for the years ended March 3, 1996,
February 26, 1995, and February 27, 1994.
Statements of cash flows for the years ended March 3, 1996, February 26,
1995, and February 27, 1994.
Notes to financial statements.
o Schedule for the years ended March 3, 1996, February 26, 1995, and February
27, 1994:
II - Valuation and qualifying accounts
o All other schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or related
notes.
18
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
SI Handling Systems, Inc.:
We have audited the financial statements of SI Handling Systems, Inc. as listed
in the accompanying index. In connection with our audits of the financial
statements, we also have audited the financial statement schedule as listed in
the accompanying index. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule 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 financial position of SI Handling Systems, Inc. as of
March 3, 1996 and February 26, 1995, and the results of its operations and its
cash flows for each of the years in the three-year period ended March 3, 1996,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Allentown, PA
May 3, 1996
19
<PAGE>
SI HANDLING SYSTEMS, INC.
Balance Sheets
March 3, 1996 and February 26, 1995
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents, principally
time deposits...................................................... $1,335 571
Short-term investments .............................................. 2,414 --
------ ------
Total cash, cash equivalents, and
short-term investments ........................................ 3,749 571
------ ------
Receivables:
Trade ............................................................. 2,505 6,654
Notes and other receivables ....................................... 528 147
------ ------
Total receivables ............................................... 3,033 6,801
------ ------
Costs and estimated earnings in excess
of billings ....................................................... 1,803 1,400
------ ------
Inventories:
Finished goods and work-in-process ................................ 799 998
Raw materials ..................................................... 963 847
------ ------
Total inventories ............................................... 1,762 1,845
------ ------
Deferred income tax benefits ........................................ 229 242
Prepaid expenses and other current assets ........................... 141 266
------ ------
Total current assets ............................................ 10,717 11,125
------ ------
Property, plant and equipment, at cost:
Land ................................................................ 27 27
Buildings and improvements .......................................... 3,276 3,298
Machinery and equipment ............................................. 3,331 3,958
------ ------
6,634 7,283
Less: accumulated depreciation ...................................... 5,461 5,613
------ ------
Net property, plant and equipment ............................... 1,173 1,670
------ ------
Deferred income tax benefits ........................................... 71 --
Investment in joint venture ............................................ 530 251
Other assets, at cost less accumulated
amortization of $57 in 1996 and
$161 in 1995 ........................................................ 79 90
------ ------
Total assets.............................................. $12,570 13,136
======= ======
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
SI HANDLING SYSTEMS, INC.
Balance Sheets
March 3, 1996 and February 26, 1995
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Liabilities And Stockholders' Equity
Current liabilities:
Current installments of long-term debt............................... $ 20 21
Accounts payable .................................................... 1,542 2,386
Customers' deposits and billings in excess
of costs and estimated earnings ................................... 1,112 1,425
Accrued salaries, wages, and commissions ............................ 929 453
Income taxes payable ................................................ 275 7
Accrued royalties payable ........................................... 593 620
Liabilities and deferred credits associated with
the AGV Asset Purchase Agreement .................................. 80 931
Accrued other liabilities ........................................... 659 703
------ ------
Total current liabilities ....................................... 5,210 6,546
------ ------
Long-term liabilities:
Long-term debt, excluding current installments:
Mortgages payable ................................................. 49 71
Revolving credit loan payable to bank ............................. -- 500
------ ------
Total long-term debt ............................................ 49 571
Deferred compensation ............................................... 101 94
------ ------
Total long-term liabilities ..................................... 150 665
------ ------
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value; authorized
5,000,000 shares; issued 2,441,341 shares
in 1996 and 2,501,385 shares in 1995 .............................. 2,441 2,501
Additional paid-in capital .......................................... 3,613 3,703
Retained earnings (deficit) ......................................... 1,156 (17)
------ ------
7,210 6,187
Less: treasury stock, at cost (39,056 shares
in 1995) .......................................................... -- (262)
------ ------
Total stockholders' equity ...................................... 7,210 5,925
------ ------
Total liabilities and stockholders' equity....................... $12,570 13,136
======= ======
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
SI HANDLING SYSTEMS, INC.
Statements Of Operations
Years Ended March 3, 1996, February 26, 1995, and February 27, 1994
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net sales .......................... $ 25,786 28,631 29,282
Cost of sales ...................... 19,434 23,058 23,480
-------- -------- --------
Gross profit on sales ........... 6,352 5,573 5,802
-------- -------- --------
Selling, general and administrative
expenses ........................ 5,153 6,058 5,553
Net expense (income) associated with
the AGV Asset Purchase Agreement (436) 525 --
Product development costs .......... 395 490 182
Interest expense ................... 17 71 58
Interest income .................... (175) (3) (34)
Equity in income of joint venture .. (279) (66) (85)
Other (income) expense, net ........ (160) (34) (78)
-------- -------- --------
4,515 7,041 5,596
-------- -------- --------
Earnings (loss) before income taxes 1,837 (1,468) 206
Income tax expense ................. 212 -- --
-------- -------- --------
Net earnings (loss) ............. $ 1,625 (1,468) 206
======== ======== ========
Net earnings (loss) per common share
and common share equivalents* ... $ .66 (.60) .08
======== ======== ========
</TABLE>
* On July 18, 1995, the Board of Directors declared a three-for-two stock split
that was distributed on August 11, 1995 to stockholders of record on July 31,
1995. Net earnings (loss) per share for all periods presented reflect the
three-for-two stock split and are based on the weighted average number of
shares outstanding and equivalent shares from dilutive stock options, which
were 2,476,056, 2,460,117, and 2,479,347 in fiscal 1996, 1995, and 1994,
respectively.
See accompanying notes to financial statements.
22
<PAGE>
SI HANDLING SYSTEMS, INC.
Statements Of Stockholders' Equity
Years Ended March 3, 1996, February 26, 1995, and February 27, 1994
(In Thousands, Except Share And Per Share Data)
<TABLE>
<CAPTION>
Additional Retained Total
Common Paid-In Earnings Treasury Stockholders'
Stock Capital (Deficit) Stock Equity
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1993 ....................... $ 1,679 4,525 1,605 (336) 7,473
Issuance of 822,251 common shares in connection with
three-for-two stock split on August 11, 1995 .... 822 (822) -- -- --
------- ------- ------- ------- -------
Balance at February 28, 1993, as adjusted .......... 2,501 3,703 1,605 (336) 7,473
Net earnings ....................................... -- -- 206 -- 206
Dividends declared - $.07 per share cash dividend .. -- -- (162) -- (162)
Acquisition of 5,108* treasury shares .............. -- -- -- (63) (63)
Sale of 18,508* treasury shares in connection
with employee stock option plan ................. -- -- (29) 121 92
------- ------- ------- ------- -------
Balance at February 27, 1994 ....................... 2,501 3,703 1,620 (278) 7,546
Net loss ........................................... -- -- (1,468) -- (1,468)
Dividends declared - $.07 per share cash dividend .. -- -- (164) -- (164)
Sale of 2,475* treasury shares in connection
with employee stock option plan ................. -- -- (5) 16 11
------- ------- ------- ------- -------
Balance at February 26, 1995 ....................... 2,501 3,703 (17) (262) 5,925
Net earnings ....................................... -- -- 1,625 -- 1,625
Dividends declared - $.07 per share cash dividend .. -- -- (164) -- (164)
Dividends paid to stockholders for fractional shares
in connection with three-for-two stock split .... -- (1) -- -- (1)
Acquisition of 3,162 treasury shares ............... -- -- -- (25) (25)
Retirement of 27,644 common shares held in treasury (28) (41) (119) 188 --
Repurchase and retirement of 32,400 common shares .. (32) (48) (128) -- (208)
Sale of 14,574 treasury shares in connection
with employee stock option plan ................. -- -- (41) 99 58
------- ------- ------- ------- -------
Balance at March 3, 1996 ........................... $ 2,441 3,613 1,156 -- 7,210
======= ======= ======= ======= =======
<FN>
* Treasury share transactions have not been adjusted since additional shares
were not issued for treasury shares in connection with the three-for-two
stock split of August 11, 1995.
</FN>
</TABLE>
See accompanying notes to financial statements.
23
<PAGE>
SI HANDLING SYSTEMS, INC.
Statements Of Cash Flows
Years Ended March 3, 1996, February 26, 1995, and February 27, 1994
(In Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ........................... $ 1,625 (1,468) 206
Adjustments to reconcile net earnings
(loss) to net cash provided (used) by
operating activities:
Depreciation of plant and equipment ....... 415 464 451
Amortization of intangibles and
deferred costs .......................... 10 (120) (26)
Loss (gain) on disposition and
write-off of equipment .................. 90 (3) (6)
Equity in income of joint venture ......... (279) (66) (85)
Changes in operating assets and liabilities,
net of effects of the acquisition of
SI Systems, Inc.:
Receivables ............................... 3,768 (2,733) 1,690
Costs and estimated earnings
in excess of billings ................... (403) 1,162 (892)
Inventories ............................... 83 1,069 94
Deferred income tax benefits .............. (58) 147 (40)
Prepaid expenses and other
current assets .......................... 125 67 (80)
Other noncurrent assets ................... 1 33 72
Accounts payable .......................... (844) (19) (1,004)
Customers' deposits and billings
in excess of costs and estimated
earnings ................................ (313) (118) (80)
Accrued salaries, wages, and
commissions ............................. 476 10 (34)
Income taxes payable ...................... 268 6 (38)
Accrued royalties payable ................. (27) 214 54
Liabilities and deferred credits associated
with the AGV Asset Purchase
Agreement ............................... (851) 931 --
Accrued other liabilities ................. (44) 180 94
Deferred compensation ..................... 7 49 21
------ ------ ------
Net cash provided (used) by
operating activities ........................ 4,049 (195) 397
------ ------ ------
Cash flows from investing activities:
Purchase of short-term investments ............ (2,414) -- --
Investment in joint venture ................... -- -- (100)
Proceeds from the disposition of
property, plant and equipment ............... 170 3 10
Additions to property, plant and
equipment ................................... (178) (204) (547)
------ ------ ------
Net cash used by investing
activities .................................. (2,422) (201) (637)
------ ------ ------
</TABLE>
24
<PAGE>
SI HANDLING SYSTEMS, INC.
Statements of Cash Flows (Continued)
Years Ended March 3, 1996, February 26, 1995, and February 27, 1994
(In Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from financing activities:
Repayment of long-term debt,
including current portion ........... (23) (20) (1,019)
Sale of treasury stock in connection
with employee stock option plan ..... 33 11 29
Dividends paid on common stock ........ (164) (164) (162)
Dividends paid to stockholders for
fractional shares in connection with
three-for-two stock split ........... (1) -- --
Repurchase and retirement of
common stock ........................ (208) -- --
Increase in (repayment of) loan payable
to bank ............................. (500) 500 --
------ ------ ------
Net cash provided (used) by
financing activities ................ (863) 327 (1,152)
------ ------ ------
Increase (decrease) in cash and cash
equivalents ........................... 764 (69) (1,392)
Cash and cash equivalents,
beginning of year ..................... 571 640 2,032
------ ------ ------
Cash and cash equivalents,
end of year ........................... $ 1,335 571 640
======= ====== ======
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
SI HANDLING SYSTEMS, INC.
Notes To Financial Statements
March 3, 1996 and February 26, 1995
(1) Description of Business and Summary of Significant Accounting Policies
Description of Business and Concentration of Credit Risk
SI Handling Systems, Inc. (the "Company" or "SI") is a systems integrator
that supplies automated materials handling systems to manufacturing, order
selection, and distribution operations. The systems are designed, sold,
manufactured, installed, and serviced by the Company or by others for the
Company, at its discretion, generally as labor-saving devices to improve
productivity and reduce costs. The Company's products are utilized to automate
the movement of products and are often integrated with other automated
equipment, such as robots. The Company's systems involve both standard and
specially designed components and include integration of non-proprietary
automated handling technologies so as to provide solutions for its customers'
unique materials handling needs. The Company develops and designs computer
control programs required for the efficient operation of the systems. Thus,
systems controls and product engineering are essential parts of the Company's
business.
Although the Company is not dependent on any single customer, much of its
revenue is derived from contracts to design, manufacture, and install
large-scale materials handling systems for major North American corporations. In
fiscal 1996, two customers accounted for revenues of $8,735,000 and $4,671,000,
respectively. In fiscal 1995, three customers accounted for revenues of
$5,650,000, $3,092,000, and $3,051,000, respectively. In fiscal 1994, two
customers accounted for revenues of $3,911,000 and $3,046,000, respectively.
The Company's systems are sold on a fixed price basis. Generally, contract
terms provide for progress payments and a portion of the purchase price is
withheld by the buyer until the system has met contractual specifications. As of
March 3, 1996, one customer owed the Company $485,000 in trade receivables.
Notes and other receivables as of March 3, 1996 include $497,000 due from
SI/BAKER, INC. The Company believes that the concentration of credit risk in its
trade receivables is substantially mitigated by the Company's ongoing credit
evaluation process as well as the general credit worthiness of its customer
base.
Fiscal Year
The Company's fiscal year ends on the Sunday nearest to the last day of
February. The fiscal years ended March 3, 1996, February 26, 1995, and February
27, 1994 were 53, 52, and 52 weeks, respectively.
Use of Estimates
The preparation of the financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Financial Instruments
The Company believes the market values of its assets and liabilities which
are financial instruments materially approximate their carrying values due to
the short-term nature of the instruments.
26
<PAGE>
SI HANDLING SYSTEMS, INC.
Notes To Financial Statements (Continued)
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, cash on deposit, amounts invested on an overnight basis with a bank,
and other highly liquid debt instruments purchased with a maturity of three
months or less. The Company does not believe it is exposed to any significant
credit risk on cash and cash equivalents.
Short-Term Investments
Short-term investments consist of marketable direct obligations of the United
States Treasury with original maturities at date of purchase beyond three months
and less than twelve months. Such short-term investments are carried at cost,
which approximates fair value, due to the short period of time to maturity. The
Company does not believe it is exposed to any significant credit risk on
short-term investments.
Inventories
Inventories are valued at the lower of average cost or replacement market. It
is not practicable to state separately amounts of finished goods and work in
process.
Inventories primarily consist of materials purchased or manufactured for
stock. The Company does not defer general and administrative costs or initial
startup costs.
Property, Plant and Equipment
Plant and equipment generally are depreciated, for financial statement
purposes, on the straight-line method over the estimated useful lives of
individual assets; whereas accelerated methods of depreciation are used for
certain items for tax purposes. The ranges of lives used in determining
depreciation rates for buildings and improvements and machinery and equipment
are 15-40 years and 3-15 years, respectively. Maintenance and repairs are
charged to operations; betterments and renewals are capitalized. Upon sale or
retirement of plant and equipment, the cost and related accumulated depreciation
are removed from the accounts and the resultant gain or loss, if any, is
credited or charged to earnings.
Investment in Joint Venture
On March 1, 1993, the Company and Automated Prescription Systems, Inc.
("APS") of Pineville, Louisiana formed a joint venture, SI/BAKER, INC.
("SI/BAKER"). SI/BAKER draws upon the automated materials handling systems
experience of the Company and the automated pill counting and dispensing
products of APS to provide automated pharmacy systems. Each member Company
contributed $100,000 in capital to fund the joint venture. The Company accounts
for its investment in the joint venture on the equity basis.
Intangibles
Intangibles are amortized using the straight-line method, over a period of 10
years.
27
<PAGE>
SI HANDLING SYSTEMS, INC.
Notes To Financial Statements (Continued)
Sales Contracts
Profits on sales contracts are recorded on the basis of the Company's
estimates of the percentage of completion of individual contracts, commencing
when progress reaches a point where experience is sufficient to estimate final
results with reasonable accuracy. That portion of the total contract price is
accrued, which is allocable to contract expenditures incurred and work
performed, on the basis of the ratio of aggregate costs to date to the most
recent estimate of total costs at completion. As these contracts may extend over
one or more years, generally no more than two years, revisions in cost and
profit estimates during the course of the work are reflected in the accounting
periods in which the facts requiring revisions become known. At the time a loss
on a contract becomes known, the entire amount of the estimated ultimate loss is
accrued.
Product Development Costs
The Company expenses product development costs as incurred.
Warranty
The Company's products are warranted against defects in materials and
workmanship for a specified period.
Income Taxes
Under the asset and liability method of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS No. 109"), deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Excess of Acquired Net Assets over Cost
During fiscal 1995, the excess of acquired net assets over cost, originally
estimated to be amortized on a straight-line basis over five years, was fully
amortized in its third year due to the Company's reduced emphasis on the AGV
product line (See Note 8 of Notes to Financial Statements).
Common Shares
On July 18, 1995, the Board of Directors declared a three-for-two stock split
that was distributed on August 11, 1995 to stockholders of record on July 31,
1995. All references throughout the financial statements to shares of common
stock or per share amounts have been adjusted in all years to reflect this stock
split, except for treasury shares for which no additional shares were issued.
Stock-Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly,
recognizes no compensation expense for the stock option grants.
28
<PAGE>
SI HANDLING SYSTEMS, INC.
Notes To Financial Statements (Continued)
Net Earnings (Loss) Per Common Share
Net earnings (loss) per share reflect the three-for-two stock split and are
based on the weighted average number of shares outstanding and equivalent shares
from dilutive stock options, which were 2,476,056, 2,460,117, and 2,479,347 in
fiscal years 1996, 1995, and 1994, respectively.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 121, "Accounting for the Impairment of
Long- Lived Assets and for Long-Lived Assets to Be Disposed of," which is
effective for fiscal years beginning after December 15, 1995. The statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The resultant impairment, if any, would be measured based on the
fair value of the asset. The Company believes that the adoption of SFAS 121 will
not have any effect on the Company's results of operations, financial position,
or net cash flows.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 123, "Accounting for Stock-Based
Compensation," which is effective for fiscal years beginning after December 15,
1995. The Statement defines a fair value based method of accounting for employee
stock options but also allows companies to continue to measure compensation
costs using the intrinsic value based method (APB Opinion No. 25), with
appropriate pro forma disclosure. The Company believes the adoption of SFAS 123
will not have a material effect on its financial statements.
(2) Uncompleted Contracts
Costs and estimated earnings on uncompleted contracts are as follows (in
thousands):
<TABLE>
<CAPTION>
March February
3, 1996 26, 1995
<S> <C> <C>
Costs and estimated earnings on
uncompleted contracts ............................................ $ 23,626 22,616
Less: billings to date ............................................. 22,935 22,641
-------- --------
$ 691 (25)
======== ========
Included in accompanying balance sheets under the following captions:
Costs and estimated earnings in excess
of billings .................................................. $ 1,803 1,400
Customers' deposits and billings in
excess of costs and estimated earnings ....................... (1,112) (1,425)
-------- --------
$ 691 (25)
======== ========
</TABLE>
There were no retainages included in accounts receivable at March 3, 1996 and
February 26, 1995.
29
<PAGE>
SI HANDLING SYSTEMS, INC.
Notes To Financial Statements (Continued)
(3) Short-term Bank Borrowings and Compensating Balances
The Company's $3,000,000 line of credit facility with its former principal
bank was secured by a lien position on accounts receivable, inventory, and land
and buildings. The line of credit was cancelled by the Company on July 22, 1993
and replaced with a $5,000,000 revolving credit facility with its current
principal bank (see Note 4 below).
During fiscal 1994, interest on the line of credit was charged at the
lender's prime rate plus one percent. No compensating demand deposit balances
were maintained regarding the line of credit.
(4) Long-Term Debt and Compensating Balances
A summary of long-term debt follows (in thousands):
<TABLE>
<CAPTION>
March February
3, 1996 26, 1995
<S> <C> <C>
Revolving credit loan payable to bank [see (a)] $ -- 500
Mortgages payable [see (b)] ................... 69 92
---- ----
Total long-term debt ..................... 69 592
Less current installments of long-term debt ... 20 21
---- ----
$ 49 571
==== ====
<FN>
(a) Effective July 22, 1993, the Company established a $5,000,000 committed
revolving credit facility. Interest on the credit arrangement is at the
lender's prime rate of interest (8.25% as of March 3, 1996) or quoted money
market rates. No compensating demand deposit balances are required to be
maintained regarding the credit arrangement. The credit arrangement
contains various restrictive covenants relating to additional indebtedness,
asset acquisitions or dispositions, and maintenance of certain financial
ratios. The Company was in compliance with all covenants during fiscal
1996. The credit arrangement is secured by a lien position on accounts
receivable, land, and buildings. The term of the original agreement was for
three years with an expiration date of July 31, 1996; however, effective
March 1, 1996, the Company's principal bank amended certain covenants to
allow the Company greater operating flexibility and extended the expiration
date of the revolving credit facility to July 31, 1998.
(b) The mortgages bear a weighted average interest rate of 4.8%, are secured by
the land and buildings with a depreciated cost of $522,000 at March 3,
1996, and are payable in varying amounts through October 2001.
</FN>
</TABLE>
Principal payments of long-term debt in each of the next five years from
March 3, 1996 under terms of existing agreements are as follows (in thousands):
1997 1998 1999 2000 2001
$ 20 13 9 10 10
==== === === === ===
30
<PAGE>
SI HANDLING SYSTEMS, INC.
Notes To Financial Statements (Continued)
(5) Capital Stock Options
The following is a summary of options available for grant and changes in
options outstanding under the Company's 1982 and 1992 Incentive Stock Option
Plans ("ISOP") in fiscal years 1996, 1995, and 1994:
<TABLE>
<CAPTION>
1982 ISOP 1992 ISOP Total
<S> <C> <C> <C> <C> <C> <C>
Option price* ........... $ 2.95 3.71 7.42 8.00 6.54
======== ======= ======= ======= =======
Options outstanding as of
February 28, 1993* ... 31,968 42,694 43,275 -- -- 117,937
Changes in 1994:
Granted .............. -- -- -- -- -- --
Exercised ............ (15,471) (12,291) -- -- -- (27,762)
Lapsed ............... (825) (825) (375) -- -- (2,025)
-------- ------- ------- ------- ------- -------
Options outstanding as
of February 27, 1994 . 15,672 29,578 42,900 -- -- 88,150
Changes in 1995:
Granted .............. -- -- -- 27,375 -- 27,375
Exercised ............ (3,507) (205) -- -- -- (3,712)
Lapsed ............... -- -- (8,625) -- -- (8,625)
-------- ------- ------- ------- ------- -------
Options outstanding as
of February 26, 1995 . 12,165 29,373 34,275 27,375 -- 103,188
Changes in 1996:
Granted .............. -- -- -- -- 11,400 11,400
Exercised ............ (6,391) (10,522) -- -- -- (16,913)
Lapsed ............... (5,774) (825) (8,250) (1,875) -- (16,724)
-------- ------- ------- ------- ------- -------
Options outstanding as
of March 3, 1996 ..... -- 18,026 26,025 25,500 11,400 80,951
======== ======= ======= ======= ======= =======
<FN>
* The option prices and number of options have been adjusted to reflect the
three-for-two stock split of August 11, 1995.
</FN>
</TABLE>
Options under the 1982 Incentive Stock Option Plan were issued at the
approximate market price at the date of grant and are exercisable at the rate of
25% per year commencing one year from date of grant. The 1982 Incentive Stock
Option Plan expired in June, 1992; however, prior to its expiration options for
233,345 shares were available for grant. Currently, 44,051 options are
outstanding under this plan with no option expiring later than June, 1997.
In July, 1992, the stockholders adopted the 1992 Incentive Stock Option Plan
which will expire in July, 2002. The terms of the 1992 Plan are essentially the
same as the terms of the 1982 Plan except that 75,000 shares were authorized for
issuance under the 1992 Plan. No compensation expense was recognized on options
granted during fiscal 1996. Currently, 36,900 options are outstanding under this
plan.
31
<PAGE>
SI HANDLING SYSTEMS, INC.
Notes To Financial Statements (Continued)
(6) Employee Benefit Plans
The Company maintains a defined benefit plan for employees covered by its
collective bargaining agreement. Retirement benefits are based on the employee's
years of service multiplied by the appropriate monthly benefit amount. The
Company's policy is to make an annual contribution to the Plan equal to the
amount required by ERISA, subject to the full funding limitation of ERISA.
The Company uses the projected unit credit actuarial method to compute
pension expense, which includes amortization of past service costs over 30
years. The net periodic pension expense for fiscal years 1996, 1995, and 1994,
includes the following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 73 72 28
Interest cost on projected benefit obligation .. 105 94 75
Actual return on assets ........................ (452) (2) (291)
Amortization of unrecognized net assets and
other deferred amounts, net ................. 351 (85) 200
--- --- ---
Net periodic pension expense ................... $ 77 79 12
===== === ===
</TABLE>
Actuarial assumptions used to develop the net periodic pension expense and
the projected benefit obligation were:
<TABLE>
<CAPTION>
As of November 30,
1995 1994 1993
<S> <C> <C> <C>
Discount rate........................................................7.0% 8.5% 7.0%
Expected long-term rate of return on assets..........................8.5% 8.5% 8.5%
</TABLE>
The change in the discount rate resulted in an increase in the projected
benefit obligation as of November 30, 1995 of approximately $299,000. The change
in the discount rate resulted in a decrease of the projected benefit obligation
as of November 30, 1994 of approximately $288,000. Also, the change in the
discount rate along with a change in mortality assumptions from the 1971 to the
1983 Group Annuity Mortality Table resulted in an increase of the projected
benefit obligation as of November 30, 1993 of approximately $227,000.
The following table sets forth the Plan's funded status and amounts
recognized in the Company's balance sheets (in thousands):
<TABLE>
<CAPTION>
November 30, November 30,
1995 1994
<S> <C> <C>
Plan assets at fair value, primarily
listed stocks and bonds ............. $ 1,622 1,244
Projected benefit obligation ........... 1,650 1,243
------- -------
Plan assets in excess of (less than)
projected benefit obligation ........ (28) 1
Unrecognized net gain .................. (203) (167)
Prior service cost not yet recognized
in net periodic pension cost ........ 251 280
Unrecognized net transition asset being
amortized over employee service lives (106) (128)
------- -------
Net pension liability recognized
in the Company's balance sheets ..... $ (86) (14)
======= =======
</TABLE>
32
<PAGE>
SI HANDLING SYSTEMS, INC.
Notes To Financial Statements (Continued)
The Company has a multi-faceted defined contribution Retirement Savings Plan
for employees not covered by its collective bargaining agreement. Salaried
employees with at least one year of service are eligible to participate in the
Plan. Under the 401(k) feature of the Plan, the Company contributes 2% of base
pay to each eligible salaried employee's account and, in addition, matches 50%
of the first 4% of pay which the employee contributes to the Plan. The Plan also
contains provisions for profit sharing contributions in the form of cash in
amounts determined annually by the Board of Directors. Total expense for the
Retirement Savings Plan was $301,000, $231,000, and $268,000 for fiscal years
1996, 1995, and 1994, respectively.
(7) Income Taxes
The provision for income tax expense (benefit) consists of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal - current................................................ $ 197 (54) 37
- deferred............................................... (58) 173 (40)
----- ----- -----
139 119 (3)
----- ----- -----
State - current................................................ 73 (93) 3
- deferred............................................... -- (26) --
----- ----- -----
73 (119) 3
----- ----- -----
$ 212 -- --
===== ===== =====
</TABLE>
A reconciliation between the U.S. federal statutory rate and the Company's
effective income tax rate is (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Computed tax expense (benefit) at statutory
rate of 34% ................................... $ 625 (499) 70
Increase (reduction) in taxes resulting from:
State income taxes, net of federal benefit .. 48 (79) 2
Expiration of net operating loss carryforward -- -- 228
Resolution of prior years' tax contingencies -- (80) --
Equity in earnings of joint venture ......... (76) (21) (23)
Change in the valuation allowance for
deferred tax assets ....................... (541) 705 (276)
Effect on change in state tax rate on
deferred tax assets ....................... 85 -- --
Miscellaneous items ......................... 71 (26) (1)
----- ----- -----
$ 212 -- --
===== ===== =====
</TABLE>
The significant components of deferred income tax expense (benefit) are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Deferred tax expense (benefit)
(exclusive of change in valuation allowance) .. $ 483 (558) 236
Increase (decrease) in the beginning of the year
balance of the valuation allowance for deferred
tax assets .................................... (541) 705 (276)
----- ----- -----
$ (58) 147 (40)
===== ===== =====
</TABLE>
33
<PAGE>
SI HANDLING SYSTEMS, INC.
Notes To Financial Statements (Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at March 3, 1996 and
February 26, 1995 are presented below (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Net operating and built in loss carryforward .... $ 475 648
Inventories, principally due to book reserves
not yet deductible for tax purposes, and
additional costs inventoried for tax purposes
pursuant to uniform capitalization rules ...... 815 822
Accruals for other book costs, not yet deductible
for tax purposes .............................. 404 716
------- -------
Total gross deferred tax assets ............. 1,694 2,186
Less valuation allowance .................... 1,273 1,814
------- -------
Net deferred tax assets ..................... 421 372
------- -------
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation ................... (50) (80)
Other ........................................... (71) (50)
------- -------
Total gross deferred tax liabilities ........ (121) (130)
------- -------
Net deferred tax assets ..................... $ 300 242
======= =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income, projections for future taxable income over the
periods in which the deferred tax assets are deductible, and amounts that could
be recovered through existing loss carryback provisions, management believes it
is more likely than not the Company will realize the benefits of these
deductible differences, net of the existing valuation allowances at March 3,
1996.
34
<PAGE>
SI HANDLING SYSTEMS, INC.
Notes To Financial Statements (Continued)
(8) Settlement of Litigation Related To Former Subsidiary and Asset Purchase
Agreement
On October 6, 1994, the Company announced the sale of its AGV product line to
Apogee Robotics, Inc. ("Apogee"), through its newly formed AGV Acquisitions
Corporation ("AGVA"). Under terms of the Asset Purchase Agreement (the
"Agreement"), SI sold to Apogee the inventory, intellectual property rights, and
tangible personal property related to the Company's AGV business.
Apogee agreed to pay the Company a purchase price in cash and promissory
notes equal to $2,000,000, plus 100,000 shares of Convertible Preferred Stock of
Apogee with a 4% dividend payable quarterly. The Company received the initial
$250,000 of purchase price, but Apogee failed to make a required payment of
$250,000 on November 4, 1994 or any required payments thereafter.
The failure of AGVA and/or Apogee to pay the required amount of $250,000
which became due November 4, 1994 had, in the opinion of the Company's counsel,
made the Agreement and all transactions contemplated thereto void since the
closing occurred in escrow. On December 9, 1994, Apogee and AGVA filed for
Chapter 11 bankruptcy protection. This action followed Apogee's layoff of all 30
of its employees and the resignation of certain members of its Board of
Directors. The Company regained possession of the assets in order to complete
the contracts for which it remained liable.
On January 20, 1995, AGVA filed an action against the Company alleging
breach of the Agreement and trespass. The Company negotiated a Settlement
Agreement for the litigation with Apogee which was approved by the bankruptcy
court, and the final Order of Dismissal was entered on December 1, 1995. As part
of the Settlement Agreement, the parties agreed to the following: during the
fourth quarter of fiscal 1996, the Company paid Apogee $150,000 and returned the
original certificate for 100,000 of Apogee preferred shares; Apogee transferred
any right, title or interest it may have had in the Company's automated guided
vehicle assets to the Company and disclaimed any interest in the assets; and the
parties released all claims that they may have had against each other.
During fiscal 1995, the Company established a reserve of $931,000 captioned
"Liabilities and deferred credits associated with the AGV Asset Purchase
Agreement" which included deferral of the initial $250,000 received from Apogee
and the accrual of the estimated legal fees and certain other costs anticipated
in connection with resolution of the Apogee matter and exiting the Rochester
Hills, Michigan facility. At March 3, 1996 remaining costs of $80,000 are
accrued for the balance of lease costs and other expenses associated with the
Settlement Agreement.
During fiscal 1995, net expense of $525,000 associated with the rescinded
sale transaction and the AGV product line were included on the Company's
statement of operations. These net expenses included estimated legal fees, lease
termination costs, and the reduction to net realizable value of certain AGV
related inventory and fixed assets offset by the write-off of the remaining
negative goodwill associated with the AGVS product line. During fiscal 1996, the
Company recognized net income of $436,000 associated with the settlement of the
rescinded sale transaction. The net income included the impact of the favorable
and expeditious resolution of the Apogee dispute where the terms and legal costs
associated with the settlement were substantially more favorable than provided
in the prior year. Net sales from the AGVS product line were $1,795,000,
$4,237,000, and $7,921,000 in fiscal years 1996, 1995, and 1994, respectively.
35
<PAGE>
SI HANDLING SYSTEMS, INC.
Notes To Financial Statements (Continued)
(9) Contingencies
The Company and its SI/BAKER joint venture are defendants in litigation
brought by a competitor alleging that certain of the products of SI/BAKER
infringe a patent held by the competitor. The competitor is seeking monetary
damages and a royalty related to future sales by SI/BAKER of its products. The
management of both the Company and SI/BAKER, supported by its legal counsel,
believe that SI/BAKER products do not infringe the competitor's patent, and it
is more likely than not that the Company and SI/BAKER will prevail if the matter
is adjudicated. Furthermore, the management of both the Company and SI/BAKER
believe that the ultimate resolution of this matter will not have a material
adverse effect on the Company and SI/BAKER whether resolved through adjudication
or settlement.
The Company is presently engaged in certain other legal proceedings which, in
the opinion of the Company counsel, present no significant risk of material loss
to the Company.
(10) Commitments
Total rental expense, including short-term leases, in fiscal years 1996,
1995, and 1994, approximated $83,000, $588,000 and $457,000, respectively.
Future minimum rental commitments at March 3, 1996 under all operating,
noncancelable leases, primarily for facilities and equipment, are as follows:
1997....$67,000
1998.... 10,000
(11) Cash Flow Information
Supplemental disclosures of cash flow information for fiscal years 1996,
1995, and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid (received) during the year for:
Interest ............................... $ 12 61 111
==== ==== ====
Income taxes ........................... $ 2 (153) 111
==== ==== ====
Supplemental disclosures of noncash
financing activities:
Issuance of 6,600 common shares held in
treasury in exchange for 3,162
common shares delivered to treasury
by officer in connection with employee
stock option plan ...................... $ 25 -- --
==== ==== ====
Issuance of 12,531 common shares held in
treasury in exchange for 5,108 common
shares delivered to treasury by officers
in connection with employee stock option
plan ................................... $ -- -- 63
==== ==== ====
</TABLE>
36
<PAGE>
SI HANDLING SYSTEMS, INC.
Notes To Financial Statements (Continued)
(12) Joint Venture
The Company has entered into various transactions with SI/BAKER as follows:
<TABLE>
<CAPTION>
March February
3, 1996 26, 1995
<S> <C> <C>
SI/BAKER, INC., 50% owned by the Company:
Balance Sheets Data (in thousands) -
Amount included in notes and other receivables....................... $ 497 142
Amount included in costs and estimated
earnings in excess of billings..................................... 182 --
Investment in SI/BAKER............................................... 530 251
Amount included in accounts payable.................................. -- 12
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended
1996 1995 1994
<S> <C> <C> <C>
Statements of Operations Data (in thousands) -
Systems and services sold under various
subcontracts............................................. $ 770 1,465 2,031
Reimbursement for administrative and other
services provided........................................ 106 47 104
Other income, net.......................................... 188 46 --
</TABLE>
Information pertaining to the Company's investment in the SI/BAKER joint
venture is as follows (in thousands):
<TABLE>
<S> <C>
Balance at March 1, 1993............................................................. $ --
Capital contribution................................................................. 100
Equity in net earnings............................................................... 85
------
Balance at February 27, 1994......................................................... 185
Equity in net earnings............................................................... 66
------
Balance at February 26, 1995......................................................... 251
Equity in net earnings............................................................... 279
------
Balance at March 3, 1996............................................................. $ 530
======
</TABLE>
Summary financial information and operating results for the SI/BAKER joint
venture are set forth in the following table (in thousands):
<TABLE>
<CAPTION>
February February
29, 1996 28, 1995
<S> <C> <C>
Current assets.......................................................... $4,445 3,104
Property, plant and equipment........................................... 52 46
Other assets............................................................ 478 4
Current liabilities..................................................... 3,909 2,651
Long-term liabilities................................................... 6 --
------ --------
Net assets.............................................................. $1,060 503
====== ========
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended
1996 1995 1994
<S> <C> <C> <C>
Net sales..................................................... $9,382 6,423 5,303
====== ======= =======
Net earnings.................................................. $ 557 133 170
====== ======= =======
</TABLE>
37
<PAGE>
SI HANDLING SYSTEMS, INC. Schedule II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended March 3, 1996, February 26, 1995, and February 27, 1994
(In Thousands)
<TABLE>
<CAPTION>
Additions
Balance At Charged To Balance
Beginning Costs And At End
Of Year Expenses Deductions Of Year
<S> <C> <C> <C> <C>
Year ended March 3, 1996:
Reserve for inventory loss $1,605 188 80 (a) 1,713 (b)
Reserve for product warranty 93 -- (c) 46 (d) 47 (e)
Allowance for doubtful receivables -- -- -- --
------ ------ ------- ---------
$1,698 188 126 1,760
====== ====== ======= =========
Year ended February 26, 1995:
Reserve for inventory loss $1,154 458 7 (a) 1,605 (b)
Reserve for product warranty 104 21 (c) 32 (d) 93 (e)
Allowance for doubtful receivables -- -- -- --
------ ------ ------- ---------
$1,258 479 39 1,698
====== ====== ======= =========
Year ended February 27, 1994:
Reserve for inventory loss $1,247 304 397 (a) 1,154 (b)
Reserve for product warranty 60 120 (c) 76 (d) 104 (e)
Allowance for doubtful receivables 20 -- 20 --
------ ------ ------- ---------
$1,327 424 493 1,258
====== ====== ======= =========
<FN>
(a) Inventory items disposed of net of salvage proceeds.
(b) Allowance is reflected in the net inventory on the balance sheet.
(c) These costs include materials and incidental costs but exclude any
services.
(d) Payments of warranty costs.
(e) Included in accrued other liabilities.
</FN>
</TABLE>
38
<PAGE>
PART III
Part III, except for certain information relating to Executive Officers
listed below, is omitted inasmuch as the Company intends to file with the
Securities and Exchange Commission within 120 days of the close of the fiscal
year ended March 3, 1996, a definitive proxy statement containing such
information pursuant to Regulation 14A of the Securities Exchange Act of 1934
and such information shall be deemed to be incorporated herein by reference from
the date of filing such document.
Executive Officers of the Registrant
The names, ages, and offices with the Company of its executive officers are
as follows:
Name Age Office
Leonard S. Yurkovic 58 President and Chief Executive
Kenneth D. Buck 43 Vice President - Corporate Services
William J. Casey 52 Vice President - Production & Assembly
Systems
David A. Clark 39 Vice President - Warehousing & Distribution
Systems
Barry V. Mack 53 Vice President - Finance, Chief Financial
Officer, and Treasurer
James L. Thatcher 52 Vice President - Manufacturing & Assembly
Services and Customer & Software
Services
Ronald J. Semanick 35 Secretary
Mr. Yurkovic was appointed President and Chief Executive Officer on
February 12, 1988 and previously held the positions of President and Managing
Director of European Operations (October 1987 - February 1988), and President
and Chief Operating Officer (March 1985 - October 1987). He also held the
position of Vice President-Operations and he joined the Company in July 1979 as
Vice President- Finance.
Mr. Buck was appointed Vice President-Corporate Services on July 18, 1995
and previously held the positions of Vice President-Human Resources,
Director-Human Resources, and Manager of Human Resources. He joined the Company
in November 1981 as a Personnel Manager.
Mr. Casey was appointed Vice President-Production & Assembly Systems on
July 18, 1995 and previously held the position of Vice President-Sales. He has
served the Company in several capacities including Director-Field Sales,
Estimating Supervisor, Manager of Switch-Cart Systems, and Mid-Atlantic Regional
Sales Manager. Mr. Casey joined the Company in February 1965.
Mr. Clark was appointed Vice President-Warehousing & Distribution Systems
on July 18, 1995. He joined the Company in May 1994 as the Director of
Applications Engineering. Prior to joining the Company, Mr. Clark was a
self-employed consultant for the Ford Motor Company. From 1985 to 1993, Mr.
Clark was employed by Valley Forge Technical Communications and held various
positions, the last of which being Chief Operating Officer. From 1978 to 1985,
Mr. Clark was employed by General Electric Company in various engineering
capacities.
39
<PAGE>
Mr. Mack was appointed Vice President-Finance, Chief Financial Officer, and
Treasurer on January 13, 1994 and previously held the position of Controller.
Prior to joining the Company in 1980 as Manager of Financial Accounting, Mr.
Mack was employed as Financial Manager at the Coca-Cola Bottling Company of the
Lehigh Valley, and as an Assistant Controller within Harris Corporation's
Printing Equipment Division.
Mr. Thatcher was appointed Vice President-Manufacturing & Assembly Services
and Customer & Software Services on July 18, 1995 and previously held the
position of Vice President-Operations. He has served the Company in several key
positions including Director-Operations, Project Engineer, Project Manager, and
Director- Customer Service. He joined the Company in August 1970 as an engineer.
Mr. Semanick was elected Secretary of the Company by the Board of Directors
on July 13, 1994. Currently, Mr. Semanick is the Company's Manager of Financial
Accounting and previously held the position of Senior Financial Accountant.
Prior to joining the Company in 1985 as a Financial Accountant, Mr. Semanick was
employed as a Certified Public Accountant by Arthur Andersen & Company of
Philadelphia, Pennsylvania.
All executive officers hold office at the pleasure of the Board of
Directors.
40
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. and 2. An index to the financial statements of the Company and the
financial statement schedule is included in Item 8. In addition, Schedule A
relating to the SI/BAKER, INC. joint venture is filed under 14(c) below.
3. Exhibits to be filed by Item 601 of Regulation S-K:
3.1 Articles of Incorporation (Incorporated by reference to
Exhibit A to Form 10 filed on December 31, 1968).
3.2 Amendments to Articles of Incorporation filed on November
19, 1973 and July 28, 1982. (Incorporated by reference to
Exhibit 3.2 to Annual Report on Form 10-K for the fiscal
year ended February 26, 1995 filed on May 26, 1995.)
3.3 By-Laws, as amended (Incorporated by reference to Exhibit 3
to Registration Statement No. 33-81900 on Form S-3 filed on
July 21, 1994).
10.1 Revolving Credit Agreement dated July 22, 1993.
(Incorporated by reference to Exhibit 10.1 to Annual Report
on Form 10-K for the fiscal year ended February 26, 1995
filed on May 26, 1995.)
10.2 Amendment to Revolving Credit Agreement dated April 28,
1995. (Incorporated by reference to Exhibit 10.2 to Annual
Report on Form 10-K for the fiscal year ended February 26,
1995 filed on May 26, 1995.)
10.3 1982 Incentive Stock Option Plan.* (Incorporated by
reference to Exhibit 10.3 to Annual Report on Form 10-K for
the fiscal year ended February 26, 1995 filed on May 26,
1995.)
10.4 1992 Incentive Stock Option Plan.* (Incorporated by
reference to Exhibit 10.4 to Annual Report on Form 10-K for
the fiscal year ended February 26, 1995 filed on May 26,
1995.)
10.5 Executive Officer Incentive Plan.* (Incorporated by
reference to Exhibit 10.5 to Annual Report on Form 10-K for
the fiscal year ended February 26, 1995 filed on May 26,
1995.)
11.1 Statement regarding computation of per share earnings (loss)
(see Note 1 of Notes to Financial Statements).
21.1 Joint Venture of the Registrant. (Incorporated by reference
to Exhibit 21.1 to Annual Report on Form 10-K for the fiscal
year ended February 26, 1995 filed on May 26, 1995.)
* Management contract or compensatory plan or arrangement
required to be filed as an Exhibit pursuant to Item 14(c) of
this report.
(b) Reports on Form 8-K.
During the quarter ended March 3, 1996, there was no requirement
to file a Form 8-K.
(c) Schedule A - SI/BAKER, INC. Financial Statements and Independent
Auditors' Report Thereon.
41
<PAGE>
Schedule A
SI/BAKER, INC.
Financial Statements
February 29, 1996 and February 28, 1995
(With Independent Auditors' Report Thereon)
42
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors SI/BAKER, INC.:
We have audited the accompanying balance sheets of SI/BAKER, INC. as of
February 29, 1996 and February 28, 1995, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended February 29, 1996. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SI/BAKER, INC. as of February
29, 1996 and February 28, 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended February 29, 1996, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Allentown, Pennsylvania
May 3, 1996
43
<PAGE>
SI/BAKER, INC.
Balance Sheets
February 29, 1996 and February 28, 1995
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents, principally time deposits . $ 327 1,830
Receivables:
Trade .............................................. 523 940
Other receivables .................................. -- 12
------ ------
Total receivables ................................ 523 952
------ ------
Costs and estimated earnings in excess of billings ... 3,413 271
Inventories - purchased parts ........................ 16 13
Deferred income tax benefits ......................... 161 30
Prepaid expenses and other current assets ............ 5 8
------ ------
Total current assets ............................. 4,445 3,104
------ ------
Machinery and equipment, at cost ..................... 75 57
Less: accumulated depreciation ..................... 23 11
------ ------
Net machinery and equipment ...................... 52 46
------ ------
Equipment available for lease ........................ 478 --
Deferred income tax benefits ......................... -- 4
------ ------
Total assets ................................... $4,975 3,154
====== ======
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable:
Trade .............................................. $ 798 572
Affiliated companies ............................... 1,080 14
------ ------
Total accounts payable ........................... 1,878 586
------ ------
Customers' deposits and billings in excess
costs and estimated earnings ....................... 1,007 1,572
Accrued salaries, wages, and commissions ............. 272 122
Income taxes payable ................................. 194 6
Accrued royalties payable ............................ 134 257
Accrued audit and legal fees ......................... 271 14
Accrued other liabilities ............................ 153 94
------ ------
Total current liabilities ........................ 3,909 2,651
------ ------
Deferred income tax liability ........................... 6 --
------ ------
Contingencies
Stockholders' equity:
Common stock, $1 par value; authorized 1,000
shares; issued 200 shares .......................... -- --
Additional paid-in capital ........................... 200 200
Retained earnings .................................... 860 303
------ ------
Total stockholders' equity ....................... 1,060 503
------ ------
Total liabilities and stockholders' equity ....... $4,975 3,154
====== ======
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
SI/BAKER, INC.
Statements Of Operations
Fiscal Years Ended February 29, 1996, February 28, 1995, and February 28, 1994
(In Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net sales ................................... $ 9,382 6,423 5,303
Cost of sales ............................... 6,880 5,083 4,455
------- ------- -------
Gross profit on sales .................... 2,502 1,340 848
------- ------- -------
Selling, general, and administrative expenses 1,070 769 521
Product development costs ................... 171 172 54
Royalty expense, net ........................ 375 158 --
Interest income ............................. (85) (31) (17)
Other (income) expense, net ................. (16) (1) 8
------- ------- -------
1,515 1,067 566
------- ------- -------
Earnings before income taxes ................ 987 273 282
Income taxes ................................ 430 140 112
------- ------- -------
Net earnings ............................. $ 557 133 170
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
SI/BAKER, INC.
Statements Of Stockholders' Equity
Fiscal Years Ended February 29, 1996, February 28, 1995, and February 28, 1994
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
<S> <C> <C> <C> <C>
Balance at March 1, 1993 ... $ -- -- -- --
200 shares of $1 par value
common stock issued to
joint venture owners .... -- 200 -- 200
Net earnings ............... -- -- 170 170
--------- ----- ----- -----
Balance at February 28, 1994 -- 200 170 370
Net earnings ............... -- -- 133 133
--------- ----- ----- -----
Balance at February 28, 1995 -- 200 303 503
Net earnings ............... -- -- 557 557
--------- ----- ----- -----
Balance at February 29, 1996 $ -- 200 860 1,060
========= ===== ===== =====
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
SI/BAKER, INC.
Statements Of Cash Flows
Fiscal Years Ended February 29, 1996, February 28, 1995, and February 28, 1994
(In Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings ................................. $ 557 133 170
Adjustments to reconcile net earnings to
net cash provided (used) by operating
activities:
Depreciation of machinery and
equipment .............................. 12 8 3
Changes in operating assets and liabilities:
Receivables ................................ 429 (116) (836)
Costs and estimated earnings in excess
of billings .............................. (3,142) (271) --
Inventories ................................ (3) (13) --
Deferred income taxes ...................... (121) (20) (14)
Prepaid expenses and other
current assets ........................... 3 (1) (7)
Accounts payable ........................... 1,292 70 516
Customers' deposits and billings in excess
of costs and estimated earnings .......... (565) 896 676
Accrued salaries, wages, and
commissions .............................. 150 89 33
Income taxes payable ....................... 188 (33) 39
Accrued royalties payable .................. (123) 257 --
Accrued audit and legal fees ............... 257 2 12
Accrued other liabilities .................. 59 53 41
------- ------- -------
Net cash provided (used) by
operating activities ................... (1,007) 1,054 633
------- ------- -------
Cash flows used in investing activities:
Additions to machinery and equipment ......... (18) (30) (27)
Equipment available for lease ................ (478) -- --
------- ------- -------
Net cash used by investing activities ...... (496) (30) (27)
------- ------- -------
Cash flows provided by financing activities:
Proceeds from issuance of common stock ....... -- -- 200
------- ------- -------
Increase (decrease) in cash and
cash equivalents ............................. (1,503) 1,024 806
Cash and cash equivalents,
beginning of year ............................ 1,830 806 --
------- ------- -------
Cash and cash equivalents,
end of year .................................. $ 327 1,830 806
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for
income taxes ............................. $ 363 194 87
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
SI/BAKER, INC.
Notes To Financial Statements
February 29, 1996 and February 28, 1995
Note 1: Organization, Description of Business, and Summary of
Significant Accounting Policies
Organization, Description of Business, and Concentration of Credit Risk
During March, 1993, SI Handling Systems, Inc. and Automated Prescription
Systems, Inc. formed a joint venture, SI/BAKER, INC. (the "Company" or "joint
venture"). The joint venture draws upon the automated materials handling systems
experience of SI Handling Systems, Inc. and the automated pill counting and
dispensing products of Automated Prescription Systems, Inc. to provide automated
pharmacy systems. Each member company contributed $100,000 in capital to fund
the joint venture.
The Company designs and installs computer controlled, fully automated,
integrated systems for managed care pharmacy operations. The Company's systems
are viewed as labor saving devices which address the issues of improved
productivity and cost reduction. Systems can be expanded as customers'
operations grow and they may be integrated with a wide variety of components to
meet specific customer needs.
Although the Company is not dependent on any single customer, much of its
revenue is derived from contracts to design and install mail order pharmacy
systems for North American corporations. In the fiscal year ended February 29,
1996, five customers accounted for revenues of $2,719,000, $1,763,000,
$1,522,000, $1,484,000, and $1,167,000, respectively. In the fiscal year ended
February 28, 1995, five customers accounted for revenues of $1,649,000,
$1,005,000, $776,000, $708,000, and $677,000, respectively. In the fiscal year
ended February 28, 1994, two customers accounted for revenues of $3,342,000 and
$601,000, respectively.
The Company's systems are sold on a fixed price basis. Contract terms
provide for progress payments and a portion of the purchase price is withheld by
the buyer until the system has met contractual specifications. As of March 3,
1996, two customers owed the Company $312,000 and $153,000, respectively. The
Company believes that the concentration of credit risk in its trade receivables
is substantially mitigated by the Company's ongoing credit evaluation process as
well as the general credit worthiness of its customer base.
Fiscal Year
The Company's fiscal year begins on March 1. Operations began in March,
1993.
Use of Estimates
The preparation of the financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Financial Instruments
The Company believes that the market values of its assets and liabilities
which are financial instruments materially approximate their carrying values due
to the short-term nature of the instruments.
47
<PAGE>
SI/BAKER, INC.
Notes To Financial Statements (Continued)
Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents include
cash on deposit, amounts invested on an overnight basis with a bank, and other
highly liquid debt instruments purchased with a maturity of three months or
less. The Company does not believe it is exposed to any significant credit risk
on cash and cash equivalents.
Machinery and Equipment
Machinery and equipment is depreciated, for financial statement purposes,
on the straight-line method over the estimated useful lives of individual
assets; whereas accelerated methods of depreciation are used for tax purposes.
The range of lives used in determining depreciation rates for machinery and
equipment is 5-7 years. Maintenance and repairs are charged to operations;
betterments and renewals are capitalized. Upon sale or retirement of equipment,
the cost and related accumulated depreciation are removed from the accounts and
the resultant gain or loss, if any, is credited or charged to earnings.
Equipment Available For Lease
Equipment available for lease represents the accumulated costs associated
with robotic, computer hardware, and prescription filling equipment that will be
leased to a customer during the first half of fiscal 1997. The lease, with an
initial lease period of one year amounting to $139,000, also provides a series
of three one-year renewal options by the lessee and a buyout provision at the
end of the fourth year.
Sales Contracts
Profits on sales contracts are recorded on the basis on the Company's
estimates of the percentage of completion of individual contracts, commencing
when progress reaches a point where experience is sufficient to estimate final
results with reasonable accuracy. That portion of the total contract price is
accrued, which is allocable to contract expenditures incurred and work
performed, on the basis of the ratio of aggregate costs to date to the most
recent estimate of total costs at completion. As these contracts may extend over
one or more fiscal years, generally no more than two fiscal years, revisions in
cost and profit estimates during the course of the work are reflected in the
accounting periods in which the facts requiring revisions become known. At the
time a loss on a contract becomes known, the entire amount of the estimated
ultimate loss is accrued.
Warranty
The Company's products are warranted against defects in materials and
workmanship for a specified period.
Product Development Costs
The Company expenses product development costs as incurred.
Royalty Arrangement
During fiscal 1995, an amendment to the joint venture investment agreement
was adopted to compensate each member company at a rate of 2% of gross sales for
marketing and sales efforts on behalf of SI/BAKER, INC. The expense is included
as Royalty expense, net in the Company's Statements of Operations for the fiscal
years ended February 29, 1996 and February 28, 1995.
48
<PAGE>
SI/BAKER, INC.
Notes To Financial Statements (Continued)
Income Taxes
Under the asset and liability method of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS No. 109"), deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
New Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 121, "Accounting for the Impairment of
Long- Lived Assets and for Long-Lived Assets to Be Disposed of," which is
effective for fiscal years beginning after December 15, 1995. The statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The resultant impairment, if any, would be measured based on the
fair value of the asset. The Company believes that the adoption of SFAS 121 will
not have any effect on the Company's results of operations, financial position,
or net cash flows.
Note 2: Uncompleted Contracts
Costs and estimated earnings on uncompleted contracts are as follows at
February 29, 1996 and February 28, 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Costs incurred on uncompleted contracts ....... $ 7,484 3,392
Estimated earnings ............................ 3,349 915
-------- --------
10,833 4,307
Less: billings to date ....................... 8,427 5,608
-------- --------
$ 2,406 (1,301)
======== ========
Included in accompanying balance sheets
under the following captions:
Costs and estimated earnings in excess
of billings ............................ $ 3,413 271
Customers' deposits and billings in excess
of costs and estimated billings ........ (1,007) (1,572)
-------- --------
$ 2,406 (1,301)
======== ========
</TABLE>
49
<PAGE>
SI/BAKER, INC.
Notes To Financial Statements (Continued)
Note 3: Employee Benefit Plan
The Company has a multi-faceted defined contribution Retirement Savings
Plan. Employees with at least one year of service are eligible to participate in
the Plan. Under the 401(k) feature of the Plan, the Company contributes 2% of
base pay to each eligible salaried employee's account and, in addition, matches
50% of the first 4% of pay which the employee contributes to the Plan. The Plan
also contains provisions for profit sharing contributions determined annually by
the Board of Directors. Total expense for the Retirement Savings Plan was
$37,000, $14,000, and $7,000 for the fiscal years ended February 29, 1996,
February 28, 1995, and February 28, 1994, respectively.
Note 4: Income Taxes
The provision for income tax expense (benefit) consists of the following
(in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal - current....................................... $436 116 94
- deferred...................................... (96) (16) (10)
---- ---- ----
340 100 84
---- ---- ----
State - current....................................... 115 44 32
- deferred...................................... (25) (4) (4)
---- ---- ----
90 40 28
---- ---- ----
$ 430 140 112
===== ==== ====
</TABLE>
A reconciliation between the U. S. federal statutory rate and the Company's
effective income tax rate is (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Computed tax expense at statutory rate of 34%................. $336 93 96
Increase (reduction) in taxes resulting from:
State income taxes, net of federal benefit................. 59 26 18
Miscellaneous items........................................ 35 21 (2)
---- ---- ----
$430 140 112
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at February 29, 1996 and
February 28, 1995 are presented below (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Accruals of book costs, not yet
deductible for tax purposes............................. $ 163 41
----- -----
Total gross deferred tax assets....................... 163 41
===== =====
Deferred tax liabilities:
Machinery and equipment, principally due
to differences in depreciation.......................... 6 4
Other..................................................... 2 3
----- -----
Total gross deferred tax liabilities.................. 8 7
----- -----
Net deferred tax asset................................ $ 155 34
===== =====
</TABLE>
50
<PAGE>
S/BAKER, INC.
Notes To Financial Statements (Continued)
Management believes that, based on the scheduled reversal of deferred tax
liabilities, projected future taxable income and available tax planning
strategies, the realization of deferred tax assets is reasonably assured;
therefore, no valuation allowance is considered necessary at February 29, 1996
and February 28, 1995.
Note 5: Contingencies
The Company is a defendant in litigation brought by a competitor alleging
that certain of the Company's products infringe a patent held by the competitor.
The competitor is seeking monetary damages and a royalty related to future sales
by the Company of its products. Management of the Company, supported by its
legal counsel, believes that the Company's products do not infringe the
competitor's patent, and it is more likely than not that the Company will
prevail if the matter is adjudicated. Furthermore, management of the Company
believes that the ultimate resolution of this matter will not have a material
adverse effect on the Company whether resolved through adjudication or
settlement.
Note 6: Related Party Transactions
The Company has entered into various transactions with affiliated entities
as follows (in thousands):
<TABLE>
<CAPTION>
(a) Automated Prescription Systems, Inc.
(50% Stockholder):
Balance Sheets Data at February 29, 1996
and February 28, 1995 -- 1996 1995
<S> <C> <C> <C>
Amount included in trade receivables..............$ 19 --
Amount included in other receivables.............. -- 10
Amount included in accounts payable............... 489 --
Amount included in accrued royalties
payable......................................... 67 128
Statements of Operations Data for the
fiscal years ended February 29, 1996,
February 28, 1995, and
February 28, 1994 -- 1996 1995 1994
Systems and services purchased for
resale under various subcontracts................. $ 519 13 125
Royalty expense, net................................. 188 111 --
</TABLE>
51
<PAGE>
SI/BAKER, INC.
Notes To Financial Statements (Continued)
<TABLE>
<CAPTION>
(b) SI Handling Systems, Inc. (50% Stockholder):
Balance Sheets Data at February 29, 1996
and February 28, 1995 -- 1996 1995
<S> <C> <C> <C>
Amount included in trade receivables................. $ -- 10
Amount included in other receivables................. -- 2
Amount included in accounts payable.................. 591 14
Amount included in accrued royalties
payable........................................... 67 128
Amount included in accrued other
liabilities....................................... 21 --
Statements of Operations Data for the
fiscal years ended February 29, 1996,
February 28, 1995, and
February 28, 1994 -- 1996 1995 1994
Systems and services purchased for
resale under various subcontracts................. $ 770 1,465 2,031
Purchase of administrative and other
services.......................................... 106 47 104
Royalty expense, net................................. 188 46 --
</TABLE>
52
<PAGE>
Officers:
Michael L. Jordan, President and Chief Executive Officer
Eugene E. Fellows, Vice President and Chief Operating Officer
Ronald J. Semanick, Treasurer
Alvin F. Towle, Secretary
Directors:
Leonard S. Yurkovic
James R. Baker, Jr.
General Counsel:
Brose, Poswistilo & Elliott
1101 Building
11th & Northampton Streets
Easton, PA 18042
Auditors:
KPMG Peat Marwick LLP
4905 Tilghman Street
Allentown, PA 18104
53
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Annual Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SI HANDLING SYSTEMS, INC.
By /s/ Leonard S. Yurkovic
----------------------------------
Leonard S. Yurkovic
President and Chief Executive Officer
54
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. This Annual Report
may be signed in multiple identical counterparts, all of which taken together,
shall constitute a single document.
Dated: May 9, 1996 /s/ Edward J. Fahey
----------------------------------
Edward J. Fahey
Chairman of the Board
Dated: May 9, 1996 /s/ Leonard S. Yurkovic
----------------------------------
Leonard S. Yurkovic
President and Chief Executive Officer
Dated: May 9, 1996 /s/ Barry V. Mack
----------------------------------
Barry V. Mack
Vice President-Finance, Chief
Financial Officer and Treasurer
(Principal Accounting and Financial
Officer)
Dated: May 9, 1996 /s/ Elmer D. Gates
----------------------------------
Elmer D. Gates
Director
Dated: May 9, 1996 /s/ L. Jack Bradt
----------------------------------
L. Jack Bradt
Director
Dated: May 9, 1996 /s/ Michael J. Gausling
----------------------------------
Michael J. Gausling
Director
55
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED MARCH 3, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000090045
<NAME> SI HANDLING SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-03-1996
<PERIOD-END> MAR-03-1996
<CASH> 1,335
<SECURITIES> 2,414
<RECEIVABLES> 2,505
<ALLOWANCES> 0
<INVENTORY> 1,762
<CURRENT-ASSETS> 10,717
<PP&E> 6,634
<DEPRECIATION> 5,461
<TOTAL-ASSETS> 12,570
<CURRENT-LIABILITIES> 5,210
<BONDS> 49
0
0
<COMMON> 2,441
<OTHER-SE> 4,769
<TOTAL-LIABILITY-AND-EQUITY> 12,570
<SALES> 25,786
<TOTAL-REVENUES> 25,786
<CGS> 19,434
<TOTAL-COSTS> 19,434
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 1,837
<INCOME-TAX> 212
<INCOME-CONTINUING> 1,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,625
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
</TABLE>
