SI HANDLING SYSTEMS INC
10-Q, 1997-01-14
CONSTRUCTION, MINING & MATERIALS HANDLING MACHINERY & EQUIP
Previous: SECURITY FIRST TRUST, 497, 1997-01-14
Next: SKYLINE CORP, 10-Q, 1997-01-14



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                 For The Quarterly Period Ended December 1, 1996

                           Commission File No. 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
         Incorporation Or Organization)                 Identification No.)

          600 Kuebler Road, Easton, PA                       18040
     (Address Of Principal Executive Offices)             (Zip Code)

Registrant's Telephone Number, Including Area Code:      610-252-7321

Indicate by checkmark  whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to  file  such  reports),and  (2) has  been  subject  to  such  filing
requirements for the past 90 days. Yes   X      No                           
                                       -----       -----

Number of shares of common stock, par value $1.00 per share, outstanding
as of December 1, 1996:  2,458,806.
                         ---------


<PAGE>


                                      - 2 -

                         PART I - FINANCIAL INFORMATION
                         ------------------------------

ITEM 1.       FINANCIAL STATEMENTS
- - - - - - - - - - - ------        --------------------
SI HANDLING SYSTEMS, INC.
Balance Sheets
     (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                    December        March
Assets                                               1, 1996       3, 1996
- - - - - - - - - - - ------                                              --------       -------
<S>                                                 <C>             <C>  
Current assets:
   Cash and cash equivalents, principally
     time deposits                                  $ 1,399          1,335
   Short-term investments                             4,290          2,414
                                                    -------        -------
       Total cash, cash equivalents, and
         short-term investments                       5,689          3,749
                                                    -------        -------

   Receivables:
     Trade                                            1,901          2,505
     Notes and other receivables                        564            528
                                                    -------        -------
       Total receivables                              2,465          3,033
                                                    -------        -------

   Costs and estimated earnings in excess
     of billings                                      1,723          1,803

   Inventories:
     Raw materials                                      657            963
     Finished goods and work-in-process               1,215            799
                                                    -------        -------
       Total inventories                              1,872          1,762
                                                    -------        -------

   Deferred income tax benefits                         414            229
   Prepaid expenses and other current assets            193            141
                                                    -------        -------
       Total current assets                          12,356         10,717
                                                    -------        -------

Property, plant and equipment, at cost:
   Land                                                  27             27
   Buildings and improvements                         3,276          3,276
   Machinery and equipment                            3,581          3,331
                                                    -------        -------
                                                      6,884          6,634
   Less:  accumulated depreciation                    5,699          5,461
                                                    -------        -------
       Net property, plant and equipment              1,185          1,173
                                                    -------        -------

Deferred income tax benefits                             71             71
Investment in joint venture                             538            530
Other assets, at cost less accumulated
   amortization of $65 in 1997 and $57
   in 1996                                               68             79
                                                    -------        -------
       Total assets                                 $14,218         12,570
                                                    =======        =======
</TABLE>

                 See accompanying notes to financial statements.


<PAGE>


                                      - 3 -

ITEM 1.       FINANCIAL STATEMENTS (CONTINUED)
- - - - - - - - - - - -------       --------------------
SI HANDLING SYSTEMS, INC.
Balance Sheets
     (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                    December         March
Liabilities and Stockholders' Equity                1, 1996         3, 1996
- - - - - - - - - - - ------------------------------------               ----------      ---------
<S>                                                <C>              <C>   
Current liabilities:
   Current installments of long-term debt          $      20             20
   Accounts payable                                    1,143          1,542
   Customers' deposits and billings in excess
     of costs and estimated earnings                   2,544          1,112
   Accrued salaries, wages, and commissions              712            929
   Income taxes payable                                  549            275
   Accrued royalties payable                             343            593
   Liabilities and deferred credits associated
     with the AGV Asset Purchase Agreement                62             80
   Accrued other liabilities                             733            659
                                                     -------        -------

     Total current liabilities                         6,106          5,210
                                                     -------        -------

Long-term liabilities:
   Long-term debt, excluding current installments:
     Mortgages payable                                    32             49
                                                     -------        -------

       Total long-term debt                               32             49
                                                     -------        -------

   Deferred compensation                                 111            101
                                                     -------        -------

       Total long-term liabilities                       143            150
                                                     -------        -------

Commitments and contingencies

Stockholders' equity:
   Common stock, $1 par value; authorized
     5,000,000 shares; issued 2,458,806 shares
     in 1997 and 2,441,341 shares in 1996              2,459          2,441
   Additional paid-in capital                          3,742          3,613
   Retained earnings                                   1,768          1,156
                                                     -------        -------

       Total stockholders' equity                      7,969          7,210
                                                     -------        -------

       Total liabilities and stockholders' equity    $14,218         12,570
                                                     =======        =======
</TABLE>




                 See accompanying notes to financial statements.


<PAGE>


                                      - 4 -

ITEM 1.       FINANCIAL STATEMENTS (CONTINUED)
- - - - - - - - - - - -------       --------------------
SI HANDLING SYSTEMS, INC.
Statements of Operations
     (In Thousands, Except Share And Per Share Data)

<TABLE>
<CAPTION>

                                Three Months Ended           Nine Months Ended
                               --------------------        --------------------
                               December    November        December    November
                                1, 1996    26, 1995         1, 1996    26, 1995
                               --------    --------        --------    --------
<S>                            <C>          <C>             <C>         <C>  
Net sales                      $ 4,929       6,702          15,982      19,683
Cost of sales                    3,430       5,166          11,271      14,923
                               -------     -------         -------     -------

Gross profit on sales            1,499       1,536           4,711       4,760
                               -------     -------         -------     -------

Selling, general and
   administrative
   expenses                      1,226       1,282           3,824       3,715
Net income associated
   with the AGV Asset
   Purchase Agreement               --        (250)             --        (250)
Product development
   costs                            59          99             165         282
Interest expense                     1           5               6          13
Interest income                    (80)        (49)           (175)       (117)
Equity in (income) loss
   of joint venture                 69         (31)             (8)       (172)
Other expense
   (income), net                   (75)        (29)           (176)       (127)
                               -------     -------         -------     -------
                                 1,200       1,027           3,636       3,344
                               -------     -------         -------     -------

Earnings before
   income taxes                    299         509           1,075       1,416
Income tax expense                  26          76              84         212
                               -------     -------         -------     -------

Net earnings                   $   273         433             991       1,204
                               =======     =======         =======     =======

Net earnings per common
   share and common
   share equivalent*           $   .11         .18             .40         .49
                               =======     =======         =======     =======

Dividends per share**          $     -           -             .10         .07
                               =======     =======         =======     =======

<FN>
*   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.  Earnings  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 2,467,000 and 2,480,000, respectively, at December 1, 1996 and November
    26, 1995.
**  Dividends  per  share  for the nine  months  ended  November  26,  1995 were
    adjusted for the  three-for-two  stock split that was  distributed on August
    11, 1995 to stockholders of record on July 31, 1995.
</FN>
</TABLE>

                 See accompanying notes to financial statements.


<PAGE>


                                      - 5 -

ITEM 1.       FINANCIAL STATEMENTS (CONTINUED)
- - - - - - - - - - - -------       --------------------
SI HANDLING SYSTEMS, INC.
Statements of Cash Flows
     (In Thousands)

<TABLE>
<CAPTION>
                                                         Nine Months Ended
                                                     ------------------------
                                                     December        November
                                                      1, 1996        26, 1995
                                                     --------        --------
<S>                                                   <C>             <C>  

Cash flows from operating activities:
   Net earnings                                       $   991          1,204
   Adjustments to reconcile net earnings
     to net cash provided by operating
     activities:
       Depreciation of plant and equipment                238            338
       Amortization of intangibles                          8              8
       Equity in income of joint venture                   (8)          (172)
       Change in operating assets and liabilities:
         Receivables                                      568          2,933
         Costs and estimated earnings in
           excess of billings                              80            637
         Inventories                                     (110)          (114)
         Deferred income tax benefits                    (185)            (4)
         Prepaid expenses and other
           current assets                                 (52)           127
         Other noncurrent assets                            3              -
         Accounts payable                                (399)          (835)
         Customers' deposits and billings
           in excess of costs and estimated
           earnings                                     1,432            480
         Accrued salaries, wages, and
           commissions                                   (217)           289
         Income taxes payable                             274            216
         Accrued royalties payable                       (250)          (219)
         Liabilities and deferred credits
           associated with the AGV
           Asset Purchase Agreement                       (18)          (442)
         Accrued other liabilities                         74            148
         Deferred compensation                             10              1
                                                      -------        -------
   Net cash provided by operating activities            2,439          4,595
                                                      -------        -------

Cash flows from investing activities:
   Purchases of short-term investments                 (1,876)             -
   Additions to property, plant and equipment            (250)          (139)
                                                      -------        -------
   Net cash used in investing
     activities                                        (2,126)          (139)
                                                      -------        -------
</TABLE>


                 See accompanying notes to financial statements.


<PAGE>


                                      - 6 -

ITEM 1.    FINANCIAL STATEMENTS (CONTINUED)
- - - - - - - - - - - -------    --------------------
SI HANDLING SYSTEMS, INC.
Statements of Cash Flows (Continued)
     (In Thousands)

<TABLE>
<CAPTION>
                                                         Nine Months Ended
                                                     ------------------------
                                                     December        November
                                                      1, 1996        26, 1995
                                                     --------        --------
<S>                                                  <C>              <C>  

Cash flows from financing activities:
   Sale of treasury stock in connection with
     employee stock option plan                            -              33
   Sale of common shares in connection
     with employee stock option plan                      12              --
   Repayment of long-term debt, including
     current portion                                     (17)            (16)
   Increase in (repayment of) loan
     payable to bank                                       -            (500)
   Dividends paid on common stock                       (244)           (164)
   Dividends paid to stockholders for
     fractional shares in connection
     with three-for-two stock split                        -              (1)
                                                     -------         -------
   Net cash used by financing
     activities                                         (249)           (648)
                                                     -------         -------

   Increase in cash and cash equivalents                  64           3,808
   Cash and cash equivalents, beginning
     of period                                         1,335             571
                                                     -------         -------
   Cash and cash equivalents, end of
     period                                          $ 1,399           4,379
                                                     =======         =======

   Supplemental disclosures of cash flow information:
     Cash paid (received) during the period for:
       Interest                                      $     2              11
                                                     =======         =======
       Income taxes                                  $    (5)             --
                                                     =======         =======
</TABLE>











                 See accompanying notes to financial statements.


<PAGE>


                                      - 7 -

ITEM 1.    FINANCIAL STATEMENTS (CONTINUED)
- - - - - - - - - - - -------    --------------------
SI HANDLING SYSTEMS, INC.
Statements of Cash Flows (Continued)
     (In Thousands)

<TABLE>
<CAPTION>
                                                         Nine Months Ended
                                                     -----------------------
                                                     December        November
                                                      1, 1996        26, 1995
                                                     --------        --------

<S>                                                  <C>              <C>    
   Supplemental disclosure of noncash
   investing and financing activities:
     Issuance of 27,431 common shares
     in exchange for 12,814 common
     shares delivered to the Company
     by officers in connection with the
     employee incentive stock option plan            $    135               -
                                                     ========         =======
     Issuance of 6,600 common shares
       held in treasury in exchange for
       3,162 common shares delivered to
       treasury by an officer in connection
       with the employee incentive stock
       option plan                                   $      -              21
                                                     ========         =======
     Relief of liability related to obligations
       under the AGV Asset Purchase
       Agreement due to disposal of
       machinery and equipment                       $      -              98
                                                     ========         =======
</TABLE>





















                 See accompanying notes to financial statements.


<PAGE>


                                      - 8 -

ITEM 1.       FINANCIAL STATEMENTS (CONTINUED)
- - - - - - - - - - - -------       --------------------
SI HANDLING SYSTEMS, INC.
Notes To Financial Statements
Nine Months Ended December 1, 1996 and November 26, 1995

(1)  The  information  contained in this 10-Q report is unaudited and is subject
     to year-end  adjustments and audit.  However, in the opinion of management,
     the interim  financial  statements  furnished  reflect all  adjustments and
     accruals which are necessary to a fair statement of results for the interim
     periods presented.

     SI  Handling   Systems,   Inc.   ("SI"  or  the  "Company")  and  Automated
Prescription  Systems,  Inc.  ("APS") are  co-venturers in a joint venture named
SI/BAKER, INC. ("SI/BAKER" or the "joint venture"). The joint venture draws upon
the automated materials handling systems experience of SI 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  joint  venture  designs  and  installs  computer   controlled,   fully
automated,  integrated systems for managed care pharmacy  operations.  The joint
venture'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.

     Schedule  A  contains  the  SI/BAKER,   INC.  financial   statements.   The
information  contained in the SI/BAKER,  INC. financial  statements is unaudited
and is subject to year-end  adjustments  and audit.  However,  in the opinion of
management,  the interim financial  statements furnished reflect all adjustments
and accruals  which are necessary to a fair statement of results for the interim
periods presented.


ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- - - - - - - - - - - ------        -------------------------------------------------
              CONDITION AND RESULTS OF OPERATIONS
              -----------------------------------

Liquidity And Capital Resources
- - - - - - - - - - - -------------------------------
     The Company's cash and cash equivalents  increased to $1,399,000 during the
first nine months of fiscal 1997 from  $1,335,000 at the end of fiscal 1996. The
increase resulted from cash provided by operating activities totaling $2,439,000
and  proceeds of $12,000 from the sale of common  stock in  connection  with the
employee stock option plan. Offsetting the increase in cash and cash equivalents
were   repayments  of  long-term  debt  of  $17,000,   purchases  of  short-term
investments of $1,876,000,  purchases of equipment of $250,000,  and the payment
of $244,000 in cash  dividends  to  stockholders.  Funds  provided by  operating
activities during the first nine months of fiscal 1996 were $4,595,000.


<PAGE>


                                      - 9 -

ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- - - - - - - - - - - -------       -------------------------------------------------
              CONDITION AND RESULTS OF OPERATIONS
              -----------------------------------

Liquidity And Capital Resources (Continued)
- - - - - - - - - - - -------------------------------
     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 the first nine months of
fiscal 1997.  The term of the original  arrangement  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.  Currently,  the committed revolving credit facility has an expiration
date of August  31,  1999.  During  the first nine  months of fiscal  1997,  the
Company  did not  have any  borrowings  under  the  committed  revolving  credit
facility.

     On May 15, 1996, SI/BAKER,  INC.  ("SI/BAKER") borrowed $2,000,000 from its
principal bank to fund short-term working capital requirements.  The Company and
its joint venture partner,  Automated  Prescription Systems,  Inc.("APS"),  each
guaranteed fifty percent (50%) of the borrowing.  SI/BAKER repaid the $2,000,000
short-term  debt on June 4, 1996.  Also, on August 15, 1996,  SI/BAKER  borrowed
$300,000  from  its  principal   bank  to  fund   short-term   working   capital
requirements. The $300,000 of short-term debt, guaranteed equally by both parent
companies,  was repaid on August 26,  1996.  The Company  and APS may  guarantee
future borrowings of its joint venture company if the circumstances  surrounding
the borrowing transaction warrant the guarantee.

     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
- - - - - - - - - - - ---------------------
(a)  Nine Months Ended December 1, 1996 versus Nine Months Ended November 26,
     ------------------------------------------------------------------------
     1995
     --- 
     The  Company's  net  earnings for the first nine months of fiscal 1997 were
$991,000  compared to net  earnings of  $1,204,000  for the first nine months of
fiscal 1996.

<PAGE>


                                     - 10 -

ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- - - - - - - - - - - -------       -------------------------------------------------
              CONDITION AND RESULTS OF OPERATIONS
              -----------------------------------
SI HANDLING SYSTEMS, INC.

Results Of Operations
- - - - - - - - - - - ---------------------
(a)  Nine Months Ended December 1, 1996 versus Nine Months Ended November 26,
- - - - - - - - - - - ---  ------------------------------------------------------------------------
     1995 (Continued)
     ----
     Backlog at the end of the third quarter of fiscal 1997 was $30,844,000 with
the  majority of the  backlog  pertaining  to  Switch-Cart  and  Dispen-SI-matic
contracts.  During  the  third  quarter  of fiscal  1997,  the  Company  was the
recipient of orders  totalling  $27,465,000  with the majority  attributable  to
three large orders. In the first contract,  the Company has been awarded a $16.9
million prime  mechanization  contract with the Defense Logistics Agency for the
Army Distribution Depot in Red River,  Texas. This contract,  one of the largest
in the Company's  history,  will take  approximately two years to complete.  The
second contract,  totalling  approximately $3.7 million,  engages the Company to
automate  the  distribution  process  at  one of the  leading  manufacturers  of
vitamins in the health and beauty aids field.  This project is anticipated to be
completed  during  the  second  quarter  of fiscal  1998.  The  third  contract,
totalling  approximately  $2.4  million,  engages the  Company to  automate  the
distribution   process  at  one  of  the  largest  wholesale  suppliers  in  the
pharmaceutical  industry. This project is anticipated to be completed during the
second quarter of fiscal 1998.
     Net sales of $15,982,000 for the first nine months of fiscal 1997 decreased
18.8% compared to net sales of  $19,683,000  for the first nine months of fiscal
1996.  The sales  decrease in the first nine months of fiscal 1997 is attributed
primarily  to a smaller  backlog of orders  entering  fiscal  1997  ($10,488,000
versus a $16,665,000  backlog  beginning  fiscal 1996).  The largest declines in
sales occurred in the Cartrac and Order Selection  product lines. The decline in
the Order  Selection  product line was primarily  attributable to the prior year
comparable period containing  substantial  revenues for a significant  amount of
progress relating to a large contract which encompassed a small parcel sortation
system.  Also, the decline experienced in the Company's Cartrac product line was
similar  to the above  mentioned  decline  associated  with the Order  Selection
product line whereby  during the first nine months of fiscal 1996 a  significant
amount of progress  relating  to two large  automotive  contracts,  subsequently
completed  by  the  end  of  fiscal  1996,  resulted  in  substantial  revenues.
Contributing  to the lower  backlog at the  beginning of fiscal 1997,  and hence
sales in the first  nine  months  of fiscal  1997,  were  delays by  prospective
customers,  particularly those interested in Order Selection Systems, in signing
contracts  due  to  expanding  project  scope  and  other  customer  activities.
Partially  offsetting the declines  mentioned  above was an increase in sales of
the  Company's  Switch-Cart  product,  principally  relating to  performance  on
contracts  received  during  the  fourth  quarter  of fiscal  1996 and the first
quarter  of fiscal  1997.  During  the first  nine  months of fiscal  1996,  the
Company's  Switch-Cart  product line  accounted for an  insignificant  amount of
sales revenues.


<PAGE>


                                     - 11 -

ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- - - - - - - - - - - -------       -------------------------------------------------
              CONDITION AND RESULTS OF OPERATIONS
              -----------------------------------
SI HANDLING SYSTEMS, INC.

Results Of Operations
- - - - - - - - - - - ---------------------
(a)  Nine Months Ended December 1, 1996 versus Nine Months Ended November 26,
     ------------------------------------------------------------------------
     1995 (Continued)
     ----
     Gross profit as a  percentage  of sales was 29.5% for the first nine months
of fiscal 1997  compared to 24.2% for the first nine months of fiscal 1996.  The
increase in the gross profit percentage for the first nine months of fiscal 1997
was primarily  attributable  to the favorable  performance on several  contracts
initiated in prior fiscal years that were completed during the first nine months
of fiscal 1997 as well as to a higher content in contracts currently in progress
of proprietary  product wherein  margins are higher than contracts  containing a
high degree of  ancillary  products.  Partially  offsetting  the increase in the
gross profit  percentage are additional  contract costs arising from  first-time
design  inefficiencies  relating to the Company's  integration of new technology
from a licensee for applications in distribution  operations.  Also contributing
to the lower gross profit  percentage in the fiscal 1996 comparable  period were
primarily two factors:  difficulties  in executing and  concluding  several AGVS
contracts as additional costs became  necessary to meet  contractual  throughput
and durability  requirements 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.
     Selling,  general, and administrative expenses of $3,824,000 were higher by
$109,000 in the first nine months of fiscal 1997 than in the  comparable  fiscal
1996 period. The increase in selling,  general,  and administrative  expenses is
due primarily to costs  associated  with product  promotion and sales efforts in
response to increased  quoting  activities  and aimed at expanding the Company's
customer  base  of  business  along  with  shareholder  relations   expenditures
associated with increasing the visibility of the Company.  Also  contributing to
the lower  selling,  general,  and  administrative  expenses  in the fiscal 1996
comparable  period was the  reversal  of accrued  legal fees near the end of the
third quarter of fiscal 1996 that were no longer  required due to the settlement
of the Apogee litigation
     During the first nine months of fiscal  1996,  the Company  recognized  net
income of $250,000  associated  with the AGV Asset Purchase  Agreement.  The net
income  resulted  from the reversal of accrued  liabilities,  in addition to the
legal fees  mentioned  above,  no longer  required due to the  settlement of the
Apogee  litigation near the end of the third quarter of fiscal 1996. The Company
incurred no expense or income related to the AGV Asset Purchase Agreement during
the comparable fiscal 1997 period.
     Product  development  costs of $165,000 were lower by $117,000 in the first
nine  months  of  fiscal  1997  than  in  the  comparable  fiscal  1996  period.
Development   programs  in  the  first  nine  months  of  fiscal  1997  included
enhancements to the Company's  product controls and features and improvements to
the    Sortation    and    Order    Selection    product    lines,    with


<PAGE>


                                     - 12 -

ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- - - - - - - - - - - -------       -------------------------------------------------
              CONDITION AND RESULTS OF OPERATIONS
              -----------------------------------
SI HANDLING SYSTEMS, INC.

Results Of Operations
- - - - - - - - - - - ---------------------

(a)  Nine Months Ended December 1, 1996 versus Nine Months Ended
     -----------------------------------------------------------
     November 26, 1995 (Continued)
     -----------------
particular  emphasis  aimed  at  Dispen-SI-matic   and  Pick-to-Light   Systems.
Development   programs  in  the  first  nine  months  of  fiscal  1996  included
improvements to the Order Selection and Sortation product lines, with particular
emphasis aimed at new  technologies  to provide  Pick-to-Light  and Small Parcel
Sortation Systems where orders had already been received or were imminent.
     Interest  income of $175,000 was higher by $58,000 in the first nine months
of fiscal  1997 than in the  comparable  fiscal  1996  period.  The  increase in
interest income is primarily attributable to the higher level of funds available
for short-term investments during the first nine months of fiscal 1997.
     Equity  in  (income)  loss  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.  Despite the growth in  SI/BAKER's  revenues,  the
unfavorable  variance  for the first nine months of fiscal 1997 in the equity in
(income) loss of joint  venture was  attributable  to a  combination  of several
factors including competitively restrained prices, royalty costs associated with
the  recently  settled  patent  infringement   litigation,   and  cost  overruns
associated  with both  first-time  products and  difficulties  in executing  and
concluding  several  contracts  as  additional  costs  became  necessary to meet
contractual  throughput  requirements.  Also  contributing  to  the  unfavorable
variance were increased revenue-based royalty costs due to the parent companies,
increased  product  development  costs,  and  increased  selling,  general,  and
administrative  expenses,  including  legal costs  associated  with the recently
settled patent infringement litigation.
     The  favorable  variance  in other  expense  (income),  net,  is  primarily
attributable  to an increase in royalty  income  related to the  SI/BAKER,  INC.
joint  venture.  Partially  offsetting  the increase was a reduction in purchase
discounts earned by the Company due to decreased purchasing requirements and the
write-off  of the  balance  of a  customer  receivable  due to  its  filing  for
bankruptcy protection.
     The Company  incurred  income tax expense of $84,000  during the first nine
months of fiscal  1997  compared  to  income  tax  expense  of  $212,000  in the
comparable  fiscal 1996 period.  Income tax expense for the first nine months of
fiscal 1997 and 1996 were less than the statutory rate 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.


<PAGE>


                                     - 13 -

ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- - - - - - - - - - - -------       -------------------------------------------------
              CONDITION AND RESULTS OF OPERATIONS
              -----------------------------------
SI HANDLING SYSTEMS, INC.

Results Of Operations
- - - - - - - - - - - ---------------------
(b)  Three Months Ended December 1, 1996 versus Three Months Ended November 26,
     --------------------------------------------------------------------------
     1995
     ----
     Changes in the third  quarter of the current  fiscal  year  compared to the
prior  year were  consistent  with  those  previously  noted  above for the nine
month-period, except for the following areas:
     Selling,  general,  and  administrative  expenses for the third  quarter of
fiscal 1997  decreased  slightly  from the  comparable  fiscal 1996 period.  The
increase in selling,  general,  and  administrative  expenses for the nine month
period noted above  occurred  primarily in the first half of fiscal 1997,  while
third quarter  expenses for fiscal 1997  decreased  slightly from the comparable
prior year period.  Contributing to the slight decrease in selling, general, and
administrative  expenses in the third quarter were cost savings  associated with
delays in hiring  replacement  personnel for attrition  experienced in the prior
fiscal year.
     The  favorable  variance  in other  expense  (income),  net,  is  primarily
attributable  to an increase in royalty  income  related to the  SI/BAKER,  INC.
joint venture.


                           PART II - OTHER INFORMATION
                           ---------------------------

ITEM 1.       LEGAL PROCEEDINGS
- - - - - - - - - - - -------       -----------------

     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 (the "defendants")  alleging that certain of the products
of SI/BAKER  infringed  a patent  held by the  competitor.  The  competitor  was
seeking  monetary  damages  and a royalty  related to sales by  SI/BAKER  of its
products.
     On December  20,  1996,  a  Settlement  Agreement  was reached  between the
defendants and the competitor.  The competitor  dismissed the action against the
defendants and granted a license to SI/BAKER allowing it the right to make, use,
sell,  and  offer  for  sale  certain  of the  defendant's  products  ("licensed
products").  In  exchange  for the  license,  the  defendants  agreed to dismiss
counterclaims  they brought  against the competitor and pay the competitor a per
system royalty.  On December 31, 1996,  SI/BAKER  satisfied a $600,000 liability
under the Settlement  Agreement by paying the competitor for currently installed
licensed products or systems.
     The term of the Settlement Agreement shall continue until the expiration of
the competitor's patent; however, SI/BAKER's status as sole licensee will remain
in effect until  December 31, 2000 and all orders  related to licensed  products
received   by   SI/BAKER   after   December 31, 2000   will   not   be   subject


<PAGE>


                                     - 14 -

SI HANDLING SYSTEMS, INC.

                           PART II - OTHER INFORMATION
                           ---------------------------

ITEM 1.       LEGAL PROCEEDINGS (Continued)
- - - - - - - - - - - -------       -----------------

to royalty  payments.  All orders related to licensed products received prior to
the December 31, 2000 termination date will be subject to royalty payments.
     In accordance  with the terms of the Settlement  Agreement,  the defendants
neither  acknowledge nor contest the  competitor's  claim of infringement of its
patent;  however, the defendants did acknowledge the validity and enforceability
of the competitor's patent.
     The management of both the Company and SI/BAKER believe that the provisions
of the  Settlement  Agreement  will not have a  material  adverse  effect on the
Company and  SI/BAKER.  The  attainment  of a Settlement  Agreement  removes the
uncertainty  of  litigation  outcome  and  eliminates  the  diversion  of  court
proceedings.
     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.


ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K
- - - - - - - - - - - -------       --------------------------------

     (a) Exhibit 27 - Financial Data Schedule

     (b) During the  quarter  ended  December  1, 1996,  a Form 8-K was filed on
         November 4, 1996. The filing pertained to projections that were forward
         looking  statements within the meaning of Section 21E of the Securities
         Exchange Act of 1934.


<PAGE>


                                     - 15 -

SI HANDLING SYSTEMS, INC.






                                    SIGNATURE
                                    ---------

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                                     SI HANDLING SYSTEMS, INC.

                                                     /S/ Barry V. Mack

                                                     Barry V. Mack
                                                     Vice President - Finance

Dated:       January 14, 1997
        ---------------------------


<PAGE>


                                     - 16 -

                                                                     SCHEDULE A









                                 SI/BAKER, INC.

                              FINANCIAL STATEMENTS

                                NOVEMBER 30, 1996


<PAGE>


                                     - 17 -

SI/BAKER, INC.
Balance Sheets
November 30, 1996 and February 29, 1996
  (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                   November        February
                                                   30, 1996        29, 1996
                                                   --------        --------

<S>                                                <C>              <C>
Assets
- - - - - - - - - - - ------
Current assets:
   Cash and cash equivalents, principally
     time deposits                                 $   866             327

Receivables:
   Trade                                             1,688             523
   Other receivables                                    12               -
                                                    ------          ------
     Total receivables                               1,700             523
                                                    ------          ------

   Costs and estimated earnings in
     excess of billings                              1,791           3,413
   Inventories - purchased parts                        70              16
   Deferred income tax benefits                        161             161
   Prepaid income taxes                                336               -
   Prepaid expenses and other current
     assets                                            104               5
                                                    ------          ------

       Total current assets                          5,028           4,445
                                                    ------          ------

   Machinery and equipment, at cost                    100              75
     Less:  accumulated depreciation                    38              23
                                                    ------          ------
   Net machinery and equipment                          62              52
                                                    ------          ------

   Equipment leased to customer                        487             478
   Less:  accumulated depreciation                      96               -
                                                    ------          ------
     Net equipment leased to customer                  391             478
                                                    ------          ------

       Total assets                                 $5,481           4,975
                                                    ======          ======
</TABLE>




<PAGE>


                                     - 18 -

SI/BAKER, INC.
Balance Sheets
November 30, 1996 and February 29, 1996
  (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                   November        February
                                                   30, 1996        29, 1996*
                                                   --------        ---------

Liabilities and Stockholders' Equity
- - - - - - - - - - - ------------------------------------
<S>                                                <C>             <C>  
Current liabilities:
   Accounts payable:
     Trade                                         $   779             798
     Affiliated companies                              462           1,080
                                                    ------          ------
       Total accounts payable                        1,241           1,878
                                                    ------          ------

   Customers' deposits and billings in
     excess of costs and estimated
     earnings                                        1,773           1,007
   Accrued salaries, wages, and
     commissions                                       159             272
   Income taxes payable                                  -             194
   Accrued royalties payable due
     parent companies                                  174             134
   Accrued royalties payable related
     to litigation settlement                          609             250
   Accrued product warranties                          351             133
   Accrued audit and legal fees                         72              21
   Accrued other liabilities                            20              20
                                                    ------          ------
       Total current liabilities                     4,399           3,909
                                                    ------          ------

Deferred income tax liability                            6               6
                                                    ------          ------

Contingencies

Stockholders' equity:
   Common stock, $1 par value; authorized
     1,000 shares; issued 200 shares                     -               -
   Additional paid-in capital                          200             200
   Retained earnings                                   876             860
                                                    ------          ------
       Total stockholders' equity                    1,076           1,060
                                                    ------          ------

       Total liabilities and stockholders'
         equity                                     $5,481           4,975
                                                    ======          ======

<FN>
*Certain amounts have been reclassified to conform with presentation adopted in
  fiscal 1997.
</FN>
</TABLE>


<PAGE>


                                     - 19 -

SI/BAKER, INC.
Statements of Operations
Nine Months Ended November 30, 1996 and 1995
  (In Thousands)

<TABLE>
<CAPTION>
                                 Three Months Ended          Nine Months Ended
                                --------------------       --------------------
                                November    November       November    November
                                30, 1996    30, 1995       30, 1996    30, 1995
                                --------    --------       --------    --------

<S>                             <C>           <C>            <C>         <C>
Net sales                       $ 4,353       1,810          11,480      6,035
Cost of sales                     4,147       1,303           9,988      4,353
                                -------     -------         -------    -------

Gross profit on sales               206         507           1,492      1,682
                                -------     -------         -------    -------

Selling, general and
administrative
   expenses                         219         298             823        741
Product development
   costs                             74          40             224        131
Royalty expense to
   parent companies, net            186          73             459        239
Interest income                     (24)        (23)            (35)       (71)
Interest expense                      1           -               9          -
Other expense
   (income), net                    (15)          -             (13)         1
                                -------     -------         -------    -------
                                    441         388           1,467      1,041
                                -------     -------         -------    -------

Earnings (loss) before
   income taxes                    (235)        119              25        641
Income tax expense
  (benefit)                         (96)         56               9        297
                                -------     -------         -------    -------

Net earnings (loss)             $  (139)         63              16        344
                                =======     =======       =========   ========
</TABLE>





<PAGE>


                                     - 20 -

SI/BAKER, INC.
Statements of Cash Flows
Nine Months Ended November 30, 1996 and 1995
  (In Thousands)

<TABLE>
<CAPTION>
                                                       Nine Months Ended
                                                   -------------------------
                                                   November        November
                                                   30, 1996        30, 1995*
                                                   --------        ---------

<S>                                                <C>               <C>  
Cash flow from operating activities:
   Net earnings                                    $     16             344
   Adjustments to reconcile net earnings
     to net cash provided (used) by
     operating activities:
       Depreciation of machinery and
         equipment                                      111               7
       Changes in operating assets and
         liabilities:
           Receivables                               (1,177)            434
           Costs and estimated earnings
              in excess of billings                   1,622            (729)
           Inventories - purchased parts                (54)              -
           Prepaid income taxes                        (336)              -
           Prepaid expenses and other
              current assets                            (99)             (8)
           Accounts payable                            (637)            123
           Customers' deposits and
              billings in excess of costs
              and estimated earnings                    766            (657)
           Accrued salaries, wages, and
              commissions                              (113)             40
           Income taxes payable                        (194)            235
           Accrued royalties payable due
              parent companies                           40            (183)
           Accrued royalties payable related
              to litigation settlement                  359               -
           Accrued product warranties                   218              14
           Accrued audit and legal fees                  51              27
           Accrued other liabilities                      -              16
                                                    -------         -------
Net cash provided (used) by operating
   activities                                           573            (337)
                                                    -------         -------

Cash flows used in investing activities:
   Additions to machinery and equipment                 (25)            (11)
   Equipment leased to customer                          (9)              -
                                                    -------         -------
     Net cash used by investing activities              (34)            (11)
                                                    -------         -------

Increase (decrease) in cash and cash
   equivalents                                          539            (348)
Cash and cash equivalents, beginning of period          327           1,830
                                                    -------         -------
Cash and cash equivalents, end of period           $    866           1,482
                                                    =======         =======
</TABLE>

<PAGE>
                                     - 21 -

SI/BAKER, INC.
Statements of Cash Flows (Continued)
Nine Months Ended November 30, 1996 and 1995
  (In Thousands)

<TABLE>
<CAPTION>
                                                       Nine Months Ended
                                                   -------------------------
                                                   November        November
                                                   30, 1996        30, 1995*
                                                   --------        ---------

<S>                                                <C>               <C>
Supplemental disclosure of cash flow
 information:
     Cash paid during the period for:
       Income taxes                                $    539             63
                                                       ====           ====
       Interest                                    $      9              -
                                                       ====           ====

<FN>
*Certain amounts have been reclassified to conform with presentation adopted in
  fiscal 1997.
</FN>
</TABLE>

<TABLE> <S> <C>


<ARTICLE>                                   5

<LEGEND>                                    THIS SCHEDULE CONTAINS
                                            SUMMARY FINANCIAL INFORMATION
                                            EXTRACTED FROM FORM 10-Q FOR
                                            THE QUARTER ENDED DECEMBER 1,
                                            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>                                        9-MOS
<FISCAL-YEAR-END>                                    MAR-02-1997
<PERIOD-END>                                         DEC-01-1996
<CASH>                                                        1,399
<SECURITIES>                                                  4,290
<RECEIVABLES>                                                 1,901
<ALLOWANCES>                                                      0
<INVENTORY>                                                   1,872
<CURRENT-ASSETS>                                             12,356
<PP&E>                                                        6,884
<DEPRECIATION>                                                5,699
<TOTAL-ASSETS>                                               14,218
<CURRENT-LIABILITIES>                                         6,106
<BONDS>                                                          32
                                             0
                                                       0
<COMMON>                                                      2,459
<OTHER-SE>                                                    5,510
<TOTAL-LIABILITY-AND-EQUITY>                                  14,218
<SALES>                                                      15,982
<TOTAL-REVENUES>                                             15,982
<CGS>                                                        11,271
<TOTAL-COSTS>                                                11,271
<OTHER-EXPENSES>                                                  0
<LOSS-PROVISION>                                                  0
<INTEREST-EXPENSE>                                                6
<INCOME-PRETAX>                                               1,075
<INCOME-TAX>                                                     84
<INCOME-CONTINUING>                                             991
<DISCONTINUED>                                                    0
<EXTRAORDINARY>                                                   0
<CHANGES>                                                         0
<NET-INCOME>                                                    991
<EPS-PRIMARY>                                                      .40
<EPS-DILUTED>                                                      .40
        


</TABLE>


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission