<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-25848
SLI, INC.
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(Exact name of registration specified in charter)
OKLAHOMA 73-1412000
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
500 Chapman Street, Canton, MA 02021
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(Address of principal executive offices)
781/828-2948
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the last practicable date.
As of October 3, 1999, 35,812,298 shares of Registrant's Common Stock $.01 par
value, were outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1.- FINANCIAL STATEMENTS
SLI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 3, JANUARY 3,
1999 1999
----------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,321 $ 27,390
Accounts receivable, net 178,918 160,582
Inventories 181,038 149,453
Prepaid expenses and other 21,720 15,735
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Total current assets 391,997 353,160
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PROPERTY, PLANT AND EQUIPMENT, AT COST: 386,686 371,315
Less - Accumulated depreciation 38,453 30,105
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348,233 341,210
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OTHER ASSETS:
Goodwill, net of accumulated amortization 43,886 38,353
Other intangible assets, net of accumulated amortization 30,583 29,091
Other assets 14,544 13,649
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Total other assets 89,013 81,093
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Total assets $ 829,243 $ 775,463
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term notes payable $ 55,064 $ 28,086
Current portion of long-term debt 842 1,788
Accounts payable 93,611 121,484
Accrued income taxes payable 4,796 3,234
Other accrued expenses 83,835 100,778
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Total current liabilities 238,148 255,370
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LONG-TERM DEBT, LESS CURRENT PORTION 143,664 238,530
--------- ---------
OTHER LIABILITIES:
Deferred income taxes 3,791 10,952
Other long-term liabilities 48,790 52,801
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Total other liabilities 52,581 63,753
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value-
Authorized - 100,000,000 shares
Issued - 35,812,298 and 29,346,498 shares
at October 3, 1999 and January 3, 1999, respectively 358 293
Common stock to be issued 16,506 8,419
Additional paid-in capital 291,652 131,399
Foreign currency translation adjustment (19,234) 4,080
Retained earnings 106,787 77,703
Treasury stock at cost, 55,000 and 315,900 shares
at October 3, 1999 and January 3, 1999, respectively (1,219) (4,084)
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Total stockholders' equity 394,850 217,810
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Total liabilities and stockholders' equity $ 829,243 $ 775,463
========= =========
</TABLE>
See accompanying notes to the condensed financial statements.
<PAGE> 3
SLI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -------------------------
OCTOBER 3, OCTOBER 4, OCTOBER 3, OCTOBER 4,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 216,669 $ 181,957 $ 641,581 $ 560,046
Cost of products sold 158,463 125,961 459,247 388,651
--------- --------- --------- ---------
Gross margin 58,206 55,996 182,334 171,395
Selling, general and administrative expenses 46,854 42,651 133,617 129,982
Restructuring costs -- -- 2,300 --
--------- --------- --------- ---------
Operating income 11,352 13,345 46,417 41,413
Other (income) expense
Interest, net 3,150 4,477 12,548 11,736
Other, net (74) 583 (1,269) 599
--------- --------- --------- ---------
Income before income taxes 8,276 8,285 35,138 29,078
Income taxes 1,324 1,624 6,054 5,782
--------- --------- --------- ---------
Net income $ 6,952 $ 6,661 $ 29,084 $ 23,296
========= ========= ========= =========
Net income per common share - basic
Net income per share $ 0.20 $ 0.23 $ 0.93 $ 0.81
========= ========= ========= =========
Weighted average shares outstanding 35,624 29,016 31,344 28,934
========= ========= ========= =========
Net income per common share - diluted
Net income per share $ 0.19 $ 0.23 $ 0.89 $ 0.77
========= ========= ========= =========
Weighted average shares outstanding 36,934 29,402 32,829 30,219
========= ========= ========= =========
</TABLE>
See accompanying notes to the condensed financial statements.
<PAGE> 4
SLI, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
OCTOBER 3, OCTOBER 4,
1999 1998
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(UNAUDITED)
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $ (43,107) $ (4,248)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (34,231) (39,099)
Proceeds from disposal of property, plant and equipment -- 5,975
Proceeds from disposal of other investments 332 --
Acquisitions, net of cash acquired (6,040) (30,024)
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Net cash used in investing activities (39,939) (63,148)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (payments) of lines of credit (81,633) 10,176
Proceeds from long-term debt 336 49,532
Payments of long-term debt (3,300) (27,702)
Repurchase of shares for treasury (6,787) (5,593)
Proceeds from issuance of common stock - Net of offering cost 153,475 --
Exercise of stock options 5,736 2,490
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Net cash provided by financing activities 67,827 28,903
Effect of exchange rate changes on cash (1,850) (302)
--------- ---------
Net decrease in cash and cash equivalents (17,069) (38,795)
Cash and cash equivalents, beginning of period 27,390 52,572
--------- ---------
Cash and cash equivalents, end of period $ 10,321 $ 13,777
========= =========
</TABLE>
See accompanying notes to the condensed financial statements.
<PAGE> 5
SLI, Inc. and Subsidiaries
Consolidated Notes To Condensed Financial Statements
Note 1 General
The interim consolidated financial statements presented have been
prepared by SLI, Inc. ("Company") without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for
a fair presentation of (a) the results of operations and cash flows for the
three month and nine month periods ended October 3, 1999 and October 4, 1998
and (b) the financial position at October 3, 1999. Interim results are not
necessarily indicative of results for a full year.
The consolidated balance sheet presented as of January 3, 1999 has been
derived from the consolidated financial statements that have been audited by
the Company's independent public accountants. The consolidated financial
statements and notes are condensed and do not contain certain information
included in the annual financial statements and notes of the Company. The
consolidated financial statements and notes in the financial statements
included herein should be read in conjunction with the financial statements and
notes included in the Company's Form 10-K filed with the Securities and
Exchange Commission and dated March 24, 1999.
Note 2 Inventories
Inventories are stated at the lower of cost or market and include
materials, labor and overhead. Cost is determined by the first-in, first-out
(FIFO) method. Inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
October 3, January 3,
1999 1999
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<S> <C> <C>
Raw Materials $ 44,216 $ 35,638
Work in process 17,058 17,389
Finished Goods 119,764 96,426
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$181,038 $149,453
</TABLE>
Note 3 Comprehensive income
During the three months ended October 3, 1999 and October 4, 1998,
total comprehensive income amounted to $9.2 and $24.0 million, respectively.
During the nine months ended October 3, 1999 and October 4, 1998, total
comprehensive income amounted to $5.8 million and $35.0 million, respectively.
The components of comprehensive income are net income and cumulative foreign
currency translation adjustment.
<PAGE> 6
Note 4 Seasonality
It is expected that the Company's operations will experience certain
seasonal patterns. Generally, sales have been highest in the fourth quarter of
each year due to abbreviated daylight hours and increased holiday light usage.
Note 5 Common stock to be issued
In connection with certain 1998 acquisitions, the Company is holding
559,884 shares of common stock to be issued pursuant to the terms of the
purchase agreements.
Note 6 Income taxes
The Company's effective tax rate is lower than the U.S. statutory
effective tax rate due to the impact of income in countries with effective tax
rates lower than those in the U.S. and realization of tax attributes, including
net operating loss carry forwards.
Note 7 Treasury stock
The board of directors has authorized, subject to certain business and
market conditions, the repurchase of shares of the Company's stock. At October
3, 1999, a total of 6,255,950 shares have been repurchased under these plans.
Retirements of treasury stock totaled 6,200,950 shares as of October 3, 1999.
<PAGE> 7
Note 8 Restructuring
Restructuring of acquired operations
In connection with the purchase price accounting for the acquisition of
SLI B.V., effective September 1, 1997, the Company approved a restructuring
plan, which resulted in reorganization accruals of $25.0 million. $8 million of
the amount initially recorded was reversed in fiscal 1998 through an adjustment
to property, plant and equipment. The remaining purchase liabilities recorded
include the following:
(i) Severance costs of $12.9 million include the termination of
182 employees in Europe, 268 employees in Australia and 28 employees in
Asia. Approximately $9.3 million of severance cost was paid as of
October 3, 1999. The remainder will be paid throughout fiscal 1999.
(ii) Costs of $4.1 million are associated with the closure of
leased warehouse and administrative facilities. These costs represent
remaining payments on non-cancelable operating leases (which expire
through 2000), costs to return the facilities to the condition at the
outset of the lease, the write-off of the remaining net book value of
leasehold improvements and the cost to relocate employees. Accrued
lease costs are for costs to be incurred subsequent to the Company
vacating the facilities. The warehouse closures will occur in France,
Belgium and Scandinavia and the administrative office closures will
occur in Switzerland, France, Austria and Benelux. As of October 3,
1999, $3.3 million of the accrual had been utilized.
Restructuring of existing operations
In the quarter ended July 4, 1999, the Company developed and approved a
restructuring plan for existing operations, which resulted in charges of $2.3
million. The restructuring plan included severance costs of $2.2 million and
$100,000 of other costs. Severance costs relate to the elimination of 26
employees at the Company's France operations. The other costs associated with
the restructuring plan are associated with the closure of sales and
administrative facilities. These costs represent the write-off of the remaining
book value of leasehold improvements, costs to return the facilities to the
condition at the outset of the lease and the cost to relocate employees. As of
October 3, 1999, $1,573,000 of the accrual had been utilized. The remainder
will be paid throughout the next twelve months into fiscal 2000.
<PAGE> 8
Note 9 Net Income Per Share Data
The numerator in calculating both basic and diluted earnings per share
for each year is reported net income. The denominator is based on the following
weighted-average number of common shares (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
October 3, October 4, October 3, October 4,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic 35,624 29,016 31,344 28,934
Diluted 36,934 29,402 32,829 30,219
</TABLE>
The difference between basic and diluted weighted-average common shares
results from the assumption that dilutive stock options outstanding were
exercised.
Note 10 Adoption of Accounting Principles
In June 1998, SFAS No. 133 Accounting for Derivatives Instruments and
Hedging Activities (Statement 133) was issued and which is required to be
adopted in fiscal years beginning after June 15, 2000. Statement 133 requires
all derivatives to be recognized in the balance sheet as either assets or
liabilities at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in income. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company has not yet determined what the effect of Statement 133 will be on
the earnings and financial position of the Company.
Note 11 Subsequent event
On October 29, 1999 the Company completed a restatement and amendment
of its existing credit facility, with a syndicate of banks led by BancBoston
Robertson Stephens, as administrative agent, providing to the Company a $500
million multi-currency revolving credit facility including a $200 million 364
day revolving credit facility maturing on October 28, 2000 and subject to
extension, a $15 million swing-line loan facility and a $50 million letter of
credit facility. There are no scheduled amortization payments or repayment
penalties and no limitations on non-U.S.-dollar borrowings. The facility
terminates and is repayable in full on October 29, 2004.
At the Company's option, the interest rates per annum applicable to the
revolving credit facility are either adjusted LIBOR plus a margin ranging from
.75% to 1.75%, or, with respect to U.S.-dollar-denominated loans only, an
adjusted base rate plus a margin ranging from zero to .25%.
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of operations for
the three and nine months ended October 3, 1999 should be read in conjunction
with the Company's Condensed Consolidated Financial Statements and accompanying
notes. Except for historical matters contained herein, the matters discussed
herein are forward-looking statements and are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect assumptions and involve risks and
uncertainties, which may affect the Company's business and prospects and cause
actual results to differ materially from these forward-looking statements.
GENERAL
The Company is a leading, vertically integrated manufacturer and
supplier of lighting systems, which include lamps, fixtures and ballasts.
Through its 21 acquisitions completed since 1992, the Company has grown from a
specialized manufacturer of neon lamps and miniature lighting products into a
manufacturer, supplier and lighting service provider of a wide variety of
lighting products, including lamps (incandescent, fluorescent, compact
fluorescent, HID, halogen, miniature incandescent, neon, LED's and special
lamps), fixtures, magnetic and electronic ballasts and fiber optic lighting
systems. The Company believes that it is one of the six largest global lighting
companies and one of only three major international producers to offer an
integrated package of lamps, fixtures and ballasts. The Company serves a
diverse, international customer base and at October 3, 1999 had 31
manufacturing plants in 13 countries. SLI, Inc. acquired 6 companies in 1998
and 2 companies in 1999, which has an impact on year to year comparisons of
revenues and earnings.
For the nine months ended October 3, 1999, 73.2% of the Company's
worldwide net revenue was generated from international operations.
International operations are
<PAGE> 10
subject to currency fluctuations and government actions, such as devaluations.
The Company monitors its currency exposure in each country and can not predict
future foreign currency fluctuations, which have and can continue to affect the
Company's balance sheet and results of operations.
Three months ended October 3, 1999 compared to the three months ended
October 4, 1998.
Net sales. Net sales increased 19.1% from $182.0 million for the three
months ended October 4, 1998 to $216.7 million for the three months ended
October 3, 1999. This increase was primarily due to generic growth generated
from the integration of the 1998 and 1999 acquisitions into ongoing operations.
The generally higher value of the US dollar compared to other currencies
worldwide decreased net sales by approximately 6.7% for the three months ended
October 3, 1999 as compared to the three months ended October 4, 1998. In
addition, net sales is effected by decreases in average selling prices due to
market pricing pressure, primarily within the European lamp market.
Gross Margin. Gross margin increased 3.9% from $56.0 million for the
three months ended October 4, 1998 to $58.2 million for the three months ended
October 3, 1999; due primarily to the increase in sales volume, partially
offset by decreases in average selling prices. Gross margin, as a percentage of
net sales, decreased from 30.8% for the three months ended October 4, 1998 to
26.9%, for the three months ended October 3, 1999. This decrease is primarily
due to decreases in average selling prices in the European lamp market and the
effects of the changes in product mix as caused by the addition of the 1998 and
1999 acquisitions. The lower average selling prices in the European lamp market
have continued into the fourth quarter. Hopefully, the decrease will be
partially offset as further integration of recent acquisitions into the Company
evolves and further cost reductions are achieved.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased from $42.7 million for the three months ended
October 4, 1998 to $46.9 million for the three months ended October 3, 1999.
This increase is primarily as a result of acquisitions. As a percentage of net
sales, selling, general and administrative expenses decreased from 23.4% for
the three months ended October 4, 1998 to 21.6% for the three months ended
October 3, 1999 as a result of the Company's strategy to decrease selling,
general and administrative expenses at recent acquisitions through
implementation of reorganization plans developed and accrued for at the time of
such acquisitions. Non-recurring charges for the three months ended October 3,
1999 totaled $432,000 and primarily relate to the integration of the 1999
acquisitions. Additionally, the Company seeks to continue to decrease selling,
general and administrative expenses as a percentage of net sales by utilizing
the infrastructure of its recent acquisitions as a base for further sales
growth.
<PAGE> 11
Interest (income) expense, net. Interest expense, net, decreased from
$4.5 million for the three months ended October 4, 1998 to $3.2 million for the
three months ended October 3, 1999 primarily as a result of a decrease in
average outstanding borrowings of approximately $54 million.
Other (income) expense. Other expense was $583,000 for the three months
ended October 4, 1998 as compared to other (income) of ($74,000) for the three
months ended October 3, 1999. Included in other expense for the three months
ended October 4, 1998 was a loss on sale of assets totaling $408,000.
Income before income taxes. As a result of the above factors, income
before income taxes was $8.3 million for the three months ended October 4, 1998
and the three months ended October 3, 1999. As a percentage of net sales,
income before provision for income taxes decreased from 4.6% for the three
months ended October 4, 1998 to 3.8% for the three months ended October 3,
1999.
Income taxes. For the three months ended October 3, 1999, the Company
recorded a tax provision of $1.3 million on pretax income of $8.3 million, for
an effective rate of approximately 16%, compared to an effective rate of
approximately 20% for the three months ended October 4, 1998. The lower than
U.S. statutory tax rate is due to the impact of income in countries with
effective tax rates lower than those in the U.S. and realization of tax
attributes, including net operating loss carry forwards. An effective tax rate
lower than the U.S. statutory effective tax rate is expected to continue for
several years due to the significant international operations of the Company.
Nine months ended October 3, 1999 compared to the nine months ended
October 4, 1998.
Net sales. Net sales increased 14.6% from $560.0 million for the nine
months ended October 4, 1998 to $641.6 million for the nine months ended
October 3, 1999. This increase was primarily due to generic growth generated
from the integration of the 1998 and 1999 acquisitions into ongoing operations.
The generally higher value of the US dollar compared to other currencies
worldwide decreased net sales by approximately 4.1% for the nine months ended
October 3, 1999 as compared to the nine months ended October 4, 1998. In
addition, net sales is effected by decreases in average selling prices due to
market pricing pressure, primarily within the European lamp market.
Gross Margin. Gross margin increased 6.4% from $171.4 million for the
nine months ended October 4, 1998 to $182.3 million for the nine months ended
October 3, 1999; due primarily to the increase in sales volume, partially
offset by decreases in average selling prices. Gross margin, as a percentage of
net sales, decreased from 30.6% for the nine months ended October 4, 1998 to
28.4%, for the nine months ended October
<PAGE> 12
3, 1999. This decrease is primarily due to a decrease in average selling prices
in the European lamp market and the effects of the changes in product mix as
caused by the addition of the 1998 and 1999 acquisitions. The gross margin of
the Company is expected to improve as further integration of recent
acquisitions into the Company evolves and further cost reductions are achieved.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased from $130.0 million for the nine months ended
October 4, 1998 to $133.6 million for the nine months ended October 3, 1999.
This increase is primarily as a result of acquisitions. As a percentage of net
sales, selling, general and administrative expenses decreased from 23.2% for
the nine months ended October 4, 1998 to 20.8% for the nine months ended
October 3, 1999 as a result of the Company's strategy to decrease selling,
general and administrative expenses at recent acquisitions through
implementation of reorganization plans developed and accrued for at the time of
such acquisitions. Non-recurring charges for the nine months ended October 3,
1999 totaled $829,000 and relate to the restructuring activity in France and
the integration of the 1999 acquisitions, as compared to non-recurring charges
for the nine months ended October 4, 1998 totaling $525,000 which related to
the withdrawal of a public offering in May 1998. Additionally, the Company
seeks to continue to decrease selling, general and administrative expenses as a
percentage of net sales by utilizing the infrastructure of its recent
acquisitions as a base for further sales growth.
Restructuring costs. Restructuring costs for the nine months ended
October 3, 1999 totaled $2.3 million. In the quarter ended July 4, 1999, the
Company developed and approved a restructuring plan for existing operations,
which resulted in charges of $2.3 million. The restructuring plan included
severance costs of $2.2 million and $100,000 of other costs. Severance costs
relate to the elimination of 26 employees at the Company's France operations.
The other costs associated with the restructuring plan are associated with the
closure of sales and administrative facilities. These costs represent the
write-off of the remaining book value of leasehold improvements, costs to
return the facilities to the condition at the outset of the lease and the cost
to relocate employees. The Company expects to realize approximately $1 million
in annualized cost savings over the next year, largely as a result of reduced
employee expense.
Interest (income) expense, net. Interest expense, net, increased from
$11.7 million for the nine months ended October 4, 1998 to $12.5 million for
the nine months ended October 3, 1999, primarily as a result of an increase in
average outstanding borrowings of approximately $38.9 million over this
period.
Other (income) expense. Other expense was $599,000 for the nine months
ended October 4, 1998 as compared to other (income) of ($1.3) million for the
nine months ended October 3, 1999. For the nine months ended October 3, 1999,
substantially all of the other (income) resulted from recording the effects of
foreign exchange transactions as offset by a loss on the sale of an investment
totaling $193,000. Included in other
<PAGE> 13
expense for the nine months ended October 4, 1998 was a loss on sale of assets
totaling $408,000.
Income before income taxes. As a result of the above factors, income
before income taxes increased from $29.1 million for the nine months ended
October 4, 1998 to $35.1 million for the nine months ended October 3, 1999. As
a percentage of net sales, income before provision for income taxes increased
from 5.2% for the nine months ended October 4, 1998 to 5.5% for the nine months
ended October 3, 1999.
Income taxes. For the nine months ended October 3, 1999, the Company
recorded a tax provision of $6.1 million on pretax income of $35.1 million, for
an effective rate of approximately 17%, compared to an effective rate of 20%
for the nine months ended October 4, 1998. The lower than U.S. statutory tax
rate is due to the impact of income in countries with effective tax rates lower
than those in the U.S. and realization of tax attributes, including net
operating loss carry forwards. An effective tax rate lower than the U.S.
statutory effective tax rate is expected to continue for several years due to
the significant international operations of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's major uses of cash have historically been for
acquisitions, working capital to support sales growth and ongoing capital
expenditures. Sources of cash have typically included operating cash flow, bank
borrowings and proceeds from the sale of Common Stock. Effective, July 6, 1999,
the Company completed a public offering pursuant to which the Company issued
and sold 6,000,000 shares of its Common Stock and received net proceeds of
approximately $153.5 million. The Company used the net proceeds from the
offering to reduce debt.
As of October 3, 1999, the Company's cash on hand was $10.3 million.
For the nine months ended October 3, 1999, net cash used in operating
activities was $43.1 million and cash used in investing activities totaled
$39.9 million. The cash used in operating activities was impacted by the
seasonality of the business results within the nine months ended. Historically,
higher sales and the majority of the Company's cash collections occur in the
fourth quarter and first quarter of the subsequent year. The investing
activities included (i) capital expenditures, primarily for production
<PAGE> 14
equipment, totaling $34.2 million and (ii) acquisitions with which the Company
paid an aggregate amount of approximately $6.0 million, net of cash acquired.
Net cash provided by financing activities for the nine months ended October 3,
1999 aggregated $67.8 million, which included $153.5 million in net proceeds
from the issuance of common stock, $84.6 in net payments under the Company's
credit facilities, repurchases of Common Stock totaling $6.8 million and
proceeds from the exercise of stock options totaling $5.7 million.
As of October 3, 1999, the Company had available borrowings of
approximately $168 million under the Existing Credit Facility, and the face
amount of letters of credit issued and outstanding under the Existing Credit
Facility totaled approximately $3.6 million.
On October 29, 1999 the Company completed a restatement and amendment
of its existing credit facility, with a syndicate of banks led by BancBoston
Robertson Stephens, as administrative agent, providing to the Company a $500
million multi-currency revolving credit facility including a $200 million 364
day revolving credit facility maturing on October 28, 2000 and subject to
extension, a $15 million swing-line loan facility and a $50 million letter of
credit facility. There are no scheduled amortization payments or repayment
penalties and no limitations on non-U.S.-dollar borrowings. The facility
terminates and is repayable in full on October 29, 2004.
At the Company's option, the interest rates per annum applicable to the
revolving credit facility are either adjusted LIBOR plus a margin ranging from
.75% to 1.75%, or, with respect to U.S.-dollar-denominated loans only, an
adjusted base rate plus a margin ranging from zero to .25%.
The Company's revolving credit facility contains a number of covenants
typical in senior credit facilities that, among other things, restricts the
ability of the Company to dispose of assets (including the stock of
subsidiaries), incur additional indebtedness, create additional liens on
assets, enter into certain leases, investments or acquisitions and engage in
mergers or consolidations. In addition the Company is also required to comply
with certain financial covenants including maximum leverage, minimum interest
coverage, minimum fixed charge coverage and minimum net worth.
The Company conducts business in countries outside of the United
States, which exposes the Company to fluctuations in foreign currency exchange
rates. The Company may enter into short-term forward exchange contracts to
hedge this risk; nevertheless, fluctuations in foreign currency exchange rates
could have an adverse effect on the Company's business. The Company does not
hold or issue financial instruments for trading or speculative purposes. The
Company has significant operations in Europe and, to a lesser extent, in Latin
America. The introduction of a single European currency is expected to reduce
the currency risks associated with inter-European transactions. However, risks
will remain with respect to transactions with customers or
<PAGE> 15
suppliers outside of the zone covered by the single European currency. The
Company's operations in Latin America are carried out primarily in Brazil,
Costa Rica and Colombia. Although currently not classified as a
hyper-inflationary country, Brazil has been classified as such in the past.
The Company believes that cash from operations and borrowings available
under the Company's credit facilities, as well as other committed and
uncommitted facilities, will be sufficient to meet the Company's working
capital and capital expenditures needs for the next twelve months and the
foreseeable future thereafter. Capital expenditures during the next twelve
months are expected to approximate $35 million.
SEASONALITY
It is expected that the Company's operations will experience certain
seasonal patterns. Generally, sales have been highest in the fourth quarter of
each year due to abbreviated daylight hours and increased holiday light usage.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. Any of
the Company's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a software system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
In addressing the year 2000 issue, the Company has identified the
following phases. In the awareness phase, the Company defined the year 2000
issue and obtained executive level support and funding. In the Inventory phase,
the Company collected a comprehensive list of items that may be affected by
Year 2000 compliance issues. Such items include facilities and related
non-information technology systems (embedded technology) used in production and
manufacturing systems, computer systems, hardware, and services and products
provided by third parties. In the Assessment phase, the Company evaluated the
items and affected systems identified in the Inventory phase to determine which
will need to be remediated and prioritized remediation based on the potential
impact to the Company. Affected systems include automated assembly lines and
related robotic technologies used in various aspects of the manufacturing
process. However, based on a review of its product line, the Company has
determined that most of the products it has sold and will continue to sell
<PAGE> 16
do not require remediation to be year 2000 compliant. Accordingly, the Company
does not believe that the Year 2000 presents a material exposure as it relates
to its products. The remediation phase includes an analysis of the items that
are affected by Year 2000, the identification of problem areas and the repair
or replacement of non-compliant items. In the ordinary course of replacing
computer equipment and software, the Company attempts to obtain replacements
that it believes are Year 2000 compliant and requests representations from
manufacturers. The Testing phase includes testing of all proposed repairs,
including present and forward date testing which simulates dates in the Year
2000. The Implementation phase consists of placing all items that have been
remediated and successfully tested into production.
Utilizing both internal and external resources to reprogram, or
replace, test, and implement the software and operating equipment for year 2000
modifications, the Company currently anticipates that its Year 2000
identification, assessment, remediation and testing efforts will be completed
by December 31, 1999 and that such efforts will be completed prior to any
currently anticipated impact on computer equipment and software. The Company
estimates that as of October 3, 1999, it had completed approximately 85% of the
initiatives that it believes will be necessary to fully address potential Year
2000 issues relating to computer equipment and software. The total cost of the
Year 2000 project is estimated at $9.9 million and is being funded through
operating cash flows. To date the Company has incurred approximately $8.4
million ($7.7 million capitalized for new systems and equipment and $.7 million
expensed), related to all phases of the Year 2000 project. Of the total
remaining project costs, approximately $1.2 million are attributable to the
purchase of new software and operating equipment, which will be capitalized.
The remaining $.3 million relates to repair of hardware and software and will
be expensed as incurred.
Management of the Company believes it has an effective program in place
to resolve the Year 2000 issue in a timely manner. As noted above, the Company
has not yet completed all necessary phases of the year 2000 program. In the
event that the Company does not complete any additional phases, the Company
would be unable to take orders, manufacture and ship products, invoice
customers or collect payments. In addition, disruptions in the economy
generally resulting from Year 2000 issues could also materially adversely
affect the Company. The Company could be subject to litigation for computer
systems product failure, for example, equipment shutdown or failure to properly
date business records. The amount of potential liability and lost revenue
cannot be reasonably estimated at this time.
Although the Company has not developed a comprehensive contingency plan
to address situations that may result if the Company or any of the third
parties upon which the Company is dependent is unable to achieve Year 2000
readiness, the Company's Year 2000 compliance program is on-going and its
ultimate scope, as well as the consideration of contingency plans, will
continue to be evaluated as new
<PAGE> 17
information becomes available. These contingency plans involve, among other
actions, manual workarounds, increasing inventories, and adjusting staffing
strategies.
The foregoing Year 2000 discussion contains "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. There are many uncertainties involved in the Year 2000 issue,
including the extent to which the Company will be able to successfully
remediate systems and adequately provide for contingencies that may arise, as
well as the broader scope of the year 2000 issues as it may affect third
parties that are not controlled by the Company. Accordingly, the costs and
results of the Company's Year 2000 program and the extent of any impact on the
Company's operations could vary materially from those stated herein.
ITEM 7A. MARKET RISK
The tables below summarize information on instruments and transactions
that are sensitive to foreign currency exchange rates, including foreign
currency forward exchange agreements and foreign currency denominated debt
obligations.
<PAGE> 18
Debt Denominated in Foreign Currencies is as follows:
<TABLE>
<CAPTION>
Fair
There- Value
1999 after Total 10/3/99
--------- ------ --------- -------
(Dollars Equivalents in millions)
<S> <C> <C> <C> <C>
Belgium Francs
Variable Rate $ 3.1 $ 3.1 $ 3.1
Avg. Interest Rate 3.6%
Avg. Forward Currency
Exchange Rate 0.026
Deutsche Marks
Variable Rate $ 7.1 $ 7.1 $ 7.1
Avg. Interest Rate 3.6%
Avg. Forward Currency
Exchange Rate 0.544
Japanese Yen
Variable Rate $ 13.1 $ 13.1 $ 13.1
Avg. Interest Rate 1.1%
Avg. Forward Currency
Exchange Rate 0.009
Euro
Variable Rate $ 44.3 $ 44.3 $ 44.3
Avg. Interest Rate 3.6%
Avg. Forward Currency
Exchange Rate 1.065
</TABLE>
Foreign Currency Forward Exchange Contracts are as follows:
<TABLE>
<CAPTION>
Average Fair
Functional There- Contract Value
Buy Contracts Currency 1999 after Total Rate 10/3/99
- ---------------------- --------------------- ------ ---------- ---------- --------- -----------
(Dollars Equivalents in millions)
<S> <C> <C> <C> <C> <C> <C>
Euro Dollar British Pound Sterling $ 17.0 $ 17.0 1.453 $ 16.2
United States Dollar British Pound Sterling $ 6.6 $ 6.6 1.618 $ 6.5
</TABLE>
A portion of the Company's operations consists of manufacturing and
sales activities in foreign jurisdictions. As a result, the Company's financial
results could be significantly affected by factors such as foreign currency
exchange rates or weak economic conditions in the foreign markets in which the
Company distributes its products. The Company's operating results are exposed
to changes in exchange rates between the U.S. dollar and various other foreign
currencies.
On October 29, 1999 the Company completed a restatement and amendment
of it's existing credit facility, with a syndicate of banks led by BancBoston
Robertson Stephens, as administrative agent, providing to the Company a $500
million multi-currency revolving credit facility including a $200 million 364
day revolving credit facility maturing on October 28, 2000 and subject to
extension, a $15 million swing-line loan facility and a $50 million letter of
credit facility. There are no scheduled amortization payments or repayment
penalties and no limitations on non-U.S.-dollar borrowings. The facility
terminates and is repayable in full on October 29, 2004.
At the Company's option, the interest rates per annum applicable to the
revolving credit facility are either adjusted LIBOR plus a margin ranging from
.75% to 1.75%, or, with respect to U.S.-dollar-denominated loans only, an
adjusted base rate plus a margin ranging from zero to .25%.
The Company's revolving credit facility contains a number of covenants
typical in senior credit facilities that, among other things, restricts the
ability of the Company to dispose of assets (including the stock of
subsidiaries), incur additional indebtedness, create additional liens on
assets, enter into certain leases, investments or acquisitions and engage in
mergers or consolidations. In addition the Company is also required to comply
with certain financial covenants including maximum leverage, minimum interest
coverage, minimum fixed charge coverage and minimum net worth.
The Company believes that it will continue to use its long-term credit
facility to fund its future acquisitions, capital expenditures, and other
short-term working capital requirements.
<PAGE> 19
The Company expects to generate sufficient cash flows from operations
to pay down remaining debt prior to the expiration of the credit facility. The
proceeds from the secondary public offering, completed in July 1999, were used
to pay down a portion of existing debt.
The Company continues to review and analyze financing alternatives
based on capital market conditions.
<PAGE> 20
SLI, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Items 1-5 None
Item 6 Financial Data Schedule (For SEC Use Only)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
SLI, Inc.
By: /s/ Frank M. Ward
----------------------------
Frank M. Ward, President and
Chief Executive Officer
Date: November 16, 1999
By: /s/ Richard F. Parenti
----------------------------
Richard F. Parenti,
Chief Financial Officer
Date: November 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> OCT-03-1999
<EXCHANGE-RATE> 1
<CASH> 10,321
<SECURITIES> 0
<RECEIVABLES> 178,918
<ALLOWANCES> 0
<INVENTORY> 181,038
<CURRENT-ASSETS> 391,997
<PP&E> 386,686
<DEPRECIATION> 38,453
<TOTAL-ASSETS> 829,243
<CURRENT-LIABILITIES> 238,148
<BONDS> 143,664
0
0
<COMMON> 358
<OTHER-SE> 394,492
<TOTAL-LIABILITY-AND-EQUITY> 829,243
<SALES> 641,581
<TOTAL-REVENUES> 641,581
<CGS> 459,247
<TOTAL-COSTS> 595,164
<OTHER-EXPENSES> (1,269)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,548
<INCOME-PRETAX> 35,138
<INCOME-TAX> 6,054
<INCOME-CONTINUING> 29,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,084
<EPS-BASIC> .93
<EPS-DILUTED> .89
</TABLE>
