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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 1, 2000
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 1, 2000, 34,724,706 shares of Registrant's Common Stock $.01 par
value, were outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1.- FINANCIAL STATEMENTS
SLI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 1, JANUARY 2,
2000 2000
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 66,487 $ 25,848
Accounts receivable, net 190,774 195,881
Inventories 195,359 180,910
Prepaid expenses and other 19,005 19,222
--------- ---------
Total current assets 471,625 421,861
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST: 413,152 390,403
Less - Accumulated depreciation 50,309 39,925
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362,843 350,478
--------- ---------
OTHER ASSETS:
Goodwill, net of accumulated amortization 78,067 49,887
Other intangible assets, net of accumulated amortization 28,782 29,444
Other assets 31,443 15,214
--------- ---------
Total other assets 138,292 94,545
--------- ---------
Total assets $ 972,760 $ 866,884
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term notes payable $ 47,606 $ 60,505
Current portion of long-term debt 319 760
Accounts payable 120,870 113,673
Accrued income taxes payable 7,430 9,731
Other accrued expenses 107,976 92,118
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Total current liabilities 284,201 276,787
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LONG-TERM DEBT, LESS CURRENT PORTION 301,973 164,160
--------- ---------
OTHER LIABILITIES:
Deferred income taxes 6,476 5,815
Other long-term liabilities 38,543 46,105
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Total other liabilities 45,019 51,920
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value-
Authorized - 100,000,000 shares
Issued - 34,724,706 and 34,566,388
shares at October 1, 2000 and
January 2, 2000 respectively 347 346
Common stock to be issued -- 15,287
Additional paid-in capital 286,365 278,947
Retained earnings 121,626 116,012
Foreign currency translation adjustment (66,771) (31,741)
Treasury stock at cost, 450,00 shares at
January 2, 2000 -- (4,834)
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Total stockholders' equity 341,567 374,017
--------- ---------
Total liabilities and stockholders' equity $ 972,760 $ 866,884
========= =========
</TABLE>
See accompanying notes to the condensed financial statements.
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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 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 231,893 $ 216,669 $ 667,583 $ 641,581
Cost of products sold 168,342 158,463 485,247 459,247
--------- --------- --------- ---------
Gross margin 63,551 58,206 182,336 182,334
Selling, general and administrative expenses 52,150 46,854 147,430 133,617
Restructuring costs 5,949 -- 5,949 2,300
--------- --------- --------- ---------
Operating income 5,452 11,352 28,957 46,417
Other (income) expense
Interest, net 6,054 3,150 13,479 12,548
Other, net (733) (74) (3,260) (1,269)
--------- --------- --------- ---------
Income before income taxes 131 8,276 18,738 35,138
Income taxes 22 1,324 2,951 6,054
--------- --------- --------- ---------
Net Income $ 109 $ 6,952 $ 15,787 $ 29,084
========= ========= ========= =========
Net income per common share - basic
Net income per share $ 0.00 $ 0.20 $ 0.46 $ 0.93
========= ========= ========= =========
Weighted average shares outstanding 34,637 35,624 34,196 31,344
========= ========= ========= =========
Net income per common share - diluted
Net income per share $ 0.00 $ 0.19 $ 0.46 $ 0.89
========= ========= ========= =========
Weighted average shares outstanding 34,659 36,934 34,537 32,829
========= ========= ========= =========
Dividends per common share $ 0.10 $ 0.30
========= ========= ========= =========
</TABLE>
See accompanying notes to the condensed financial statements.
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SLI, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
October 1, October 3,
2000 1999
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(unaudited)
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 57,108 $ (43,107)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (28,400) (34,231)
Proceeds from disposal of other investments 332
Acquisitions, net of cash acquired (107,166) (6,040)
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Net cash used in investing activities (135,566) (39,939)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from lines of credit 134,829 (81,633)
Proceeds from long-term debt -- 336
Payments on long-term debt (3,618) (3,300)
Repurchase of shares for treasury (3,756) (6,787)
Proceeds from issuance of common stocks, net of offering costs (21) 153,475
Exercise of stock options 743 5,736
Payments of dividends (6,830) --
--------- ---------
Net cash provided by financing activities 121,347 67,827
Effect of exchange rate changes on cash (2,250) (1,850)
--------- ---------
Net increase (decrease) in cash and cash equivalents 40,639 (17,069)
Cash and cash equivalents, beginning of period 25,848 27,390
--------- ---------
Cash and cash equivalents, end of period $ 66,487 $ 10,321
========= =========
</TABLE>
See accompanying notes to the condensed financial statements.
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SLI, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO 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 1, 2000 and October 3, 1999
and (b) the financial position at October 1, 2000. Interim results are not
necessarily indicative of results for a full year.
The consolidated balance sheet presented as of January 2, 2000 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 15, 2000.
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):
October 1, January 2,
2000 2000
-------- --------
Raw Materials $ 50,093 $ 46,358
Work in process 19,436 14,995
Finished Goods 125,830 119,557
-------- --------
$195,359 $180,910
Note 3 Comprehensive income
During the three months ended October 1, 2000 and October 3, 1999,
total comprehensive income (loss) amounted to ($16.2) million and $9.9 million,
respectively. During the nine months ended October 1, 2000 and October 3, 1999,
total comprehensive loss amounted to ($19.2) million and ($1.1) million,
respectively. The components of comprehensive income (loss) are net income and
cumulative foreign currency translation adjustment.
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.
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Note 5 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 6 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):
Three Months Ended Nine Months Ended
-------------------------- --------------------------
October 1, October 3, October 1, October 3,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Basic 34,637 35,624 34,196 31,344
Diluted 34,659 36,934 34,537 32,829
The difference between basic and diluted weighted-average common
shares results from the assumption that dilutive stock options outstanding were
exercised.
Note 7 Adoption of Accounting Principles
In June 1998, SFAS No. 133 Accounting for Derivatives Instruments and
Hedging Activities (Statement 133) was issued, 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 is currently assessing the effect of Statement 133 on the earnings
and financial position of the Company.
Note 8 Acquisitions
In July 2000, the Company acquired certain business lines of EMESS PLC
for approximately $104 million in cash, as financed through the Company's
credit facility. The acquired business lines include Brilliant (Germany) a
leading brand in decorative lighting and fixtures for the European retail
market, Marlin (UK) a UK market leader in architectural and display lighting
fixtures, Eclatec (France) an outdoor lighting manufacturer and Emess Lighting
Inc. (USA) a leading brand of high-end table lamps. Except for Brilliant, the
acquisition has been accounted for using the purchase method. The results of
the Brilliant operations were reported using the equity method. Upon taking
effective control of Brilliant, the results of its operations will be
consolidated. The allocation of the purchase price is preliminary pending the
inclusion of
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Brilliant and the settlement of the purchase price with the seller.
Effective September 2000, the Company purchased the assets of an UK
based lamp-glass manufacturer for approximately $15 million in cash.
Note 9 Restructuring
Restructuring of existing operations
In the quarter ended October 1, 2000, the Company approved
restructuring plans in Europe and North America, associated with severance and
other exit costs, which resulted in a charge of $5.9 million. The restructuring
in the European general lighting businesses resulted in a charge of $5.2
million. This plan includes a reduction in headcount of 100 employees totaling
$4.1 million and other exit costs totaling $1.1 million. The other exit costs
represent remaining payments on non-cancelable operating leases and costs to
return the facilities to the condition at the outset of the lease. In the North
America general lighting plan, restructuring costs of $700,000 were recorded in
the three months ended October 1, 2000. The North American plan includes a shut
down of manufacturing operations at the Company's South Carolina location,
resulting in a headcount reduction of approximately 167 employees with
severance costs totaling $600,000 and other exit costs totaling $100,000. These
plans are expected to be completed within 18 months.
Restructuring of acquired operations
In connection with the purchase accounting for the acquisition of
certain business lines of EMESS PLC, effective July 2000, the Company approved
a restructuring plan, which resulted in reorganization accruals of $2.1 million
and include the following:
(i) Severance costs of $1.5 million include the termination of 54
employees in Europe and 2 employees in the US. Approximately $209,000
of severance cost was paid as of October 1, 2000. The remainder will
be paid over the next 18 months.
(ii) Costs of $600,000 are associated with the disposal of fixed
assets and other exit costs. As of October 1, 2000, $58,000 of the
accrual had been utilized. The remainder will be paid over the next 12
months.
Pending effective control of the Brilliant (Germany) business,
additional restructuring plans related to the acquired operations of Brilliant
will be finalized and will be recorded as an adjustment to goodwill.
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ITEM 2. 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 1, 2000 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 25 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 1, 2000 had 38
manufacturing plants in 13 countries. SLI, Inc. had 4 acquisitions in 1999 and
2 acquisitions ("recent acquisitions") in 2000, which has an impact on
year-to-year comparisons of revenues and earnings.
In July 2000, the Company acquired certain business lines of EMESS PLC
for approximately $104 million in cash, as financed through the Company's
credit facility. The acquired business lines include Brilliant (Germany) a
leading brand in decorative lighting and fixtures for the European retail
market, Marlin (UK) a UK market leader in architectural and display lighting
fixtures, Eclatec (France) an outdoor lighting manufacturer and Emess Lighting
Inc. (USA) a leading brand of high-end table lamps. Except for Brilliant, the
acquisition has been accounted for using the purchase method. The results of
the Brilliant operations were reported using the equity method. Upon taking
effective control of Brilliant, the results of its operations will be
consolidated. The allocation of the purchase price is preliminary pending the
inclusion of Brilliant and the settlement of the purchase price with the
seller.
Effective September 2000, the Company purchased the assets of an UK
based lamp-glass manufacturer for approximately $15 million in cash.
For the nine months ended October 3, 1999 and October 1, 2000, 70.6%
and 66.6%, respectively, of the Company's worldwide net revenue was generated
from international operations. International operations are subject to currency
fluctuations and government actions,
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such as devaluations. The Company monitors its currency exposure in each
country and can not predict future foreign currency fluctuations, which have
and may continue to affect the Company's balance sheet and results of
operations.
Three months ended October 1, 2000 compared to the three months ended
October 3, 1999.
Net sales. Net sales increased by 7.0% from $216.7 million for the
three months ended October 3, 1999 to $231.9 million for the three months ended
October 1, 2000. This increase was primarily due to the additional sales
generated by the recent acquisitions, which accounted for approximately $35
million of the increase. The generally higher value of the US dollar compared
to other currencies worldwide decreased net sales by approximately 7.3% for the
three months ended October 1, 2000 as compared to the three months ended
October 3, 1999. Net sales for the quarter are also effected by decreases in
average selling prices of general lighting products, primarily sold in Europe
and North America, as a result of market pricing pressures.
Gross Margin. Gross margin increased from $ 58.2 million for the three
months ended October 3, 1999 to $ 63.5 million for the three months ended
October 1, 2000, due primarily to the increased volume attributed to the recent
acquisitions. The gross margin, as a percentage of net sales, increased from
26.9 % to 27.4%, resulting from the higher margin of products sold through the
recent acquisitions. The gross margin of the Company is expected to improve as
restructuring plans developed at the time of the recent acquisitions are
implemented.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased from $46.9 million for the three months ended
October 3, 1999 to $52.1 million for the three months ended October 1, 2000. As
a percentage of net sales, selling, general and administrative expenses
increased from 21.6% for the three months ended October 3, 1999 to 22.5% for
the three months ended October 1, 2000. This increase was largely due to the
recent acquisitions. The Company intends to decrease selling, general and
administrative expenses through restructuring plans, which are being
implemented at the newly acquired businesses as well as existing subsidiaries.
Restructuring costs. Restructuring costs for existing operations were
developed and approved in the three months ended October 1, 2000 totaling $5.9
million, of which $ 5.2 million represents the first phase of restructuring in
the European general lighting business lines. In total, the European
restructuring plan will cost approximately $7.7 million and include a reduction
in headcount of 145 employees totaling $6.6 million and other exit costs
totaling $1.1 million. The European restructuring plan is expected to be
completed in the fourth quarter and will generate annualized savings of
approximately $8.5 million upon completion. Other restructuring plans in North
American general lighting are being developed which are expected to cost
approximately $1.2 million. In phase one of the North America general lighting
plan, restructuring costs of $700,000 were recorded in the three months ended
October 1, 2000. The North American plan includes a shut down of manufacturing
operations at the Company's South Carolina location and a headcount reduction
of approximately 168 employees. The expected annualized savings of the North
American restructuring plan is expected to total approximately $3.0 million.
In connection with the purchase accounting for the acquisition of
certain business lines of EMESS PLC, effective July 2000, the Company approved
a restructuring plan, which resulted in
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reorganization accruals of $2.1 million. The reorganization plan affected
employee terminations in Europe and the US. The purchase liabilities include
severance costs, the disposal of fixed assets and other exit costs. The costs
in connection with the reorganization plan will be incurred over the next 18
months and will be paid from cash provided by operations. The Company expects
to realize annualized savings of approximately $3.5 million by the end of 2001,
primarily as a result of reduced employee expenses. Pending effective control
of the Brilliant (Germany) business, additional restructuring plans related to
the acquired operations of Brilliant will be finalized and will be recorded as
an adjustment to goodwill.
The Company believes that these restructuring plans are a necessary
action based on the termination of certain activities and are required to
maintain a competitive position. See Note 9 of Notes to the Company's
Consolidated Financial Statements.
Interest (income) expense, net. Interest expense, net, increased from
$3.1 million for the three months ended October 3, 1999 to $6.1 million for the
three months ended October 1, 2000, primarily as a result of increased
borrowings in connection with the recent acquisitions.
Other (income) expense. Other income of $0.7 million for the three
months ended October 1, 2000 includes $0.3 million of investment income from
joint ventures and $0.4 million resulting from the effects of foreign exchange
transactions. For the three months ended October 3, 1999, other income
primarily includes $ 78,000 of investment income from a joint venture.
Income before income taxes. As a result of the above factors, income
before income taxes decreased from $8.3 million for the three months ended
October 3, 1999 to $0.1 million for the three months ended October 1, 2000.
Income taxes. For the three months ended October 1, 2000, the Company
recorded a tax provision of $ 22,000 on pretax income of $ 131,000, for an
effective rate of 17.0%, compared to an effective rate of 16.0% for the three
months ended October 3, 1999. 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 1, 2000 compared to the nine months ended
October 3, 1999.
Net sales. Net sales increased by 4.0% from $641.6 million for the
nine months ended October 3, 1999 to $667.6 million for the nine months ended
October 1, 2000. This increase was primarily due to the additional sales
generated by the recent acquisitions (totaling $35 million) and to generic
growth generated from the integration of incremental sales of the 1999
acquisitions into ongoing operations. The generally higher value of the US
dollar compared to other currencies worldwide decreased net sales by
approximately 6.3% for the nine months ended October 1, 2000 as compared to the
nine months ended October 3, 1999. Net sales for the nine months ended October
1, 2000 are also affected by decreases in average selling prices of general
lighting products, primarily sold in Europe and North America, as a result of
market pricing pressures.
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Gross Margin. Gross margin amounted to $ 182.3 million for both the
nine months ended October 1, 2000 and for the nine months ended October 3,
1999. The translation effects of the weakening European currencies and a
decrease in average selling prices mitigated the effect of increased sales
volume generated by the recent acquisitions. In addition, the gross margin was
impacted in 2000 by non-recurring charges of $381,000 associated with severance
and disposals. The gross margin, as a percentage of net sales, was further
impacted by the effects of the changes in product mix due to the acquisitions.
The gross margin of the Company is expected to improve as the recent
acquisitions are further integrated into the Company.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased from $133.6 million for the nine months ended
October 3, 1999 to $147.4 million for the nine months ended October 1, 2000. As
a percentage of net sales, selling, general and administrative expenses
increased from 20.8% for the nine months ended October 3, 1999 to 22.1% for the
nine months ended October 1, 2000. This increase was largely due to the 1999
and 2000 acquisitions. The Company intends to decrease selling, general and
administrative expenses through restructuring plans, which are being
implemented at the newly acquired businesses as well as existing subsidiaries.
Restructuring costs. Restructuring costs for existing operations were
developed and approved in the three months ended October 1, 2000 totaling $5.9
million, of which $ 5.2 million represent the first phase of restructuring in
the European general lighting business lines. In total, the European
restructuring plan will cost approximately $7.7 million and include a reduction
in headcount of 145 employees totaling $6.6 million and other exit costs
totaling $1.1 million. The European restructuring plan is expected to be
completed in the fourth quarter and will generate annualized savings of
approximately $8.5 million upon completion. Other restructuring plans in North
American general lighting are being developed which are expected to cost
approximately $1.2 million. In phase one of the North America general lighting
plan, restructuring costs of $700,000 were recorded in the three months ended
October 1, 2000. The North American plan includes a shut down of manufacturing
operations at the Company's South Carolina location and a headcount reduction
of approximately 168 employees. The expected annualized savings of the North
American restructuring plan is expected to total approximately $3.0 million.
In connection with the purchase accounting for the acquisition of
certain business lines of EMESS PLC, effective July 2000, the Company approved
a restructuring plan, which resulted in reorganization accruals of $2.1
million. The reorganization plan affected employee terminations in Europe and
the US. The purchase liabilities include severance costs the disposal of fixed
assets and other exit costs. The costs in connection with the reorganization
plan will be incurred over the next 18 months and will be paid from cash
provided by operations. The Company expects to realize annualized savings of
approximately $3.5 million by the end of 2001, primarily as a result of reduced
employee expenses. Pending effective control of the Brilliant (Germany)
business, additional restructuring plans related to the acquired operations of
Brilliant will be finalized and will be recorded as an adjustment to goodwill.
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. This restructuring plan
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was completed in 1999. The Company expects to realize approximately $1 million
in annualized cost savings, largely as a result of reduced employee expense.
The Company believes that these restructuring plans are a necessary
action based on the termination of certain activities and are required to
maintain a competitive position. See Note 9 of Notes to the Company's
Consolidated Financial Statements.
Interest (income) expense, net. Interest expense, net, increased from
$12.5 million for the nine months ended October 3, 1999 to $13.5 million for
the nine months ended October 1, 2000, primarily as a result of an increase in
average outstanding borrowings in connection with the acquisitions.
Other (income) expense. Other income of $3.2 million for the nine
months ended October 1, 2000 includes $2.2 million related to the recording of
the effects of foreign exchange transactions and investment income from joint
ventures totaling $1.0 million. Substantially all of the other income for the
nine months ended October 3, 1999 resulted from recording the effects of
foreign exchange transactions, partly offset by a loss of $ 193,000 on the sale
of an investment.
Income before income taxes. As a result of the above factors, income
before income taxes decreased from $35.1 million for the nine months ended
October 3, 1999 to $18.7 million for the nine months ended October 1, 2000.
Income taxes. For the nine months ended October 1, 2000, the Company
recorded a tax provision of $3.0 million on pretax income of $18.7 million, for
an effective rate of approximately 16.0%, compared to approximately 17.0% for
the nine months ended October 3, 1999. 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, ongoing capital
expenditures and stock repurchases. Sources of cash have typically included
operating cash flow, bank borrowings and proceeds from the sale of Common
Stock. On 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 1, 2000, the Company's cash on hand was $66.5 million.
For the nine months ended October 1, 2000, net cash provided by operating
activities was $57.1 million and cash used in investing activities totaled
$135.6 million. The investing activities primarily include acquisitions,
totaling $107.2 million, and capital expenditures for production equipment,
totaling $28.4 million. Net cash provided by financing activities for the nine
months ended October 1,
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2000 aggregated $121.3 million, which included $131.2 in net borrowings under
the Company's worldwide credit facilities, repurchases of Common Stock totaling
$3.8 million, proceeds from the exercise of stock options totaling $0.7 million
and dividend payments totaling $6.8 million.
As of October 1, 2000, the Company had available borrowings, subject
to certain financial covenants, of approximately $ 214 million under the
existing Revolving Credit Facility, and the face amount of letters of credit
issued and outstanding under the Existing Credit Facility totaled approximately
$ 3.6 million. The Company also has a number of other committed and uncommitted
facilities worldwide, which it utilizes for short-term working capital
requirements. On October 27, 2000, the Company renewed its 364-day Credit
Facility at a level of $141 million.
In September 2000, the Company amended its five-year Euro Receivable
Purchase Agreement ("Receivables Facility"). The amount of borrowings allowable
under the Receivables Facility at any time is a function of the amount of the
outstanding eligible trade accounts receivables up to 55.0 million Euro. The
net proceeds from the sale of accounts receivable (approximately $24 million)
at the end of the third quarter were used to repay borrowings.
In April 2000, the Company entered into an equity forward purchase
transaction whereby the Company has the ability to purchase shares of the
Company's common stock in an aggregate principal amount of up to $15 million.
The Company is not required to pay for shares purchased under the transaction
until the end of a two-year period. The Company shall make quarterly payments
of interest on the principal amount of shares which the Company commits to
purchase, with interest to be calculated based on Libor plus a spread
determined upon the Company's leverage ratio. On the termination date, the
Company has the option to settle the transaction by payment of cash, sales of
shares of common stock, or a combination thereof. To date, the Company has made
commitments to purchase 1,307,300 shares for a principal purchase price of
approximately $12.7 million.
In March 2000, the Company entered into a sale leaseback transaction
in connection with a 370,000 square foot distribution facility to be located in
France. Under the terms of the lease arrangement, the Company has entered into
a 12-year lease anticipated to begin in the fourth quarter of this year. The
lease payments are based on an investment value of FF 149,544,000 (or
approximately US $21 million), with a variable interest factor based on Euribor
plus 1.1%. The Company has the option to convert the lease payments to a fixed
rate payment equal to a governmental bond rate plus 1.1%. The residual value at
the end of the lease is FF 44,491,000 (or approximately US $6 million).
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. Certain member countries of the European Union established fixed
conversion rates between their existing currencies and the European Economic
Monetary Union common currency, or Euro. While the
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Euro was introduced on January 1, 1999, member countries will continue to use
their existing currencies through January 1, 2002, with the transition period
for full conversion to the Euro ending June 30, 2002. 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 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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT 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.
Debt Denominated in Foreign Currencies is as follows:
<TABLE>
<CAPTION>
Fair value
2000 2001 2002 2003 2004 Thereafter Total 10/1/00
---- ---- ---- ---- ---- ---------- ----- -------
(Dollars equivalent in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Belgium Francs
Variable rate loan $ 2.6 - - - - - $ 2.6 $ 2.6
Avg Interest rate 6.1%
Avg Forward Currency
Exchange rate 0.022
Deutsche Marks
Variable rate loan $ 5.9 - - - - - $ 5.9 $ 5.9
Avg Interest rate 6.1%
Avg Forward Currency
Exchange rate 0.450
UK Pounds
Variable rate loan $ 3.8 - - - - - $ 3.8 $ 3.8
Avg Interest rate 7.6%
Avg Forward Currency
Exchange rate 1.464
Euro
Variable rate loan $93.5 - - - - - $93.5 $ 93.5
Avg Interest rate 6.1%
Avg Forward Currency
Exchange rate 0.880
Japanese Yen
Variable rate loan $17.9 - - - - - $17.9 $ 17.9
Avg Interest rate 1.7%
Avg Forward Currency
Exchange rate 0.009
</TABLE>
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<PAGE> 15
Foreign Currency Forward Exchange Contracts are as follows:
<TABLE>
<CAPTION>
Avg Fair value
Buy Contract Functional currency 2000 2001 2002 2003 2004 Thereafter Total Cont. rate 10/1/00
------------ ------------------- ---- ---- ---- ---- ---- ---------- ----- ---------- ----------
(Dollars equivalent in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Euro Dollar British Pounds Sterling 4.1 4.1 1.593 3.9
</TABLE>
PART II - OTHER INFORMATION
Item 6 Exhibit and Report on Form 8K
No.
---
27.1 Financial Data Schedule (For SEC Use Only)
No report on form 8K was filed during the quarter ending
October 1, 2000.
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 14, 2000
By: /s/ Richard F. Parenti
--------------------------------------
Richard F. Parenti,
Chief Financial Officer
Date: November 14, 2000
15
