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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 3, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to Commission File No. 0-4466
COMPUTER PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA
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(State or other jurisdiction of incorporation or organization)
59-1205269
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(I.R.S. Employer Identification No.)
7900 Glades Road, Suite 500, Boca Raton, Florida 33434
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (407) 451-1000
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NOT APPLICABLE
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Former name, address and fiscal year if changed since last report
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
The number of shares of Common Stock, $.01 par value, of the Registrant issued
and outstanding as of October 31, 1997, was 24,307,325 shares.
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<PAGE>
COMPUTER PRODUCTS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
Number
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements:
Statements of Operations - For the Thirteen
and Thirty-Nine Weeks Ended October 3, 1997 and
September 27, 1996 3
Statements of Financial Condition - October 3, 1997
and January 3, 1997 4
Statements of Cash Flows - For the
Thirty-Nine Weeks Ended October 3, 1997 and
September 27, 1996 5
Statement of Shareholders' Equity- For the
Thirty-Nine Weeks Ended October 3, 1997 6
Notes to Condensed Consolidated Financial
Statements 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Exhibit No. 11
Exhibit No. 27
SIGNATURES
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTY-NINE WEEKS
ENDED ENDED
OCT. 3, SEPT. 27, OCT. 3, SEPT. 27,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES $71,826 $53,937 $188,235 $149,368
COST OF SALES 46,678 35,304 121,438 95,900
--------- --------- --------- ---------
GROSS PROFIT 25,148 18,633 66,797 53,468
--------- --------- --------- ---------
EXPENSES
Selling, general & administrative 10,055 7,599 27,550 22,706
Research & development 5,590 4,040 15,284 11,453
--------- --------- ------- ---------
15,645 11,639 42,834 34,159
--------- --------- --------- ---------
OPERATING INCOME 9,503 6,994 23,963 19,309
--------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense (895) (673) (2,055) (2,036)
Interest income 399 292 1,073 767
--------- ---------- --------- ---------
(496) (381) (982) (1,269)
--------- ---------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 9,007 6,613 22,981 18,040
PROVISION FOR INCOME TAXES 2,432 1,659 6,205 4,691
--------- ---------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 6,575 4,954 16,776 13,349
DISCONTINUED OPERATIONS
Profit (loss) from operations, net of income taxes of
$104,($222) and $42, respectively - 177 (333) 75
Loss on disposal of RTP including provision of $1,000
for operating losses during phase-out period, net
of tax benefit of $1,152 - - (1,729) -
--------- ---------- --------- ---------
NET INCOME $ 6,575 $ 5,131 $ 14,714 $ 13,424
========= ========== ========= =========
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
PRIMARY-
Income from Continuing Operations $ 0.26 $ 0.20 $ 0.67 $ 0.55
Discontinued Operations - 0.01 (0.08) -
--------- ---------- --------- ---------
Net Income $ 0.26 $ 0.21 $ 0.59 $ 0.55
========= ========== ========= =========
ASSUMING FULL DILUTION-
Income from Continuing Operations $ 0.26 $ 0.20 $ 0.66 $ 0.54
Discontinued Operations - 0.01 (0.08) -
-------- --------- --------- --------
Net Income $ 0.26 $ 0.21 $ 0.58 $ 0.54
========= ========== ========= =========
COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING:
Primary 25,313 24,612 24,971 24,436
Fully Diluted 25,442 24,934 25,493 25,008
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
<PAGE>
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands Except Par Value Amounts)
<TABLE>
<CAPTION>
OCTOBER 3, JANUARY 3,
1997 1997
(UNAUDITED) (AUDITED)
------------- -----------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and equivalents $ 33,717 $ 26,141
Accounts receivable, net 51,106 35,989
Inventories 39,388 28,726
Prepaid expenses 2,566 2,038
Deferred income taxes, net 1,552 965
Current assets of discontinued operations - 7,646
--------- --------
Total current assets 128,329 101,505
--------- ---------
PROPERTY, PLANT & EQUIPMENT, NET 34,616 28,686
--------- ---------
OTHER ASSETS
Goodwill, net 40,614 20,022
Deferred income taxes, net 1,563 863
Other assets, net 4,299 1,171
Long-term assets of discontinued operations - 1,594
--------- ---------
Total other assets 46,476 23,650
--------- ---------
$209,421 $153,841
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 4,523 $ 4,155
Accounts payable and accrued liabilities 49,241 34,210
Current liabilities of discontinued operations - 2,055
--------- ---------
Total current liabilities 53,764 40,420
LONG-TERM DEBT 48,268 23,408
LEASE LIABILITIES 4,906 5,994
--------- ---------
TOTAL LIABILITIES 106,938 69,822
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01; 1,000,000 shares authorized;
none issued - -
Common stock, par value $.01; 80,000,000 shares authorized;
24,301,450 shares issued and outstanding at October 3, 1997
(23,849,759 at January 3, 1997) 243 239
Additional paid-in capital 51,147 44,724
Retained earnings 53,497 38,783
Foreign currency translation adjustment (2,404) 273
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 102,483 84,019
--------- ---------
$209,421 $153,841
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
<PAGE>
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
OCT. 3, SEPT. 27,
1997 1996
--------- ----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $14,714 $13,424
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,397 4,532
Other non-cash charges 1,796 1,959
Changes in operating assets and liabilities:
Increase in accounts receivable (13,582) (6,783)
(Increase)decrease in inventories and
prepaid expenses and other (5,569) 422
Increase (decrease) in accounts payable and
accrued liabilities 8,490 (184)
Net cash provided by (used in) discontinued operations 1,423 (602)
--------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,669 12,768
--------- ----------
INVESTING ACTIVITIES:
Purchases of property, plant & equipment (7,861) (4,838)
Proceeds from sale of property, plant and equipment - 71
Purchase of the Elba Group, net of cash acquired (25,768) -
Sale of RTP Corp. 2,000 -
Purchase of Jeta Power Systems, Inc, net of cash acquired - (9,577)
Investing activities of discontinued operations (32) (804)
(Increase) decrease in other assets 94 (55)
-------- ----------
NET CASH USED IN INVESTING ACTIVITIES (31,567) (15,203)
--------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 28,825 -
Principal payments on debt and capital leases (4,635) (2,232)
Proceeds from exercises of stock options 2,658 2,754
Repurchases of common stock - (2,032)
--------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 26,848 (1,510)
--------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS (374) (36)
--------- ----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 7,576 (3,981)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 26,141 26,650
--------- ----------
CASH AND EQUIVALENTS, END OF PERIOD $33,717 $22,669
========= ==========
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES:
In connection with the acquisition of the Elba Group, the Company recorded, at
fair value, assets of $35.0 million and liabilities of $6.6 million.
In connection with the acquisition of Jeta Power Systems, Inc, the Company
recorded, at fair value, assets of $14.0 million and liabilities of $1.9
million.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
<PAGE>
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTOF SHAREHOLDERS EQUITY
For the Thirty-Nine Weeks Ended October 3, 1997
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON STOCK PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT
--------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 3, 1997 23,850 $239 $44,724 $38,783 $273
Issuance of common stock under stock
option plans 451 4 2,654 - -
Tax benefit from exercises of stock
options - - 3,769 - -
Foreign currency translation adjustment - - - - (2,677)
Net income - - - 14,714 -
--------- --------- ---------- --------- -----------
BALANCE, OCTOBER 3, 1997 24,301 $243 $51,147 $53,497 $(2,404)
========= ========= ========== ========= ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
<PAGE>
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
OCTOBER 3, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Certain information and footnote disclosures required by
generally accepted accounting principles for complete financial statements have
been condensed or omitted.
In the opinion of management, the accompanying financial statements include all
adjustments (consisting of normal recurring accruals) considered necessary to
present fairly the financial position, results of operations, and cash flows of
Computer Products, Inc. ("the Company"). The results of operations for the
thirteen and thirty-nine weeks ended October 3, 1997 are not necessarily
indicative of the results that may be expected for fiscal year 1997. For further
information, these Condensed Consolidated Financial Statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's 1996 Annual Report to Shareholders and Form 10-Q for the thirteen week
period ended July 4, 1997.
Certain prior year amounts have been reclassified to reflect discontinued
operations as described in Note 6.
2. INVENTORIES
The components of inventory are as follows ($000s):
October 3, January 3,
1997 1997
--------- ---------
Raw materials $19,674 $14,953
Work in process 6,730 4,424
Finished goods 12,984 9,349
--------- ---------
$39,388 $28,726
========= =========
3. PROPERTY, PLANT & EQUIPMENT, NET
Related accumulated depreciation was $29,335,000 and $26,064,000 at October 3,
1997 and January 3, 1997, respectively.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are as follows
($000s):
October 3, January 3,
1997 1997
-------- -------
Accounts payable $23,414 $16,135
Accrued liabilities:
Compensation and benefits 7,132 5,794
Commissions payable 2,204 1,563
Income taxes payable 7,169 5,080
Other 9,322 5,638
------- --------
$49,241 $34,210
======== ========
5. INCOME TAXES
The provision for income taxes reflects federal, state, and foreign taxes. The
effective income tax rate on pretax earnings differs from that computed at the
United States federal statutory rate for the following reasons:
Thirty-Nine Weeks Ended
Oct. 3, Sept. 27,
1997 1996
-------- --------
Provision computed at United States federal
statutory rate 35.0% 35.0%
Effect of state income taxes 5.1 7.9
Amortization of goodwill 0.3 0.2
Foreign tax effects (6.9) (2.0)
Change in the valuation allowance (6.5) (15.3)
Other - 0.2
------- --------
Effective tax rate 27.0% 26.0%
======== ========
6. DISCONTINUED OPERATIONS
On April 17, 1997, the Company announced its intention to sell its Industrial
Automation division, RTP Corp. ("RTP"), pursuant to a plan of disposal approved
by the Board of Directors. Effective July 5, 1997, the Company sold RTP Corp. to
RT Acquisition Florida Corp. Proceeds from the sale, which are subject to
adjustment, included $2.0 million cash and a subordinated unsecured five-year
note in the aggregate principal amount of approximately $2.5 million bearing
interest at the prime rate. An estimated after-tax loss on the sale of $1.7
million (net of income tax benefit of $1,152,000) was recorded in the first
quarter of 1997 representing the estimated loss on the disposal of RTP's net
assets and a pre-tax provision of $1,000,000 for expected operating losses
during the phase-out period.
RTP's sales from January 4, 1997 through its disposal date were $4,793,000. RTP
sales for the thirty-nine weeks ended September 27, 1996 were $10,500,000. RTP's
operating results are shown separately in the accompanying consolidated
statements of operations.
Certain prior year amounts have been restated to give effect to the discontinued
operations treatment.
7. ACQUISITION AND PLAN OF MERGER
THE ELBA GROUP -- Effective July 22, 1997, the Company acquired the Elba Group
("Elba"), a privately held European designer, manufacturer and marketer of a
wide range of both AC/DC and DC/DC power conversion products. Computer Products
purchased Elba for approximately $28.5 million in cash provided by two
seven-year term loans from a financial institution. Elba has design, sales and
manufacturing organizations in Oberhausen and Einsiedel, Germany; Chomutov,
Czech Republic and Etten-Leur, Netherlands. The Company also has sales offices
in Pfaffikon, Switzerland; Vaulx-Milieu, France; and Chesterfield, United
Kingdom.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the excess of the purchase price over the estimated fair value of
the net assets acquired, or approximately $21.5 million, was recorded as
goodwill which is being amortized on a straight-line basis over a period of 20
years. Elba's results of operations have been included in the Company's
consolidated financial statements from the date of acquisition. The following
unaudited pro forma information combines the consolidated results of operations
of the Company and Elba as if the acquisition had occurred at the beginning of
the periods presented.
UNAUDITED COMBINED PRO FORMA INFORMATION
($000 EXCEPT PER SHARE)
Thirty-Nine
Weeks Ended Year Ended
October 3, January 3,
1997 1997
-------------- -------------
Sales $201,544 $234,198
Net Income 15,385 21,335
Earnings per share - primary 0.62 0.87
Earnings per share - assuming full dilution 0.60 0.85
The unaudited pro forma results have been prepared for comparative purposes only
and include certain adjustments, such as additional amortization expense as a
result of goodwill, increased interest expense on the acquisition debt, and
related income tax effects. The pro forma results do not purport to be
indicative of results that would have occurred had the combination been in
effect for the periods presented, nor do they purport to be indicative of the
results that will be obtained in the future.
ZYTEC -- On September 2, 1997, the Company and CPI Acquisition Corp, a Minnesota
corporation and a wholly-owned subsidiary of the Company ("CPI Sub"), entered
into an Agreement and Plan of Merger dated as of September 2, 1997 (the "Merger
Agreement") with Zytec Corporation, a Minnesota corporation ("Zytec"). The
Merger Agreement provides for the merger of CPI Sub with and into Zytec, with
Zytec surviving as a wholly owned subsidiary of the Company (the "Merger").
The Merger Agreement provides for a stock-for-stock exchange in which each share
of Zytec's common stock will be exchanged for 1.33 shares of the Company's
common stock. The Company expects to ultimately issue approximately 16.7 million
common shares in exchange for Zytec's common and equivalent shares outstanding.
The Company expects the transaction to be a tax-free exchange to be accounted
for as a pooling of interests and for the transaction to close in the fourth
fiscal quarter ending January 2, 1998. A one-time charge related to certain
merger costs will be expensed at that time.
8. LONG-TERM DEBT
Effective July 15, 1997, the Company amended and restated its existing revolving
and term loan agreement to reprice its outstanding term loan and to provide for
a new $20 million three-year multi-currency revolving working capital line of
credit. The new multi-currency revolving facility, which expires in April 2000,
replaces the Company's previous $20 million credit line which would have expired
on April 1, 1998. The interest rate on the revolver is at the London Interbank
Offering Rate "Libor" plus .50%. No borrowings are outstanding under the
existing line. The Company's 1995 seven-year term loan, which has an outstanding
balance of $19.8 million, was repriced to bear interest at Libor plus .75%
compared to the previous rate set at Libor plus 1.5%.
In addition, effective July 15, 1997, the Company and one of its subsidiaries
entered into two separate unsecured seven-year term loans with First Union
National Bank, London Branch providing an aggregate of 52 million Deutsche
marks. The term loans bear interest at Libor plus .75%, or currently at
approximately 4%. Proceeds from the term loans were used to finance the Elba
Group acquisition on July 22, 1997.
9. DERIVATIVE FINANCIAL INSTRUMENTS
FOREIGN EXCHANGE INSTRUMENTS --The Company enters into foreign currency forward
contracts to minimize its exposure to potentially adverse changes in foreign
currency exchange rates on anticipated but not firmly committed purchases or
sales denominated in foreign currencies made by its international subsidiaries.
The foreign exchange contracts on receivables require the Company to exchange
European ECU for Irish Punts. The foreign exchange contracts on payables require
the Company to exchange Japanese Yen to receive US dollars. At October 3, 1997,
the Company held $6.6 million of forward currency exchange contracts on
receivables maturing in one to three months while no contracts on payables were
outstanding. No contracts were outstanding as of January 3, 1997. Gains and
losses on these contracts are included in the consolidated statement of
operations as they arise. Costs associated with entering into these contracts
are amortized over the contract lives, which typically mature within one year.
The amount of any gain or loss on these contracts during the period was not
material. The Company does not hold or issue financial instruments for trading
purposes.
INTEREST RATE INSTRUMENTS -- Effective July 14, 1997, the Company entered into
two interest rate swap agreements with First Union National Bank pursuant to
which it exchanged its floating rate interest obligations on the aggregate 52
million Deutsche marks notional principal amount for a fixed rate payment
obligation of 5.58% per annum for a seven-year period beginning August 1, 1997.
The fixing of the interest rates for these periods minimizes in part the
Company's exposure to the uncertainty of floating interest rates during this
seven-year period. The differential paid or received on these interest rate
swaps is recognized as an adjustment to interest expense.
10. NEW ACCOUNTING PRONOUNCEMENT
On March 3, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". This
statement simplifies the standards for computing and presenting earnings per
share ("EPS") and makes them comparable to international EPS standards. SFAS 128
replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures. SFAS 128 will
be effective beginning with the fourth quarter of 1997 and, upon adoption, will
require restatement of all prior periods presented. The Company has quantified
the impact of applying the new standard to the third quarter and year-to-date
results. Pro forma information is as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
OCT. 3, SEPT. 27, OCT. 3, SEPT. 27,
1997 1996 1997 1996
--------- --------- --------- ----------
EARNINGS PER COMMON SHARE
<S> <C> <C> <C> <C>
Income from Continuing Operations $0.27 $0.21 $0.70 $0.57
Discontinued Operations, net of tax - 0.01 (0.09) -
-------- -------- ---------- ---------
Net Income $0.27 $0.22 $0.61 $0.57
========= ========= ========= ==========
EARNINGS PER COMMON SHARE - ASSUMING DILUTION
Income from Continuing Operations $0.26 $0.20 $0.67 $0.55
Discontinued Operations, net of tax - 0.01 (0.08) -
-------- -------- ---------- ---------
Net Income $0.26 $0.21 $0.59 $0.55
========= ========= ========= ==========
</TABLE>
ITEM II
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ACQUISITION AND PLAN OF MERGER
THE ELBA GROUP -- On July 22, 1997, pursuant to an Agreement on the Sale,
Purchase and Transfer of Shares, the Company acquired all the outstanding
capital stock of the following affiliated companies: Elba Electric GmbH, Elba
Modul GmbH, Elba Elektronik AG, Elba Electronics Ltd., Elba Electric-Produktion
s. r. o., Elba Electronique S.A.R.L., and KRP Power Source B.V., collectively
referred to as the Elba Group.
The Elba Group is engaged in the design, manufacture and marketing of a wide
range of both AC/DC and DC/DC power conversion products in Europe. Elba's
fastest growing product segment is its medium power AC/DC converters (150-750
watts) sold to OEM communications customers under the Elba and KRP Power Source
labels. The Elba Group's customers include major multinational corporations such
as Ericsson, Kodak, Krone AG and Siemens among others. Elba currently has 375
employees. Management believes that the acquisition of the Elba Group adds
significant design expertise along with a strong product offering and important
relationships with the world's leading Wireless and Telecommunications equipment
manufacturers.
The purchase price of 52 million Deutsche marks (approximately $28.5 million)
was paid in cash with proceeds from two seven-year term loans from First Union
National Bank, London Branch. The loans bear interest at Libor plus .75%.
ZYTEC -- On September 2, 1997, the Company and CPI Acquisition Corp, a Minnesota
corporation and a wholly-owned subsidiary of the Company ("CPI Sub"), entered
into an Agreement and Plan of Merger dated as of September 2, 1997 (the "Merger
Agreement") with Zytec Corporation, a Minnesota corporation ("Zytec"). The
Merger Agreement provides for the merger of CPI Sub with and into Zytec, with
Zytec surviving as a wholly owned subsidiary of the Company (the "Merger").
The Merger Agreement provides for a stock-for-stock exchange in which each share
of Zytec's common stock will be exchanged for 1.33 shares of the Company's
common stock. The Company expects to ultimately issue approximately 16.7 million
common shares in exchange for Zytec's common and equivalent shares outstanding.
The Company expects the transaction to be a tax-free exchange to be accounted
for as a pooling of interests and for the transaction to close in the fourth
fiscal quarter ending January 2, 1998. A one-time charge related to certain
merger costs will be expensed at that time.
SALE OF SUBSIDIARY
On April 17, 1997, the Company announced its intention to sell its Industrial
Automation division, RTP Corp. ("RTP") pursuant to a plan of disposal approved
by the Board of Directors. Accordingly, the Company classified RTP as a
discontinued operation and recorded an after-tax non-recurring charge of $2.1
million, or $0.08 per share, against first quarter 1997 earnings. Effective July
5, 1997, the Company sold its industrial automation division, RTP Corp., to RT
Acquisition Florida Corp. Proceeds from the sale, which are subject to
adjustment, included $2.0 million cash and a subordinated unsecured five-year
note in the aggregate principal amount of approximately $2.5 million bearing
interest at the prime rate.
RESULTS OF OPERATIONS
For the third quarter of 1997, income from continuing operations increased 33%
to $6.6 million, or $0.26 per share, from the $5.0 million, or $0.20 per share,
reported for the comparable year-ago quarter. Sales from continuing operations
for the quarter increased 33% to $71.8 million from $53.9 million a year ago.
For the first nine months, sales from continuing operations totaled $188.2
million, up 26% from $149.4 million in 1996. Income from continuing operations
increased 26% to $16.8 million, or $0.67 per share, up from $13.3 million, or
$0.54 per share, in 1996.
The following table displays sales by product category for the thirty-nine weeks
ended October 3, 1997 and September 27, 1996 ($000s):
OCT. 3, SEPT. 27,
1997 1996
---------- ----------
Power Conversion $169,522 $135,733
Computer Systems 18,713 13,635
--------- ----------
Total $188,235 $149,368
========== ==========
Sales for the thirteen and thirty-nine weeks ended October 3, 1997 increased
$17.9 million (33%) and $38.9 million (26%), respectively, over the comparable
prior year periods primarily as a result of a wider range of product offerings,
the continued foreign expansion and the increase of service and support
programs. Sales resulting from the Elba Group since its acquisition date were
approximately $4.9 million for the thirteen weeks ended October 3, 1997.
Year-to-date Power Conversion sales improved 25% while Computer Systems sales
increased 37% compared to the nine-month period a year ago.
Sales to customers in Asia and the Pacific Rim increased 47% from $13.6 million
in the nine-month period of 1996 to $20.0 million for the comparable period in
1997. The increase is mainly due to the award of a significant Original
Equipment Manufacturer ("OEM") program with shipments beginning in the second
quarter of 1996 and additional demand from the customer base in Asia and the
Pacific Rim. The Company's European Power Conversion business recorded a 21%
increase in sales for the year-to-date period in 1997 compared to the year ago
period again due to increased demand from OEM communications customers. The
Company anticipates additional sales growth in Power Conversion during the
remainder of this fiscal year and continues to consider acquisition and
partnership opportunities to increase market share and expand product range.
As mentioned above, Computer Systems sales were 37% higher than the year ago
period as this division continues to transition from the computer industry to
the communications sector. Similar to the Power Conversion division, Computer
Systems has concentrated its marketing efforts on the high-growth communications
industry, where it provides networking, telecommunications and wireless
communications solutions for a variety of customers, including OEMs. With its
focus on developing new products aimed at customers in the communications
industry and a high backlog level entering into the fourth quarter, this
division is expected to increase its sales volume through the remainder of the
fiscal year.
Orders for the third quarter of 1997 increased to $72.7 million representing a
41% improvement compared to the year ago quarter. The large increase is the
result of entering the production phase of new OEM programs awarded to both the
Power Conversion and Computer Systems divisions during 1996 as well as the
addition of the Elba Group with $6.2 million in orders. At October 3, 1997,
order backlog was $59.3 million compared to $45.9 million at January 3, 1997.
Gross profit for the thirteen and thirty-nine weeks ended October 3, 1997
increased by $6.5 million and $13.3 million, respectively, over the comparable
prior year periods. However, gross margin for the third quarter of 1997 was
slightly above prior year's at 35% while the current year-to-date margin of
35.5% was down compared to the 35.8% reported for the nine-month period a year
ago. Margins continue to be adversely impacted by the shift in sales mix to the
Company's high-volume, lower-margin OEM customers coupled with increased
production costs for a large number of new products being introduced. Although
the Company continues to focus on reducing manufacturing costs and improving
overall processes, the Company does not anticipate that gross margins will vary
significantly from the current level due to continuing competitive pricing
pressures and changes in product mix, especially as more OEM programs are
awarded.
For the thirteen and thirty-nine weeks ended October 3, 1997, selling, general
and administrative ("SG&A") expenses as a percentage of sales decreased to
approximately 14% and 14.6%, respectively, from 14.1% and 15.2% for the
comparable prior year periods. In absolute dollar terms, SG&A increased $2.5
million and $4.8 million in the third quarter of 1997 and year-to-date periods,
respectively, compared to the same periods in 1996 mostly due to higher sales
and marketing expenses. Specific factors included higher commission expense from
increased sales volume, the cost of additional marketing programs to support the
launch of new products, and expansion of distribution channels. General and
administrative expenses also increased as a result of the Company's mergers and
acquisition activities and the inclusion of the Elba Group acquired in July
1997. The Company plans to invest significant resources to expand its presence
in Asia, the Pacific Rim and Europe; accordingly, selling expenses are expected
to continue to increase in absolute dollars through the remainder of 1997 while
general and administrative expenses should continue to decline as a percentage
of sales.
Research and development ("R&D") spending increased approximately $1.6 million,
or 38%, compared to the third quarter of 1996. R&D expenses increased $3.8
million, or 33%, for the thirty-nine weeks ended October 3, 1997. As a
percentage of sales, R&D expenses increased to 8.1% for the first nine months of
1997 compared to 7.7% for the comparable prior year period. The higher expense
level was primarily attributable to the cost of developing new products
consistent with the Company's ongoing commitment to develop and produce
high-quality, innovative products targeted at the communications industry and
the inclusion of the Elba Group acquired in July 1997. The Company believes that
the timely introduction of new technology and products is an important component
of its competitive strategy and anticipates future R&D spending will not
significantly differ from the historical trend as a percentage of sales of
approximately 8%.
The provision for income taxes as a percentage of pretax income for the
thirty-nine weeks ended October 3, 1997 increased to 27% from 26% for the
comparable prior year period and prior fiscal year, respectively. The effective
tax rate for 1997 increased primarily due to lower change in valuation allowance
offset by higher income from foreign operations that are taxed at a lower rate.
See Note 5 to the Condensed Consolidated Financial Statements for the Company's
effective tax rate reconciliation.
LIQUIDITY AND CAPITAL RESOURCES
At October 3, 1997, the Company's cash balance increased to $33.7 million
compared to $26.1 million at January 3, 1997 mainly due to proceeds from
exercises of stock options, proceeds from the sale of the industrial automation
division in July 1997, and cash acquired in the Elba Group, partially offset by
purchases of equipment for $7.9 million and installment payments of $4.6 million
on the Company's long-term debt.
Inventories increased $10.7 million, or 37%, from January 3, 1997 primarily in
the Power Conversion division as a result of production planning to meet
manufacturing lead times and anticipated demand for new product introductions.
Also, the third quarter of 1997 includes $2.2 million of inventory as part of
the acquisition of the Elba Group.
Accounts receivable increased $15.1 million, or 42%, from January 3, 1997 due to
sales growth, including the continued expansion in international operations that
typically have longer collections cycles, and $4.2 million of receivables
included in the acquisition of the Elba Group. Days sales outstanding in
receivables were 63.5 days at October 3, 1997 compared to 56 days at January 3,
1997.
Accounts payable increased $7.3 million, or 45%, from January 3, 1997 due to
increases in capital expenditures, operating expenses, and material purchases to
support the growth in sales.
Cash provided by operations increased to $13.3 million for the thirty-nine weeks
ended October 3, 1997 from $12.8 million for the thirty-nine weeks ended
September 27, 1996 primarily as a result of an increase in inventory, accounts
payable and accrued liabilities.
Net cash used in investing activities increased to $32.2 million for the
thirty-nine weeks ended October 3, 1997 from $15.2 million for the thirty-nine
weeks ended September 27, 1996 due to the acquisition of the Elba Group for
approximately $25.8 million (net of cash acquired) and increased purchases of
plant and equipment partially offset by $2.0 million proceeds from the sale of
RTP Corp.
Net cash provided by financing activities for the thirty-nine weeks ended
October 3, 1997 of $26.8 million reflects the issuance of the DM52 million term
loans, net of debt issuance costs, and $2.7 million proceeds from exercises of
stock options partially offset by $4.6 million long-term debt principal
repayments including $3.7 million on the Company's seven-year term loan.
The Company and one of its subsidiaries entered into two separate unsecured
seven-year term loans with a bank providing an aggregate of 52 million Deutsche
marks. The term loans bear interest at Libor plus .75%, or approximately 5.6%.
Proceeds from the term loans were used to finance the purchase of the Elba
Group. In addition, the Company amended and restated its existing revolving and
term loan agreement to reprice its outstanding term loan and to provide for a
new $20 million three-year multi-currency revolving working capital line of
credit.
The new multi-currency revolving facility, which expires in April 2000, replaces
the Company's previous $20 million credit line which would have expired on April
1, 1998. The interest rate on the revolver was reduced from Libor plus .75% to
Libor plus .50%. As of October 3, 1997, the Company had made no borrowings under
the existing line of credit, and management believes the Company was in
compliance with the agreement's covenants.
Effective July 15, 1997, the Company's 1995 seven-year term loan, which has an
outstanding balance of $22 million, was repriced to bear interest at Libor plus
.75% compared to the previous rate set at Libor plus 1.5%.
Based on current plans and business conditions, the Company believes that its
cash and equivalents, its available credit line, cash generated from operations,
and other financing activities are expected to be adequate to meet capital
expenditures, working capital requirements, debt obligations and outstanding
lease commitments through the remainder of fiscal 1997.
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-Q constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
are based on the Company's current expectations with respect to future sales,
operating efficiencies, growth and working capital needs. Such statements
involve risks and uncertainties which may cause actual results to differ
materially from those set forth in these forward-looking statements. Factors
that might affect such forward-looking statements include, among others, general
economic conditions and growth in the power supply and communications
industries, changes in customer mix, competitive factors and pricing pressures,
changes in product mix, the timely development and acceptance of new products,
ability to integrate the Elba Group operations with those of the Company,
ability to attract and retain customers including new OEM communications
customers, ability to attract and retain personnel, inventory risks due to
shifts in market demand, changes in absorption of manufacturing overhead,
domestic and foreign regulatory approvals particularly as it relates to the Elba
acquisition, foreign currency and economic risks and other risks described in
the Company's various reports filed with the Securities and Exchange Commission.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit No. 11 -- Computation of earnings per common and common equivalent share
for the thirteen and thirty-nine weeks ended October 3, 1997 and September 27,
1996.
Exhibit No. 27 -- Financial Data Schedule.
(B) REPORTS ON FORM 8-K
During the thirteen-week period ended October 3, 1997, the Company filed the
following reports on Form 8-K:
On August 4, 1997, the Company filed a Current Report on Form 8-K to announce
its acquisition of the Elba Group effective July 22, 1997 and subsequently filed
a report on Form 8-K/A to disclose audited historical and combined pro-forma
financial statements.
On September 5, 1997, the Company filed a Current Report on Form 8-K announcing
that on September 2, 1997 the Company and Zytec Corporation announced in a joint
press release that they had signed a definitive merger agreement pursuant to
which a wholly-owned subsidiary of the Company will merge with and into Zytec.
On October 30, 1997, the Company filed a Current Report on Form 8-K to file
restated audited historical financial statements pursuant to its discontinued
operations plan for RTP Corp. adopted during 1997.
<PAGE>
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.
COMPUTER PRODUCTS, INC.
-----------------------
(Registrant)
DATE: November 12, 1997 BY: /s/ Richard J. Thompson
-----------------------
Richard J. Thompson
Vice President Finance
Chief Financial Officer
EXHIBIT NO. 11
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE-PRIMARY
(In Thousands)
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTY-NINE WEEKS
ENDED ENDED
OCT. 3, SEPT. 27, OCT. 3, SEPT. 27,
1997 1996 1997 1996
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Weighted average number of shares outstanding 24,209 23,534 24,004 23,291
Net effect of dilutive stock
options--based on the treasury
stock method using average market price 1,104 1,078 967 1,145
-------- --------- -------- --------
Common and common equivalent
shares outstanding 25,313 24,612 24,971 24,436
======== ========= ======== ========
</TABLE>
<PAGE>
EXHIBIT NO. 11
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE-FULLY DILUTED
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTY-NINE WEEKS
ENDED ENDED
OCT. 3, SEPT. 27, OCT. 3, SEPT. 27,
1997 1996 1997 1996
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Shares outstanding 24,301 23,682 24,301 23,682
Net effect of dilutive stock options
based on the treasury stock method using
the greater of month-end market
price or average market price 1,141 1,252 1,192 1,326
--------- --------- --------- ---------
Totals 25,442 24,934 25,493 25,008
========= ========= ========= =========
Income from continuing operations $6,575 $4,954 $16,776 $13,349
Discontinued operations
Income (loss) from operations - 177 (333) 75
Loss on disposal - - (1,729) -
--------- --------- --------- ---------
Net Income $6,575 $5,131 $14,714 $13,424
========= ========= ========= =========
Income from continuing operations $0.26 $0.20 $0.66 $0.54
Discontinued operations
Income (loss) from operations - 0.01 (0.01) -
Loss on disposal - - (0.07) -
--------- --------- --------- ---------
Net Income $0.26 $0.21 $0.58 $0.54
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The prior year amounts were restated for discontinued operations.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JAN-02-1998 JAN-03-1997
<PERIOD-END> OCT-03-1997 SEP-27-1996
<CASH> 33,717 22,669
<SECURITIES> 0 0
<RECEIVABLES> 52,951 36,019
<ALLOWANCES> 1,845 2,144
<INVENTORY> 39,388 28,181
<CURRENT-ASSETS> 128,329 93,989
<PP&E> 63,951 54,492
<DEPRECIATION> 29,335 26,098
<TOTAL-ASSETS> 209,421 147,120
<CURRENT-LIABILITIES> 53,764 37,152
<BONDS> 48,268 27,786
0 0
0 0
<COMMON> 51,390 44,003
<OTHER-SE> 51,093 32,133
<TOTAL-LIABILITY-AND-EQUITY> 209,421 147,120
<SALES> 188,235 149,368
<TOTAL-REVENUES> 188,235 149,368
<CGS> 121,438 95,900
<TOTAL-COSTS> 121,438 95,900
<OTHER-EXPENSES> 42,834 34,159
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,055 2,036
<INCOME-PRETAX> 22,981 18,040
<INCOME-TAX> 6,205 4,691
<INCOME-CONTINUING> 16,776 13,349
<DISCONTINUED> (2,062) 75
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,714 13,424
<EPS-PRIMARY> 0.59 0.55
<EPS-DILUTED> 0.58 0.54
</TABLE>
