SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the Fiscal year ended January 3, 1997 Commission File No. 0-4466
COMPUTER PRODUCTS, INC.
-----------------------
(Exact name of Registrant as specified in its charter)
Florida 59-1205269
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(State or other jurisdiction of (I.R.S. Employer
incorporation) Identification No.)
7900 Glades Road, Suite 500, Boca Raton, FL 33434-4105
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(Address of principal executive offices) (Zip Code)
(561) 451-1000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
-----------------------------------------------------------
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Common Stock Purchase Rights
----------------------------
(Title of each class)
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 periods 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 14, 1997 was approximately $324 million.
As of March 14, 1997, 23,885,096 shares of the Registrant's $.01 par value
common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's annual shareholders' report for the year ended January
3, 1997 (the "Annual Report") are incorporated by reference into Parts I and II.
Portions of the Company's proxy statement for the annual meeting of shareholders
to be held May 8, 1997 are incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1. Business
GENERAL
Computer Products, Inc.(the "Company") was incorporated under the laws of the
State of Florida in 1968. Unless the context indicates otherwise, as used herein
the term "Company" means Computer Products, Inc. and its consolidated
subsidiaries.
The Company designs, develops, manufactures and markets the following lines of
electronic products and systems:
(1) power conversion products for electronic equipment used in commercial
and industrial applications requiring a precise and constant voltage
level for proper operation;
(2) industrial automation hardware and software systems and components
which are used in computer-directed process control and data
acquisition applications; and
(3) high performance single-board computers, systems and subsystems for
real-time applications.
PRODUCTS
The following table sets forth sales of the Company's product lines (after
elimination of intercompany transactions) during the fiscal years indicated
($000s): <TABLE>
1996 1995 1994
------------- -------------- --------------
<S> <C> <C> <C>
Power Conversion $188,610 $155,426 $117,995
Computer Systems 18,953 19,026 18,198
Industrial Automation 14,922 16,926 18,607
------------- -------------- --------------
Total $222,485 $191,378 $154,800
============= ============== ==============
</TABLE>
For further information on sales, particularly with respect to foreign and
intercompany sales, refer to Note 16 of the Consolidated Financial Statements in
the Annual Report, which is incorporated herein by reference.
<PAGE>
POWER CONVERSION
The Company is one of the leading suppliers of power supplies, power converters
and distributed power systems to the communications industry. According to
independent industry sources, the Company ranks among the top ten independent
power supply manufacturers in sales volume worldwide. Product offerings include
over 200 standard products, in addition to custom designed products, distributed
through multiple sales channels.
Power Conversion's products include AC-to-DC power supplies and modular DC-to-DC
converters that focus on the worldwide communications market including
networking, data communications, telecommunications, and wireless
infrastructure. Computer, industrial and instrumentation markets are also
served. AC-to-DC power supplies are used to convert alternating electric current
(the form in which virtually all electric current is delivered by utility
companies) to a precisely controlled direct current. Direct current is required
to operate virtually all solid state electronic equipment. DC-to-DC converters
are used to convert a particular direct current voltage into another (higher or
lower) direct current voltage that is required by the electronic device to which
it is connected.
It is the Company's objective to provide the fastest time-to-market for
engineered power solutions and to produce a broad range of high quality standard
products to meet customers' needs. Ranging from 3 to 4000 watts, the Company
currently offers standard power products in over 1,000 configurations and
accommodates a wide variety of customer applications. The products can be
configured as open frames, enclosed or encapsuled. The Company's products are
tested by regulatory agencies for safety and are also tested for compliance with
a variety of international emissions standards.
The Company's Power Conversion products are manufactured in Huntington Beach,
California; Youghal, Ireland; Hong Kong; and in Zhongshan, China. Power
Conversion operations are also carried on in Boston, Massachusetts and Fremont,
California.
COMPUTER SYSTEMS
The Computer Systems division designs and manufactures high performance
board-level computers and communication controllers, integrating them with
real-time operating system and protocol software to form complete subsystems for
communications and other real-time applications.
The products are designed around and incorporate industry standards which permit
easy portability to a variety of applications. The technology relies on popular
and powerful microprocessors from sources such as Motorola, Intel and MIPS. The
primary product line combines both the worldwide industry standard VMEbus, which
defines physical board size and signal characteristics for the interconnection
of microprocessors. Application requirements for these products usually include
environments requiring rapid computer response time with high quality processing
capabilities, such as telecommunications or data communications.
Computer Systems' customers are primarily original equipment manufacturers
(OEMs), who use the products for high speed telecommunications applications.
They are also used in other areas such as medical instrumentation, airplane and
weapons training simulators, process control, industrial automation and traffic
control systems. Management believes that the market for VMEbus and real-time
products will expand as communications companies move from proprietary to open
systems in order to speed time to market and enhance upgrade capability.
Computer Systems' products are manufactured in Madison, Wisconsin.
INDUSTRIAL AUTOMATION
Industrial Automation's product line consists of electronic real-time
input/output subsystems, intelligent controllers and software that are utilized
in data acquisition, monitoring and control of processes in industrial
automation. The Company's products are characterized by their ability to measure
and process data at high speeds on a continuous "real-time" basis. These
products are used in a broad range of industries including utilities, metals,
glass, automotive, paper and food processing as well as in training simulators
and research and development laboratories.
Industrial Automation's products provide the interfaces linking sensors and
actuators to a computer or controller. In general, sensors convert physical
phenomena, such as pressure, temperature, flow and weight, into electrical
signals, while actuators provide the force required to adjust devices
controlling such physical phenomena and other aspects of industrial processes.
Such electrical signals are not standardized and occur in a broad range of
voltages and currents.
Industrial Automation's products, generally available as standard products, are
used in a wide range of plant and laboratory environments. These products are
offered with a large number of options that are designed to enable them to
perform numerous special functions and, when required, meet or exceed the design
specifications for safety-related equipment used in nuclear power plants. In
addition, the Company maintains a special engineering group to assist customers
who require special hardware solutions.
Industrial Automation's products are manufactured in Pompano Beach, Florida.
MARKETING AND DISTRIBUTION
The Company's distribution channels consist of distributors, independent
manufacturers' representatives, and a direct sales team. The business of the
Company is not seasonal in nature.
Power Conversion products are sold directly to OEMs, private-label customers and
distributors. In addition, the Company's sales and engineering personnel
supervise and provide technical assistance to independent domestic sales
representatives and to domestic and foreign distributors.
Industrial Automation and Computer Systems products are marketed domestically
through independent sales representative organizations. Substantially all
foreign sales are made through independent foreign distributors and foreign
trading companies. Both Industrial Automation and Computer Systems manage some
sales on a direct basis.
Sales to one customer amounted to $22.4 million during fiscal 1996. The Company
does not believe that the loss of any single customer would have a materially
adverse effect on its business.
The Company has derived a significant portion of its sales in recent years from
its international operations. Thus, the Company's future operations and
financial results could be significantly affected by international factors, such
as changes in foreign currency exchange rates or political instability. The
Company's operating strategy and pricing take into account changes in exchange
rates over time. However, the Company's future results of operations may be
significantly affected in the short term by fluctuations in foreign currency
exchange rates. See Note 16 of the Notes to Consolidated Financial Statements,
incorporated herein by reference, for additional information.
MATERIALS AND COMPONENTS
The manufacture of the Company's products requires a wide variety of materials
and components. The Company has multiple external sources for most of the
materials and components used in its production processes, and it manufactures
certain of these components. Although the Company has from time to time
experienced shortages of certain supplies, such shortages have not resulted in
any significant disruptions in production. The Company believes that there are
adequate alternative sources of supply to meet its requirements.
PATENTS
The Company believes that its future success is primarily dependent upon the
technical competence and creative skills of its personnel, rather than upon any
patent or other proprietary rights. However, the Company has protected certain
of its products with patents where appropriate and has defended, and will
continue to defend, its rights under these patents.
BACKLOG
Order backlog from continuing operations at January 3, 1997 was $46.5 million as
compared to $52.1 million at December 29, 1995. Historically, the effects of
changes and cancellations have not been significant to the Company's operations.
The Company expects to ship substantially all of its January 3, 1997 backlog in
the first six months of fiscal 1997.
COMPETITION
The Company faces intense competition from a significant number of companies.
Many of these competitors have resources, financial or otherwise, substantially
greater than those of the Company. Competitors include both independent
manufacturers of competing products, and manufacturers of overall electronic
systems and devices, who manufacture competing products on an "in-house" or
"captive" basis for use in their own systems or devices. Although a significant
portion of its present overall market is served on a "captive" or "in-house"
basis, the Company believes there is a trend toward the use of independent
manufacturers as a source of these products, as these items become more
technologically advanced and complex.
<PAGE>
RESEARCH AND DEVELOPMENT
The Company maintains active research and development departments which are
engaged in the modification and improvement of existing products and the
development of new products. Expenditures for research and development during
the 1996, 1995, and 1994 fiscal years were approximately $17.7 million, $16.1
million, and $10.9 million, respectively. As a percentage of total sales,
research and development accounted for 8.0%, 8.4%, and 7.0% in 1996, 1995 and
1994, respectively. Research and development spending has increased in each of
the past three years as the Company invested in new product platforms to service
the communications industry. 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%.
EMPLOYEES
The Company presently employs approximately 1,557 full-time people. In addition,
the Company presently has approximately 1,400 temporary employees and
contractors in its China facility. The Company's ability to conduct its present
and proposed activities would be impaired if the Company lost the services of a
significant number of its engineers and technicians and could not readily
replace them with comparable personnel. Although there is demand for qualified
technical personnel, the Company has not, to date, experienced difficulty in
attracting and retaining sufficient engineering and technical personnel to meet
its needs.
None of the Company's domestic employees is covered by collective bargaining
agreements. The Company considers its relations with its employees to be
satisfactory.
ENVIRONMENTAL MATTERS
Compliance with federal, state and local laws and regulations regulating the
discharge of materials into the environment has not had, and, under present
conditions the Company does not anticipate that such laws and regulations will
have, a material effect on the results of operations, capital expenditures or
competitive position of the Company.
ITEM 2. Properties
The Company currently occupies approximately 458,000 square feet of office and
manufacturing space worldwide. In addition to the Company's principal executive
offices in Boca Raton, Florida, the Company maintains facilities in Boston,
Massachusetts; Fremont, California; Huntington Beach, California; Youghal,
Ireland; Hong Kong; Pompano Beach, Florida; and Madison, Wisconsin.
Approximately 73% of the space utilized by the Company is owned while the
remainder is leased. Certain of the facilities owned by the Company are subject
to liens, which are described in Note 7 to the Consolidated Financial
Statements, incorporated herein by reference. In addition to the above
locations, the Company has leased sales offices located in or near London,
England; Paris, France; and Munich, Germany. The Company considers the
facilities described in this Item to be generally well-maintained, adequate for
its current needs and capable of supporting a reasonably higher level of demand
for its products.
ITEM 3. Legal Proceedings
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 4A. Executive Officers
Name Age Position(s) with the Company
- ------------------------------------------------------------------------------
Joseph M. O'Donnell 50 Chairman of the Board, President
and Chief Executive Officer, Director
Richard J. Thompson 47 Vice President - Finance, Chief
Financial Officer,Secretary, Treasurer
Robert J. Aebli 61 President - Computer Systems Division
Louis R. DeBartelo 56 President - Power Conversion North America
Gary J. Duffy 44 Managing Director - Power Conversion Europe
W.K. Lo 44 Managing Director - Power Conversion Asia-Pacific
Salvatore R. Provanzano 54 President - Industrial Automation Division
Joseph M. O'Donnell was elected as Chairman of the Board in February 1997. Mr.
O'Donnell has served as President and Chief Executive Officer of the Company
since July 1994. Mr. O'Donnell served as Managing Director of O'Donnell
Associates, a consulting firm, from March 1994 to June 1994 and from October
1992 to September 1993; as Chief Executive Officer of Savin Corporation, an
office products distributor, from October 1993 to February 1994; and as
President and Chief Executive Officer of Go/Dan Industries, a manufacturer of
automotive parts, from June 1990 to September 1992. He is a Director of Boca
Research, a manufacturer of data communications, multimedia and networking
products, and a Director of V-Band Corporation, a manufacturer of computer
systems.
Richard J. Thompson has served as Vice President - Finance, Chief Financial
Officer, Secretary and Treasurer of the Company since June 1990. Prior to
joining the Company, Mr. Thompson served as Group Controller - Technical
Services and Controller - Pan Am/Asia Pacific at Control Data Corporation, a
multi-national computer company.
Robert J. Aebli was appointed in November 1993 to the position of President of
Computer Systems. From 1991 to 1993 Mr. Aebli served as Vice President
Operations of Contraves, Inc., a manufacturer of test and simulation systems.
Louis R. DeBartelo was appointed President of the Company's Power Conversion
North America Division in 1993. From 1992 to 1994 he served as President - Power
Conversion National Accounts Division and from 1990 to 1992 as President - Power
Conversion America.
Gary J. Duffy has served as Managing Director of the Company's European Power
Conversion Division since 1987, having held manufacturing and general management
positions since joining the Company in 1982.
W.K. Lo has served as Managing Director of the Company's Power Conversion
Asia-Pacific division since 1988. Prior to joining the Company, Mr. Lo held
management positions from 1984 to 1988 with M.C. Packaging (Hong Kong) Limited,
a highly automated manufacturer of packaging containers.
Salvatore R. Provanzano was appointed in November 1993 to the position of
President -Industrial Automation division. From 1992 to 1993, Mr. Provanzano
served as Vice President - Product Research & Development for QMS, Inc., a
manufacturer of laser and color thermal transfer printers. From 1987 to 1992 he
served as General Manager Customer Services of Foxboro Company, a manufacturer
of instrumentation and control systems.
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The common stock of Computer Products, Inc. is traded on the NASDAQ national
stock market under the symbol CPRD. High and low sales prices of such stock and
the information pertaining to the number of record holders on page 35 of the
Annual Report for the year ended January 3, 1997 is incorporated herein by
reference.
The Registrant has not paid cash dividends in the past and no change in such
policy is anticipated. Future dividends, if any, will be determined by the Board
of Directors in light of the circumstances then existing, including the
Company's earnings and financial requirements and general business conditions.
The Company's $25 million seven-year term loan and $20 million revolving credit
facility contain certain restrictive covenants which, among other things,
require the Company to maintain certain financial ratios and limit the purchase,
redemption or retirement of capital stock and other assets. No funds have been
drawn on the revolving credit facility.
ITEM 6. Selected Financial Data
The Consolidated Five-Year Financial History on page 14 of the Annual Report for
the fiscal year ended January 3, 1997 is incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Annual Report for the fiscal year ended January 3,
1997 is incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements including Note 17, Selected Consolidated
Quarterly Data, included in the Annual Report for the fiscal year ended January
3, 1997 are incorporated herein by reference.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEMS 10, 11, 12 AND 13.
The information called for by that portion of Item 10 which relates to the
Directors of the Company, by Item 11 (Executive Compensation), Item 12 (Security
Ownership of Certain Beneficial Owners and Management) and Item 13 (Certain
Relationships and Related Transactions) is incorporated herein by reference from
the Company's definitive proxy statement for the Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission not later than 120 days
after the close of the fiscal year ended January 3, 1997. That portion of Item
10 which relates to Executive Officers of the Company appears as Item 4A of Part
I of this Report.
PART IV
ITEM 14. Exhibits, Financial Statement Schedule and Reports on Form 8K.
(a) (1 and 2) List of Financial Statements and Financial Statement Schedule
-------------------------------------------------------------
The following consolidated financial statements of Computer Products, Inc. and
subsidiaries included in the Annual Report for the fiscal year ended January 3,
1997 are incorporated herein by reference in Item 8:
Consolidated Statements of Operations -- Years Ended on the Friday
nearest December 31, 1996, 1995 and 1994
Consolidated Statements of Financial Condition -- as of the Friday
nearest December 31, 1996 and 1995
Consolidated Statements of Cash Flows -- Years Ended on the Friday
nearest December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity -- Years Ended on the
Friday nearest December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
The following consolidated financial statement schedule of Computer Products,
Inc. is included in response to Item 14(a) (2):
Schedule II - Valuation and Qualifying Accounts
Schedules other than that listed above have been omitted because they are either
not required or not applicable, or because the required information has been
included in the consolidated financial statements or notes thereto.
(a) (3) Exhibits
3.1 Articles of Incorporation of the Company, as amended, on May 15, 1989
incorporated by reference to Exhibit 3.1 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 28, 1989.
3.2 By-laws of the Company, as amended, effective October 16, 1990
incorporated by reference to Exhibit 3.2 of Registrant's Current Report
on Form 8-K, filed with the Commission on November 30, 1990.
4.1 Rights Agreement, dated as of November 9, 1988, by and between Computer
Products, Inc. and The Bank of New York, as amended - incorporated by
reference to Exhibit 4.1 of Registrant's Current Report on Form 8-K
filed with the Commission on June 15, 1990.
10.1 Grant Agreement, dated June 19, 1981, as supplemented, by and among the
Industrial Development Authority of Ireland, Power Products Ltd. and
Computer Products, Inc. - incorporated by reference to Exhibit 10.2 of
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1982.
10.2 Indenture between Industrial Development Authority of Ireland and Power
Products Ltd. - incorporated by reference to Exhibit 10.3 of
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1982.
10.3 Lease for facilities of Boschert, Incorporated located in Milpitas,
California - incorporated by reference to Exhibit 10.14 of Registrant's
Annual Report on Form 10-K for the fiscal year ended January 3, 1986.
10.4 Letter Amendment to Lease for facilities of Boschert, Incorporated,
dated January 9, 1991 located in Milpitas, California - incorporated by
reference to Exhibit 10.8 of Registrant's Annual Report on Form 10-K
for the fiscal year ended December 28, 1990.
10.5 Sublease for facilities of Boschert, Incorporated located in Milpitas,
California - incorporated by reference to Exhibit 10.8 of Registrant's
Annual Report on Form 10-K for the fiscal year ended January 1, 1988.
10.6 Sublessee Estoppel Certificate to Sublease for facilities of Boschert,
Incorporated, dated February 4, 1991, located in Milpitas, California -
incorporated by reference to Exhibit 10.10 of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 28, 1990.
10.7 Lease for facilities of Boschert, Incorporated, located in Fremont,
California - incorporated by reference to Exhibit 10.9 of Registrant's
Annual Report on Form 10-K for the fiscal year ended January 1, 1988.
10.8 1981 Stock Option Plan, as amended, effective as of October 16, 1990 -
incorporated by reference to Exhibit 10.10 of Registrant's Current
Report on Form 8-K, filed with the Commission on November 30, 1990.
10.9 Computer Products, Inc. 1986 Outside Directors' Stock Option Plan,
amended as of February 22, 1988 - incorporated by reference to Exhibit
10.12 of Registrant's Annual Report on Form 10-K for the fiscal year
ended January 1, 1988.
10.10 Asset Purchase Agreement, dated as of January 1, 1992, by and among
Computer Products, Inc., HC Holding Corp. and Heurikon Corporation
including exhibits and schedules thereto - incorporated by reference to
Exhibit 2 of Registrant's Current Report on Form 8-K, filed with the
Commission on January 20, 1992.
10.11 Contract to Purchase between Computer Products, Inc. and Sauk
Enterprises dated December 23, 1991 for the premises located at 8310
Excelsior Drive, Madison, Wisconsin - incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 3, 1992.
10.12 Lease for facilities of the executive offices located in Boca Raton,
Florida - incorporated by reference to Exhibit 10.23 of Registrant's
Annual Report on Form 10-K for the fiscal year ended December 30, 1988.
10.13 Outside Directors' Retirement Plan, effective October 17, 1989 -
incorporated by reference to Exhibit 10.22 of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 29, 1989.
10.14 1990 Performance Equity Plan - incorporated by reference to Exhibit
10.26 of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 28, 1990.
10.15 1990 Outside Directors' Stock Option Plan - incorporated by reference
to Exhibit 10.27 of Registrant's Annual Report on Form 10-K for the
fiscal year ended December 28, 1990.
10.16 Manufacturing and Development Agreement dated March 16, 1992, between
Computer Products, Inc. and Analogic Corporation - incorporated by
reference to Exhibit 10.30 of Registrant's Annual Report on Form 10-K
for the fiscal year ended January 3, 1992.
10.17 License Agreement dated March 16, 1992, between Computer Products, Inc.
and Analogic Corporation - incorporated by reference to Exhibit 10.31
of Registrant's Annual Report on Form 10-K for the fiscal year ended
January 3, 1992.
10.18 Asset Purchase Agreement between Computer Products, Inc., Tecnetics
Incorporated, Miller Acquisition Corporation and certain former
managers of Tecnetics Incorporated - incorporated by reference to
Exhibit 10.29 of Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended April 3, 1992.
10.19 Manufacturing License and Technical Assistance Agreement between
Heurikon Corporation and Lockheed Sanders, Inc. dated January 31, 1992
- incorporated by reference to Exhibit 10.34 of Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended July 3, 1992.
10.20 Star MVP Domestic Terms and Conditions of Sale Between Heurikon
Corporation and Lockhead Sanders, Inc. dated March 18, 1992 -
incorporated by reference to Exhibit 10.35 of Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended July 3, 1992.
10.21 DSP32C VME Board License Agreement between Heurikon Corporation and
American Telephone and Telegraph Company dated October 28, 1991 -
incorporated by reference to Exhibit 10.36 of Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended July 3, 1992.
10.22 Software License agreement between Heurikon Corporation and American
Telephone and Telegraph Company dated October 28, 1991 - incorporated
by reference to Exhibit 10.37 of Registrant's Quarterly Report on Form
10-Q for the quarterly period ended July 3, 1992.
10.23 Employment Agreement, dated June 29, 1994, by and between Computer
Products, Inc. and Joseph M. O'Donnell - incorporated by reference to
Exhibit 10.41 of Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended July 1, 1994.
10.24 (a) Credit Agreement, dated as of June 28, 1994, by and between
Heurikon Corporation and Firstar Bank Madison, N.A.; (b) Guaranty of
Payment, dated as of June 28, 1994, by and between Computer Products,
Inc. and Firstar Bank Madison, N.A. (c) Term Note, as of June 28, 1994,
by and between Heurikon Corporation and Firstar Bank Madison, N.A.; (d)
Mortgage, Security Agreement, and Fixture Financing Statement, dated as
of June 28, 1994, by and between Heurikon Corporation and Firstar Bank
Madison, N.A. - incorporated by reference to Exhibit 10.42 of
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended July 1, 1994.
10.25 Grant Agreement, dated October 26, 1994, by and among the Industrial
Development Authority of Ireland, Power Products Ltd. and Computer
Products, Inc. - incorporated by reference to Exhibit 10.43 of
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 30, 1994.
10.26 Loan agreement between Computer Products, Inc. and First Union National
Bank of Florida dated as of April 4, 1995 - incorporated by reference
to Exhibit 10.44 of Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1995.
10.27 1996 Employee Stock Purchase Plan - incorporated by reference to
Exhibit 10.45 of Registrant's Annual Report on Form 10-K for the fiscal
year ended December 29, 1995.
10.28 1990 Performance Equity Plan as amended - incorporated by reference to
Exhibit 10.46 of Registrant's Annual Report on Form 10-K for the fiscal
year ended December 29, 1995.
10.29 1990 Outside Directors Stock Option Plan, restated as of January 25,
1996 - incorporated by reference to Exhibit 10.47 of Registrant's
Annual Report on Form 10-K for the fiscal year ended December 29, 1995.
10.30 1996 Executive Incentive Plan - incorporated by reference to Exhibit
10.48 of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 29, 1995.
10.31 Executive Stock Ownership plan - incorporated by reference to Exhibit
10.49 of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 29, 1995.
10.32 Agreement and Plan of Merger, dated August 23, 1996, by and among
Computer Products, Inc., JPS Acquisition Corp, Jeta Power Systems Inc.
and Jagdish C. Chopra - incorporated by reference to Exhibit 10.50 of
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended September 27, 1996.
11 Statement regarding Computation of Earnings Per Share.
13 Annual Report of Computer Products, Inc. for the fiscal year ended
January 3, 1997.
21 List of subsidiaries of Registrant.
23 Consent of Independent Certified Public Accountants.
27 Financial data schedule.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the
thirteen-week period ended January 3, 1997.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Shareholders of
Computer Products, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Computer Products, Inc.'s annual
report to shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 17, 1997. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
listed in Item 14(a)(2) is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
January 17, 1997.
<PAGE>
Computer Products, Inc. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Years Ended on the Friday Nearest December 31 ($000s)
<TABLE>
<CAPTION>
- ---------------------------------------------------------- ----------- ------------------------ ----------------------- -----------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------- ----------- ------------------------ ----------------------- -----------
------------------------
Additions
---------- ------------------------
Balance at ----------------------- ----------
Beginning Charged to Charged to Deductions Balance at
of Costs & Other ----------- ----------- End of
Description Period Expenses Accounts Description Amount Period
- ---------------------------------------------------------- ----------- ----------- ------------ ----------- ----------- -----------
Fiscal Year 1996:
Reserve deducted from asset to which it applies:
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 1,490 $ - (1) $ 52 $ 1,438
Inventory 6,885 1,542 (3) 1,431 6,996
Deferred tax asset valuation allowance 9,890 982 (2) 1,946 8,926
Other 292 (1) 292 -
Fiscal Year 1995:
Reserve deducted from asset to which it applies:
Allowance for doubtful accounts $ 1,354 $ 199 (1) $ 63 $ 1,490
Inventory 4,523 3,877 (3) 1,515 6,885
Deferred tax asset valuation allowance 10,453 74 (2) 637 9,890
Other 292 292
Fiscal Year 1994:
Reserve deducted from asset to which it applies:
Allowance for doubtful accounts $ 1,174 $ 251 (3) $ 71 $ 1,354
Inventory 5,462 3,043 (3) 3,982 4,523
Deferred tax asset valuation allowance 11,626 395 (2) 1,568 10,453
Other 292 292
</TABLE>
(1) This amount relates to recoveries.
(2) The reduction relates to utilization of tax loss carryforwards.
(3) The reduction relates to charge-offs.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Dated: March 18, 1997 By: Joseph M. O'Donnell
-------------------
Joseph M. O'Donnell
Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------------------------------------------------------------
Joseph M. O'Donnell Chairman of the Board, President 03/18/97
- ------------------- and Chief Executive Officer, Director
Joseph M. O'Donnell
Richard J. Thompson Vice President-finance, 03/18/97
- ------------------- Chief Financial Officer,
Richard J. Thompson Secretary and Treasurer
Edward S. Croft, III Director 03/18/97
- --------------------
Edward S. Croft, III
Stephen A. Ollendorff Director 03/18/97
- ---------------------
Stephen A. Ollendorff
Bert Sager Director 03/18/97
- ----------
Bert Sager
Phillip A. O'reilly Director 03/18/97
- -------------------
Phillip A. O'reilly
Lewis Solomon Director 03/18/97
- -------------
Lewis Solomon
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
11 Statement regarding Earnings Per Share
13 Annual Report of Computer Products, Inc. for
the fiscal year ended January 3, 1997
21 List of subsidiaries of Registrant
23 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
<TABLE>
EXHIBIT NO. 11
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
EARNINGS PER SHARE - PRIMARY
FOR THE YEARS ENDED THE FRIDAY NEAREST
DECEMBER 31, 1996, 1995 AND 1994
(Amounts in Thousands)
<CAPTION>
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Weighted average shares outstanding 23,416 21,881 20,229
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 1,101 1,197 700
------------ ------------ -----------
Weighted average number of common
and equivalent shares outstanding 24,517 23,078 20,929
============ =========== ===========
</TABLE>
<PAGE>
<TABLE>
EXHIBIT NO. 11 (CONTINUED)
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
EARNINGS PER SHARE- FULLY DILUTED
FOR THE YEARS ENDED THE FRIDAY NEAREST
DECEMBER 31, 1996, 1995 AND 1994
(Amounts in Thousands Except Per Share Data)
<CAPTION>
1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Shares outstanding 23,850 23,053 20,303
Net effect of dilutive stock options - based on the treasury stock method using
the greater of month end
market price or average market price 1,176 1,499 1,063
Assumed conversion of convertible subordinated debentures
- - 7,218
------------- ----------- -----------
Totals 25,026 24,552 28,584
============= =========== ===========
* * * * *
Income after taxes $19,578 $14,117 $6,059
Add convertible debenture interest and amortization,
net of applicable federal income taxes - 788 2,260
------------- ----------- -----------
$19,578 $14,905 $8,319
============= =========== ===========
Per share amounts $ 0.78 $ 0.61 $ 0.29
============= =========== ===========
Net income $19,578 $13,720 $6,059
Add convertible debenture interest and amortization,
net of applicable federal income taxes - 788 2,260
------------- ----------- -----------
$19,578 $14,508 $8,319
============= =========== ===========
Per share amounts $ 0.78 $ 0.59 $ 0.29
============= =========== ===========
</TABLE>
FIVE-YEAR FINANCIAL HISTORY
For the Years Ended on the Friday Nearest December 31
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ------------ ----------- -----------
RESULTS OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Sales $222,485 $191,378 $154,800 $123,790 $114,799
Income from continuing operations 19,578 14,117 6,059 597 2,002
Per share 0.80 0.61 0.29 0.03 0.10
Net income 19,578 13,720 6,059 2,867 2,676
Per share 0.80 0.59 0.29 0.14 0.13
FINANCIAL POSITION
Working capital $ 61,085 $ 51,992 $ 40,346 $ 31,122 $ 29,524
Property, plant & equipment, net 30,204 27,715 26,238 24,017 23,949
Total assets 153,841 136,491 114,396 101,436 102,662
Total debt 27,563 32,568 42,571 39,713 42,900
Shareholders' equity 84,019 61,522 39,958 32,802 30,806
Total capital 111,582 94,090 82,529 72,515 73,706
FINANCIAL STATISTICS
Selling, general and administrative expenses $ 35,728 $ 34,197 $ 33,687 $ 32,030 $ 35,093
- as a % of sales 16.1% 17.9% 21.8% 25.9% 30.6%
Research and development expenses 17,714 16,125 10,905 9,412 8,959
- as a % of sales 8.0% 8.4% 7.0% 7.6% 7.8%
Operating income 28,937 21,757 12,478 3,900 6,908
- as a % of sales 13.0% 11.4% 8.1% 3.2% 6.0%
Total debt as a % of total capital 25% 35% 52% 55% 58%
Debt to equity ratio 33% 53% 107% 121% 139%
Interest coverage ratio 10.7 7.03 3.44 1.27 1.81
OTHER DATA
Capital expenditures $ 7,016 $ 7,381 $ 5,608 $ 3,411 $ 8,055
Provision for depreciation and amortization $ 6,649 $ 5,252 $ 5,057 $ 4,817 $ 4,375
Common shares outstanding (000's) 23,850 23,053 20,303 20,141 19,973
Common shareholders 10,676 6,700 5,900 7,300 7,500
Employees 1,557 1,629 1,600 1,547 1,470
Temporary employees and contractors 1,375 1,273 779 532 459
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
BUSINESS ENVIRONMENT AND RISK FACTORS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes as well as the section under the heading
"Risk Factors that May Affect Future Results." With the exception of historical
information, the matters discussed below may include "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 that involve risks and uncertainties. The Company wishes to caution
readers that a number of important factors, including those identified in the
section entitled "Risk Factors that May Affect Future Results" as well as
factors discussed in the Company's other reports filed with the Securities and
Exchange Commission, could affect the Company's actual results and cause them to
differ materially from those in the forward-looking statements.
RESULTS OF OPERATIONS
Operating performance in 1996 showed consistent growth as record net income of
$19.6 million, or $0.80 per share, exceeded the $13.7 million, or $0.59 per
share, achieved in 1995 as a result of increased sales and operating expense
efficiencies. Operating income increased to $28.9 million, or 13% of sales,
compared to $21.8 million, or 11% a year ago, with total operating expenses as a
percentage of sales decreasing from 26% to 24%. Selling, general and
administrative expenses decreased from 18% a year ago to 16%, while the
Company's research and development spending increased 10% in dollar terms to
support new products for the communications industry.
The following table summarizes the Company's sales performance by product
category ($000s):
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Power Conversion $188,610 $155,426 $117,995
Computer Systems 18,953 19,026 18,198
Industrial Automation 14,922 16,926 18,607
------------- ------------- -------------
Total $222,485 $191,378 $154,800
============= ============= =============
</TABLE>
During 1996, the Company acquired all of the outstanding stock of Jeta Power
Systems, Inc. ("Jeta"), a California-based manufacturer of medium-to-high power
systems in the 400-watt to 4-kilowatt range for applications in
telecommunications, networking, computing and instrumentation markets. In
addition to using current distribution channels to offer Jeta's products to the
existing customer base, the Company believes the acquisition provides it with a
new opportunity to participate in the high power communications market. In
addition, the acquisition expands the Company's North American manufacturing
capacity and adds high power technology to its engineering capabilities.
During 1996, a subsidiary of the Company entered into a long term private label
agreement with Alcatel Telecom, a division of France's Alcatel Alsthom. In
addition, the Company entered into a technology transfer and patent license
agreement with Yamabishi Electric Company of Japan.
Under the terms of the Alcatel agreement, the Company will provide power
products which allow Alcatel Converters to use the Company's modules in the
design of communication systems based on both Distributed Power Architecture and
Modular Centralized Systems. Based on discussions with Alcatel, the Company
anticipates that its sales volume associated with the agreement will range
between $10 million and $20 million beginning in 1997. The agreement further
provides for the granting of a manufacturing license by the Company to Alcatel
Converters and the possible exchange of technology between the two companies.
Under the terms of the Yamabishi agreement, Yamabishi will license the Company's
patented Zero Voltage Switching and Power Factor Correction technology for use
in designing and manufacturing its own range of AC to DC power supplies, AC
stabilizers and AC to AC converters. The Company believes that this agreement
will provide an important new entry into the Japanese market.
1996 COMPARED TO 1995
Sales increased from $191.4 million in 1995 to $222.5 million in 1996. The 16%
growth resulted primarily from a $33.2 million (21%) increase in Power
Conversion sales, including sales attributable to Jeta, partially offset by a
decrease of $2.0 million (12%) in Industrial Automation sales. Computer Systems
sales remained level with 1995 as this division continues to transition its
focus to the communications industry. At January 3, 1997, order backlog was
$46.5 million compared to $52.1 million at the end of fiscal 1995 due to
customers' realignment of inventory levels and reduced lead times as the
component shortages experienced in 1995 in the electronics industry eased during
1996.
Power Conversion sales increased over 1995 as a result of new OEM customer
programs in networking and telecommunications product applications. Sales
attributable to Jeta were approximately $4.0 million. The Company's European
Power Conversion business recorded a 23% increase in sales from $46.4 million in
1995 to $57.1 million in 1996. Likewise, sales to customers in Asia and the
Pacific Rim increased 275% from $5.7 million in 1995 to $21.3 million in 1996
mainly due to the award of a significant OEM program. The increase in
international sales was the result of the wide range of the Company's product
offerings, its continued international expansion and the increase of worldwide
service and support programs. In 1997, the Company expects continued growth in
Power Conversion and may consider acquisition and partnership opportunities to
increase market share and expand product range.
Although Computer Systems sales remained level with 1995, inroads were made in
the communications market as this division continues to transition from the
computer industry to the communications sector. Similar to the Power Conversion
division, Computer System has concentrated its marketing focus on the
high-growth communications industry, where it provides networking,
telecommunications and video-on-demand solutions for a variety of customers,
including OEMs. With its initiative to develop new products aimed at customers
in the communications industry, this division is expected to gradually improve
its performance.
Industrial Automation sales decreased 12% from 1995 due to lower sales to
nuclear utility customers and slower than expected penetration of the industrial
market. With a shift in focus from the utility to the industrial market, this
division has been concentrating on developing new products, outsourcing
sub-assembly production to reduce manufacturing costs, and hiring and training a
new sales force targeted at the industrial sector. All these factors are
expected to contribute to improved performance in 1997.
Gross profit in 1996 increased by $10.3 million compared to 1995 on higher sales
volume while gross margin decreased to 37% of sales in 1996 from 37.7% in 1995.
Gross margin was affected primarily by the continued shift in sales mix to the
Company's high-volume, lower-margin OEM customers. Margins were also adversely
impacted by start-up costs for a significant number of new product introductions
and weakened demand from the higher-margin distribution channel, which
experienced slow inventory turnover during the year. Although the Company
continues to focus on reducing manufacturing costs and improving overall
processes, the Company does not anticipate that gross margins will increase
significantly from 1996 levels due to continuing competitive pricing pressures
and changes in product mix, especially as more OEM programs are awarded.
Operating expenses declined to approximately 24% of sales in 1996 from the 26%
reported a year ago. Operating income rose to 13% of sales from 11% in 1995,
despite the increase in research and development expenses.
Selling, general and administrative expenses in 1996 declined to 16% of sales
versus 18% a year ago due to higher sales volume and efficiencies generated by
information systems implementation and by continued management focus on cost
reduction. Sales and marketing expenses increased $1.5 million or 7% due to
commission expense resulting from higher sales levels, additional marketing
programs to support the launch of new products, entry into new markets worldwide
and expansion of distribution channels. General and administrative spending
remained level compared to 1995 as the Company continues to focus on cost
reduction activities. As a percentage of sales, such expenses decreased to 5.7%
from 6.6% in 1995. The Company intends to continue to invest significant
resources to expand its presence in Asia Pacific and Europe; accordingly,
selling expenses are expected to increase in absolute dollars in 1997 while
general and administrative expenses should continue to decline as a percentage
of sales.
Research and development (R&D) expenses in 1996 increased $1.6 million or 10%
from the prior year. 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. As a percentage of sales, R&D expenses were 8% in 1996
versus 8.4% in 1995. 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%.
Fiscal 1996 net income was unfavorably impacted by foreign currency exchange
losses of $825,000 compared to $13,000 in fiscal 1995. The exchange loss
resulted from the unexpected strengthening of the Irish punt against other
European currencies and the US dollar. The Company maintains significant assets
and operations in Europe and Asia and, as a result, its financial performance
could be significantly affected by foreign currency gains and losses. As a
result of its procurement of products and sales in foreign currencies, the
Company may be exposed to cost increases relative to local currencies. To
mitigate potential adverse trends, the Company's operating strategy and pricing
take into account changes in exchange rates over time. The Company also utilizes
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 made by its international subsidiaries.
Provision for income taxes decreased to 26% of pretax income in 1996 from 28% in
1995. The effective tax rate for 1996 decreased primarily as a result of a
reduction in the valuation allowance from utilization of deferred tax assets.
For additional information regarding income taxes, refer to pages 26 and 27 of
the Notes to Consolidated Financial Statements.
1995 COMPARED TO 1994
Sales increased by 24% in 1995 and order backlog increased by 41% from $37.0
million at December 30, 1994 to $52.1 million at December 29, 1995. The growth
resulted from a $37.4 million (32%) sales increase in Power Conversion and a
$0.8 million (5%) increase in Computer Systems offset by a decrease of $1.7
million (9%) in Industrial Automation.
Power Conversion sales increased over 1994 primarily due to continued strong
worldwide growth in both direct and indirect sales channels. The Company's
European Power Conversion business recorded a 33% increase in sales over 1994
while North American sales increased 28% over the prior year. These improvements
resulted from the Company's efforts in developing new and existing customer
partnerships in high-growth market sectors within the communications
marketplace, introducing new products and expanding its distribution channels.
Sales to customers in Asia and the Pacific Rim increased 110% to $5.7 million
due to increased demand from customers in China, the Company's largest Asian
marketplace.
Computer Systems sales increased by 5% over 1994 on increased demand for several
newly released products from both new and established OEM customers in product
applications such as video-on-demand, machine vision and voice messaging.
Industrial Automation sales decreased 9% from 1994 due to lower sales to nuclear
utility customers. The business has been adversely affected in recent years by
the cyclical nature of utility customer demand.
The strong growth in the Power Conversion business required expansion of
production capabilities and, to address this requirement, the Company increased
its manufacturing presence in China by contracting additional workforce and
investing in plant and equipment. Likewise, to service the increasing demand
from European customers, the Company completed a $7.0 million capital investment
program to acquire manufacturing plant and equipment in the Republic of Ireland
providing the European business with advanced surface mount technology.
Gross profit in 1995 increased by $15.0 million compared to 1994 on higher sales
volume while gross margin increased to 37.7% of sales in 1995 from 36.9% in
1994. This performance improvement resulted from the Company's ongoing
commitment to reduce manufacturing costs and implement overall process
improvements and the favorable effect of higher volumes on fixed cost per unit.
These factors were sufficient to overcome price increases paid for certain
components that were in short supply industry wide and an increasing proportion
of sales to OEM customers at lower overall margins.
Operating expenses declined to approximately 26% of sales in 1995 from the 29%
reported in 1994. Operating income rose to 11.4% of sales from 8.0% in 1994,
despite the increase in research and development expenses.
Selling, general and administrative expenses in 1995 declined to 18% of sales
versus 22% in 1994, resulting from the significantly higher sales volume and
efficiencies generated by information systems investment and greater management
focus on reducing total enterprise cost-per-product.
Research and development expenses increased $5.2 million (48%) compared to 1994
as the Company invested in new product platforms to service the communications
marketplace. As a result of the Company's increased product development
activities, six new families of products were introduced in 1995.
Net interest cost decreased to $2.1 million from $3.2 million in 1994 as a
result of higher cash balances and interest rates and from lower debt after the
redemption of the Company's debentures.
Provision for income taxes decreased to 28% of pretax income in 1995 from 34% in
1994. The effective tax rate for 1995 decreased primarily as a result of a
reduction in the valuation allowance resulting from utilization of tax loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At January 3, 1997, the Company's cash position remained strong at $26.1 million
despite significant uses of cash for an acquisition and accelerated debt
repayments. These transactions included the acquisition of Jeta for $9.6 million
(net of cash acquired - see Note 5), the repayment of long-term debt of $5.2
million -- including the early repayment of $3.1 million remaining on the
mortgage on the Asia-Pacific facility--and repurchases of the Company's common
stock for $2.0 million. These activities were funded with cash from operations
and proceeds from exercises of stock options.
Cash provided from operations increased to $19.9 million in 1996 versus $17.3
million in 1995 and $12.7 million in 1994. The increase in 1996 is mainly the
result of higher net income partially offset by increases in accounts receivable
and inventory.
Accounts receivable increased 34% from 1995 to 1996 due to sales growth,
including the continued expansion in international operations that typically
have longer collections cycles. Days sales outstanding in receivables were 58
days at January 3, 1997 compared to 51 days at December 29, 1995. The increase
in inventory levels was primarily attributable to production planning to meet
manufacturing lead times and anticipated demand for new product introductions.
The Company has a $20 million revolving line of credit that extends through
April 1, 1998. As of January 3, 1997, the Company had made no borrowings under
the line of credit and was in compliance with the agreement's covenants.
The Company used $16.5 million, $4.8 million and $5.1 million in investing
activities in fiscal 1996, 1995 and 1994, respectively. The use of cash in
fiscal 1996 was due mainly to the acquisition of Jeta for $9.6 million (net of
cash acquired) and to purchases of property, plant and equipment in line with
the continued upgrading of the Company's overseas manufacturing facilities. The
Company expects to fund additional capital expenditures consistent with the
expansion of manufacturing capacity in the European and Asia-Pacific Power
Conversion divisions. The major investing activities for fiscal 1995 and 1994
were attributable to capital additions to support business operations.
The Company used $4.0 million and $6.2 million in financing activities in fiscal
1996 and 1995, respectively. In 1996, cash was used for the repurchase of the
Company's common stock and for the repayment of long-term debt. Cash used in
1995 related to the repurchase of $24.3 million of the Company's Debentures, the
repurchase of 1,138,000 shares of the Company's common stock and long-term debt
principal payments partially offset by the issuance of the $25 million
seven-year term loan, net of debt issuance costs, and the proceeds from
exercises of stock options. Financing activities provided $2.1 million in 1994
from the issuance of a $3.6 million mortgage loan partially reduced by the
repurchase of $520,000 of Debentures and by long-term debt principal payments.
During the first quarter of 1996, the Company repurchased and retired a total of
197,000 shares of its common stock pursuant to a share buy-back plan announced
in May 1995. No additional repurchases have been made since then. To date, the
Company has repurchased and retired a total of 1,335,000 shares of its common
stock of the 2,000,000 originally authorized in the buy-back plan.
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 outstanding and
operating lease commitments through fiscal 1997.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended on the Friday Nearest December 31
(Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Sales $222,485 $191,378 $154,800
Cost of Sales 140,106 119,299 97,730
------------ ------------ -----------
Gross Profit 82,379 72,079 57,070
------------ ------------ -----------
Expenses
Selling, general and administrative 35,728 34,197 33,687
Research and development 17,714 16,125 10,905
------------ ------------ -----------
53,442 50,322 44,592
------------ ------------ -----------
Operating Income 28,937 21,757 12,478
------------ ------------ -----------
Other Income (Expense)
Interest expense (2,734) (3,253) (3,760)
Interest income 1,079 1,116 522
Foreign exchange loss (825) (13) (60)
------------ ------------ -----------
(2,480) (2,150) (3,298)
------------ ------------ -----------
Income before Income Taxes and Extraordinary Item 26,457 19,607 9,180
Provision for Income Taxes 6,879 5,490 3,121
------------ ------------ -----------
Income before Extraordinary Item 19,578 14,117 6,059
Extraordinary Item (397)
------------ ------------ -----------
Net Income $ 19,578 $ 13,720 $ 6,059
============ ============ ===========
Earnings per Common and Common Equivalent Share
Primary-
Income before extraordinary item $ 0.80 $ 0.61 $ 0.29
Extraordinary item (0.02)
------------ ------------ -----------
Net income $ 0.80 $ 0.59 $ 0.29
============ ============ ===========
Assuming Full Dilution-
Income before extraordinary item $ 0.78 $ 0.61 $ 0.29
Extraordinary item (0.02)
------------ ------------ -----------
Net income $ 0.78 $ 0.59 $ 0.29
============ ============ ===========
Common and Common Equivalent Shares Outstanding
Primary 24,517 23,078 20,929
Fully Diluted 25,026 24,552 28,584
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of the Friday Nearest December 31
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
1996 1995
------------ -------------
ASSETS
Current Assets
<S> <C> <C>
Cash and equivalents $ 26,141 $ 26,650
Accounts receivable, net of allowance for doubtful accounts of $1,438 at
January 3, 1997 and $1,490 at December 29, 1995 40,118 29,933
Inventories 32,220 31,236
Prepaid expenses and other 2,061 2,575
Deferred income taxes, net 965 517
------------ -------------
Total current assets 101,505 90,911
------------ -------------
Property, Plant & Equipment, Net 30,204 27,715
------------ -------------
Other Assets
Goodwill, net 20,022 13,532
Deferred income taxes, net 863 2,521
Other assets 1,247 1,812
------------ -------------
Total other assets 22,132 17,865
------------ -------------
$153,841 $136,491
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 4,155 $ 2,719
Accounts payable and accrued liabilities 36,265 36,200
------------ -------------
Total current liabilities 40,420 38,919
------------ -------------
Long-Term Liabilities
Long-term debt 23,408 29,849
Lease liabilities 5,994 6,201
------------ -------------
Total long-term liabilities 29,402 36,050
------------ -------------
Total liabilities 69,822 74,969
------------ -------------
Commitments and Contingencies (see Notes 7, 9 and 11)
Shareholders' Equity
Preferred stock, par value $.01; 1,000,000 shares authorized;
none issued
Common stock, par value $.01; 80,000,000 shares authorized; 23,849,759 shares
issued and outstanding at January 3, 1997
(23,052,781 at December 29, 1995) 239 231
Additional paid-in capital 44,724 40,633
Retained earnings 38,783 20,886
Foreign currency translation adjustment 273 (228)
------------ -------------
Total shareholders' equity 84,019 61,522
------------ -------------
$153,841 $136,491
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended on the Friday Nearest December 31
(Amounts in Thousands)
1996 1995 1994
------------ ----------- -----------
<CAPTION>
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $19,578 $13,720 $ 6,059
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 6,649 5,252 5,057
Deferred income taxes 724 2,533 1,872
Provision for inventory losses 1,542 3,877 3,043
Other noncash charges (617) 627 375
Changes in operating assets and liabilities:
Increase in accounts receivable (8,350) (5,302) (1,423)
Increase in inventories and prepaid expenses and other, net (704) (15,421) (4,964)
Increase in accounts payable and accrued liabilities 1,077 11,972 2,679
------------ ----------- -----------
Net Cash Provided by Operating Activities 19,899 17,258 12,698
------------ ----------- -----------
INVESTING ACTIVITIES
Purchases of property, plant & equipment (6,922) (7,381) (4,686)
Proceeds from sale of building 1,524
Purchase of Jeta Power Systems, Inc., net of cash acquired (9,577)
(Increase) decrease in other assets (6) 1,103 (433)
------------ ----------- -----------
Net Cash Used in Investing Activities (16,505) (4,754) (5,119)
------------ ----------- -----------
FINANCING ACTIVITIES
Principal payments on debt and leases (5,235) (1,947) (1,259)
Proceeds from exercises of stock options 3,284 4,209 253
Repurchases of common stock (2,032) (8,305)
Issuance of long-term debt 24,375 3,600
Repurchase of convertible subordinated debentures (24,505) (520)
------------ ----------- -----------
Net Cash Provided by (Used in) Financing Activities (3,983) (6,173) 2,074
------------ ----------- -----------
Effect of Exchange Rate Changes on Cash and Equivalents 80 108 412
------------ ----------- -----------
Increase (Decrease) in Cash and Equivalents (509) 6,439 10,065
Cash and Equivalents, Beginning of Year 26,650 20,211 10,146
============ =========== ===========
Cash and Equivalents, End of Year $26,141 $26,650 $20,211
============ =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES Cash paid during the year for:
Interest $ 2,783 $ 3,274 $ 3,877
Income taxes 1,271 878 534
Noncash investing and financing activities:
Fair value of assets acquired in connection with Jeta's
acquisition 14,055
Liabilities assumed in connection with Jeta's acquisition 1,916
Goodwill reduction from utilization of loss carryforwards 606 646 795
Common stock issued from conversion of debentures 9,402
Tax benefit from exercises of stock options 1,066 1,945
Long-term debt incurred to purchase fixed assets 857
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
====================================================================================================================================
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
====================================================================================================================================
For the Years Ended on the Friday Nearest December 31
(Amounts in Thousands)
<CAPTION>
Foreign
Additional Currency
Common Stock Paid-in Retained Translation
Shares Amount Capital Earnings Adjustment
----------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 20,141 $201 $26,840 $7,462 $(1,701)
Issuance of common stock 42 1 98
Issuance of common stock under stock option
and employee purchase plans 120 1 252
Foreign currency translation adjustment 745
Net income 6,059
----------- ----------- ------------- ----------- --------------
Balance, December 30, 1994 20,303 203 27,190 13,521 (956)
Issuance of common stock 33 100
Issuance of common stock under stock option
and employee purchase plans 1,883 19 3,955
Tax benefit from exercises of stock options 1,945
Repurchases and retirement of common stock (1,138) (11) (1,939) (6,355)
Conversion of convertible subordinated
debentures 1,972 20 9,382
Foreign currency translation adjustment 728
Net income 13,720
----------- ----------- ------------- ----------- --------------
Balance, December 29, 1995 23,053 231 40,633 20,886 (228)
Issuance of common stock 8 100
Issuance of common stock under stock option
and employee purchase plans 986 10 3,274
Tax benefit from exercises of stock options 1,066
Repurchases and retirement of common stock (197) (2) (349) (1,681)
Foreign currency translation adjustment 501
Net income 19,578
----------- ----------- ------------- ----------- --------------
Balance, January 3, 1997 23,850 $239 $44,724 $38,783 $ 273
=========== =========== ============= =========== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION The consolidated financial statements include the
accounts of Computer Products, Inc. (the "Company") and its subsidiaries.
Intercompany accounts and transactions have been eliminated in consolidation.
FISCAL YEAR The Company's fiscal year ends on the Friday nearest December 31,
which results in a 52- or 53-week year. The fiscal years ended January 3, 1997,
December 29, 1995 and December 31, 1994 comprise 53, 52 and 52 weeks,
respectively.
CASH AND EQUIVALENTS Only highly liquid investments with original maturities of
90 days or less are classified as cash and equivalents. These investments are
carried at cost, which approximates market value.
INVENTORIES Inventories are stated at the lower of cost, on a first-in,
first-out basis, or market.
PROPERTY, PLANT & EQUIPMENT Property, plant and equipment are stated at cost.
Depreciation is provided for on the straight-line method over the estimated
useful lives of the assets ranging from three to 30 years. Leasehold
improvements are recorded at cost and are amortized using the straight-line
method over the remaining lease term or the economic useful life, whichever is
shorter. Major renewals and betterments are capitalized, while maintenance,
repairs and minor renewals are expensed as incurred.
GOODWILL The excess of purchase price over net assets of acquired companies
(goodwill) is capitalized and amortized on a straight-line basis over periods
ranging from 20 to 40 years. Related accumulated amortization was $5,779,000 and
$4,943,000 at January 3, 1997 and December 29, 1995, respectively. On a periodic
basis, the Company estimates the future undiscounted cash flows and operating
income of the businesses to which goodwill relates in order to ensure that the
carrying value of such goodwill has not been impaired.
STOCK-BASED COMPENSATION PLANS In 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 allows either adoption of a
fair value based method of accounting for stock-based compensation or
continuation of accounting under Accounting Principles Board Opinion No. 25, "A
counting for Stock Issued to Employees" ("APB 25") and related Interpretations
with supplemental disclosures. The Company has chosen to continue to account for
its stock option and its employee stock purchase plans using the intrinsic value
based method prescribed in APB 25. Pro forma disclosures of net income and
earnings per share as if the fair value method had been adopted are presented
below (see Note 13).
FOREIGN CURRENCY TRANSLATION The functional currency of the Company's European
subsidiaries is the foreign subsidiary's local currency. Assets and liabilities
are translated from their functional currency into U.S. dollars using exchange
rates in effect at the balance sheet date. Income and expense items are
translated using average exchange rates for the period. The effect of exchange
rate fluctuations on translating foreign currency assets and liabilities into
U.S. dollars is included in shareholders' equity. Foreign exchange transaction
gains and losses are included in the results of operations. The functional
currency of the Company's Asian subsidiaries is the U.S. dollar, as their
transactions are substantially denominated in U.S. dollars. Financial exposure
may result from the timing of transactions and the movement of exchange rates.
REVENUE RECOGNITION The Company recognizes revenue as products are shipped or
services are rendered.
<PAGE>
PRODUCT WARRANTY The Company records estimated product warranty costs in the
period in which the related sales are recognized.
INCOME TAXES Income taxes provided reflect the current and deferred tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. The realization of deferred tax assets is based on
historical tax positions and expectations about future taxable income.
EARNINGS PER SHARE Earnings per share is calculated using the weighted average
number of common shares outstanding during each period, adjusted for the impact
of dilutive common stock equivalents using the treasury stock method of
accounting.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
RECLASSIFICATIONS Certain amounts in the 1995 and 1994 financial statements have
been reclassified to be consistent with the method of presentation used in the
1996 financial statements.
2. INVENTORIES
The components of inventories are as follows ($000s):
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Raw materials $16,689 $15,350
Work in process 5,471 4,215
Finished goods 10,060 11,671
----------- -----------
Inventories $32,220 $31,236
=========== ===========
</TABLE>
3. PROPERTY, PLANT & EQUIPMENT
Property, plant & equipment is comprised of ($000s):
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land $ 764 $ 762
Buildings 19,061 18,428
Equipment 35,852 32,897
Leasehold improvements 2,066 1,348
----------- -----------
57,743 53,435
Less accumulated depreciation and amortization 27,539 25,720
----------- -----------
Property, plant & equipment, net $30,204 $27,715
=========== ===========
</TABLE>
Depreciation and amortization expense was $5,144,000, $3,931,000 and
$3,483,000 in fiscal years 1996, 1995 and 1994, respectively.
<PAGE>
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are as follows
($000s):
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accounts payable $16,935 $17,041
Accrued liabilities:
Compensation and benefits 6,674 8,948
Income taxes payable 5,080 2,272
Other 7,576 7,939
----------- -----------
$36,265 $36,200
=========== ===========
</TABLE>
At January 3, 1997 and December 29, 1995, other accrued liabilities primarily
consists of accruals for product warranty costs, commissions, advertising,
accounting and legal fees, and other taxes.
5. ACQUISITION
Effective August 23, 1996, the Company acquired the remaining 90% of the
outstanding capital stock of Jeta Power Systems, Inc. ("Jeta") for approximately
$11.25 million in cash. Jeta designs, manufactures and markets medium-to-high
power systems in the 400 watt to 4 kilowatt range for applications in
telecommunications, networking, computing and instrumentation markets. The
Company had purchased an initial 10% of Jeta's capital stock during 1984 for
approximately $433,000. The Company used cash on hand to pay for the
acquisition.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, $7.9 million, representing the excess of the purchase price over
the estimated fair value of the net assets acquired, has been recorded as
goodwill and is being amortized on a straight-line basis over a period of 20
years. Jeta's results of operations have been included in the Company's
consolidated financial statements from the date of acquisition and are not
significant in relation to the Company's consolidated financial statements;
accordingly, pro forma financial disclosures have not been presented.
6. LINE OF CREDIT
On April 4, 1995, the Company entered into an unsecured credit agreement with a
bank, which provided for a $20 million revolving line of credit that extends
through April 1, 1998. The agreement provides for interest at the Company's
option of either .75% above the London Interbank Offered Rate ("LIBOR") or at
the prime rate minus .50%, and includes a fee of .25% on the unused balance. The
agreement contains certain restrictive covenants which, among other things,
require the Company to maintain certain financial ratios and limit the purchase,
redemption or retirement of capital stock and other assets. As of January 3,
1997, the Company had made no borrowings under the line of credit and was in
compliance with the agreement's covenants.
7. LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
($000s) ($000s)
8.25% interest-bearing note, due in bi-annual installments, maturing
April 1, 2002 (a) $23,500 $25,000
6.9% mortgage note due in monthly installments of $27,700,
including interest, through June 28, 2001 (b)(d) 3,385 3,477
7.5% mortgage note, paid in full in 1996 3,065
Non-interest-bearing note, due 1997, net of unamortized discount of $80,000 and
$155,000, respectively, based on an imputed interest rate
of 10% (c)(d) 354 618
Non-interest-bearing Senior Subordinated Note due
in common stock of the Company on January 3, 1996 100
Other 324 308
---------- ----------
27,563 32,568
Less current maturities 4,155 2,719
---------- ----------
Long-term debt $23,408 $29,849
========== ==========
</TABLE>
(a) On April 4, 1995, the Company entered into an unsecured credit
agreement with a bank which provided for a $25 million seven-year
term loan. Remaining payments are as follows: $1,500,000 due on
April 1, 1997, and $2,200,000 due on April 1 and October 1 of
each year beginning October 1, 1997 until maturity, with interest
payable monthly. Proceeds from the term loan were used to redeem
the Company's Debentures (see Note 8). The agreement contains
certain restrictive covenants which are the same as those
discussed in Note 6. In May 1995, the Company entered into an
Interest Rate Collar Agreement with the bank, which set
boundaries for the interest payment terms on its $25 million term
loan. The agreement placed a ceiling of 9.75% on the Company's
floating rate option in exchange for the bank's ability to elect
a fixed rate option of 8.25%. In June 1995, the bank exercised
its option to receive interest at the fixed rate for the
remaining term of the loan.
(b) On June 28, 1994, the Company obtained a $3,600,000 seven-year
commercial mortgage loan from a bank at a fixed interest rate of
6.9% for the first three years, repriced thereafter at 250 basis
points over the then prevailing four-year U.S. Treasury Index.
The loan is secured by a first mortgage on a subsidiary's
facility in Wisconsin and by the Company's guaranty. The loan
proceeds were used to provide additional working capital.
(c) On December 30, 1994, the Company purchased a building for
approximately $922,000 from the Industrial Development Authority
("IDA") of Ireland in exchange for a three year
non-interest-bearing note. The note specifies repayment in three
yearly installments due on September 30, 1995, 1996 and 1997.
(d) Collateralized by properties with an aggregate net book value of
approximately $4,906,000 at January 3, 1997.
Maturities of long-term debt are as follows: $4,235,000 in 1997, $4,533,000 in
1998, $4,541,000 in 1999, $4,550,000 in 2000, $7,356,000 in 2001 and $2,428,000
thereafter.
8. CONVERTIBLE SUBORDINATED DEBENTURES
The Company's 9.5% Convertible Subordinated Debentures (the "Debentures") due
1997 were issued pursuant to an underwritten public offering. The Debentures
were subordinated to all existing and future Senior Indebtedness of the Company
(as defined in the indenture), and were convertible into shares of common stock
at a conversion price of $4.625 per share, subject to adjustment as set forth in
the indenture.
In 1992, the Company repurchased $4.0 million in principal of the Debentures for
a purchase price of $3,874,000. Additionally, in 1994 the Company repurchased
$512,000 in principal of the Debentures for a purchase price of $520,000. The
respective gain and loss on repurchase, net of unamortized issuance costs, was
not material to the Company.
In May 1995, the Company called for redemption all of its outstanding
Debentures, which amounted to $33.4 million. The Debentures were redeemed for an
aggregate amount of $1,054.86 per $1,000 of principal amount (consisting of a
redemption payment of $1,010 plus accrued and unpaid interest of $44.86). As a
result of the redemption, holders of Debentures representing a principal amount
of $9.1 million elected to convert the Debentures into 1,972,085 shares of the
Company's common stock, pursuant to the terms of the Debentures, while the
balance of $24.3 million was redeemed. This transaction resulted in an increase
in shareholders' equity of approximately $9.4 million. The redemption resulted
in an extraordinary loss of approximately $397,000 (net of taxes of $187,000),
consisting of a 1% redemption premium of $165,000 and a write-off of unamortized
financing costs of $232,000.
<PAGE>
9. LEASE COMMITMENTS
The Company is obligated under noncancelable operating leases for facilities and
equipment that expire at various dates through 2005 and contain renewal options
at favorable terms. Future minimum annual rental obligations and noncancelable
sublease income are as follows ($000s):
<TABLE>
<CAPTION>
Rental Sublease
Year Obligations Income
--------------- ---------------
<S> <C> <C>
1997 $ 3,839 $2,398
1998 3,215 399
1999 2,954
2000 2,893
2001 2,578
Thereafter 11,166
--------------- ---------------
Total $26,645 $2,797
=============== ===============
</TABLE>
Rental expense under operating leases amounted to $2,879,000, $2,512,000 and
$2,142,000 in fiscal 1996, 1995 and 1994, respectively. Sublease income was
$1,886,000, $1,655,000 and $1,611,000 for fiscal 1996, 1995 and 1994,
respectively.
Lease liabilities have been recorded for certain leased manufacturing facilities
no longer deployed in the Company's operations. Although the facilities are
being subleased, the future lease obligations exceed future sublease income,
thereby creating loss contracts. The aggregate minimum annual rental obligations
and sublease income under these leases have been included in the lease
commitments table presented above. Lease liabilities are estimated based on
contract provisions and historical and current market rates. These estimates can
be materially affected by changes in market conditions.
10. INCOME TAXES
The components of the provision for income taxes consist of the following
($000s):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
Currently payable:
Federal $1,742 $ 299 $ 170
State 1,961 1,253 596
Foreign 2,452 1,405 483
--------- --------- ----------
Total current 6,155 2,957 1,249
--------- --------- ----------
Deferred provision:
Federal 435 2,280 1,660
State 134 186 212
Foreign 155 67
--------- --------- ----------
Total deferred 724 2,533 1,872
--------- --------- ----------
Total provision for income taxes $6,879 $5,490 $3,121
========= ========= ==========
</TABLE>
The exercise of nonqualified stock options resulted in state and federal income
tax benefits to the Company related to the difference between the fair market
price of the stock at the date of exercise and the exercise price. In fiscal
1996 and 1995, the provision for income taxes excludes current tax benefits of
$1,066,000 and $1,945,000, respectively, related to the exercise of stock
options credited directly to additional paid-in capital.
During fiscal 1996, 1995 and 1994, the Company utilized tax loss carryforwards
obtained in a prior business combination. The effect of utilizing these
carryforwards was to reduce goodwill by approximately $606,000, $646,000 and
$795,000 in 1996, 1995 and 1994, respectively.
Income taxes have not been provided on the undistributed earnings of the
Company's foreign subsidiaries, which approximated $32.1 million as of January
3, 1997, as the Company does not intend to repatriate such earnings.
The components of the Company's total income before provision for income taxes
consist of the following ($000s):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
U.S. $17,095 $13,903 $7,018
Foreign 9,362 5,704 2,162
--------- --------- ----------
Total income before income taxes $26,457 $19,607 $9,180
========= ========= ==========
</TABLE>
The Company's effective tax rate differs from the U.S. statutory federal income
tax rate due to the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
U.S. federal statutory tax rate 35.0% 35.0% 34.0%
Foreign tax effects (2.5) (2.7) (2.8)
Amortization of goodwill 0.4 0.3 0.7
Change in the valuation allowance (15.4) (11.7) (8.4)
Effect of AMT and state income taxes 8.3 7.3 7.7
Other 0.2 (0.2) 2.8
--------- --------- ----------
Effective income tax rate 26.0% 28.0% 34.0%
========= ========= ==========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax assets as of January 3, 1997 and December 29,
1995 are as follows ($000s):
<TABLE>
1996 1995
---------- ----------
<S> <C> <C>
Net operating loss carryforwards (expiring 2003 through 2010) $ 2,807 $ 2,725
Tax credit carryforwards (expiring 1998 through 2001) 2,080 2,034
Acquired net operating loss carryforwards - 1,211
Lease liabilities 2,395 2,474
Inventory reserves 2,137 2,007
Other accrued liabilities 1,851 2,133
Allowance for bad debt 778 622
Other (1,294) (278)
------------ ------------
Total deferred tax assets 10,754 12,928
Valuation allowance (8,926) (9,890)
------------ ------------
Deferred income tax assets, net $ 1,828 $ 3,038
============ ============
</TABLE>
The valuation allowance at January 3, 1997 includes approximately $4.9 million
related to the exercise of stock options which, when recognized, will be
credited directly to additional paid-in capital. During the year ended January
3, 1997, the valuation allowance decreased by approximately $1.0 million mainly
due to the utilization of tax loss carryforwards. In assessing the likelihood of
utilization of existing deferred tax assets, management has considered the
historical results of operations and the current operating environment.
Management believes, more likely than not, that future taxable income will be
sufficient to utilize deferred tax assets of $1.8 million.
<PAGE>
11. CONTINGENCIES
In current and prior years, the Company received grant assistance, under grant
agreements, from the IDA in connection with the Company's establishment of its
Irish manufacturing operations. The funds received reduced the cost of the
facility and equipment and operating expenses. On October 26, 1994, the Company
entered into a new Grant Agreement whereby the IDA granted the sum of
approximately $2.0 million to the Company in consideration for the Company
providing employment for a given number of Irish citizens, over a three-year
period. As of January 3, 1997, the Company had received approximately $1.9
million of the $2.0 million grant. The funds received reduced operating expenses
incurred in connection with the expansion of the Company's operations in
Ireland. In the event of noncompliance with certain terms and conditions of the
above-mentioned grant agreements, the Company may be required to repay
approximately $2.5 million of funds received to date. Management believes that
noncompliance with the agreements is unlikely.
12. STOCK REPURCHASES
During fiscal 1996 and 1995, the Company repurchased and retired a total of
197,000 and 1,138,000 shares, respectively, of its common stock pursuant to a
share buy-back plan announced in May 1995. According to the plan, the Company
intends to repurchase and retire from time to time up to an aggregate of
2,000,000 shares through open market transactions to minimize the dilutive
effect of the shares issued to converting debenture holders. The excess of the
cost of shares repurchased over par value was allocated to additional paid-in
capital based on the pro rata share amount of additional paid-in capital for all
shares with the difference charged to retained earnings.
13. STOCK-BASED COMPENSATION PLANS
EMPLOYEE STOCK OPTION PLANS Under the Company's 1981 Incentive Stock Option
Plan, options were granted to purchase up to 2,000,000 shares of the Company's
common stock at prices not less than the fair market value at date of grant. The
options generally vest at the rate of 25% per year beginning one year from the
date of grant. The options expire 10 years from the date of the grant or three
months after termination of employment, if earlier. This plan was replaced by
the 1990 Performance Equity Plan ("PEP").
The Company established the PEP plan in 1990 under which it had reserved
3,000,000 shares of common stock for granting of either incentive or
nonqualified stock options to key employees and officers. The Company increased
authorized shares to 4,450,000 in 1996. Both incentive or nonqualified stock
options have been granted at prices not less than the fair market value on the
date of grant as determined by the Board of Directors. The options maximum term
is 10 years, although some options were granted with a five-year term in 1995.
Beginning with grants made in 1995, the majority of the options become
exercisable after the price of the Company's common stock achieves certain
levels for specified periods of time or upon the passage of a certain number of
years from the date of grant. For grants made prior to 1995, options vest at the
rate of 25% per year beginning one year from the date of grant. As of January 3,
1997, 972,785 shares of common stock were reserved for future grants.
OUTSIDE DIRECTORS STOCK OPTION PLANS The Company established an Outside
Directors Stock Option Plan in 1986 under which it authorized and reserved
250,000 shares of common stock for granting of nonqualified stock options to
directors of the Company who are not employees of the Company at exercise prices
not less than the fair market value on the date of grant. The plan was replaced
by the 1990 Outside Directors Stock Option Plan under which the Company
initially authorized and reserved 250,000 shares. The Company increased
authorized shares to 500,000 in 1996. Effective in 1996, upon initial election
or appointment and each year thereafter, outside directors shall receive an
option to purchase 10,000 shares of common stock provided that they own a given
number of shares of common stock of the Company based on a formula as defined in
the plan. The options granted under both Outside Directors plans fully vest on
the one-year anniversary of the date of grant. As of January 3, 1997, 190,000
shares of common stock were reserved for future grants.
In accordance with APB 25, as the exercise price of the Company's stock options
equals the market price of the underlying stock on the date of grant, no
compensation cost has been recognized for its fixed stock option plans. Pro
forma information regarding net income and earnings per share is required by
SFAS 123 and has been determined as if the Company had accounted for its
stock-based compensation plans under the fair value method. The fair value of
each option grant was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1996 and 1995, respectively: risk-free interest rates of 5.95% and
6.41%, dividend yield of 0% for both years, expected volatility of 52% and 56%,
and expected life of 2.50 and 1.70 years. The Company's pro forma information
follows (in thousands except for earnings per share information):
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Net Income As reported $19,578 $13,720
============ =============
Pro forma $17,340 $12,896
============ =============
Primary earnings
per share As reported $0.80 $0.59
============ =============
Pro forma $0.71 $0.55
============ =============
Fully diluted
earnings per share As reported $0.78 $0.59
============ =============
Pro forma $0.69 $0.55
============ =============
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards prior to 1995.
<PAGE>
A summary of the Company's stock option activity under the various plans
described above is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- --------------------------- -----------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Options price Options price Options price
------------- ------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of year 2,272,726 $ 3.36 3,578,279 $2.47 3,589,629 $2.44
Options granted 821,323 15.22 782,400 4.93 592,000 2.68
Options exercised (963,161) 3.35 (1,895,870) 2.30 (102,850) 2.04
Options canceled (60,488) 9.52 (192,083) 3.63 (500,500) 2.61
------------- ------------- ------------- ------------- ------------- ----------
Options outstanding, end of year 2,070,400 $ 7.89 2,272,726 $3.36 3,578,279 $2.47
============= ============= =============
Options exercisable, end of year 1,368,961 2,038,518 2,005,111
============= ============= =============
Weighted-average fair value of
options granted during the year $5.59 $1.57 N/A
============= ============= =============
</TABLE>
The following table summarizes information about stock options outstanding at
January 3, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------- ----------------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Life Exercise Price Exercisable Exercise Price
Prices at 1/3/97 (Years) at 1/3/97
- ------------------ ---------------- ----------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.75 - 2.69 660,947 5.77 $ 2.47 611,656 $ 2.48
2.75 - 4.88 597,905 4.19 4.17 572,405 4.21
7.18 - 12.81 200,273 8.93 11.29 184,900 11.26
16.00 - 16.00 532,275 9.33 16.00 0 0
16.75 - 19.88 79,000 9.75 18.14 0 0
---------------- --------------
$ 1.75 - 19.88 2,070,400 6.69 7.89 1,368,961 4.39
================ ==============
</TABLE>
<PAGE>
EMPLOYEE STOCK PURCHASE PLANS In May 1996, the Company's Board of Directors
established an employee stock purchase plan effective July 1, 1996 that allows
substantially all employees to purchase shares of the Company's common stock.
Under the terms of the plan, eligible employees may purchase shares of common
stock through the accumulation of payroll deductions of at least 2% and up to 6%
of their base salary. The purchase price is an amount equal to 85% of the market
price determined on the tenth trading day following each three-month offering
period. The Company's policy is to purchase these shares on the market rather
than issue them from treasury; therefore, the 15% employee discount is currently
being recognized as compensation expense. Such amount was not significant in
fiscal 1996. Employees purchased 8,707 shares in 1996.
The 1989 Qualified Employee Stock Option Plan provided for employees to purchase
common stock of the Company at a purchase price equal to the lower of 85% of the
common stock market value as of the beginning of an offering period or at
various purchase dates extending over a two-year period. The plan expired in
1995 and was replaced by the 1996 Employee Stock Purchase Plan described above.
Employees purchased 22,475, 102,570 and 19,528 shares in 1996, 1995 and 1994,
respectively, at purchase prices ranging from $1.97 to $2.76. Under SFAS 123,
compensation cost is recognized for the fair value of the employees' purchase
rights, which was estimated using the Black-Scholes model with the following
weighted-average assumptions for 1995: risk-free interest rate of 6.48%,
dividend yield of 0%, expected volatility of 52% and expected life of .84 year.
The weighted-average fair value of the purchase rights granted in 1995 was $.57.
14. EMPLOYEE BENEFIT PLAN
The Company provides retirement benefits to its employees through the Computer
Products Inc. Employees' Thrift and Savings Plan (the "Plan"). As allowed under
Section 401(k) of the Internal Revenue Code, the Plan provides tax deferred
salary deductions for eligible employees. The Plan permits substantially all
United States employees to contribute up to 15% of their base compensation (as
defined) to the Plan, limited to a maximum amount as set by the Internal Revenue
Service. The Company may, at the discretion of the Board of Directors, make a
matching contribution to the Plan. The Board of Directors authorized matching
contributions of $520,000, $400,000 and $218,000, respectively, for fiscal 1996,
1995 and 1994.
15. FINANCIAL INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS The
Company utilizes 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 made by its international
subsidiaries. No forward contracts were outstanding at January 3, 1997 and the
amount of any gain or loss on these contracts during the year was not material.
The Company does not hold or issue financial instruments for trading purposes.
The Company enters into various other types of financial instruments in the
normal course of business. Fair values for certain financial instruments are
based on quoted market prices. For other financial instruments, fair values are
based on the appropriate pricing models, using current market information. The
amounts ultimately realized upon settlement of these financial instruments will
depend on actual market conditions during the remaining life of the instruments.
Fair values of cash and equivalents, accounts receivable, accounts payable,
other current liabilities and debt reflected in the January 3, 1997 statement of
financial condition approximate carrying value at that date.
CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of cash and
equivalents and accounts receivable. The Company's cash management and
investment policies restrict investments to low-risk, highly liquid securities,
and the Company performs periodic evaluations of the credit standing of the
financial institutions with which it deals. The Company sells its products to
customers in various geographical areas. The Company performs ongoing credit
evaluations of its customers' financial condition and generally does not require
collateral. The Company maintains reserves for potential credit losses, and such
losses have been within management's expectations and have not been material in
any year. As of January 3, 1997 and December 29, 1995, management believes the
Company had no significant concentrations of credit risk.
16. GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS
The Company operates in a single industry segment encompassing the design,
development, manufacture and sale of electronic products and subsystems for
power conversion, industrial automation and other real-time systems
applications. The Company's sales are made through both direct and indirect
sales channels to a wide customer base in North America, Europe and
Asia-Pacific. The principal markets served are telecommunications, networking,
wireless communications and computing. In recent years, the Company's primary
focus has been to grow its presence in the communications marketplace,
particularly in the networking and telecommunications sectors.
Approximately 80% of the Company's products are manufactured in foreign
locations. Specifically, 58% of the Company's 1996 sales were from products
manufactured in Hong Kong and China, 22% from products manufactured in the
Republic of Ireland and the remaining 20% from domestic operations. Included in
the Company's consolidated statement of financial condition at January 3, 1997
are the net assets of the Company's European and Asian subsidiaries, which total
approximately $21.7 million and $21.3 million, respectively.
Sales and marketing operations outside the United States are conducted
principally through Company sales representatives, independent manufacturer's
representatives and distributors in Canada, Europe and Asia-Pacific. Sales are
in U.S. dollars and certain European currencies. Intercompany sales are in U.S.
dollars and are based on cost plus a reasonable profit. There were no material
amounts of United States export sales.
Sales to one customer amounted to $22.4 million and $20.7 million in fiscal 1996
and 1995, respectively.
A summary of the Company's operations by geographic area is presented below
($000s):
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
SALES
To unaffiliated customers:
<S> <C> <C> <C>
United States $144,115 $139,274 $117,300
Europe 57,089 46,428 34,794
Asia-Pacific 21,281 5,676 2,706
Intercompany sales:
United States 4,020 2,937 3,897
Europe 5,554 4,219 2,225
Asia-Pacific 92,275 79,191 50,701
Eliminations (101,849) (86,347) (56,823)
------------- ------------- -------------
Total sales $222,485 $191,378 $154,800
============= ============= =============
INCOME BEFORE INCOME TAXES
United States $17,693 $18,197 $12,686
Europe 5,937 5,362 2,169
Asia-Pacific 5,859 3,560 1,799
Other (a) (4,027) (6,075) (7,437)
Eliminations 995 (1,437) (37)
------------- ------------- -------------
Income before income taxes $26,457 $19,607 $ 9,180
============= ============= =============
IDENTIFIABLE ASSETS
United States $ 66,784 $ 61,967 $ 55,720
Europe 27,925 21,657 17,112
Asia-Pacific 37,675 33,058 23,784
Other (a) 23,024 22,262 18,062
Eliminations (1,567) (2,453) (282)
------------- ------------- -------------
Total assets $153,841 $136,491 $114,396
============= ============= =============
</TABLE>
(a) Other included in the table above represents interest, corporate general
and administrative expenses, and certain assets not allocable to other
geographic segments.
17. SELECTED CONSOLIDATED QUARTERLY DATA (UNAUDITED)
(Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------- ------------- ------------- -------------
FISCAL 1996
<S> <C> <C> <C> <C>
Sales $50,435 $51,673 $57,760 $62,617
Gross profit 18,378 19,550 20,459 23,992
Net Income 3,911 4,382 5,131 6,154
Earnings per share 0.16 0.18 0.21 0.25
Stock price per common share:
High 14.50 23.00 21.75 21.88
Low 9.25 13.25 12.81 17.88
FISCAL 1995
Sales $44,297 $47,316 $46,905 $52,860
Gross profit 16,152 17,524 18,390 20,012
Income before extraordinary item 2,019 2,866 4,358 4,874
Net Income 2,019 2,469 4,358 4,874
Earnings per share before extraordinary item 0.09 0.12 0.18 0.20
Earnings per share 0.09 0.10 0.18 0.20
Stock price per common share:
High 5.00 6.25 8.94 13.25
Low 3.13 4.81 5.88 7.50
</TABLE>
The Company recorded an after-tax extraordinary item of $397,000 in the second
quarter of 1995. Data in the above tables are presented on a 13-week period
basis except for the fourth quarter of 1996, which includes 14 weeks, as fiscal
1996 consisted of 53 weeks.
The sum of the quarterly earnings per share amounts differs from those reflected
in the Consolidated Statements of Operations due to the weighting of common and
common equivalent shares outstanding during each of the respective periods.
The Company's common stock is traded on the Nasdaq National Stock Market under
the symbol CPRD. As of January 3, 1997, there were approximately 10,676
shareholders consisting of record holders and individual participants in
security position listings. To date, the Company has not paid any cash dividends
on its capital stock. The Board of Directors presently intends to retain all
earnings for use in the Company's business and does not anticipate paying cash
dividends in the foreseeable future.
<PAGE>
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
As noted above, the foregoing discussion and the letter to shareholders may
include forward-looking statements that involve risks and uncertainties. In
addition, Computer Products, Inc. identifies the following risk factors which
could affect the Company's actual results and cause them to differ materially
from those in the forward-looking statements.
RISKS RELATED TO NEW PRODUCTS The Company's future sales are dependent on its
ability to successfully develop, manufacture and market products for customers
worldwide. In this regard, future growth is dependent on the Company's ability
to timely and successfully develop and introduce new products, establish new
distribution channels, develop affiliations with leading market participants
which facilitate product development and distribution, and market existing and
new products with service providers, resellers and channel partners. Also,
future sales may be affected in part by factors which influence the business of
the Company's direct and indirect resellers, such as the resellers' organization
structure, purchasing patterns and inventory levels.
The Company believes that the markets for its products are characterized by
rapid rates of technological innovation. There can be no assurance that the
Company's research and development efforts will result in commercially
successful new technology and products in the future. In addition, as the
technical complexity of new products increases, it may become increasingly
difficult to introduce new products quickly and according to schedule.
DEPENDENCE ON PERSONNEL The Company's success depends upon the continued
contributions of its personnel and on the ability of the Company to attract and
retain skilled employees. Changes in personnel, therefore, could adversely
affect operating results.
RISKS RELATED TO GROSS MARGIN The Company's gross margin percentage is a
function of the product mix sold in any period. Other factors such as unit
volumes, obsolescence of inventory, heightened price competition, changes in
channels of distribution, shortages in components due to timely supplies of
parts from vendors or ability to obtain items at reasonable prices, and
availability of skilled labor, also may continue to affect the cost of sales and
the fluctuation in gross margin percentages in future periods. In the past, the
Company has paid premiums to secure adequate supplies of components, and it
could become necessary to make such payments again in the future.
RISKS RELATED TO TIMING OF PRODUCT SHIPMENTS One of the risks potentially
affecting the Company's operating results is the fact that historically a
substantial portion of the Company's sales in any period has resulted from
shipments during the latter part of a period. Because the Company establishes
its operating expense level based on such timing, if sales in any period were to
change from such historical pattern, net profits may be adversely affected.
RISKS RELATED TO BACKLOG The Company has attempted to reduce its product
manufacturing lead times and its backlog of orders. To the extent that backlog
is reduced during any particular period, it could result in more variability and
less predictability in the Company's quarter-to-quarter sales and operating
results. If manufacturing lead times are not reduced, the Company's customers
may cancel, or not place, orders if shorter lead times are available from other
manufacturers. In addition, the Company's ability to meet customer demand may
also be dependent on the ability of the Company to increase manufacturing levels
for new products to volumes required based on anticipated orders by the market.
RISKS RELATED TO INTELLECTUAL PROPERTY RIGHTS The Company currently relies upon
a combination of patents, copyrights, trademarks and trade secret laws to
establish and protect its proprietary rights in its products. There can be no
assurance that the steps taken by the Company in this regard will be adequate to
prevent misappropriation of its technology or that the Company's competitors
will not independently develop technologies that are substantially equivalent or
superior to the Company's technology. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
do the laws of the United States. The Company has a number of patents and may
apply for additional patents. There can be no assurance that patents will be
issued from any applications filed by the Company or that, if patents are
issued, the claims will be sufficiently broad to protect the technology invented
by the Company. In addition, no assurance can be given that any patents issued
to the Company will not be challenged, invalidated or circumvented or that the
rights granted thereunder will provide competitive advantages.
SALES FLUCTUATIONS AND COMPETITION There is no assurance that the Company's
historical sales growth rates will continue. Pressure from competitors offering
lower-priced products could result in future price reductions for the Company's
products.
RISKS RELATED TO ACQUISITIONS To implement its business plans, the Company may
make further acquisitions in the future. Acquisitions require significant
financial and management resources both at the time of the transaction and
during the process of integrating the newly acquired business into the Company's
operations. The Company's operating results could be adversely affected if it is
unable to successfully integrate such new companies into its operations. Certain
acquisitions or strategic transactions may be subject to approval by the other
party's board or shareholders, domestic or foreign governmental agencies, or
other third parties. Accordingly, there is a risk that important acquisitions or
transactions could fail to be concluded as planned. Future acquisitions by the
Company could also result in issuances of equity securities or the rights
associated with the equity securities, which could potentially dilute earnings
per share. In addition, future acquisitions could result in the incurrence of
additional debt, taxes, or contingent liabilities, and amortization expenses
related to goodwill and other intangible assets. These factors could adversely
affect the Company's future operating results and financial position.
RELIANCE ON DISTRIBUTORS AND MANUFACTURER'S REPRESENTATIVES Distributor and
manufacturer's representative networks have continued to represent an important
part of the Company's overall sales and distribution strategy. While the Company
is not dependent on any single distributor or manufacturer's representative, the
loss of, or changes in the relationship with or performance by, several
distributors or manufacturer's representative nevertheless could have a material
adverse effect on the Company's sales and operating results.
RISKS RELATED TO INTERNATIONAL SALES International sales may be an increasingly
important contributor to the Company's sales and net profits. As a result,
operating results are increasingly affected by the risks of such activities,
including economic conditions in the international markets in which the Company
sells its products and political and economic instability, fluctuations in
currency exchange rates, changes in international regulatory requirements,
international staffing and employment issues, tariffs and other trade barriers,
import and export controls and the burden of complying with foreign laws. Sales
in developing nations may fluctuate to a greater extent than sales to customers
in developed nations, as those markets are only beginning to adopt new
technologies and establish purchasing practices. These risks may adversely
affect the Company's future operating results and financial position.
RISKS RELATED TO GOVERNMENT REGULATIONS AND PRODUCT CERTIFICATION The Company's
operations are also subject to laws, regulations, government policies and
product certification requirements worldwide. Changes in such laws, regulations,
policies or requirements could affect the demand for the Company's products or
result in the need to modify products, which may involve substantial costs or
delays in sales and could have an adverse effect on the Company's future
operating results.
RISKS RELATED TO FOREIGN MANUFACTURING OPERATIONS Approximately 80% of the
Company's products are manufactured in foreign locations. Specifically, 58% of
the Company's 1996 sales were from products manufactured in Hong Kong and China,
22% from products manufactured in the Republic of Ireland and the remaining 20%
from domestic operations.
The supply and cost of these products can be adversely affected, among other
reasons, by changes in foreign currency exchange rates, increased import duties,
imposition of tariffs, imposition of import quotas, interruptions in sea or air
transportation and political or economic changes. From time to time, the Company
explores opportunities to diversify its sourcing and/or production of certain
products to other low cost locations or with other third parties to reduce its
dependence on production in any one location. In addition, the Company has taken
necessary measures, including insuring against certain risks, to mitigate its
exposure to potential political and economic changes in Hong Kong and China. In
the event of confiscation, expropriation, nationalization, or governmental
restrictions in the above mentioned foreign locations, earnings could be
adversely affected from business disruption resulting in delays in production
and delivery of the Company's products.
RISKS OF STOCK VOLATILITY AND ABSENCE OF DIVIDENDS In recent years, the stock
market in general and the market for technology stocks in particular, including
the Company's common stock, have experienced extreme price fluctuations. There
is a risk that stock price fluctuation could impact the Company's operations.
Changes in the price of the Company's common stock could affect the Company's
ability to successfully attract and retain qualified personnel or complete
necessary business combinations or other transactions in the future. The Company
has never paid any cash dividends on its capital stock, and there can be no
assurances that the Company will do so.
In addition to the foregoing, the Company wishes to refer readers to the
Company's other reports filed with the Securities and Exchange Commission,
including its recent reports on Forms 10-K and 10-Q, for a further discussion of
risks and uncertainties that could cause actual results to differ materially
from those in forward-looking statements.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Computer Products, Inc. :
We have audited the accompanying consolidated statements of financial condition
of Computer Products, Inc. (a Florida corporation) and subsidiaries as of
January 3, 1997 and December 29, 1995, and the related consolidated statements
of operations, shareholders' equity and cash flows for the three fiscal years
ended January 3, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Computer Products, Inc. and
subsidiaries as of January 3, 1997 and December 29, 1995, and the results of
their operations and their cash flows for the three fiscal years ended January
3, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
January 17, 1997.
STATEMENT OF MANAGEMENT RESPONSIBILITY
The Company's management is responsible for the preparation, integrity and
objectivity of the consolidated financial statements and other financial
information presented in this report. The accompanying financial statements have
been prepared in conformity with generally accepted accounting principles and
reflect the effects of certain estimates and judgments made by management.
The Company's management maintains an effective system of internal control that
is designed to provide reasonable assurance that assets are safeguarded and
transactions are properly recorded and executed in accordance with management's
authorization. The system is continuously monitored by direct management review
and by internal auditors who conduct an extensive program of audits throughout
the company. The Company selects and trains qualified people who are provided
with and expected to adhere to the Company's standards of business conduct.
These standards, which set forth the highest principles of business ethics and
conduct, are a key element of the Company's control system. Additionally, our
independent certified public accountants, Arthur Andersen LLP, obtain a
sufficient understanding of the internal control structure in order to plan and
complete the annual audit of the Company's financial statements.
The Audit Committee of the Board of Directors, which consists of five outside
directors, meets regularly with management, the internal auditors and the
independent certified public accountants to review accounting, reporting,
auditing and internal control matters. The Committee has direct and private
access to both internal and external auditors.
JOSEPH M. O'DONNELL
Chairman of the Board, President and Chief Executive Officer
RICHARD J. THOMPSON
Vice President, Finance and Chief Financial Officer
EXHIBIT 21 -- SUBSIDIARIES OF REGISTRANT
Subsidiaries of the Company, all of which are wholly-owned and are included in
the consolidated financial statements, are as follows:
NAME STATE OR COUNTRY OF INCORPORATION
- --------------------------------------------------------------------------------
C.P. Power Products (Zhong Shan) Co., Ltd. People's Republic Of China
Computer Products Asia-pacific Limited Hong Kong
Computer Products (France) Sarl France
Computer Products GmbH Germany
Computer Products Power Conversion Limited England
Heurikon Corporation Wisconsin
Jeta Power Systems, Inc. California
Power Products (Ireland), Ltd. Cayman Islands, B.W.I.
Power Products, Ltd. Cayman Islands, B.W.I.
Rtp Corp. Florida
Rtp Foreign Sales Corporation U.S. Virgin Islands
Stevens-Arnold, Inc. Massachusetts
EXHIBIT 23
Consent of Independent Certified Public Accountants
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in or incorporated by reference in this
Form 10-K, into the Company's previously filed Form S-3 Registration Statement
File Nos. 33-70326 and 33-49176 and Form S-8 Registration Statement File Nos.
33-42516, 33-63501, 33-63499 and 333-08475.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 18, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-03-1997
<PERIOD-END> JAN-03-1997
<CASH> 26,141
<SECURITIES> 0
<RECEIVABLES> 41,556
<ALLOWANCES> 1,438
<INVENTORY> 32,220
<CURRENT-ASSETS> 101,505
<PP&E> 57,743
<DEPRECIATION> 27,539
<TOTAL-ASSETS> 153,841
<CURRENT-LIABILITIES> 40,420
<BONDS> 23,408
0
0
<COMMON> 44,963
<OTHER-SE> 39,056
<TOTAL-LIABILITY-AND-EQUITY> 153,841
<SALES> 222,485
<TOTAL-REVENUES> 222,485
<CGS> 140,106
<TOTAL-COSTS> 140,106
<OTHER-EXPENSES> 53,442
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,734
<INCOME-PRETAX> 26,457
<INCOME-TAX> 6,879
<INCOME-CONTINUING> 19,578
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,578
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.78
</TABLE>
