SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 4, 1997
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____to______
Commission File No. 0-4466
COMPUTER PRODUCTS, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA
- -------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
59-1205269
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(I.R.S. Employer Identification No.)
7900 Glades Road, Suite 500, Boca Raton, Florida 33434
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561)451-1000
-------------
NOT APPLICABLE
- -------------------------------------------------------------------------------
Former name, address and fiscal year if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares of Common Stock, $.01 par value, of the Registrant issued
and outstanding as of May 2, 1997 was 23,888,096 shares.
<PAGE>
COMPUTER PRODUCTS, INC.
INDEX TO FORM 10-Q
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Statements of Operations - For the Thirteen
Weeks Ended April 4, 1997 and
March 29, 1996 3
Statements of Financial Condition - April 4, 1997
and January 3, 1997 4
Statements of Cash Flows - For the
Thirteen Weeks Ended April 4, 1997 and
March 29, 1996 5
Notes to Condensed Consolidated Financial
Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Exhibit No. 11
Exhibit No. 27
SIGNATURE
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except Per Share Data)
(Unaudited)
<CAPTION>
Thirteen Weeks Ended
April 4, March 29,
1997 1996
----------- -----------
<S> <C> <C>
Sales $56,865 $47,365
Cost of Sales 37,257 30,264
----------- -----------
Gross Profit 19,608 17,101
----------- -----------
Expenses
Selling, general & administrative 8,747 7,401
Research & development 4,471 3,489
----------- -----------
13,218 10,890
----------- -----------
Operating Income 6,390 6,211
----------- -----------
Other Income (Expense)
Interest expense (589) (708)
Interest income 326 217
----------- -----------
(263) (491)
----------- -----------
Income from Continuing Operations before Income Taxes 6,127 5,720
Provision for Income Taxes 1,654 1,545
----------- -----------
Income from Continuing Operations 4,473 4,175
Discontinued Operations
Loss from operations, net of income tax benefit of $222 and $100 (333) (264)
Loss on disposal of RTP including provision of $1,000 for
operating losses during phase-out period, net of tax benefit of $1,152 (1,729) -
----------- -----------
Net Income $ 2,411 $ 3,911
=========== ===========
Earnings per Common and Common Equivalent Share:
Income from Continuing Operations
$ 0.18 $ 0.17
Discontinued Operations
Loss from operations (0.01) (0.01)
Loss on disposal (0.07) -
----------- -----------
Net Income $ 0.10 $ 0.16
=========== ===========
Common and Common Equivalent Shares Outstanding 24,674 24,456
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Amounts in Thousands Except Share Data)
<TABLE>
April 4, January 3,
1997 1997
(Unaudited) (Audited)
------------ -----------
<CAPTION>
ASSETS
Current Assets
<S> <C> <C>
Cash and equivalents $ 29,359 $ 26,141
Accounts receivable, net 35,622 35,989
Inventories 29,883 28,726
Prepaid expenses and other 3,178 2,038
Deferred income taxes, net 1,128 965
Current assets of discontinued operations 5,319 7,646
----------- ----------
Total current assets 104,489 101,505
----------- -----------
Property, Plant & Equipment, net 28,239 28,686
----------- -----------
Other Assets
Goodwill, net 19,601 20,022
Deferred income taxes, net 1,052 863
Other assets 1,056 1,171
Long-term assets of discontinued operations 1,496 1,594
----------- -----------
Total other assets 23,205 23,650
----------- -----------
$155,933 $153,841
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 4,855 $ 4,155
Accounts payable and accrued liabilities 36,173 34,210
Current liabilities of discontinued operations 1,329 2,055
----------- -----------
Total current liabilities 42,357 40,420
Long-Term Debt 21,185 23,408
Lease Liabilities 5,940 5,994
----------- -----------
Total Liabilities 69,482 69,822
----------- -----------
Shareholders' Equity
Preferred stock, par value $.01; 1,000,000 shares authorized; none issued
Common stock, par value $.01; 80,000,000 shares authorized;
23,885,096 issued and outstanding at April 4, 1997 (23,849,759 shares at
January 3, 1997) 239 239
Additional paid-in capital 45,703 44,724
Retained earnings 41,194 38,783
Foreign currency translation adjustment (685) 273
Total shareholders' equity 86,451 84,019
----------- -----------
$155,933 $153,841
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
April 4, March 29,
1997 1996
----------- -----------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 2,411 $ 3,911
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,720 1,394
Provision for discontinued operations 1,729 -
Other non-cash charges 56 419
Changes in operating assets and liabilities:
Increase in accounts receivable (175) (220)
Increase in inventories and prepaid expenses and other (2,926) (3,166)
Increase (decrease) in accounts payable and accrued liabilities 1,569 (1,808)
Net cash provided by discontinued operations 1,733 1,275
----------- -----------
Net Cash Provided by Operating Activities 6,117 1,805
----------- -----------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (1,273) (1,826)
Investing activities of discontinued operations (34) (536)
(Increase) decrease in other assets 49 (38)
----------- -----------
Net Cash Used in Investing Activities (1,258) (2,400)
----------- -----------
FINANCING ACTIVITIES
Principal payments on debt and capital leases (1,582) (237)
Proceeds from exercises of stock options 99 713
Repurchases of common stock - (2,032)
----------- -----------
Net Cash Used in Financing Activities (1,484) (1,556)
----------- -----------
Effect of Exchange Rate Changes on Cash and Equivalents (157) (97)
----------- -----------
Increase (decrease) in Cash and Equivalents 3,218 (2,248)
Cash and Equivalents, Beginning of Period 26,141 26,650
----------- -----------
Cash and Equivalents, End of Period $29,359 $24,402
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
April 4, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Certain information and footnote disclosures required by
generally accepted accounting principles for complete financial statements have
been condensed or omitted.
In the opinion of management, the accompanying financial statements include all
adjustments (consisting of normal recurring accruals) considered necessary to
present fairly the financial position, results of operations and cash flows of
Computer Products, Inc. ("the Company"). The results of operations for the
thirteen weeks ended April 4, 1997 are not necessarily indicative of the results
that may be expected for fiscal year 1997. For further information, these
Condensed Consolidated Financial Statements should be read in conjunction with
the financial statements and notes thereto included in the Company's 1996 Annual
Report to Shareholders.
Certain prior year amounts have been reclassified to reflect discontinued
operations as described in Note 6.
2. INVENTORIES
The components of inventory are as follows ($000s):
April 4, January 3,
1997 1997
-------- --------
Raw materials $16,446 $14,953
Work in process 5,342 4,424
Finished goods 8,095 9,349
------- --------
$29,883 $28,726
======= ========
3. PROPERTY PLANT & EQUIPMENT, NET
Related accumulated depreciation was $27,073,000 and $26,064,000 at April 4,
1997 and January 3, 1997, respectively.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are as follows
($000s):
April 4, January 3,
1997 1997
------- --------
Accounts payable $17,696 $16,136
Accrued liabilities:
Compensation and benefits 4,009 5,793
Income taxes payable 5,826 5,080
Provision for discontinued
operations 1,729 -
Other 6,913 7,201
------- -------
$36,173 $34,210
======= ========
5. INCOME TAXES
The provision for income taxes reflects federal, state, and foreign taxes
currently payable. The effective income tax rate on pretax earnings differs from
that computed at the United States federal statutory rate for the following
reasons:
Thirteen Weeks Ended
April 4, March 29,
1997 1996
------ ------
Provision computed at United States
federal statutory rate 35.0% 35.0%
Amortization of goodwill 0.2 0.2
Change in the valuation allowance (5.6) (8.7)
Foreign tax effects (7.5) (4.3)
Effect of state income taxes 4.8 4.7
Other 0.1 0.1
------ ------
Effective tax rate 27.0% 27.0%
====== ======
6. DISCONTINUED OPERATIONS
On April 17, 1997, the Company announced its intention to sell its Industrial
Automation division, RTP Corp. ("RTP") pursuant to a plan of disposal approved
by the Board of Directors. The Company is currently in discussions with several
potential buyers and expects to sell the business before the end of fiscal 1997.
At April 4, 1997, the estimated loss on the disposal of the discontinued
operations of $1,729,000 (net of income tax benefit of $1,152,000) represents
the estimated loss on the disposal of RTP's net assets and a pre-tax provision
of $1,000,000 for expected operating losses during the phase-out period.
RTP's sales for the first quarter of 1997 and 1996 were $2,252,000 and
$3,070,000, respectively. RTP's operating results for the first quarter of 1997
are shown separately in the accompanying consolidated statements of operation.
Assets and liabilities of the discontinued operations have been separately
classified in the accompanying statements of financial condition and consist of
the following ($000s):
April 4, January 3,
1997 1997
---------- ---------
Accounts receivable, net $1,961 $4,129
Inventories 3,335 3,494
Prepaid expenses and other 80 100
Property, Plant & Equipment, net 1,439 1,517
--------- ---------
Total assets $6,815 $9,240
========== =========
Accounts payable and other accruals $1,329 $2,055
========== =========
All prior year amounts have been restated for the discontinued operations to
conform with the current year's presentation.
7. NEW ACCOUNTING PRONOUNCEMENT
On March 3, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". This
statement simplifies the standards for computing and presenting earnings per
share ("EPS") and makes them comparable to international EPS standards. SFAS 128
replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures. SFAS 128 will
be effective beginning with the fourth quarter of 1997 and, upon adoption, will
require restatement of all prior periods presented. The Company has quantified
the impact of applying the new standard to the first quarter results. Pro forma
information is as follows:
Pro Forma Pro Forma
Q1-97 Q1-96
-------- ----------
EARNINGS PER COMMON SHARE
Income from Continuing Operations $0.19 $0.18
Discontinued Operations (0.09) (0.01)
-------- ----------
Net Income $0.10 $0.17
======== ==========
EARNINGS PER COMMON SHARE - ASSUMING DILUTION
Income from Continuing Operations $0.18 $0.17
Discontinued Operations (0.08) (0.01)
-------- ----------
Net Income $0.10 $0.16
======== ==========
<PAGE>
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
On April 17, 1997, the Company announced its intention to sell its Industrial
Automation division, RTP Corp. ("RTP") pursuant to a plan of disposal approved
by the Board of Directors. Accordingly, the Company has classified RTP as a
discontinued operation and has recorded an after-tax non-recurring charge of
$2.1 million, or $0.08 per share, against first quarter 1997 earnings. Included
in the charge is a write-down of RTP assets to their anticipated realizable
value and expected operating losses until the division is sold. The Company is
currently in discussions with several potential buyers and expects to sell the
business by year end 1997.
For the first quarter of 1997, income from continuing operations increased to
$4.5 million, or $0.18 per share, from the $4.2 million, or $0.17 per share,
reported for the comparable year-ago quarter. Sales from continuing operations
for the quarter increased 20% to $56.9 million from $47.4 million for the same
quarter a year ago.
Operating income in the first quarter of 1997 was 11.2% of sales, down from
13.1% in the first quarter of 1996 as gross margin declined to 34.5% from the
36.1% reported in the year ago quarter. In addition, research and development
spending increased 28% compared to the first quarter in 1996 as the Company
continues to fund new product design and development for the high growth
segments of the communications industry.
RESULTS OF OPERATIONS
The following table displays revenue by product category for the thirteen weeks
ended April 4, 1997 and March 29, 1996:
(Dollars in thousands)
APRIL 4, MARCH 29,
1997 1996
---------- -----------
Power Conversion $52,287 $43,918
92% 93%
Computer Systems 4,578 3,447
8% 7%
---------- -----------
Total $56,865 $47,365
========== ===========
For the thirteen weeks ended April 4, 1997, sales from continuing operations
increased by $9.5 million, or 20%, over the comparable prior year period as a
result of a wider range of product offerings, the continued foreign expansion
and the increase of service and support programs. Specifically, Power Conversion
sales improved 19% compared to the first quarter of 1996 while Computer Systems
sales increased 33% compared to the same period a year ago.
Sales to customers in Asia and the Pacific Rim increased 592% from $1.2 million
in the first quarter of 1996 to $8.3 million in the most recent quarter mainly
due to the award of a significant Original Equipment Manufacturer ("OEM")
program with shipments beginning in the second quarter of 1996. Likewise, the
Company's European Power Conversion business recorded an 8% increase in sales
for the first quarter of 1997 compared to the year ago quarter again due to
increased demand from OEM communications customers. The Company anticipates
additional sales growth in Power Conversion during the remainder of this fiscal
year and intends to consider acquisition and partnership opportunities to
increase market share and expand product range.
As mentioned above, Computer Systems sales were 33% higher than the first
quarter of 1996 as this division continues to transition from the computer
industry to the communications sector. Similar to the Power Conversion division,
Computer Systems has concentrated its marketing efforts on the high-growth
communications industry, where it provides networking, telecommunications and
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, the Company expects this division to increase its sales volume through
the remainder of the fiscal year.
Orders for the first quarter of 1997 increased to an all time record of $65.7
million representing a 47% improvement compared to the year ago quarter. The
large increase is the result of entering the production phase of new OEM
programs awarded to both the Power Conversion and Computer Systems divisions
during 1996. At April 4, 1997, order backlog was $54.1 million compared to $45.9
million at January 3, 1997.
Although gross profit for the current quarter increased by $2.5 million over the
first quarter of 1996, gross margin of 34.5% was down compared to the 36.1%
reported for the same period a year ago. Margins were adversely impacted by the
shift in sales mix to the Company's high-volume, lower-margin OEM customers
coupled with lower standard product sales to the distribution sales channel.
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.
For the first quarter of 1997, selling, general and administrative ("SG&A")
expenses as a percentage of sales remained level at 15.5% with the year ago
quarter; however, in absolute dollar terms, SG&A increased $1.3 million mostly
due to higher sales and marketing expenses. Specific factors included higher
commission expense from increased sales volume, the cost of additional marketing
programs to support the launch of new products and expansion of distribution
channels. The Company plans to invest significant resources to expand its
presence in Asia, the Pacific Rim and Europe; accordingly, selling expenses are
expected to continue to increase in absolute dollars through the remainder of
1997 while general and administrative expenses should continue to decline as a
percentage of sales.
Research and development ("R&D") spending increased approximately $1.0 million,
or 28%, compared to the first quarter of 1996. 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 7.9% for the first quarter of 1997 versus 7.4% for the comparable
prior year period. 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%.
LIQUIDITY AND CAPITAL RESOURCES
At April 4, 1997, the Company's cash balance was $29.4 million compared to $26.1
million at January 3, 1997 despite the long-term debt principal repayment of
$1.5 million on the Company's seven-year term loan.
Inventories increased $1.2 million, or 4%, from January 3, 1997 primarily in the
Power Conversion division as a result of production planning to meet
manufacturing lead times and anticipated demand for new product introductions.
Cash provided by operations increased to $6.1 million for the thirteen weeks
ended April 4, 1997 from $1.8 million for the thirteen weeks ended March 29,
1996 primarily as a result of an increase in accounts payable and accrued
liabilities.
Net cash used in investing activities decreased to $1.3 million for the thirteen
weeks ended April 4, 1997 from $2.4 million for the thirteen weeks ended March
29, 1996 due to lower equipment purchases.
Net cash used in financing activities for the thirteen weeks ended April 4, 1997
reflects mainly long-term debt principal repayments including $1.5 million on
the Company's seven-year term loan.
The Company has a $20 million revolving line of credit that extends through
April 1, 1998. As of April 4, 1997, the Company had made no borrowings under the
line of credit and was in compliance with the agreement's covenants. Based on
current plans and business conditions, the Company believes that its cash and
equivalents, its available credit line, cash generated from operations, and
other financing activities are expected to be adequate to meet capital
expenditures, working capital requirements, debt obligations and outstanding
lease commitments through the remainder of fiscal 1997.
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-Q constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
are based on the Company's current expectations with respect to future sales,
operating efficiencies, growth and working capital needs. Such statements
involve risks and uncertainties which may cause actual results to differ
materially from those set forth in these forward-looking statements. Factors
that might affect such forward-looking statements include, among others, general
economic conditions and growth in the power supply and communications
industries, changes in customer mix, competitive factors and pricing pressures,
changes in product mix, the timely development and acceptance of new products,
ability to attract and retain customers including new OEM communications
customers, ability to attract and retain personnel, inventory risks due to
shifts in market demand, changes in absorption of manufacturing overhead,
domestic and foreign regulatory approvals and other risks described in the
Company's various reports filed with the Securities and Exchange Commission.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. 11 -- Computation of earnings per common and common equivalent share
for the thirteen weeks ended April 4, 1997 and March 29, 1996.
Exhibit No. 27 -- Financial Data Schedule.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the thirteen week period
ended April 4, 1997.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUTER PRODUCTS, INC.
-----------------------
(Registrant)
DATE: May 6, 1997 BY: Richard J. Thompson
-------------------
Richard J. Thompson
Vice President Finance
Chief Financial Officer
EXHIBIT NO. 11
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE-PRIMARY
(In Thousands)
THIRTEEN WEEKS ENDED
APRIL 4, MARCH 29,
1997 1996
------- --------
Weighted average shares outstanding 23,865 22,977
Net effect of dilutive stock
options--based on the treasury
stock method using average market price 809 1,479
------- --------
Common and common equivalent
shares outstanding 24,674 24,456
======== ========
EXHIBIT NO. 11
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE-FULLY DILUTED
(In Thousands Except Per Share Data)
THIRTEEN WEEKS ENDED
APRIL 4, MARCH 29,
1997 1996
------- -------
Shares outstanding 23,885 23,088
Net effect of dilutive stock options -
based on the treasury stock method
using the greater of month-end market
price or average market price 809 1,563
------- -------
Totals 24,694 24,651
======= =======
* * * * *
Income from continuing operations $4,473 $3,911
Discontinued operations
Loss from operations (333) (264)
Loss on disposal (1,729) -
------- -------
Net Income $2,411 $3,911
======= =======
Income from continuing operations $ 0.18 $ 0.17
Discontinued Operations
Loss from operations (0.01) (0.01)
Loss on disposal (0.07) -
------- -------
Net Income $ 0.10 $ 0.16
======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jan-02-1998
<PERIOD-END> Apr-04-1997
<CASH> 29,359
<SECURITIES> 0
<RECEIVABLES> 36,923
<ALLOWANCES> 1,301
<INVENTORY> 29,883
<CURRENT-ASSETS> 104,489
<PP&E> 55,312
<DEPRECIATION> 27,073
<TOTAL-ASSETS> 155,933
<CURRENT-LIABILITIES> 42,357
<BONDS> 21,185
0
0
<COMMON> 45,942
<OTHER-SE> 40,509
<TOTAL-LIABILITY-AND-EQUITY> 155,933
<SALES> 56,865
<TOTAL-REVENUES> 56,865
<CGS> 37,257
<TOTAL-COSTS> 37,257
<OTHER-EXPENSES> 13,218
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 589
<INCOME-PRETAX> 6,127
<INCOME-TAX> 1,654
<INCOME-CONTINUING> 4,473
<DISCONTINUED> 2,062
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,411
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
