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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 3, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-4466
ARTESYN TECHNOLOGIES, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA
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(State or other jurisdiction of incorporation or organization)
59-1205269
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(I.R.S. Employer Identification No.)
7900 Glades Road, Suite 500, Boca Raton, Florida 33434
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 451-1000
- -------------------------------------------------- --------------
COMPUTER PRODUCTS, INC.
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Former name, address and fiscal year if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares of Common Stock, $.01 par value, of the Registrant issued
and outstanding as of April 30, 1998 was 38,600,834 shares.
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<PAGE>
ARTESYN TECHNOLOGIES, 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 3, 1998 and
April 4, 1997 3
Statements of Financial Condition - April 3, 1998
and January 2, 1998 4
Statements of Cash Flows - For the
Thirteen Weeks Ended April 3, 1998 and
April 4, 1997 5
Notes to Condensed Consolidated Financial
Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Exhibit No. 27
SIGNATURE
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARTESYN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
APRIL 3, APRIL 4,
1998 1997
---------- ---------
<S> <C> <C>
SALES $147,178 $114,463
COST OF SALES 108,957 84,907
---------- ---------
GROSS PROFIT 38,221 29,556
---------- ---------
EXPENSES
Selling, general & administrative 14,352 12,047
Research & development 8,959 6,493
Restructuring charge 9,600 -
---------- ---------
32,911 18,540
---------- ---------
OPERATING INCOME 5,310 11,016
---------- ---------
OTHER INCOME (EXPENSE)
Interest expense (1,087) (1,087)
Interest income 680 441
---------- ---------
(407) (646)
---------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 4,903 10,370
PROVISION FOR INCOME TAXES 1,667 3,294
---------- ---------
INCOME FROM CONTINUING OPERATIONS 3,236 7,076
DISCONTINUED OPERATIONS
Loss from operations, net of income
tax benefit of $222 - (333)
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 $ 3,236 $ 5,014
========== =========
EARNINGS PER SHARE
BASIC -
Income from Continuing Operations $ 0.08 $ 0.20
Discontinued Operations - (0.06)
---------- ---------
Net Income $ 0.08 $ 0.14
========== =========
ASSUMING FULL DILUTION -
Income from Continuing Operations $ 0.08 $ 0.19
Discontinued Operations - (0.06)
---------- ---------
Net Income $ 0.08 $ 0.13
========== =========
COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING
Basic 38,461 36,165
Assuming full dilution 41,468 39,279
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ARTESYN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
APRIL 3, JANUARY 2,
1998 1998
(UNAUDITED) (AUDITED)
---------- -----------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and equivalents $ 50,652 $ 55,392
Accounts receivable, net 87,842 84,479
Inventories 65,928 59,663
Prepaid expenses and other 5,880 8,522
Deferred income taxes, net 6,016 5,293
-------- --------
TOTAL CURRENT ASSETS 216,318 213,349
-------- --------
PROPERTY, PLANT & EQUIPMENT, NET 62,327 61,581
-------- --------
OTHER ASSETS
Goodwill, net 39,740 40,704
Deferred income taxes, net 4,535 4,509
Other assets 2,225 2,034
-------- --------
TOTAL OTHER ASSETS 46,500 47,247
-------- --------
$325,145 $322,177
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 7,391 $15,598
Accounts payable and accrued liabilities 93,859 81,929
-------- --------
TOTAL CURRENT LIABILITIES 101,250 97,527
LONG-TERM DEBT 49,040 52,949
OTHER LONG TERM LIABILITIES 8,210 9,025
-------- --------
TOTAL LIABILITIES 158,500 159,501
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01; 1,000,000 shares
authorized; none issued
Common stock, par value $.01; 80,000,000 shares
authorized; 38,547,523 issued and outstanding
at April 3, 1998 (38,380,964 sharesat January 2, 1998) 385 384
Additional paid-in capital 80,155 78,056
Retained earnings 92,005 88,769
Foreign currency translation adjustment (5,900) (4,533)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 166,645 162,676
-------- --------
$325,145 $322,177
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ARTESYN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
APRIL 3, APRIL 4,
1998 1997
-------- ---------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 3,236 $ 5,014
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,086 3,110
Provision for restructuring charge 9,600 -
Provision for discontinued operations - 1,729
Other non-cash charges 376 203
Changes in operating assets and liabilities:
Increase in accounts receivable (1,817) (8,851)
Increase in inventories and prepaid
expenses and other (6,361) (6,082)
Increase in accounts payable and accrued liabilities 1,975 9,769
Operating activities of discontinued operations - 1,733
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,095 6,625
-------- ---------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (4,854) (2,862)
Investing activities of discontinued operations - (34)
(Increase) decrease in other assets (434) 49
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES (5,288) (2,847)
-------- ---------
FINANCING ACTIVITIES
Proceeds from issuances of long-term debt - 1,306
Principal payments on debt and capital leases (11,206) (3,983)
Proceeds from revolving credit loans - 3,847
Payments on revolving credit loans - (3,847)
Proceeds from exercises of stock options 1,089 457
-------- ---------
NET CASH USED IN FINANCING ACTIVITIES (10,117) (2,220)
-------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS (430) (170)
-------- ---------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (4,740) 1,388
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 55,392 34,676
-------- ---------
CASH AND EQUIVALENTS, END OF PERIOD $50,652 $36,064
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ARTESYN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
APRIL 3, 1998
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
Artesyn Technologies, Inc. ("the Company"). The results of operations for the
thirteen weeks ended April 3, 1998 are not necessarily indicative of the results
that may be expected for fiscal year 1998. 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 1997 Annual
Report to Shareholders.
Certain prior year amounts have been reclassified to conform with current year's
presentation.
2. INVENTORIES
The components of inventory are as follows ($000s):
April 3, January 2,
1998 1998
-------- --------
Raw materials $35,846 $31,181
Work in process 11,902 12,582
Finished goods 18,180 15,900
------- --------
$65,928 $59,663
======= ========
3. PROPERTY PLANT & EQUIPMENT, NET
Related accumulated depreciation was $58,212,000 and $50,858,000 at April 3,
1998 and January 2, 1998, respectively.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are as follows
($000s):
April 3, January 2,
1998 1998
------- --------
Accounts payable $43,202 $36,790
Accrued liabilities:
Compensation and benefits 14,105 14,875
Income taxes payable 13,214 14,071
Restructuring reserve 6,000 -
Warranty reserve 4,598 3,457
Other 12,740 12,736
--------- --------
$93,859 $81,929
========= ========
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 3, April 4,
1998 1997
------- -------
Provision computed at United States
federal statutory rate 35.0% 35.0%
Amortization of goodwill 0.2 0.2
Change in the valuation allowance (2.0) (5.2)
Foreign tax effects (2.0) (3.2)
Effect of state income taxes 2.6 5.1
Other 0.2 (0.2)
------ ------
Effective tax rate 34.0% 31.7%
====== ======
6. RESTRUCTURING CHARGE
In connection with the Company's restructuring plan following the merger with
Zytec Corporation, the Company recorded a pre-tax restructuring charge of $9.6
million during the first quarter of 1998. This charge relates to the elimination
of duplicate facilities in an effort to reduce costs pursuant to the Company's
integration plan. Specific restructuring actions include the elimination of
three manufacturing facilities through the consolidation of manufacturing
operations, with corresponding personnel reductions, the realignment of the
Company's workforce to eliminate duplicate functions particularly in
administrative areas, the rationalization of product lines, and other
cost-savings actions.
The components of the restructuring charge at April 3, 1998 were as follows
($000s):
Amount
---------
Employee termination benefits $3,956
Product line rationalization 2,411
Asset write-offs 1,231
Facility closures 2,002
---------
$9,600
=========
Employee termination benefits primarily represent severance pay and other
benefits associated with the elimination of approximately 400 positions
worldwide, with more than 70% of the eliminated positions coming from the
rationalization of certain duplicate manufacturing locations in Europe. The
provision for the facility closures includes lease termination payments, service
contracts obligations, and other exit costs associated with facility closures.
The product line rationalization provision of the restructuring charge relates
to the discontinuation of non-core product lines and write-offs of certain
inventory items not transferable to other locations. In addition, certain fixed
assets (including duplicate management information systems and unusable
equipment) were written down to their net realizable value.
Total expected cash expenditures relating to the restructuring charge are
estimated to be approximately $6.0 million, which, with the exception of certain
lease-related cash requirements, is expected to be paid within the next twelve
months.
As of April 3, 1998, $6.0 million of the restructuring charge is included in
accrued liabilities and the remainder is recorded as a reduction in the carrying
amount of related assets.
<PAGE>
7. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS
130"), "Reporting Comprehensive Income", effective January 3, 1998. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components in financial statements. The components of the Company's
comprehensive income are as follows ($000s):
Thirteen Weeks Ended
April 3, April 4,
1998 1997
----------- -----------
Net income $3,236 $5,014
Foreign currency translation
adjustment (2,071) (2,297)
Tax benefit 704 728
----------- -----------
(1,367) (1,569)
----------- -----------
Comprehensive income $1,869 $3,445
=========== ===========
8. EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share and the
effects on income and the weighted-average number of shares of potential
dilutive common stock. The reconciliation of the numerator and denominator of
the EPS calculation is presented below ($000s except per share data):
==========================================================
FOR THE THIRTEEN WEEKS ENDED
==========================================================
============================ ============================
APRIL 3, 1998 APRIL 4, 1997
============================ ============================
Income Shares Income Shares
Numerator Denominator EPS Numerator Denominator EPS
--------- ----------- ---- --------- ---------- ----
Income from
continuing operations $3,236 $7,076
--------- ---------
BASIC EPS
Income available to
common shareholders 3,236 38,461 $0.08 7,076 36,165 $0.20
====== ======
Effect of dilutive
securities
Stock options 3,007 1,947
Convertible Debt 200 1,167
--------- -------- --------- --------
DILUTED EPS
Income available to
common shareholders $3,236 41,468 $0.08 $7,276 39,279 $0.19
========= ======== ====== ========= ======== ======
Options to purchase 264,987 and 887,848 shares of common stock were not included
in computing diluted EPS for the periods ended April 3, 1998 and April 4, 1997,
respectively, because their effects were antidilutive for the respective
periods.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In connection with the Company's restructuring plan following the merger with
Zytec Corporation, the Company recorded a pre-tax restructuring charge of $9.6
million during the first quarter of 1998. Including the restructuring charge,
net income was $3.2 million, or $0.08 per share. Sales for the quarter increased
29% to $147.2 million from $114.5 million in the first quarter of 1997.
Including the restructuring charge, operating income in the first quarter of
1998 was $5.3 million, or 3.6% of sales, compared to $11.0 million, or 9.6% of
sales, in the first quarter of 1997.
RESULTS OF OPERATIONS
The 29% sales increase in sales over the first quarter of 1997 stemmed from a
stronger than anticipated demand from customers in the computing sector. Sales
to networking customers met the Company's expectations while demand in the
telecommunications and wireless markets was lower than expected as a result of
reduced Asian end use demand and customers' inventory reduction programs.
Although gross profit for the current quarter increased by $8.7 million over the
first quarter of 1997, gross margin of 26.0% was about level with the 25.8%
reported for the same period a year ago. Margins continue to be impacted by the
shift in sales mix to the Company's high-volume, lower-margin OEM customers.
Although the Company continues to focus on reducing manufacturing costs and
improving overall processes, the Company does not anticipate that its gross
margins will increase significantly from 1997 levels due to continuing
competitive pricing pressures and changes in product mix, especially as more OEM
programs are awarded.
For the first quarter of 1998, selling, general and administrative ("SG&A")
expenses as a percentage of sales decreased to 9.8% compared to 10.5% in the
year ago quarter. However, in absolute dollar terms, SG&A increased $2.3 million
primarily due to integration activities following the merger with Zytec
Corporation and the inclusion of the Elba Group acquired in July of 1997. The
integration costs were incurred to support marketing activities, to change the
Company's name to Artesyn Techonologies, to begin implementation of a new
enterprise-wide information system, and to familiarize the Company's employees,
customers, suppliers and investors with the resources of the new Artesyn
Technologies.
Research and development ("R&D") spending increased approximately $2.5 million,
or 38%, compared to the first quarter of 1997. 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 6.1% for the first quarter of 1998 versus 5.7% 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.
The Company recorded a pre-tax restructuring charge of $9.6 million during the
first quarter of 1998. This charge relates to the elimination of duplicate
facilities in an effort to reduce costs pursuant to the Company's integration
plan. Specific restructuring actions include the elimination of three
manufacturing facilities through the consolidation of manufacturing operations,
with corresponding personnel reductions, the realignment of the Company's
workforce to eliminate duplicate functions particularly in administrative areas,
the rationalization of product lines, and other cost-savings actions. Total
expected cash expenditures relating to the restructuring charge are estimated to
be approximately $6.0 million, which, with the exception of certain
lease-related cash requirementsis, is expected to be paid within the next twelve
months.
LIQUIDITY AND CAPITAL RESOURCES
At April 3, 1998, the Company's cash balance decreased to $50.7 million from
$55.4 million on January 2, 1998 due to significant uses of cash for principal
debt repayments and capital expenditures. These activities were funded with cash
from operations and proceeds from exercises of stock options.
Inventories increased $6.3 million, or 11%, from January 2, 1998 primarily in
the Power Conversion division as a result of production planning to meet
manufacturing lead times and anticipated demand for new product introductions.
Accounts payable increased $6.4 million, or 17%, from January 2, 1998 due to
increases in capital expenditures, operating expenses, and material purchases to
support the Company's growth in sales.
Cash provided by operations increased to $11.1 million for the thirteen weeks
ended April 3, 1998 from $6.6 million for the thirteen weeks ended April 4, 1997
primarily due to income from operations excluding the $9.6 million restructuring
charge partially offset by smaller increases in accounts payable and accrued
liabilities.
Net cash used in investing activities increased to $5.3million for the thirteen
weeks ended April 3, 1998 from $2.8 million for the thirteen weeks ended April
4, 1997 due to higher equipment purchases.
Net cash used in financing activities of $10.1 million for the thirteen weeks
ended April 3, 1998 reflects mainly long-term debt principal repayments
including $2.2 million on the Company's seven-year term loan and approximately
$7.0 million on the Company's Austrian subsidiary's revolving loans and notes
payable.
The Company has a $20 million revolving line of credit that extends through
April 1, 2000. As of April 3, 1998, 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 and capital lease obligations,
and operating lease commitments through the remainder of fiscal 1998.
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. 27 -- Financial Data Schedule.
(B) REPORTS ON FORM 8-K
During the thirteen-week period ended April 3, 1998 the Company filed the
following reports on Form 8-K:
On January 13, 1998, the Company filed a Current Report on Form 8-K announcing
that on December 29, 1997 it completed the merger with Zytec Corporation.
On May 12, 1998, the Company filed a Current Report on Form 8-K announcing that
on May 6, 1998 the Company's shareholders approved an amendment to the Company's
Articles of Incorporation to change the Company's name to "Artesyn Technologies,
Inc."
<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.
ARTESYN TECHNOLOGIES, INC.
(Registrant)
DATE: May 13, 1998 BY: Richard J. Thompson
-------------------
Richard J. Thompson
Vice President Finance
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Restated for merger accounted as pooling of interests. Primary EPS represents
basic while fully diluted represents dilutive under new SFAS 128.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JAN-01-1999 JAN-02-1998
<PERIOD-END> APR-03-1998 APR-04-1997
<CASH> 50,562 36,064
<SECURITIES> 0 0
<RECEIVABLES> 89,439 71,203
<ALLOWANCES> 1,597 1,301
<INVENTORY> 65,928 52,956
<CURRENT-ASSETS> 216,318 172,015
<PP&E> 120,539 94,396
<DEPRECIATION> 58,212 45,786
<TOTAL-ASSETS> 325,145 248,326
<CURRENT-LIABILITIES> 101,250 77,137
<BONDS> 49,040 47,164
0 0
0 0
<COMMON> 80,540 59,969
<OTHER-SE> 86,105 62,218
<TOTAL-LIABILITY-AND-EQUITY> 325,145 248,326
<SALES> 147,178 114,463
<TOTAL-REVENUES> 147,178 114,463
<CGS> 108,957 84,907
<TOTAL-COSTS> 108,957 84,907
<OTHER-EXPENSES> 32,911 18,540
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,087 1,087
<INCOME-PRETAX> 4,903 10,370
<INCOME-TAX> 1,667 3,294
<INCOME-CONTINUING> 3,236 7,076
<DISCONTINUED> 0 (2,062)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,236 5,014
<EPS-PRIMARY> 0.08 0.14
<EPS-DILUTED> 0.08 0.13
</TABLE>
