==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 2, 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
- - ------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
59-1205269
- - ------------------------------------------------------------------------------
(I.R.S. Employer Identification No.)
7900 Glades Road, Suite 500, Boca Raton, Florida 33434
- - ------------------------------------------------------------------------------
(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 October 30, 1998, was 37,782,650 shares.
==============================================================================
<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
and Thirty-Nine Weeks Ended October 2, 1998 and
October 3, 1997 3
Statements of Financial Condition - October 2, 1998
and January 3, 1997 4
Statements of Cash Flows - For the
Thirty-Nine Weeks Ended October 2, 1998 and
October 3, 1997 5
Statement of Shareholders' Equity- For the
Thirty-Nine Weeks Ended October 2, 1998 6
Notes to Condensed Consolidated Financial
Statements 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Exhibit No. 27
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARTESYN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
OCTOBER 2, OCTOBER 3, OCTOBER 2, OCTOBER 3,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES $124,582 $133,744 $393,584 $379,085
COST OF SALES 90,549 97,452 288,908 277,439
--------- --------- --------- ---------
GROSS PROFIT 34,033 36,292 104,676 101,646
--------- --------- --------- ---------
EXPENSES
Selling, general & administrative 13,385 12,701 42,136 37,098
Research & development 8,413 7,720 25,657 21,607
Restructuring charge - - 9,600 -
--------- --------- --------- ---------
TOTAL OPERATING EXPENSES 21,798 20,421 77,393 58,705
--------- --------- --------- ---------
OPERATING INCOME 12,235 15,871 27,283 42,941
--------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense (935) (1,358) (3,069) (3,483)
Interest income 650 455 1,994 1,326
--------- ---------- --------- ---------
(285) (903) (1,075) (2,157)
--------- ---------- --------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 11,950 14,968 26,208 40,784
PROVISION FOR INCOME TAXES 3,950 4,585 8,797 12,888
--------- ---------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 8,000 10,383 17,411 27,896
DISCONTINUED OPERATIONS
Loss from operations, net of income taxes 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 $ 8,000 $ 10,383 $ 17,411 $ 25,834
========= ========== ========= =========
EARNINGS PER SHARE
BASIC-
Income from Continuing Operations $ 0.21 $ 0.28 $ 0.45 $ 0.77
Discontinued Operations - - - (0.06)
--------- ---------- --------- ---------
Net Income $ 0.21 $ 0.28 $ 0.45 $ 0.71
========= ========== ========= =========
ASSUMING FULL DILUTION-
Income from Continuing Operations $ 0.20 $ 0.25 $ 0.42 $ 0.70
Discontinued Operations - - - (0.06)
--------- ---------- --------- ---------
Net Income $ 0.20 $ 0.25 $ 0.42 $ 0.64
========= ========== ========= =========
NUMBER OF SHARES USED IN THE PER SHARE CALCULATION
Basic 38,498 36,865 38,536 36,469
Assuming Full Dilution 40,394 41,447 40,981 40,253
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
<PAGE>
ARTESYN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
OCTOBER 2, JANUARY 2,
1998 1998
------------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and equivalents $ 40,675 $ 55,392
Accounts receivable, net 77,877 84,479
Inventories 68,627 59,663
Prepaid expenses and other 4,056 8,522
Deferred income taxes, net 7,253 5,293
------------- -------------
Total current assets 198,488 213,349
------------- -------------
PROPERTY, PLANT & EQUIPMENT, NET 71,726 61,581
------------- -------------
OTHER ASSETS
Goodwill, net 41,340 40,704
Deferred income taxes, net 4,989 4,509
Other assets, net 1,582 2,034
------------- -------------
Total other assets 47,911 47,247
------------- -------------
$318,125 $322,177
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt and capital leases $ 7,184 $ 15,598
Accounts payable and accrued liabilities 82,306 81,929
------------- -------------
Total current liabilities 89,490 97,527
------------- -------------
LONG-TERM LIABILITIES
Long-term debt and capital leases 46,281 52,949
Other long-term liabilities 8,268 9,025
------------- -------------
Total long-term liabilities 54,549 61,974
------------- -------------
Total liabilities 144,039 159,501
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01; 1,000,000 shares
authorized; none issued - -
Common stock, par value $.01; 80,000,000 shares
authorized; 38,051,000 shares issued and outstanding
at October 2, 1998 (38,380,964 at January 2, 1998) 381 384
Additional paid-in capital 82,788 78,056
Retained earnings 92,766 88,769
Foreign currency translation adjustment (1,849) (4,533)
------------- -------------
Total shareholders' equity 174,086 162,676
------------- -------------
$318,125 $322,177
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
ARTESYN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
OCTOBER 2, OCTOBER 3,
1998 1997
--------- ----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $17,411 $25,834
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,511 9,695
Provision for restructuring charge 9,600 -
Provision for discontinued operations - 1,636
Deferred income taxes (2,181) (1,175)
Other non-cash charges 2,896 1,380
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 8,590 (25,493)
Increase in inventories and prepaid expenses and other (5,974) (12,180)
Increase (decrease) in accounts payable and
accrued liabilities (10,409) 18,126
Net cash provided by discontinued operations - 1,423
--------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 32,444 19,246
--------- ----------
INVESTING ACTIVITIES:
Purchases of property, plant & equipment (19,862) (15,516)
Proceeds from sale of property, plant and equipment 485 -
Purchase of the Elba Group, net of cash acquired - (25,768)
Sale of RTP Corp. 2,150 2,000
(Increase) decrease in other assets (191) 62
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (17,418) (39,222)
--------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - 33,715
Principal payments on debt and capital leases (18,148) (10,982)
Proceeds from revolving credit loans - 11,089
Payments on revolving credit loans - (11,089)
Proceeds from exercises of stock options 3,458 4,421
Repurchases and retirement of common stoc (15,481) -
--------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (30,171) 27,154
--------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS 428 (442)
--------- ----------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (14,717) 6,736
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 55,392 34,676
--------- ----------
CASH AND EQUIVALENTS, END OF PERIOD $40,675 $41,412
========= ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
ARTESYN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTOF SHAREHOLDERS EQUITY
For the Thirty-Nine Weeks Ended October 2, 1998
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON STOCK PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT
--------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 2, 1998 38,381 $384 $78,056 $88,769 $(4,533)
Issuance of common stock under stock
option plans 598 6 3,452 - -
Tax benefit from exercises of stock options - - 3,338 - -
Repurchases and retirement of common stock (928) (9) (2,058) (13,414)
Foreign currency translation adjustment - - - - 2,684
Net income - - - 17,411 -
--------- --------- ---------- --------- -----------
BALANCE, OCTOBER 2, 1998 38,051 $381 $82,788 $92,766 $(1,849)
========= ========= ========== ========= ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
ARTESYN TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
OCTOBER 2, 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 and thirty-nine weeks ended October 2, 1998 are not necessarily
indicative of the results that may be expected for fiscal year 1998. 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 and Form 10-Q for the twenty-six weeks ended July 3,
1998.
Certain prior year amounts have been reclassified to conform to current year's
presentation.
2. INVENTORIES
The components of inventory are as follows ($000s):
October 2, January 2,
1998 1998
-------- --------
Raw materials $36,545 $31,181
Work in process 11,628 12,582
Finished goods 20,454 15,900
-------- --------
$68,627 $59,663
======== ========
3. PROPERTY, PLANT & EQUIPMENT, NET
Related accumulated depreciation was $66,729,000 and $50,858,000 at October 2,
1998 and January 2, 1998, respectively.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are as follows
($000s):
October 2, January 2,
1998 1998
------- -------
Accounts payable $37,416 $36,790
Accrued liabilities:
Compensation and benefits 14,190 14,875
Income taxes payable 12,209 14,071
Restructuring reserve 3,208 -
Warranty reserve 3,721 3,457
Other 11,562 12,736
------- -------
$82,306 $81,929
======== ========
5. INCOME TAXES
The provision for income taxes reflects federal, state, and foreign taxes. The
effective income tax rate on pretax earnings differs from that computed at the
United States federal statutory rate for the following reasons:
Thirty-Nine Weeks Ended
October 2, October 3,
1998 1997
-------- --------
Provision computed at United States
federal statutory rate 35.0% 35.0%
Effect of state income taxes 2.7 5.1
Amortization of goodwill 0.4 0.3
Foreign tax effects (1.5) (2.5)
Change in the valuation allowance (3.7) (6.5)
Other 0.7 0.2
------- -------
Effective tax rate 33.6% 31.6%
======= =======
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 fiscal year 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 closure
of certain 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 recorded in the first quarter of
1998, payments and other activities through the third quarter of 1998, and the
remaining reserve balances at October 2, 1998 were as follows ($000s):
<TABLE>
<CAPTION>
Employee
Termination Product Line Asset Facility
Benefits Rationalization Write-offs Closures Total
------------- --------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Restructuring provision $3,956 $2,411 $1,231 $2,002 $9,600
Cash payments (2,488) - - (262) (2,750)
Non-cash activities - (2,411) (1,231) - (3,642)
------------- --------------- ------------ ---------- ----------
Reserve balance at October 2, 1998 $1,468 $ - $ - $1,740 $3,208
============= =============== ============ ========== ==========
</TABLE>
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. As of
October 2, 1998, approximately 300 of the anticipated 400 positions had been
eliminated worldwide. The provision for the facility closures includes lease
termination payments, service contracts obligations, and other exit costs
associated with such 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 or product lines. 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 initial 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 in the near
term. To date, the Company has paid $2.8 million primarily for employee
termination benefits.
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):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
October 2, October 3, October 2, October 3,
1998 1997 1998 1997
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net income $ 8,000 $10,383 $17,411 $25,834
Foreign currency translation adjustment 4,696 (1,661) 4,042 (5,552)
Tax (provision) benefit (1,578) 565 (1,358) 1,888
--------------- -------------- --------------- ---------------
3,118 (1,097) 2,684 (3,664)
--------------- -------------- --------------- ---------------
Comprehensive income $11,118 $9,286 $20,095 $22,170
=============== ============== =============== ===============
</TABLE>
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 earnings per share ("EPS") calculation is presented below (000s except per
share data):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
October 2, October 3, October 2, October 3,
1998 1997 1998 1997
-------------- -------------- ------------- -------------
BASIC EPS
<S> <C> <C> <C> <C>
Income from continuing operations $ 8,000 $ 10,383 $17,411 $27,896
-------------- -------------- ------------- -------------
Weighted average shares 38,498 36,865 38,536 36,469
-------------- -------------- ------------- -------------
Per share - Basic $0.21 $0.28 $0.45 $0.77
============== ============== ============= =============
ASSUMING DILUTION
Income from continuing operations $ 8,000 $10,383 $17,411 $27,896
Add: after-tax interest on convertible note - 138 - 414
-------------- -------------- ------------- -------------
$ 8,000 $10,521 $17,411 $28,310
-------------- -------------- ------------- -------------
Weighted average shares 38,498 36,865 38,536 36,469
Effect of dilutive items
Stock options 1,896 3,415 2,445 2,617
Convertible note - 1,167 - 1,167
-------------- -------------- ------------- -------------
40,394 41,447 40,981 40,253
-------------- -------------- ------------- -------------
Per share- Diluted $0.20 $0.25 $0.42 $0.70
============== ============== ============= =============
Antidilutive weighted options 1,352 - 442 174
</TABLE>
The above antidilutive weighted options to purchase shares of common stock were
not included in computing diluted earnings per share because their effects were
antidilutive for the respective periods.
9. SHAREHOLDERS EQUITY
On July 22, 1998, the Company's Board of Directors authorized a share repurchase
program to purchase up to 4.0 million shares of the Company's common stock in
the open market or in privately-negotiated transactions, depending on market
conditions and other factors. As of October 2, 1998, the Company repurchased and
retired 927,500 shares of its common stock for a total of approximately $15.5
million in cash. 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.
10. DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to reduce financial market
risks. These instruments are used to hedge foreign currency market exposures of
underlying assets and liabilities. The Company does not use derivative financial
instruments for speculative or trading purposes. The Company's accounting
policies for these instruments are based on the Company's designation of such
instruments as hedging transactions. The criteria the Company uses for
designating an instrument as a hedge include the instrument's effectiveness in
risk reduction and one-to-one matching of derivative instruments to underlying
transactions. Gains and losses on currency forward contracts that are designated
and effective as hedges of anticipated transactions, for which a firm commitment
has been attained, are deferred and recognized in income in the same period that
the underlying transactions are settled. Gains and losses on currency forward
contracts that are designated and effective as hedges of existing transactions
are recognized in income in the same period as losses and gains on the
underlying transactions are recognized and generally offset. Gains and losses on
any instruments not meeting the above criteria would be recognized in income in
the current period.
The Company transacts business in various foreign currencies, primarily Irish
Punts, Deutsche Mark, Japanese Yen and other European currencies. The Company
has established balance sheet hedging programs to protect against reductions in
value and volatility of future cash flows caused by changes in foreign exchange
rates. At October 2, 1998, the Company's outstanding notional amount for
currency forward contracts was approximately $11.0 million maturing in one to
three months. At January 2, 1998, the Company held $6.6 million of forward
currency exchange contracts. The amount of any gain or loss on these contracts
during the period was not material. Deferred gains or losses attributable to the
foreign currency instruments are not material.
11. RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value depends on the
intended use of the derivative and the resulting designation. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
The Company believes the adoption of SFAS No. 133 will not have a material
effect on the Company's financial condition or results of operations.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the third quarter of 1998 decreased 7% to $124.6 million from $133.7
million for last year's comparable period. For the first nine months of 1998,
sales totaled $393.6 million, up 4% from $379.1 million for the comparable
period in 1997. Sales continued to reflect erratic demand in the Company's
primary sales market. This lower demand has been exacerbated by inventory
reduction initiatives at certain of the Company's customers.
Orders for the third quarter of 1998 grew to $127.8 million representing a 7%
sequential improvement over the prior quarter. At October 2, 1998, order backlog
was $104.7 million compared to $103.1 million at January 2, 1998. The Company
has a cautious demand outlook for the rest of the year although the increase in
orders during the third quarter of 1998 supports our belief that demand for
product in the end-use markets is gradually improving.
The Company's continued focus on achieving material and manufacturing overhead
savings was reflected in the current quarter's gross margin, which improved both
sequentially and from the year ago quarter to 27.3%, notwithstanding reduced
sales volume and a more price competitive market place. Also, the current
year-to-date margin of 26.6% is about level with the 26.8% reported for the
nine-month period a year ago, in part reflecting a reduction by the Company in
its own inventories in response to lower customer demand. Although the Company
continues to focus on reducing manufacturing costs and improving overall
processes, the Company does not anticipate that gross margins will vary
significantly from the current level due to continuing competitive pricing
pressures and changes in product mix.
Selling, general and administrative expenses were $13.4 million and $42.1
million for the thirteen and thirty-nine weeks ended October 2, 1998,
respectively, compared to $12.7 million and $37.1 million for the comparable
prior year periods. The increase in 1998 was partially due to additional
spending for the 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 Technologies, 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. The Company has been taking aggressive steps to curb operating
expenses and to eliminate excess manufacturing resources wherever prudent.
The Company continued its commitment to new products for its global
communication customers by investing $8.4 million, or 6.8% of sales, in research
and development activities during the third quarter of 1998, compared to $7.7
million, or 5.8%, in the comparable year ago quarter. The Company believes that
the timely introduction of new technology and products is an important component
of its competitive strategy and anticipates future research and development
spending will not significantly differ from the historical trend as a percentage
of sales of approximately 6-8%.
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
manufacturing facilities in an effort to reduce costs pursuant to the Company's
integration plan. Specific restructuring actions include the elimination of
certain 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 expenditure relating to the
restructuring charge is estimated to be approximately $6.0 million, which, with
the exception of certain lease-related cash requirements, is expected to be paid
in the near term. To date, the Company has paid approximately $2.8 million
primarily for employee termination benefits.
Net income for the third quarter of 1998 was $8.0 million, or $0.20 per share,
compared to $10.4 million, or $0.25 per share, reported for the comparable
year-ago quarter. For the first nine months of 1998, excluding the $9.6 million
pre-tax restructuring charge taken in the first quarter of 1998, income from
continuing operations was $23.8 million, or $0.58 per share, compared to $27.9
million, or $0.70 per share, in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At October 2, 1998, the Company's cash balance decreased to $40.7 million from
$55.4 million at January 2, 1998 primarily due to $15.5 million spent for
repurchases of the Company's common stock, $18.2 million for principal debt
repayments and $19.9 million for capital expenditures. These activities were
funded primarily with cash from operations and proceeds from exercises of stock
options.
Accounts receivable decreased to $77.9 million at October 2, 1998 from $84.4
million at January 2, 1998 due to lower sales volume and increased collection
activities.
Inventories increased to $68.6 million at October 2, 1998 from $59.7 million
January 2, 1998 to support production planning to meet manufacturing lead times
and anticipated demand for new product introductions.
Effective June 30, 1998, the Company repaid the outstanding balance of $3.2
million on its 6.9% mortgage note maturing July 1, 2001.
On July 22, 1998, the Company's Board of Directors authorized a share repurchase
program to purchase up to 4.0 million shares of the Company's common stock in
the open market or in privately-negotiated transactions, depending on market
conditions and other factors. As of October 2, 1998, the Company repurchased and
retired 927,500 shares of its common stock for a total of approximately $15.5
million in cash.
Cash provided by operations increased to $32.4 million for the thirty-nine weeks
ended October 2, 1998 from $19.2 million for the thirty-nine weeks ended October
3, 1997. The increase was primarily due to a decrease in accounts receivable and
a smaller increase in inventories partially offset by a decrease in accounts
payable and accrued liabilities.
Net cash used in investing activities for the thirty-nine weeks ended October 2,
1998 reflects capital expenditures of $19.9 million partially offset by $2.2
million proceeds from the sale of RTP Corp. Net cash used in investing
activities for the comparable period in 1997 includes the acquisition of the
Elba Group for approximately $25.8 million (net of cash acquired) and purchases
of plant and equipment for $15.5 million partially offset by $2.0 million
proceeds from the sale of RTP Corp.
Net cash used in financing activities for the thirty-nine weeks ended October 2,
1998 of $30.2 million reflects: (1) long-term debt principal repayments
including $4.4 million on the Company's seven-year term loan, $3.2 million on
its 6.9% mortgage note, and approximately $7.6 million on the Company's Austrian
subsidiary's revolving loans and notes payable, (2) repurchase and retirement of
927,500 shares of the Company's common stock for $15.5 million, and (3) proceeds
from stock option exercises.
Cash provided by financing activities for the thirty-nine weeks ended October 3,
1997 of $27.2 million reflects borrowings under the 52 million Deutsche Mark
term loans, net of debt issuance costs, and $4.4 million proceeds from exercises
of stock options partially offset by $11.0 million long-term debt and capital
lease principal repayments including $3.7 million on the Company's seven-year
term loan.
The Company has a $20 million revolving line of credit that extends through
April 1, 2000. As of July 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 5. OTHER INFORMATION
In accordance with the Company's By-laws and Rules 14a-4(c) and 14a-5(e)
promulgated under the Securities Exchange Act of 1934, the Company hereby
notifies its stockholders that if the Company does not receive notice by
February 1, 1999 of a proposed matter to be submitted for stockholder vote at
the Company's 1999 Annual Meeting, then any proxies held by members of the
Company's management in respect of such Meeting may be voted in the discretion
of such management members on such matter, without any discussion of such
proposed matter in the proxy statement to be distributed in respect of such
Meeting. In addition, the Company's By-laws contain other restrictions regarding
the method by which a stockholder may present a matter to be submitted for
stockholder vote at the Company's Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
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 October 2, 1998.
<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: November 13, 1998 BY: /s/ Richard J. Thompson
-----------------------
Richard J. Thompson
Vice President Finance
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Prior year data wa restated to reflect pooling of interests merger effective
December 29, 1997. Also, Primary EPS represents Basic EPS under new SFAS 128.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JAN-01-1999 JAN-02-1998
<PERIOD-END> OCT-02-1998 OCT-03-1997
<CASH> 40,675 41,412
<SECURITIES> 0 0
<RECEIVABLES> 79,662 90,128
<ALLOWANCES> 1,785 1,845
<INVENTORY> 68,627 64,489
<CURRENT-ASSETS> 198,488 202,904
<PP&E> 138,455 105,626
<DEPRECIATION> 66,729 45,923
<TOTAL-ASSETS> 318,125 313,298
<CURRENT-LIABILITIES> 89,490 90,606
<BONDS> 46,281 56,045
0 0
0 0
<COMMON> 83,169 66,425
<OTHER-SE> 90,917 80,943
<TOTAL-LIABILITY-AND-EQUITY> 318,125 313,298
<SALES> 393,584 379,085
<TOTAL-REVENUES> 393,584 379,085
<CGS> 288,908 277,439
<TOTAL-COSTS> 288,908 277,439
<OTHER-EXPENSES> 77,393 58,705
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,069 3,483
<INCOME-PRETAX> 26,208 40,784
<INCOME-TAX> 8,797 12,888
<INCOME-CONTINUING> 17,411 27,896
<DISCONTINUED> 0 (2,062)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 17,411 25,834
<EPS-PRIMARY> 0.45 0.71
<EPS-DILUTED> 0.42 0.64
</TABLE>
