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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 2, 1999
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.
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(Exact name of registrant as specified in its charter)
FLORIDA
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(State or other jurisdiction of incorporation or organization)
59-1205269
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(I.R.S. Employer Identification No.)
7900 Glades Road, Suite 500, Boca Raton, Florida 33434
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 451-1000
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NOT APPLICABLE
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Former name, address and fiscal year if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares of Common Stock, $.01 par value, of the Registrant issued
and outstanding as of April 30, 1999 was 36,946,009 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 2, 1999 and
April 3, 1998 3
Statements of Financial Condition - April 2, 1999
and January 1, 1999 4
Statements of Cash Flows - For the
Thirteen Weeks Ended April 2, 1999 and
April 3, 1998 5
Statement of Shareholders' Equity and
Comprehensive Income- For the
Thirteen Weeks Ended April 2, 1999 6
Notes to Condensed Consolidated Financial
Statements 7-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
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)
Thirteen Weeks Ended
April 2, April 3,
1999 1998
-------- ---------
Sales $135,116 $147,178
Cost of Sales 101,575 111,368
-------- --------
Gross Profit 33,541 35,810
-------- --------
Expenses
Selling, general & administrative 13,574 14,352
Research & development 8,867 8,959
Restructuring charge - 7,189
-------- --------
22,441 30,500
------- --------
Operating Income 11,100 5,310
-------- --------
Other Income (Expense)
Interest expense (690) (1,087)
Interest income 341 680
-------- --------
(349) (407)
-------- --------
Income before Income Taxes 10,751 4,903
Provision for Income Taxes 3,440 1,667
-------- ---------
Net Income $ 7,311 $ 3,236
======== ========
Earnings per Share
Basic $ 0.20 $ 0.08
======== ========
Diluted $ 0.19 $ 0.08
======== ========
Common and Common Equivalent Shares Outstanding
Basic 37,481 38,461
Diluted 39,056 41,468
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ARTESYN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Amounts in Thousands Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
APRIL 2, JANUARY 1,
1999 1999
------------ -----------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and equivalents $ 34,788 $ 41,525
Accounts receivable, net 80,393 88,828
Inventories 65,992 62,460
Prepaid expenses and other 4,998 4,832
Deferred income taxes, net 7,685 7,685
------------ ----------
TOTAL CURRENT ASSETS 193,856 205,330
------------ ----------
PROPERTY, PLANT & EQUIPMENT, NET 78,005 75,032
------------ ----------
OTHER ASSETS
Goodwill, net 35,156 40,039
Deferred income taxes, net 2,682 2,682
Other assets 2,565 2,309
------------ -----------
TOTAL OTHER ASSETS 40,403 45,030
------------ -----------
$312,264 $325,392
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 2,504 $ 2,707
Accounts payable and accrued liabilities 84,016 81,653
------------ -----------
TOTAL CURRENT LIABILITIES 86,520 84,360
LONG-TERM DEBT 47,511 50,283
OTHER LONG-TERM LIABILITIES 9,666 9,661
------------ -----------
TOTAL LIABILITIES 143,697 144,304
------------ -----------
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01; 1,000,000 shares authorized;
none issued - -
Common stock, par value $.01; 80,000,000 shares authorized;
36,900,739 issued and outstanding at April 2, 1999
(37,882,248 shares at January 1, 1999) 369 379
Additional paid-in capital 83,480 85,018
Retained earnings 91,137 99,128
Foreign currency translation adjustment (6,419) (3,437)
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 168,567 181,088
------------ -----------
$312,264 $325,392
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ARTESYN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
APRIL 2, APRIL 3,
1999 1998
--------- ---------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 7,311 $ 3,236
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,674 4,086
Provision for restructuring charge - 7,189
Other non-cash charges 2,459 2,787
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 6,170 (1,817)
Increase in inventories and prepaid expenses and other (7,090) (6,361)
Increase in accounts payable and accrued liabilities 4,582 1,975
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,106 11,095
--------- ---------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (8,393) (4,854)
(Increase) decrease in other assets 2,878 (434)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (5,515) (5,288)
--------- ---------
FINANCING ACTIVITIES
Principal payments on debt and capital leases (18,765) (11,206)
Proceeds from revolving credit loans, net of costs 17,557 -
Repurchases of common stock (17,916) -
Proceeds from exercises of stock options 730 1,089
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (18,394) (10,117)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS (934) (430)
--------- ---------
DECREASE IN CASH AND EQUIVALENTS (6,737) (4,740)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 41,525 55,392
--------- ---------
CASH AND EQUIVALENTS, END OF PERIOD $34,788 $50,652
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ARTESYN TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS'
EQUITY AND COMPREHENSIVE INCOME
For the Thirteen Weeks Ended April 2, 1999
(Amounts in Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Foreign
Additional Currency
Common Stock Paid-in Retained Translation Comprehensive
Shares Amount Capital Earnings Adjustment Income
-------- ------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 37,882 $379 $85,018 $99,128 $(3,437)
Issuance of common stock under stock
option plans 165 1 729 - -
Tax benefit from exercises of stock
options - - 336 - -
Repurchases and retirement of
common stock (1,146) (11) (2,603) (15,302) -
Net income - - - 7,311 - $7,311
Other comprehensive income - foreign
currency translation adjustment, net
of tax benefit of $1,403 - - - - (2,982) (2,982)
-----------
Comprehensive income $4,329
--------- ------- ---------- --------- ---------- ===========
Balance, April 2, 1999 36,901 $369 $83,480 $91,137 $(6,419)
========= ======= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ARTESYN TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
April 2, 1999
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 consolidated 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 2, 1999 are not necessarily
indicative of the results that may be expected for the entire fiscal year 1999.
In addition, these Condensed Consolidated Financial Statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's 1998 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 2, January 1,
1999 1999
--------- ----------
Raw materials $31,756 $30,737
Work in process 10,928 10,097
Finished goods 23,308 21,626
--------- ----------
$65,992 $62,460
========= ==========
3. PROPERTY PLANT & EQUIPMENT, NET
Related accumulated depreciation was $71,787,000 and $69,779,000 at April 2,
1999 and January 1, 1999, respectively.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are as follows
($000s):
April 2, January 1,
1999 1999
---------- ----------
Accounts payable $41,734 $42,025
Accrued liabilities:
Compensation and benefits 12,952 13,543
Income taxes payable 10,874 8,296
Warranty reserve 4,821 4,897
Restructuring reserve 2,068 2,795
Other 11,567 10,097
---------- ----------
$84,016 $81,653
========== ==========
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:
Thirteen Weeks Ended
April 2, April 3,
1999 1998
------- -------
Provision computed at United States
federal statutory rate 35.0% 35.0%
Amortization of goodwill 0.3 0.2
Change in the valuation allowance - (2.0)
Foreign tax effects (6.1) (2.0)
Effect of state income taxes 2.8 2.6
Other - 0.2
------- -------
Effective tax rate 32.0% 34.0%
======= =======
6. RESTRUCTURING
During the first quarter of fiscal year 1998, the Company recorded a $9.6
million pre-tax charge in connection with the Company's restructuring plan
following its merger with Zytec Corporation ("Zytec"). This amount was allocated
in the accompanying Consolidated Statements of Operations as follows: $7.2
million to Restructuring charge and $2.4 million to Cost of Sales, the latter of
which related principally to inventory write-offs of duplicate product
development programs which were underway at the Company and Zytec prior to the
merger. The following table summarizes activity for the first quarter of fiscal
year 1999 and the remaining restructuring reserve balance of approximately $2.1
million which is included in accrued liabilities as of April 2, 1999 ($000s):
Employee
Termination Facility
Benefits Closures
----------- ----------
Reserve balance at January 1, 1999 $1,150 $1,645
Cash payments (295) (432)
----------- ----------
Reserve balance at April 2, 1999 $ 855 $1,213
=========== ==========
As of April 2, 1999, the remaining employee termination benefits represent
severance pay and fringe benefits associated with the elimination of 68
positions.
The provision for the facility closures includes leasehold termination payments,
service contracts obligations, and other exit costs associated with facilities
closed in Europe as further described in the financial statements and notes
included in the Company's 1998 Annual Report to Shareholders.
With the exception of certain lease-related cash requirements (which are payable
through the first quarter of 2001), the remaining anticipated cash payments of
approximately $1.8 million are expected to be paid during the remainder of
fiscal year 1999.
7. COMPREHENSIVE INCOME
The components of the Company's comprehensive income are as follows ($000s):
Thirteen Weeks Ended
April 2, April 3,
1999 1998
------------ -------------
Net income $7,311 $3,236
Foreign currency translation adjustment (4,385) (2,071)
Tax benefit 1,403 704
------------ -------------
(2,982) (1,367)
------------ -------------
Comprehensive income $4,329 $1,869
============ =============
8. EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share ("EPS")
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):
Thirteen Weeks Ended
April 2, April 3,
1999 1998
----------- -----------
BASIC EPS
Net income $7,311 $ 3,236
----------- -----------
Weighted average shares 37,481 38,461
----------- -----------
Per share - Basic $0.20 $0.08
=========== ===========
DILUTED EPS
Net income $7,311 $3,236
----------- -----------
Weighted average shares 37,481 38,461
Effect of dilutive items-Stock options 1,575 3,007
----------- -----------
39,056 41,468
----------- -----------
Per share- Diluted $0.19 $0.08
=========== ===========
Antidilutive weighted options 2,451 265
=========== ===========
The above antidilutive weighted options to purchase shares of common stock were
not included in computing diluted earnings per share because their inclusion
would be antidilutive for the respective periods.
9. SHAREHOLDERS' EQUITY
As part of the previously announced three-year, up to 4.0 million share
repurchase program implemented in 1998, the Company repurchased 1,146,200 shares
of its common stock for a total of $17.9 million, during the first quarter of
1999. To date, the Company has repurchased 2,357,700 of the approved 4.0 million
shares for a total of approximately $37.3 million which was funded with cash
from operations. 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 outstanding 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 Marks, 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 April 2, 1999, the Company's outstanding notional amount for currency
forward contracts was approximately $14.6 million maturing in three months. At
January 1, 1999, the Company's outstanding notional amount for currency forward
contracts was approximately $12.8 million. 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.
<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 first quarter of fiscal year 1999 were $135.1 million compared to
$147.2 million for the comparable quarter in fiscal year 1998, which, although
less than last year's comparable quarter, exceeded the Company's earlier
estimates for the quarter. Greater than expected demand for a number of new
products contributed to this higher than anticipated revenue. While this
increased demand may be mainly attributable to a few major customers, the
Company believes it is an overall encouraging growth indicator in the Company's
markets.
Gross margin for the first quarter of 1999 was 24.8% compared to 26.0% for the
first quarter of 1998 (excluding the $2.4 million charge for write-off of
inventory in 1998 in connection with the Company's 1998 merger-related
restructuring plan) as savings from cost of materials and plant rationalizations
were more than offset by new product start-up costs. Gross margins continue to
be impacted by the shift in sales mix to the Company's high-volume but
lower-margin Original Equipment Manufacturer ("OEM") customers. The Company
believes that its gross margins are expected to modestly increase for the
remainder of 1999 due to more favorable sales and product mix and improved cost
of purchased materials.
Selling, general and administrative expenses were $13.6 million in the first
quarter of 1999, or approximately $0.8 million lower than the corresponding 1998
quarter. The decrease reflects efficiencies gained from the merger of Zytec and
the Company, partially offset by expenses associated with Year 2000 compliance
and the implementation of the Company's Enterprise Resource Planning (ERP)
information system.
The Company maintained its significant investment in research and development
which totaled $8.9 million, or 6.6% of sales, in the first quarter of 1999
compared to $9.0 million, or 6.1% of sales, for the first quarter of 1998. 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%.
Net income for the first quarter of 1999 was $7.3 million, or $0.19 per diluted
share, compared to $3.2 million, or $0.08 per diluted share, for the comparable
year-ago quarter. However, net income for the first quarter of 1998 would have
been $9.6 million, or $0.23 per diluted share, excluding a one-time $9.6 million
pre-tax restructuring and inventory charge associated with the Company's merger
with Zytec.
LIQUIDITY AND CAPITAL RESOURCES
At April 2, 1999, the Company's cash and equivalents decreased to $34.8 million
from $41.5 million on January 1, 1999 primarily due to $17.9 million spent for
repurchases of the Company's common stock and $8.4 million for capital
expenditures partially offset by income for the period and other favorable
working capital changes. These activities were funded with cash on hand, cash
from operations and $0.7 million proceeds from exercises of stock options.
Accounts receivable decreased to $80.4 million at April 2, 1999 from $88.8
million at January 1, 1999 partially due to lower sales volume compared to the
fourth quarter of 1998 but also due to significant collection efforts.
The increase in inventory levels from $62.5 million at January 1, 1999 to $66.0
million at April 2, 1999 was primarily attributable to production planning to
meet manufacturing lead times, expansion of inventory depots to better service
customers, and anticipated demand for new product introductions.
Capital expenditures for the first quarter of 1999 totaled $8.4 million
primarily for the continued maintenance of facilities and equipment in support
of the Company's current operating activities including $2.8 million related to
the implementation of the new enterprise-wide ERP system. Such capital
expenditures were financed with cash on hand and cash generated from operations.
The Company's current overall commitment to fully implement the ERP system is
approximately $25 million, which the Company anticipates incurring over a
three-year period, of which approximately $22 million is expected to be
capitalized and amortized and approximately $3 million is expected to be
expensed as incurred.
Cash provided by operations increased to $18.1 million for the thirteen weeks
ended April 2, 1999 from $11.1 million for the thirteen weeks ended April 3,
1998 primarily due to decreases in accounts receivable and increased accrued
liabilities.
Net cash used in financing activities of $18.4 million for the thirteen weeks
ended April 2, 1999 reflects mainly the repurchase and retirement of 1,146,200
shares of the Company's common stock for $17.9 million, partially offset by $0.7
million in proceeds from stock option exercises. 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 loan and notes payable.
Effective December 31, 1998, the Company entered into a revolving credit
agreement with a syndicate of banks which provides a new three-year,
multi-currency $200 million credit facility. The new revolving facility, which
expires on December 31, 2001, replaced the Company's previous $20 million credit
line. The agreement provides for various interest rate options on the facility
based on London Interbank Offering Rates plus .625% and includes a fee of .20%
on the unused balance, both payable quarterly. The agreement contains certain
negative covenants, which are typical of an agreement of this size and nature,
that, among other things, require the Company to maintain certain financial
ratios and limit the purchase, transfer or distribution of the Company's assets.
Borrowings are to be used for the repayment of the Company's $46.4 million of
term loans outstanding on January 1, 1999 and for other general corporate
purposes. On January 8, 1999, the existing term loans were repaid from
borrowings under the new revolving credit facility. Any amounts outstanding
under the facility are due on December 31, 2001. As of April 2, 1999, the
Company was in compliance in all material respects with the agreement's
covenants.
Based on current plans and business conditions, the Company believes that its
cash and equivalents, its available credit facility, 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 1999.
YEAR 2000 INITIATIVES AND EFFECTS
The Company has formed an internal Year 2000 project team to evaluate its
internal facilities, engineering and manufacturing processes, and business
information systems with respect to Year 2000 readiness and compliance. Included
in this evaluation are the Company's products and systems and potential impact
of the Company's significant suppliers and customers. The Company is in the
process of communicating with its significant suppliers to determine the extent
to which the Company might be vulnerable to those third parties' failures to
remedy their Year 2000 issues. The Company does not believe that it has material
exposure related to the Year 2000 issue for the products it has sold.
There are five phases that describe the Company's process in becoming Year 2000
compliant. Phase 1, the awareness phase, encompasses developing a budget and
project plan. Phase 2, the assessment phase, identifies mission-critical systems
to check for compliance. Phase 3, the remediation phase, includes the actual
corrective activities for non-compliant systems and processes. The inventory is
complete with final risk assessment and contingency planning scheduled for
completion by June 1999. The Company is currently involved in some phase 3
remediation activities. The remaining two phases, validation and implementation
are ongoing based on contingency and remediation planning. Compliance for
critical systems is scheduled for completion in September of 1999.
The Company's current primary business information systems, in both the United
States and its foreign locations, are known to be non-compliant with Year 2000.
Upgrades for the Company's Asia-Pacific locations are scheduled for completion
by June 1999. Systems at the Company's European locations are scheduled for
maintenance upgrade by July of 1999. In addition, the Company is proceeding with
a phased installation of a new Year 2000 compliant ERP system to replace its
existing systems. The Company's goal is to complete the ERP implementation
within all North American Artesyn facilities by September of 1999. In case of
unexpected delays in the implementation of the ERP systems in North America, the
Company's contingency plan include the upgrade of its current business
information systems to be Year 2000 compliant. The Company believes that it will
have sufficient time to upgrade these systems in case of such a delay
anticipating remediation efforts to start no later than October of 1999. The
cost to upgrade these systems is not expected to be material. The implementation
of the ERP system for the Company's European and Asia-Pacific locations is
scheduled for completion by mid-year 2000. The implementation and installation
of the new ERP system was a planned system change following the merger with
Zytec to integrate the merged companies, and such implementation is not deemed
undertaken principally for the Company to become Year 2000 compliant.
The Company has not completed its assessment of the total costs to address and
remedy Year 2000 issues. The Company anticipates that it will complete a
detailed breakdown of estimated costs shortly after completion of the Company's
risk assessment and contingency planning. These costs will include time and
effort of internal staff and consultants for renovation, validation and
implementation, and computer and embedded technology systems enhancements and/or
replacements. The total costs, excluding the implementation of the ERP systems,
for achieving Year 2000 compliance is currently estimated at $3.5 million, of
which approximately $700,000 has been incurred in 1998 and approximately
$400,000 in the first quarter of 1999. Of the total estimated amount,
approximately $2.5 million is expected to be capitalized and approximately $1.0
million is expected to be expensed as incurred. The total estimated cost to
implement the new ERP systems is approximately $25 million to be incurred over a
three-year period of which approximately $22 million is expected to be
capitalized and amortized and approximately $3 million is expected to be
expensed as incurred. ERP system costs incurred in 1998 totaled approximately
$7.9 million, of which $7.7 million was capitalized and $200,000 was expensed.
ERP system costs incurred to date in 1999 totaled approximately $3.0 million, of
which $2.8 million was capitalized and $200,000 was expensed. The Company
expects these expenditures to be financed through operating cash flows or
borrowings, at the Company's discretion.
While the Company believes that its Year 2000 remediation plan is sufficient and
that the Year 2000 will not pose significant operational problems, the Company
has identified the following potential Year 2000 risks at this time: 1)
suppliers and/or customers may not be Year 2000 compliant; 2) ERP installation
may not be completed on time; and 3) new systems/upgrades have incomplete or
inadequate testing. The risk posed by suppliers to the Company is an
interruption of material flow, which would impact shipments and resultant
revenue. The risk posed by customers is a cancellation or delay in orders of
products by customers who are not Year 2000 ready or whose costs to remedy Year
2000 issues are so significant that they cancel or delay orders. The risk of ERP
installation not being complete is mitigated by the Company's anticipated
ability to be able to upgrade current business information systems with Year
2000 upgrades, as applicable, for an amount not deemed by the Company to be
material. In addition, Year 2000 issues would have a significant impact on the
Company's operations and its financial results if modifications cannot be
completed on a timely basis, unforeseen needs or problems arise, or if systems
operated by third parties are not Year 2000 compliant.
The Company has not been required to, and does not anticipate, deferring any
projects as a result of its Year 2000 preparation.
The estimates and conclusions set forth herein regarding Year 2000 compliance
contain forward-looking statements and are based on management's estimates of
future events and information provided by third parties. There can be no
assurance that such estimates and information will prove to be accurate. Risks
to completing the Year 2000 project include the availability of resources, the
Company's ability to discover and correct potential Year 2000 problems and the
ability of suppliers, customers and other third parties to bring their systems
into Year 2000 compliance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of interest rate changes and foreign
currency fluctuations. In the normal course of business, the Company employs
established policies and procedures to manage its exposure to changes in
interest rates and fluctuations in the value of foreign currencies using a
variety of derivative financial instruments. The Company manages its interest
rate risk on its variable rate debt instruments through use of interest rate
swaps pursuant to which the Company exchanges its floating rate interest
obligations for fixed rates. The fixing of the interest rates offsets the
Company's exposure to the uncertainty of floating interest rates during the term
of the loans.
The Company has significant assets and operations in Europe and Asia and, as a
result, its financial performance could be affected by significant fluctuations
in foreign exchange rates. To mitigate potential adverse trends, the Company's
operating strategy takes into account changes in exchange rates over time.
Accordingly, the Company enters into various forward contracts that change in
value as foreign exchange rates change to protect the value of its existing
foreign currency assets, liabilities, commitments and anticipated foreign
currency revenues. The principal currencies hedged are the Japanese yen, the
Deutsche mark, and the Irish punt.
It is the Company's policy to enter into foreign currency and interest rate
transactions only to the extent considered necessary to meet its objectives as
stated above. The Company does not enter into foreign currency or interest rate
transactions for speculative purposes.
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, growth and changes 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 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 April 2, 1999.
<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, 1999 BY: Richard J. Thompson
-------------------
Richard J. Thompson
Vice President Finance
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Prior year amounts were reclassified .
Also primary EPS represents basic EPS under new FAS 128.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 JAN-01-1999
<PERIOD-END> APR-02-1999 APR-03-1998
<CASH> 34,788 50,562
<SECURITIES> 0 0
<RECEIVABLES> 82,214 89,439
<ALLOWANCES> 1,821 1,597
<INVENTORY> 65,992 65,928
<CURRENT-ASSETS> 193,856 216,318
<PP&E> 149,792 120,539
<DEPRECIATION> 71,787 58,212
<TOTAL-ASSETS> 312,264 325,145
<CURRENT-LIABILITIES> 86,520 101,250
<BONDS> 47511 49,040
0 0
0 0
<COMMON> 83,849 80,540
<OTHER-SE> 84,718 86,105
<TOTAL-LIABILITY-AND-EQUITY> 168,567 325,145
<SALES> 135,116 147,178
<TOTAL-REVENUES> 135,116 147,178
<CGS> 101,575 111,368
<TOTAL-COSTS> 101,575 111,368
<OTHER-EXPENSES> 22,441 30,500
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 690 1,087
<INCOME-PRETAX> 10,751 4,903
<INCOME-TAX> 3,440 1,667
<INCOME-CONTINUING> 7,311 3,236
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,311 3,236
<EPS-PRIMARY> 0.20 0.08
<EPS-DILUTED> 0.19 0.08
</TABLE>
