SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal year ended JANUARY 1, 1999 Commission File No. 0-4466
ARTESYN TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 59-1205269
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(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION)
7900 GLADES ROAD, SUITE 500, BOCA RATON, FL 33434-4105
- ------------------------------------------- ----------
(Address of principal executive offices) (ZIP CODE)
(561) 451-1000
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
COMMON STOCK PURCHASE RIGHTS
----------------------------
(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO __.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of March 15, 1999 was approximately $340 million.
As of March 15, 1999, 36,912,885 shares of the Registrant's, $0.01 par value,
Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's annual shareholders' report for the year ended January
1, 1999 (the "Annual Report") are incorporated by reference into Parts I and II
hereof.
Portions of the Company's proxy statement for the annual meeting of shareholders
to be held on May 6, 1999 are incorporated by reference into Part III hereof.
<PAGE>
PART I
ITEM 1. BUSINESS
Artesyn Technologies, Inc. (formerly named Computer Products, Inc.) was
incorporated under the laws of the State of Florida in 1968. Unless the context
indicates otherwise, as used herein the term "Company" means Artesyn
Technologies, Inc. and its consolidated subsidiaries.
The Company received shareholder approval at its annual shareholders' meeting
held in May 1998 to legally change the Company's corporate name from Computer
Products, Inc. to Artesyn Technologies, Inc. Since that date, the Company's
Common Stock has been trading on The Nasdaq Stock MarketSM under the symbol
ATSN.
The Company operates in one industry segment encompassing the design,
development, manufacture, sale and service of electronic products and subsystems
targeted at the communications industry. The Company designs, develops,
manufactures and markets (i) power conversion products for electronic equipment
used in commercial and industrial applications requiring a precise and constant
voltage level for proper operation, (ii) high performance single-board
computers, systems and subsystems for real-time applications, and provides
repair services and logistics for a variety of products primarily for one
significant customer.
INDUSTRY OVERVIEW
The Company is one of the leading providers of power supplies, power converters
and distributed power systems to the communications industry. According to
independent industry sources, the Company ranks among the top ten worldwide
independent power supply manufacturers in sales volume. The Company also designs
and manufactures high performance board-level computers and communication
controllers, integrating them with real-time operating system and protocol
software to form complete subsystems for communications and other real-time
applications.
Power supplies, power converters and distributed power systems perform many
essential functions relating to the supply, regulation, and distribution of
electrical power within electronic equipment. Electronic systems require a
steady supply of electrical power at one or more voltage levels. AC-to-DC power
supplies convert alternating electric current ("AC") (the form in which
virtually all electric current is delivered by utility companies) from a primary
power source into the direct current ("DC") required to operate virtually all
solid state electronic equipment. DC-to-DC power supplies are used to convert a
particular direct current voltage into another (higher or lower) direct current
voltage that is required by the electronic device to which it is connected.
Power supplies can also be designed to perform diagnostic functions that prevent
electronic equipment from being damaged by such equipment's own malfunction, as
well as provide power through use of a short-term battery back-up system when
the electronic equipment's primary power source fails.
The prevalent technology now used in power supplies is switching technology.
Before the development of switching power supplies, power supply technology was
fairly simple, and power supplies consisted of a transformer and some related
components to rectify and control power surges. As the complexity of electronic
equipment has increased, power supplies and their underlying technology have
become more advanced. Switching power supplies, such as those manufactured by
the Company, have hundreds of components, provide advanced diagnostic and power
management functions, can be designed to provide battery back-up power, and are
smaller and more efficient than the older power supplies that used simpler
technology.
<PAGE>
SWITCHING POWER SUPPLIES
[GRAPHIC SHOWING FROM AC WALL POWER IN TO AC TO DC POWER SUPPLY TO A DISK
DRIVE OR MEMORY OR INTEGRATED CIRCUITS OR MOTORS OR MONITORS]
A further enhancement of AC-to-DC power supplies emerging in the industry
utilizes a newer more flexible switching technology which the Company refers to
as "distributed power architecture" ("DPA"). Most electronic systems have a
number of subsystems, each of which may require a different operating voltage or
level of power. As a result, power supplies can be designed to have multiple
outputs that can provide varying voltage levels to subsystems within an
electronic system. In such power supplies, power is "distributed" throughout the
system so that in addition to the system's main AC-to-DC power supply, DC-to-DC
converters located on or near the subsystem or component being powered change
the DC voltage to the specific level of DC voltage needed for that particular
subsystem or component. Distributed power permits greater flexibility to meet
the power supply requirements of electronic systems if components or subsystems
are added or upgraded.
DISTRIBUTED POWER ARCHITECTURE
[GRAPHIC SHOWING FROM INPUT TO AC TO DC
FRONT END TO OUTPUT TO VARIOUS SUB SYSTEMS]
MARKET OVERVIEW
The overall market for power supplies can be classified as follows:
Merchant/Captive. Merchant power supply manufacturers, such as the Company,
design and manufacture power supplies for use by other third parties. Captive
power supply manufacturers design and manufacture power supplies for use within
their own products. Currently, the merchant portion of the power supply market
is believed to be approximately 55%. According to independent industry sources,
the merchant sector is projected to grow to 60% of the overall market in the
year 2000 as Original Equipment Manufacturers ("OEMs") demand product options
and features and high-quality levels that make power supplies increasingly more
difficult to design and manufacture in-house.
PowerRange. The power supply market is also classified by power supply
output range, as follows:
<TABLE>
<CAPTION>
Typical Representative
Power Range Characteristics End Users Applications
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LOW o Less than 150 Watts o PC Companies o Personal Computers
o Lower Technology o Consumer Electronics o Consumer Electronics
o Higher Volume o Desk Top Printers
o Lower Margin
MID o 150-750 Watts o Internetwork Companies o Routers, Hubs
o High Technology o Computer Companies o Workstations, Fault
o Moderate Volume o Medical Companies o Tolerant Computers
o Higher Margin o Blood Analyzers
HIGH o More than 750 Watts o Computer Companies o Main-frame Computers
o High Technology o Industrial Companies o Industrial Process Control
o Lower Volume o Internetworking Companies o High-end Routers/Switches
o Higher Margin
</TABLE>
Custom/Standard. Custom power supplies are designed and manufactured to meet
the form, fit, and functional requirements of an OEM's unique and specific
application. They are attractive to OEMs because they present increased design
flexibility, provide the lowest cost, and allow the use of special features.
Standard, "off-the-shelf" power supplies are not design-specific but also do not
require substantial up-front engineering design costs. Once a product has
reached the stage of development where the OEM is confident that there will be a
market demand for the product, it is typically cost-effective to custom design a
unique power supply to meet that product's specific requirements. The OEM is
then able to utilize a moderately high-volume, customized solution at the lowest
cost per watt of power without paying for unnecessary features or capabilities.
The Company believes a number of important trends currently affecting its
customers will continue to shape the power supply marketplace. The applications
markets that are growing rapidly, such as workstations and data communications
hardware (e.g., hubs, routers and file servers), need mid-range power supplies.
In addition, OEMs face pressure from end-users to improve the price and
performance of products, bring new products to market quickly, provide more
product options and features, reduce product size, and meet increasingly complex
safety and regulatory agency standards. The Company believes that these
pressures will support the need for and encourage a modest migration from
captive manufacturers to merchant-provided, custom-designed power supply
manufacturers, such as the Company, particularly in the mid-range sector of the
market.
The Company's products are manufactured in Redwood Falls, Minnesota; Broomfield,
Colorado; Madison, Wisconsin; Kindberg, Austria; Tatabanya, Hungary; Youghal,
Ireland; Oberhausen and Ensiedel, Germany; and in Hong Kong and Zhongshan,
China. Activities are also carried on in Vienna, Austria; Etten-Leur,
Netherlands; Eden Prairie, Minnesota; Framingham, Massachusetts; and Fremont,
California.
REPAIR AND LOGISTICS SERVICES
The Company provides repair services for a variety of products primarily
manufactured by Hewlett-Packard Company. The process to repair products that
fail in the field involves the logistics of arranging for return of products
and, when they have been repaired, arranging for delivery of products to their
customers. This function has traditionally been accomplished as part of the
OEM's business. In the 1980s and 1990s, as companies have focused their energies
on core competencies, electronics manufacturers have often outsourced many
activities that they do not consider essential to their business. The Company
was retained by Hewlett-Packard ("HP") in 1992 to manage inbound and outbound
logistics for some of HP's computer products and to repair certain products.
This business has grown rapidly since 1992 as HP has transferred repairs of more
products to the Company. Since 1992, the Company has taken over from HP the
repair of laserjet and deskjet printers, facsimile machines, and scanners and
the servicing of other products. Through 1998, nearly all of the Company's
revenue from repair and logistics services were from HP.
It is the Company's strategy to expand its facilities within the value chain of
manufacturer distribution and repair. For this purpose, the Company has
established a Foreign Trade Zone ("FTZ"), which allows reduced or delayed
customs duties on products returned from foreign locations for repair or on
component parts shipped to the United States and assembled in the FTZ. The FTZ,
together with existing repair processes, allows the Company to service both
domestic and foreign products and, in combination with its process design
capability, to perform assembly or light manufacturing operations. Another
expansion of the value chain involves network services operations, which plan to
target configuration and installation of hardware, as well as provide follow-on
maintenance.
The Company's repair and logistics services are centered in its Lincoln,
California, facility.
STRATEGY
The Company's objective is to be the supplier of choice to multinational OEM
customers who require sophisticated power supply solutions and who are likely to
have substantial volume requirements. To achieve this objective, the Company's
strategy is to differentiate itself from its competition through utilization of
new and advanced technology and design, fastest time-to-market and superior
product performance, quality, service and the lowest total cost of ownership.
The Company's primary target market for the last several years has been OEMs in
the communications, networking, computer and other electronic equipment
marketplaces. These OEMs manufacture hubs, routers, high availability file
servers and disk arrays which typically have complex technical needs, high
product reliability standards, short product development cycles and variable
production needs. The Company implements its strategy by combining the following
key elements:
Deliver High-Quality Products and Services
The Company believes that quality and responsiveness to the customer's needs are
of critical importance in its efforts to compete successfully. The Company
actively involves its employees in implementing techniques to measure, monitor
and improve performance and provides its employees with education and training,
including courses in statistical process control and related techniques. Also,
employees participate in the Company's planning sessions and monitor adherence
to their annual plans on a monthly basis. Through its commitment to customer
service and quality, the Company believes it is able to provide superior value
to its customers.
Provide Leading-Edge Engineering and Time-to-Market
The Company's target markets and customers are characterized by high growth
rates and continually evolving technology. As a result, its customers typically
require leading-edge technology designed in a relatively short period. The
Company has been working to reduce the time-to-market for its products through
two initiatives: concurrent engineering and design-ready platforms. Concurrent
engineering creates a process allowing all functional disciplines to take part
in a product's design from the very beginning. With design-ready platforms, the
Company can modify standard platforms to meet specific customers' needs for a
customized product, a fast fulfillment schedule and an affordable price. These
initiatives have contributed to a reduction of average time-to-market from 72
weeks in 1994 to 24 weeks in 1998.
Develop and Expand Collaborative Relationships
Through the development and expansion of collaborative relationships with its
customers, the Company attempts to satisfy their needs by offering a full range
of value-added services, including design expertise, process development and
control, testing, inventory management, and rapid response to volume and design
changes. Some custom-designed projects are priced based on agreed-to gross
margins and allow for a sharing of the costs, risks and rewards of the
manufacturing process with the customer. These relationships also provide the
Company with increased knowledge regarding the customer's products. The Company
focuses its efforts on customers with which it believes the opportunity exists
to develop long-term business collaborations.
Offer Customers the Lowest Total Cost of Ownership
The Company strives to create value for its customer by seeking to offer them
the lowest total cost of ownership. Through manufacturing flexibility, reduced
time-to-market, worldwide procurement, design for manufacturability, and
unmatched customer service, the Company is able to complement each customer's
unique set of needs. The Company has built long-standing relationships with
industry leaders by providing a high level of consultation at the earliest
stages of design development. This hands-on approach is intended to enable the
Company to design all its products to maximize quality and minimize unit cost.
Leverage Advanced Manufacturing and Management Techniques
The Company's strategy focuses on the quality of all elements of the production
process, rather than merely the quality of the end product. To implement this
strategy, the Company uses sophisticated design and manufacturing techniques
(such as computer integrated design and manufacture, computer aided design, and
automated testing and assembly of printed circuit boards), combined with
advanced management techniques, including just-in-time manufacturing,
statistical process control and total quality commitment. These techniques allow
the Company to decrease production costs by improving the efficiency of
production processes.
Expand Complementary Businesses
The Company believes that providing a wide range of services affords the Company
a competitive advantage, as it further addresses customer needs and, therefore,
increases the likelihood that the Company will make continuing sales to its
customers. For example, at a customer's request, the Company may build
assemblies by adding cables, harnesses, frames, and other components to its
power supply unit. In addition, it offers power supply repair services for power
supplies manufactured by others.
PRODUCTS AND SERVICES
The Company currently offers standard power products in over 1,000
configurations and accommodates a wide variety of customer applications. In
addition to its standard power supply products, the Company also pursues the
custom power supply business because it capitalizes on its strengths in the
areas of sophisticated design, volume manufacturing, and customer service. It
has been the Company's experience that competition among qualified design and
manufacturing outsourcing companies providing these customized solutions is
intense. The competition causes downward pressure on gross margins, which is
only partially offset by lower selling and distribution costs.
The Company's communications products are designed around and incorporate
industry standards, which permit easy portability to a variety of applications.
The technology relies on popular and powerful microprocessors from sources such
as Motorola, Intel and MIPS. The primary product line combines both the
worldwide industry standard VMEbus, which defines physical board size and signal
characteristics for the interconnection of microprocessors. Application
requirements for these products usually include environments requiring rapid
computer response time with high quality processing capabilities, such as
telecommunications or data communications.
For further information on sales, particularly with respect to foreign and
intercompany sales, refer to Note 18 of the Notes to Consolidated Financial
Statements in the Company's Annual Report, which is incorporated herein by
reference. The Company's business is not seasonal in nature.
MARKETING AND DISTRIBUTION
The Company's products are sold directly to OEMs, private-label customers and
distributors. In addition, the Company's sales and engineering personnel
supervise and provide technical assistance to independent domestic sales
representatives and to domestic and foreign distributors.
The Company's customers for communication products are primarily OEMs who use
the products for high-speed telecommunications applications. They are also used
in other areas such as medical instrumentation, airplane and weapons training
simulators, process control, industrial automation and traffic control systems.
Management believes that the market for VMEbus and real-time products will
expand as communications companies move from proprietary to open systems in
order to speed time to market and enhance upgrade capability.
The Company's communication products are marketed domestically through
independent sales representative organizations. Substantially all foreign sales
are made through independent foreign distributors and foreign trading companies.
Certain sales are made on a direct basis.
Sales representatives are responsible for marketing the Company's repair
business in North America.
Although the Company seeks to diversify both its customer and market application
base, sales to three customers amounted to 17%, 11%, and 10%, respectively, of
1998 sales.
The Company has derived a significant portion of its sales in recent years from
its international operations. Thus, the Company's future operations and
financial results could be significantly affected by international factors, such
as changes in foreign currency exchange rates or political instability. The
Company's operating strategy and pricing take into account changes in exchange
rates over time. However, the Company's future results of operations may be
significantly affected in the short term by fluctuations in foreign currency
exchange rates. See Note 17 of the Notes to Consolidated Financial Statements in
the Company's Annual Report, incorporated herein by reference, for additional
information.
MATERIALS AND COMPONENTS
The manufacture of the Company's products requires a wide variety of materials
and components. The Company has multiple external sources for most of the
materials and components used in its production processes, and it also
manufactures certain of these components. Although the Company has from time to
time experienced shortages of certain supplies, such shortages have not resulted
in any significant disruptions in production. The Company believes that there
are adequate alternative sources of supply to meet its requirements.
INTELLECTUAL PROPERTY MATTERS
The Company believes that its future success is primarily dependent upon the
technical competence and creative skills of its personnel, rather than upon any
patent or other proprietary rights. However, the Company has protected certain
of its products with patents where appropriate and has defended, and will
continue to defend, its rights under these patents.
BACKLOG
Sales are generally made pursuant to purchase orders rather than long-term
contracts. Backlog consists of purchase orders on hand generally having delivery
dates scheduled within the next six months. Order backlog from continuing
operations at January 1, 1999 was $98.3 million as compared to $103.1 million at
January 2, 1998. Historically, the effects of changes and cancellations have not
been significant to the Company's operations. The Company expects to ship
substantially all of its January 1, 1999 backlog in the first six months of
fiscal 1999.
COMPETITION
The industry in which the Company competes is highly competitive and
characterized by increasing customer demands for improved product performance,
shorter manufacturing cycles and lower prices. These trends result in frequent
introductions of new products with added capabilities and features and
continuous improvements in the relative price/performance of the products.
Increased competition could result in price reductions, reduced profit margins
and loss of market share, each of which could adversely affect the Company's
results of operations and financial condition. The Company's principal
competitors include Lucent Technologies, Delta Product and Astec (BSR) plc.
Certain of the Company's competitors have also been engaged in merger and
acquisition transactions. Such consolidations by competitors are likely to
create entities with increased market share, customer bases, technology and
marketing expertise, sales force size, and/or proprietary technology. These
developments may adversely affect the Company's ability to compete.
RESEARCH AND DEVELOPMENT
The Company maintains active research and development departments which are
engaged in the modification and improvement of existing products and the
development of new products. Expenditures for research and development during
fiscal years 1998, 1997, and 1996 were approximately $33.4 million, $30.0
million, and $23.6 million, respectively. As a percentage of total sales,
research and development accounted for 6.3%, 5.7%, and 5.4% in fiscal years
1998, 1997 and 1996, respectively. Research and development spending has
increased in each of the past three years as the Company invested in new product
platforms to service the communications industry. The Company believes that the
timely introduction of new technology and products is an important component of
its competitive strategy.
EMPLOYEES
The Company presently employs approximately 4,300 full-time people. In addition,
the Company presently has approximately 2,300 temporary employees and
contractors primarily in its China facility. The Company's ability to conduct
its present and proposed activities would be impaired if the Company lost the
services of a significant number of its engineers and technicians and could not
readily replace them with comparable personnel. Although there is demand for
qualified technical personnel, the Company has not, to date, experienced
difficulty in attracting and retaining sufficient engineering and technical
personnel to meet its needs.
None of the Company's domestic employees is covered by collective bargaining
agreements. The Company considers its relations with its employees to be
satisfactory.
ENVIRONMENTAL MATTERS
Compliance with federal, state and local laws and regulations regulating the
discharge of materials into the environment has not had, and, under present
conditions the Company does not anticipate that such laws and regulations will
have, a material effect on the results of operations, capital expenditures,
financial condition or competitive position of the Company.
ITEM 2. PROPERTIES
The Company currently occupies approximately 1,400,000 square feet of office and
manufacturing space worldwide. Approximately 38% of the space utilized by the
Company is owned while 62% is leased. The Company maintains the following
facilities: <TABLE> <CAPTION>
APPROXIMATE OWNED VS.
FACILITY PRIMARY ACTIVITY SQUARE FOOTAGE LEASED
-------- ---------------- -------------- ------
<S> <C> <C> <C>
Boca Raton, FL Corporate Headquarters 7,000 Leased
Broomfield, CO Manufacturing 81,000 Leased
Eden Prairie, MN Engineering, Administration 28,000 Leased
Ensiedel, Germany Manufacturing 28,400 Owned
Etten-Leur, Netherlands Administration 19,000 Leased
Framingham, MA Engineering, Administration 25,000 Leased
Fremont, CA Engineering, Administration 45,000 Leased
Hong Kong Manufacturing 144,900 Owned
Huntington Beach, CA Manufacturing 45,000 Leased
Kindberg, Austria Manufacturing 75,000 Leased
Lincoln, CA Repair, Logistics 438,000 Leased
Madison, WI Manufacturing 46,000 Owned
Oberhausen, Germany Manufacturing 62,500 Owned
Redwood Falls, MN Manufacturing 103,000 Owned
Redwood Falls, MN Manufacturing 87,000 Leased
Tatabanya, Hungary Manufacturing 62,000 Owned
Vienna, Austria Engineering, Administration 17,200 Leased
Youghal, Ireland Manufacturing 86,000 Owned
</TABLE>
In addition to the above locations, the Company has leased sales offices located
in or near London, England; Paris, France; and Munich, Germany. The Company
considers the facilities described in this Item to be generally well maintained,
adequate for its current needs and capable of supporting a reasonably higher
level of demand for its products and services.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal proceedings, which have arisen in the
ordinary course of business. While the results of these matters cannot be
predicted with certainty, the Company believes that losses, if any, resulting
from the ultimate resolution of these matters will not have a material adverse
effect on the Company's consolidated results of operations, cash flows or
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name Age Position(s) with the Company
- ---- --- ----------------------------
<S> <C> <C>
Robert J. Aebli 63 President - Communication Products
Louis R. DeBartelo 58 President - North America Commercial
Harvey Dewan 59 President -North America and Asia Manufacturing
Eoin Gilley 37 Managing Director - Europe
Thomas J. Kent 50 President - Solutions
Hartmut Liebel 36 Corporate Treasurer
Joseph J. Matz 59 Managing Director - Europe Commercial
Joseph M. O'Donnell 52 Co-Chairman of the Board of Directors,
President and Chief Executive Officer
John M. Steel 54 Vice President - Marketing and New
Product development, Director
Richard J. Thompson 49 Vice President - Finance, Chief Financial Officer
And Secretary
</TABLE>
Robert J. Aebli has served as President of the Company's Communication Products
division since November 1993. From 1991 to 1993 Mr. Aebli served as Vice
President - Operations of Contraves, Inc., a manufacturer of testing and
simulation systems.
Louis R. DeBartelo was appointed President of the Company's North America
Commercial division in 1993. From 1992 to 1994 he served as the Company's
President - Power Conversion National Accounts Division.
Harvey Dewan was appointed President of North America and Asia Manufacturing in
December 1997. From February to December 1997, Mr. Dewan was Vice President of
Operations for the Company's Communication Products division. From 1969 to April
1996, Mr. Dewan held various positions with General Instrument Corporation, most
recently as Vice President of Quality and General Manager.
Eoin Gilley joined Artesyn on February 2, 1998 as General Manager, European
Operations and was appointed to the position of Managing Director - Europe in
August 1998. From 1995 to early 1998, Mr. Gilley served as Vice
President/General Manager Europe with Quarterdeck International Ltd. From 1981
to 1994, Mr. Gilley held various positions with Apple Computer, most recently as
Director of Operations in Supply Chain Re-Engineering.
Thomas J. Kent was appointed President of the Solutions division in December
1997. Mr. Kent had been General Manager of Zytec's Services and Logistics
operations since 1994 and was named Vice President of Services and Logistics as
well as a director of Zytec in 1996. From 1990 to 1994, Mr. Kent was employed by
US Windpower, most recently as its Director of Customer and Site Support.
Hartmut Liebel was appointed to the position of Corporate Treasurer in February
1998. Prior to joining the Company, Mr. Liebel had been employed by W.R. Grace &
Co., a global specialty chemical supplier, as Assistant Treasurer from 1995 to
1997 and as Director of Financial Risk Management during 1993 and 1994.
Joseph J. Matz was appointed to the position of Managing Director - Europe
Commercial in December 1997. Mr. Matz joined Zytec in November 1991 as Managing
Director of its Austrian division.
Joseph M. O'Donnell was appointed as Chairman of the Board of Directors in
February 1997 and as Co-Chairman of the Board following the merger with Zytec
Corporation ("Zytec") in December 1997. Mr. O'Donnell has served as President
and Chief Executive Officer of the Company since July 1994. Mr. O'Donnell served
as Managing Director of O'Donnell Associates, a consulting firm, from March 1994
to June 1994; and as Chief Executive Officer of Savin Corporation, an office
products distributor, from October 1993 to February 1994. He is a Director of
Boca Research, Inc., a manufacturer of data communications, multimedia and
networking products.
John M. Steel was appointed to the position of Vice President - Marketing and
New Product Development in December 1997 and was elected to the Board of
Directors at that time. Mr. Steel was a co-founder of Zytec and had been an
officer and a director of Zytec since 1984.
Richard J. Thompson has served as Vice President - Finance, Chief Financial
Officer, and Secretary of the Company since June 1990.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The common stock of Artesyn Technologies, Inc. is traded on The Nasdaq National
Stock Marketsm under the symbol ATSN. High and low sales prices of such stock
and information pertaining to the number of record holders of the Company's
Common Stock appears on page 45 of the Annual Report for the fiscal year ended
January 1, 1999 and is incorporated herein by reference.
The Registrant has not paid cash dividends in the past and no change in such
policy is anticipated. Future cash dividends, if any, will be determined by the
Board of Directors in light of the circumstances then existing, including the
Company's earnings and financial requirements and general business conditions.
However, 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 January 1, 1999, the Company
repurchased and retired 1,211,500 shares of its common stock for a total of
approximately $19.4 million in cash. Currently, the Company maintains a $200
million revolving credit facility, which contains certain restrictive covenants
that, among other things, require the Company to maintain certain financial
ratios and may limit the purchase, transfer or distribution of the Company's
assets.
ITEM 6. SELECTED FINANCIAL DATA
The Consolidated Five-Year Financial History appearing on page 13 of the Annual
Report for the fiscal year ended January 1, 1999 is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Annual Report for the fiscal year ended January 1,
1999 is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures About Market Risk included in the
Annual Report for the fiscal year ended January 1, 1999 is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company (including Note 19,
Selected Consolidated Quarterly Data- Unaudited) and the independent certified
public accountants' report thereon contained in the Annual Report for the fiscal
year ended January 1, 1999 are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12 AND 13.
The information called for by that portion of Item 10 which relates to the
Directors of the Company, by Item 11 (Executive Compensation), Item 12 (Security
Ownership of Certain Beneficial Owners and Management) and Item 13 (Certain
Relationships and Related Transactions) is incorporated herein by reference to
the Company's definitive proxy statement for the 1999 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission not later
than 120 days after the close of the fiscal year ended January 1, 1999. That
portion of Item 10 which relates to Executive Officers of the Company appears as
Item 4A of Part I of this Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
(A) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
(1) FINANCIAL STATEMENTS
The following consolidated financial statements of Artesyn Technologies, Inc.
and subsidiaries included in the Company's Annual Report for the fiscal year
ended January 1, 1999 are incorporated herein by reference in Item 8 hereof:
Consolidated Statements of Operations -- Years Ended on the Friday nearest
December 31, 1998, 1997, and 1996
Consolidated Statements of Financial Condition -- as of the Friday
nearest December 31, 1998 and 1997
Consolidated Statements of Cash Flows -- Years Ended on the Friday nearest
December 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity and Comprehensive
Income-Years Ended on the Friday nearest December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
(2) FINANCIAL STATEMENT SCHEDULE
The following information is filed as part of this Form 10-K and should be read
in conjunction with the financial statements contained in the Company's Annual
Report for the fiscal year ended January 1, 1999.
Report of Independent Certified Public Accountants On Schedule
Report of Independent Accountants
Schedule for Artesyn Technologies, Inc. and Subsidiaries:
Schedule II - Valuation and Qualifying Accounts
Schedules other than that listed above have been omitted because they are either
not required or not applicable, or because the required information has been
included in the consolidated financial statements or notes thereto incorporated
herein by reference.
(3) EXHIBITS
EXHIBIT # DESCRIPTION
- --------- -----------
2.1 Agreement and Plan of Merger by and between Zytec Corporation, Computer
Products Inc. and CPI Acquisition Corp. dated as of September 2, 1997
incorporated by reference to Exhibit 2.1 of Registrant's Registration
Statement on Form S-4 filed on September 25, 1997.
2.2 Agreement on the Sale, Purchase and Transfer of Shares dated as of July 22,
1997 - incorporated by reference to Exhibit 2 of Registrant's Registration
Statement on Form 8-K filed on August 6, 1997.
2.3 Agreement and Plan of Merger, dated August 23, 1996, by and among Computer
Products, Inc., JPS Acquisition Corp, Jeta Power Systems Inc. and Jagdish
C. Chopra - incorporated by reference to Exhibit 10.50 of Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended September 27,
1996.
2.4 Asset Purchase Agreement among RT Acquisition Florida Corp., RTP Corp. and
Computer Products Inc. dated as of July 5, 1997 - incorporated by reference
to Exhibit 10.33 of Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended July 4, 1997.
3.1 Articles of Incorporation of the Company, as amended, on May 15, 1989
incorporated by reference to Exhibit 3.1 of Registrant's Annual Report on
Form 10-K for the fiscal year ended December 28, 1989.
3.2 By-laws of the Company, as amended, effective October 16, 1990
incorporated by reference to Exhibit 3.2 of Registrant's Registration
Statement on Form S-4, filed with the Commission on September 25, 1997, as
amended.
3.3 Articles of amendment to articles of incorporation of the Company
incorporated by reference to Exhibit 3.1 of Registrant's Current Report on
Form 8-K filed on May 6, 1998.
3.4 Articles of amendment to articles of Incorporation of the Company, as
amended on December 22, 1998.
4.1 Amended and Restated Rights Agreement, dated as of November 21, 1998,
between the Company and The Bank of New York as Rights Agent, including
the form of Right Certificate and the Summary of Rights to Purchase
Preferred Shares attached thereto as exhibits B and C, respectively
incorporated by reference to Exhibit 4.1 of Registrant's Current Report on
Form 8-K filed with the Commission on December 22, 1998.
10.1 Grant Agreement, dated June 19, 1981, as supplemented, by and among the
Industrial Development Authority of Ireland, Power Products Ltd. and
Computer Products, Inc. - incorporated by reference to Exhibit 10.2 of
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1982.
10.2 Indenture between Industrial Development Authority of Ireland and Power
Products Ltd. - incorporated by reference to Exhibit 10.3 of Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1982.
10.3 Lease for facilities of Boschert, Incorporated located in Milpitas,
California - incorporated by reference to Exhibit 10.14 of Registrant's
Annual Report on Form 10-K for the fiscal year ended January 3, 1986.
10.4 Letter Amendment to Lease for facilities of Boschert, Incorporated, dated
January 9, 1991 located in Milpitas, California - incorporated by
reference to Exhibit 10.8 of Registrant's Annual Report on Form 10-K for
the fiscal year ended December 28, 1990.
10.5 Sublease for facilities of Boschert, Incorporated located in Milpitas,
California - incorporated by reference to Exhibit 10.8 of Registrant's
Annual Report on Form 10-K for the fiscal year ended January 1, 1988.
10.6 Sublessee Estoppel Certificate to Sublease for facilities of Boschert,
Incorporated, dated February 4, 1991, located in Milpitas, California
incorporated by reference to Exhibit 10.10 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 28, 1990.
10.7 1981 Stock Option Plan, as amended, effective as of October 16, 1990
incorporated by reference to Exhibit 10.10 of Registrant's Current Report
on Form 8-K, filed with the Commission on November 30, 1990.
10.8 Computer Products, Inc. 1986 Outside Directors' Stock Option Plan, amended
as of February 22, 1988 - incorporated by reference to Exhibit 10.12 of
Registrant's Annual Report on Form 10-K for the fiscal year ended January
1, 1988.
10.9 Asset Purchase Agreement, dated as of January 1, 1992, by and among
Computer Products, Inc., HC Holding Corp. and Heurikon Corporation
including exhibits and schedules thereto - incorporated by reference to
Exhibit 2 of Registrant's Current Report on Form 8-K, filed with the
Commission on January 20, 1992.
10.10 Contract to Purchase between Computer Products, Inc. and Sauk Enterprises
dated December 23, 1991 for the premises located at 8310 Excelsior Drive,
Madison, Wisconsin - incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended January 3, 1992.
10.11 Lease for facilities of the executive offices located in Boca Raton,
Florida - incorporated by reference to Exhibit 10.23 of Registrant's
Annual Report on Form 10-K for the fiscal year ended December 30, 1988.
10.12 Outside Directors' Retirement Plan, effective October 17, 1989
incorporated by reference to Exhibit 10.22 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 29, 1989.
10.13 1990 Performance Equity Plan - incorporated by reference to Exhibit 10.26
of Registrant's Annual Report on Form 10-K for the fiscal year ended
December 28, 1990.
10.14 1990 Outside Directors' Stock Option Plan - incorporated by reference to
Exhibit 10.27 of Registrant's Annual Report on Form 10-K for the fiscal
year ended December 28, 1990.
10.15 Manufacturing and Development Agreement dated March 16, 1992, between
Computer Products, Inc. and Analogic Corporation - incorporated by
reference to Exhibit 10.30 of Registrant's Annual Report on Form 10-K for
the fiscal year ended January 3, 1992.
10.16 License Agreement dated March 16, 1992, between Computer Products, Inc.
and Analogic Corporation - incorporated by reference to Exhibit 10.31 of
Registrant's Annual Report on Form 10-K for the fiscal year ended January
3, 1992.
10.17 Asset Purchase Agreement between Computer Products, Inc., Tecnetics
Incorporated, Miller Acquisition Corporation and certain former managers
of Tecnetics Incorporated - incorporated by reference to Exhibit 10.29 of
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
April 3, 1992.
10.18 Manufacturing License and Technical Assistance Agreement between Heurikon
Corporation and Lockheed Sanders, Inc. dated January 31, 1992 incorporated
by reference to Exhibit 10.34 of Registrant's Quarterly Report on Form
10-Q for the quarterly period ended July 3, 1992.
10.19 Star MVP Domestic Terms and Conditions of Sale Between Heurikon
Corporation and Lockhead Sanders, Inc. dated March 18, 1992 incorporated
by reference to Exhibit 10.35 of Registrant's Quarterly Report on Form
10-Q for the quarterly period ended July 3, 1992.
10.20 DSP32C VME Board License Agreement between Heurikon Corporation and
American Telephone and Telegraph Company dated October 28, 1991
incorporated by reference to Exhibit 10.36 of Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended July 3, 1992.
10.21 Software License agreement between Heurikon Corporation and American
Telephone and Telegraph Company dated October 28, 1991 - incorporated by
reference to Exhibit 10.37 of Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended July 3, 1992.
10.22 Employment Agreement, dated June 29, 1994, by and between Computer
Products, Inc. and Joseph M. O'Donnell - incorporated by reference to
Exhibit 10.41 of Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended July 1, 1994.
10.23 Grant Agreement, dated October 26, 1994, by and among the Industrial
Development Authority of Ireland, Power Products Ltd. and Computer
Products, Inc. - incorporated by reference to Exhibit 10.43 of
Registrant's Annual Report on Form 10-K for the fiscal year ended December
30, 1994.
10.24 1996 Employee Stock Purchase Plan - incorporated by reference to
Exhibit 10.45 of Registrant's Annual Report on Form 10-K for the fiscal
year ended December 29, 1995.
10.25 1990 Performance Equity Plan as amended - incorporated by reference to
Exhibit 10.46 of Registrant's Annual Report on Form 10-K for the fiscal
year ended December 29, 1995.
10.26 1990 Outside Directors Stock Option Plan, restated as of January 25, 1996
incorporated by reference to Exhibit 10.47 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December 29, 1995.
10.27 1996 Executive Incentive Plan - incorporated by reference to Exhibit 10.48
of Registrant's Annual Report on Form 10-K for the fiscal year ended
December 29, 1995.
10.28 Executive Stock Ownership plan - incorporated by reference to Exhibit
10.49 of Registrant's Annual Report on Form 10-K for the fiscal year ended
December 29, 1995.
10.29 Agreement by and between Oates Business Park and the Company dated May 1,
1995 regarding the leasing of certain premises and real property located
in Lincoln, California - Incorporated by reference to Exhibit 10.26 to
Form 10-K of Zytec Corporation for the year ended December 31, 1995 (File
No. 0-22428).
10.30 Agreement and Addendum by and between Buzz Oates Enterprise and the
Company dated September 15, 1995, as amended December 8, 1995, and as
second amended March 8, 1996, and as third amended May 14, 1996, and as
fourth amended November 8, 1996, regarding the leasing of certain premises
and real property located in Lincoln, California - Incorporated by
reference to Exhibit 10.19 to Form 10-K of Zytec Corporation for the year
ended December 31, 1996.
10.31 Agreement by and between Superior Investments I, Inc. and the Company
dated January 22, 1996 regarding the leasing of certain premises and real
property located in Broomfield, Colorado - Incorporated by reference to
Exhibit 10.27 to Form 10-K of Zytec Corporation for the year ended
December 31, 1995. (File No. 0-22428).
10.32 RentalAgreement by and between Schrack Elektronik Aktiengesellschaft and
IMMORENT-Weiko Grundverwertungsge- sellschaft m.b.H. dated March 14, 1985
(English translation) regarding the leasing of certain real property
located in Kindberg, Austria - Incorporated by reference to Exhibit 10.70
to Zytec Corporation's Registration Statement on Form S-1 (File No.
33-68822).
10.33 Real Estate Lease Agreement by and between IMMORENT - Weiko
Grundverwertungsge-sellschaft m.b.H. and Schrack Elektronik
Aktiengesellschaft dated December 16, 1984 (English translation) regarding
the leasing of certain real property located in Kindberg, Austria
Incorporated by reference to Exhibit 10.71 to Zytec Corporation's
Registration Statement on Form S-1 (File No. 33-68822).
10.34 Lease (Rental) Agreement by and between Schrack Telecom AG and Schrack
Power Supply Gesellschaft m.b.H. dated February 19, 1991 (English
translation) regarding the leasing of certain property located in
Kindberg, Austria Incorporated by reference to Exhibit 10.72 to Zytec
Corporation's Registration Statement on Form S-1 (File No. 33-68822).
10.35 Sublease (Subrental) Agreement by and between Schrack Power Supply
Gesellschaft m.b.H. and Schrack Power Supply Gesellschaft m.b.H. dated
February 14, 1991 (English translation) regarding the leasing of certain
property located in Kindberg, Austria - Incorporated by reference to
Exhibit 10.73 to Zytec Corporation's Registration Statement on Form S-1
(File No. 33-68822).
10.36 Sublease (Subrental) Agreement by and between Schrack Power Supply
Gesellschaft m.b.H. and Schrack Telecom AG dated February 14, 1991
(English translation) regarding the leasing of certain property located in
Kindberg, Austria - Incorporated by reference to Exhibit 10.74 to Zytec
Corporation's Registration Statement on Form S-1 (File No. 33-68822).
10.37 Third Addendum to Lease Agreement between Zytec Corporation and Superior
Investments I, Inc. dated May 23, 1997 - Incorporated by reference to
Exhibit 10.2 to Form 10-Q of Zytec Corporation for the quarter ended June
29, 1997.
10.38 Fourth Addendum to Lease Agreement between Zytec Corporation and Superior
Investments I, Inc. dated June 27, 1997- Incorporated by reference to
Exhibit 10.3 to Form 10-Q of Zytec Corporation for the quarter ended June
29, 1997.
10.39 Loan agreement between Herbert Elektronische Gerate GmbH & Co. KG and
First Union National Bank, London Branch dated as of July 15, 1997
Incorporated by reference to Exhibit 10.43 of Registrant's Annual Report
on Form 10-K for the fiscal year ended January 2, 1998.
10.40 Loan agreement between Computer Products, Inc. and First Union National
Bank, London Branch dated as of July 15, 1997 - Incorporated by reference
to Exhibit 10.44 of Registrant's Annual Report on Form 10-K for the fiscal
year ended January 2, 1998.
10.41 Amended and restated loan agreement between Computer Products, Inc., First
Union National Bank and First Union National Bank, London Branch dated as
of July 15, 1997 - Incorporated by reference to Exhibit 10.45 of
Registrant's Annual Report on Form 10-K for the fiscal year ended January
2, 1998.
10.42 Credit Agreement among Artesyn Technologies, Inc., certain of its
subsidiaries, ABN AMRO Bank N.V., as Administrative Agent and Co-Arranger,
First Union National Bank, as Syndication Agent and Co-Arranger,
NationsBank, N.A., as Co-Agent, dated as of December 31, 1998 -
Incorporated by reference to Exhibit 1 of the Registrant's Current Report
on Form 8-K, filed with the Commission on December 31, 1998.
10.43 Outside Directors' Retirement Plan effective October 17, 1989, as amended
January 25, 1994, August 15, 1996 and January 29, 1998.
13 Annual Report of Artesyn Technologies, Inc. for the fiscal year ended
January 1, 1999.
21 List of subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
27 Financial data schedule.
(b) REPORTS ON FORM 8-K
During the thirteen-week period ended January 1, 1999, the Company filed the
following reports on Form 8-K:
On December 22, 1998, the Company filed a Current Report on Form 8-K (pursuant
to Item 5 thereof) describing the extension and amendment of its shareholder
rights plan.
On December 31, 1998, the Company filed a Current Report on Form 8-K (pursuant
to Item 5 thereof) announcing that the Company received funding under a new
three-year, multi-currency $200 million credit facility arranged and syndicated
by ABN AMRO Bank and First Union National Bank.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Shareholders of
Artesyn Technologies, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Artesyn Technologies, Inc.'s
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated January 22, 1999. Our audits were made for
the purpose of forming an opinion on those statements taken as a whole. We did
not audit the statement of financial condition as of January 3, 1997 and the
related statement of operations, shareholders' equity and cash flows for the
fiscal year ended January 3, 1997 of Zytec Corporation, a company acquired on
December 29, 1997 in a transaction accounted for under the pooling-of-interests
method of accounting. Such statements are included in the consolidated financial
statements of Artesyn Technologies, Inc. and were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
amounts included for Zytec Corporation, is based solely upon the report of the
other auditors. The schedule listed in Item 14(a)(2) is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, based on our audits and the report of other
auditors, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
January 22, 1999.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders and Board of Directors of
Artesyn Technologies, Inc.:
We have audited the consolidated balance sheet of Zytec Corporation as of
December 31, 1996, and the related consolidated statements of operations, cash
flows and stockholders' equity for the year ended December 31, 1996 (not shown
separately in Artesyn Technologies, Inc. Annual Report on Form 10-K for the year
ended January 1, 1999). In connection with our audit of such financial
statements, we have also audited the related financial statement schedule II,
valuation and qualifying accounts for the year ended December 31, 1996 (not
shown separately in Artesyn Technologies, Inc. Annual Report on Form 10-K for
the year ended, January 1, 1999). These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Zytec Corporation
as of December 31, 1996, and the consolidated results of its operations and its
cash flows for the year ended December 31, 1996, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
February 18, 1997
<PAGE>
ARTESYN TECHNOLOGIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended on the Friday Nearest December 31 ($000s)
<TABLE>
<CAPTION>
- ---------------------------------------------------------- ----------- ------------------------ ----------------------- -----------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------- ----------- ------------------------ ----------------------- -----------
-----------------------
Additions
----------- ------------ ---------- ---------------------- ----------
Balance at Charged to Charged to Deductions Balance at
Beginning Costs & Other ----------- ---------- End of
Description of Period Expenses Accounts Description Amount Period
- ---------------------------------------------------------- ----------- ----------- ------------ ----------- ----------- -----------
Fiscal Year 1998:
Reserve deducted from asset to which it applies:
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $1,736 $ 138 $ - $ - $1,875
Restructuring reserve - 5,958 - (1) 3,163 2,795
Fiscal Year 1997:
Reserve deducted from asset to which it applies:
Allowance for doubtful accounts $1,312 $ 426 $ - (2) $ 2 $1,736
Fiscal Year 1996:
Reserve deducted from asset to which it applies:
Allowance for doubtful accounts $1,223 $ 89 $ - $ - $ 1,312
Other 292 - - (2) 292 -
</TABLE>
(1) This amount relates to payments.
(2) This amount relates to recoveries.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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)
Dated: March 26, 1999 By: JOSEPH M. O'DONNELL
-------------------
Joseph M. O'Donnell
Co-Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
JOSEPH M. O'DONNELL Co-Chairman of the Board, 03/26/99
- ------------------- President and Chief Executive
JOSEPH M. O'DONNELL Officer, Director
RONALD D. SCHMIDT Co-Chairman of the Board 03/26/99
- -----------------
RONALD D. SCHMIDT
RICHARD J. THOMPSON Vice President-Finance, 03/26/99
- ------------------- Chief Financial Officer,
RICHARD J. THOMPSON and Secretary
EDWARD S. CROFT, III Director 03/26/99
- --------------------
EDWARD S. CROFT, III
DR. FRED C. LEE Director 03/26/99
- ---------------
DR. FRED C. LEE
LAWRENCE J. MATTHEWS Director 03/26/99
- --------------------
LAWRENCE J. MATTHEWS
STEPHEN A. OLLENDORFF Director 03/26/99
- ---------------------
STEPHEN A. OLLENDORFF
PHILLIP A. O'REILLY Director 03/26/99
PHILLIP A. O'REILLY
BERT SAGER Director 03/26/99
- ----------
BERT SAGER
A. EUGENE SAPP, JR. Director 03/26/99
- -------------------
A. EUGENE SAPP, JR.
LEWIS SOLOMON Director 03/26/99
- -------------
LEWIS SOLOMON
JOHN M. STEEL Director 03/26/99
- -------------
JOHN M. STEEL
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
3.4 Articles of Amendement to the Articles of Incorporation
10.43 Outside Directors' Retirement Plan effective October 17, 1989, as
amended January 25, 1994, August 15, 1996 and January 29, 1998.
13 Annual Report of Artesyn Technologies, Inc. for
the fiscal year ended January 1, 1999
21 List of subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
FILED 98 DEC 24 PM 12:42
SECRETARY OF STATE
TALLAHASSEE, FLORIDA
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ARTESYN TECHNOLOGIES, INC.
Pursuant to the provisions of the Florida Business Corporation
Act, Artesyn Technologies, Inc.
(the "Corporation") does hereby amend its
Articles of Incorporation
---------------------
1. The name of the Corporation is Artesyn Technologies, Inc.
2. Article III of the Articles of Incorporation of the Corporation, as
heretofore amended, relating to the authorized shares of the Corporation,
provides, that the authorized preferred stock, par value $.01 per share
("Preferred Stock"), of the Corporation may be issued from time to time in one
or more series with such distinctive designations as may be stated in a
resolution providing for the issue of such stock adopted by the Board of
Directors of the Corporation (the "Board"). The Board, on October 22, 1998
adopted the following resolution creating a Series A Junior Participating
Preferred Stock:
"RESOLVED, that pursuant to authority conferred upon the Board
of Directors (the "Board) of the Corporation by its Articles of
Incorporation, a series of preferred stock, par value $.01 per share
("Preferred Stock"), of the Corporation is hereby created, and the
designation and amount thereof and the voting powers, preferences and
relative, participating, optional or other special rights of the shares
of such series, and the qualifications, limitations or restrictions
thereof, are as follows:
Section 1. Designation and Number of Shares. The shares of such
series shall be designated as "Series A Junior Participating Preferred
Stock" ("Series A Preferred Stock"). The number of shares initially
constituting the Series A Stock shall be 451,376; provided, however,
that, if more than a total of 451,376 shares of Series A Preferred
Stock shall be at any time issuable upon the exercise of the preferred
share purchase rights (the "Rights") issued pursuant to the Amended and
Restated Rights Agreement, dated as of November 21, 1998, between the
Corporation and The Bank of New York, as Rights Agent, as amended from
time to time (the "Rights Agreement"), the Board, by resolution, shall
direct that articles of amendment be properly executed on behalf of the
Corporation and filed with the Florida Department of State to provide
for the total number of shares of Series A Preferred Stock authorized
to be issued to be increased (to the extent that the Articles of
Incorporation then permits) to the largest number of whole shares
(rounded up to the nearest whole number) then issuable upon exercise of
such Rights; and provided further that such number of shares may be
decreased by resolution of the Board (which decrease shall be effected
by articles of amendment properly executed and filed with the Florida
Department of State), but no such decrease shall reduce the number of
shares of Series A Preferred Stock to a number of shares less than the
number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or
warrants or upon the conversion of any outstanding securities issued by
the Corporation convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(a) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference to the
holders of Common Stock and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share
of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (i) $1.00 or (ii) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per
share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Preferred Stock. In the
event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then, in each such case, the amount to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (ii) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event, and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(b) The Corporation shall declare a dividend or distribution on
the Series A Preferred Stock as provided in paragraph (a) of this
Section 2 immediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares of Common
Stock); provided that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $1.00 per share on the Series A
Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares
of Series A Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board may fix a record date for the
determination of holders of shares of Series A Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon,
which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event, and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(b) Except as otherwise provided herein or in any other articles
of amendment creating a series of Preferred Stock or any similar stock
or by law, the holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the
Corporation having general voting rights shall vote together as one
class on all matters submitted to a vote of stockholders of the
Corporation.
(c) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series
A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board) to all holders of such shares upon such terms as the
Board, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
this Section 4(a), purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall, be retired and cancelled promptly after the
acquisition thereof. All such shares shall, upon their cancellation,
become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein, in the
Articles of Incorporation or in any other articles of amendment
creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series A Preferred Stock unless, prior thereto,
the holders of shares of Series A Preferred Stock shall have received
an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, plus an
amount equal to the greater of $100 per share or an aggregate amount
per share equal to 100 times the aggregate amount to be distributed per
share to holders of shares of Common Stock, or (2) to the holders of
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, except distributions made ratably on the Series A Preferred
Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up; provided, however, that in the
event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then, in each such case, the aggregate amount
to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event, and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger, combination or
other transaction in which the shares of Common Stock are exchanged for
or changed into other stock or securities, cash and/or any other
property, then, in any such case, each share of Series A Preferred
Stock shall at the same time be similarly exchanged or changed into an
amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into
a greater or lesser number of shares of Common Stock, then in each such
case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event, and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series
A Preferred Stock shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank,
with respect to the payment of dividends and the distribution of assets
upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, junior to all other series of the
Corporation's Preferred Stock.
Section 10. The Articles of Incorporation of the
Corporation, as amended hereby, shall not be further amended in any
manner which would materially alter or change the powers, preferences
or special rights of the Series A Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of at least two-
thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class."
3. The amendment was duly adopted by the Board on October 22,
1998 without shareholder action and shareholder action was not required for the
adoption of such amendment.
Executed on December 22, 1998
ARTESYN TECHNOLOGIES, INC.
By Stephen A. Ollendorff
-------------------------
Stephen A. Ollendorff,
a Director
ARTESYN TECHNOLOGIES, INC.
(formerly Computer Products, Inc.)
OUTSIDE DIRECTORS' RETIREMENT PLAN
Effective October 17, 1989
As Amended January 25, 1994, August 15, 1996
and January 29, 1998
SECTION 1. PURPOSE. The purpose of the Outside Directors' Retirement Plan
(the "Plan") is to recognize the valuable services provided to Artesyn
Technologies, Inc. (formerly Computer Products, Inc.) (the "Company") by its
non-employee directors and to assist in attracting new members and retaining
present non-employee members of the Board of Directors. The payments hereunder
are part of the consideration for the services rendered by such non-employee
directors.
SECTION 2. ELIGIBILITY. Any presently serving Outside Director (as
hereinafter defined) who has served as of August 15, 1996 and who has or shall
have continuously served for at least five years as an Outside Director, shall
be eligible to participate in the Plan. The term "Outside Director" as used
herein shall mean a director who during at least 5 consecutive years as a
director has not been a full-time employee of the Company or any of its
subsidiaries as determined for purposes of the Company's employee benefit plans.
In determining the years of continuous service of an Outside Director for
eligibility under the Plan, years of service as an Outside Director prior to the
Effective Date of the Plan (as hereinafter defined) shall be taken into account.
SECTION 3. REMUNERATION. Each eligible Outside Director shall receive as an
annual retirement benefit ("Retirement Benefit") upon the later of such
Director's retirement as a director or upon his attainment of the age of 70 if
not then a director an amount equal to $12,000 (plus cost-of-living increases
commencing January 1, 1998 through December 31 of the year preceding his
retirement) multiplied by a fraction, the numerator of which is the number of
years the Outside Director served in such capacity (but in no event a number
greater than ten) and the denominator of which is ten. The Retirement Benefit
shall be paid in cash at the same intervals as the annual retainer paid to
Outside Directors in service at the time the Retirement Benefit is paid, or, if
no annual retainer is being paid, on a quarterly basis.
SECTION 4. DURATION. The Retirement Benefit will be paid to the Outside
Director for the lesser of the number of years such Director has continuously
served on the Board of Directors as an Outside Director or his life. In the
event that the Outside Director dies during the period in which such Director is
entitled to receive the Retirement Benefit, the final installment of the
Retirement Benefit shall be payable through the date of the death of an Outside
Director to such Director's estate or legal representative.
SECTION 5. INSURANCE OR OTHER BENEFIT PLANS. An Outside
Director's rights under any other benefit plan for members of the Board of
Directors in effect on the date of the Outside Director's retirement under this
Plan shall not be affected by the Outside Director's participation in this Plan.
SECTION 6. NON-ASSIGNABILITY. The rights and interests of an Outside
Director hereunder may not be assigned, pledged or otherwise transferred.
SECTION 7. MISCELLANEOUS. The Company shall not be required to establish a
reserve to meet its obligations hereunder.
SECTION 8. ADMINISTRATION. The Plan shall be administered by the Board of
Directors or by a Committee consisting of three members of the Board of
Directors which is appointed by the Board of Directors to perform such function.
SECTION 9. AMENDMENTS. The Board of Directors may at any time amend or
terminate the Plan. No amendment or termination shall in any way adversely
affect the rights and entitlements of an Outside Director under this Plan (i)
who is serving on the Board of Directors at the time of such amendment or
termination or (ii) who has retired from the Board of Directors and is eligible
to receive benefits under the Plan, or (iii) who has retired from the Board of
Directors and is receiving benefits under the Plan, from receiving any benefits
under the Plan after such amendment or termination.
SECTION 10. EFFECTIVE DATE. The effective date of this Plan is October 17,
1989 ("Effective Date").
SECTION 11. SUCCESSORS. The terms and obligations of the Company under this
Plan shall be binding upon its successors and assigns (whether direct or
indirect and whether by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company. Without limiting the
foregoing, the Company and any successor or assignee shall require any successor
or assignee to expressly assume the obligations of the Company under the Plan in
the same manner and to the same extent that the Company would be required to
perform if no such succession or assignment had taken place.
SECTION 12. APPLICABLE LAW. This Agreement shall be governed by the laws of
the State of Florida applicable to contracts made and to be wholly performed
therein without regard to its choice of law provisions.
FIVE-YEAR FINANCIAL HISTORY
For the Years Ended on the Friday Nearest December 31
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ------------ ----------- ----------- -----------
RESULTS OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Sales $532,392 $527,236 $435,731 $344,969 $264,334
Income from continuing operations 27,044 31,882 29,555 16,483 7,658
Per share - basic 0.70 0.87 0.84 0.50 0.24
Per share - diluted 0.67 0.80 0.78 0.49 0.23
Net income 27,044 29,820 30,059 17,598 9,423
Per share - basic 0.70 0.81 0.85 0.53 0.30
Per share - diluted 0.67 0.75 0.79 0.52 0.28
FINANCIAL POSITION
Working capital $120,970 $115,822 $ 92,029 $ 66,449 $ 54,526
Property, plant & equipment, net 75,032 61,581 48,671 38,491 32,567
Total assets 325,392 322,177 239,487 202,858 159,871
Long-term debt and capital lease obligations 50,283 52,949 43,945 33,590 45,296
Total debt 52,990 68,547 57,097 50,251 53,928
Shareholders' equity 181,088 162,676 117,006 82,889 57,071
Total capitalization 234,078 231,223 174,103 133,140 110,999
FINANCIAL STATISTICS
Selling, general and administrative expenses $ 54,548 $ 52,058 $ 42,232 $36,353 $35,485
- as a % of sales 10.2% 9.9% 9.7% 10.5% 13.4%
Research and development expenses 33,401 30,032 23,612 21,085 14,950
- as a % of sales 6.3% 5.7% 5.4% 6.1% 5.7%
Operating income 41,981 52,443 41,077 26,776 15,865
- as a % of sales 7.9% 9.9% 9.4% 7.8% 6.0%
Total debt as a % of total capitalization 23% 30% 33% 38% 49%
Debt to equity ratio 29% 42% 49% 61% 94%
Interest coverage ratio 11.06 11.00 9.21 6.48 3.64
OTHER DATA
Capital expenditures $26,795 $22,231 $9,387 $10,046 $7,300
Depreciation and amortization $16,898 $13,561 $10,287 $7,606 $6,768
Common shares outstanding (000's) 37,882 38,381 36,042 34,607 31,581
Employees 4,290 4,219 3,519 2,870 2,628
Temporary employees and contractors 2,326 2,663 1,670 1,923 874
</TABLE>
Data for fiscal years 1994, 1995 and 1996 have been restated to reflect the
merger of Computer Products, Inc. and Zytec Corporation effective December 29,
1997, which was accounted for as a pooling-of-interests.
Data for fiscal years 1994, 1995 and 1996 have been restated to give effect to
the discontinued operations of RTP Corp. substantially all of the assets of
which were sold on July 5, 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
BUSINESS COMBINATIONS
Zytec -- On December 29, 1997, Computer Products, Inc. ("CPI") completed a
merger with Zytec Corporation ("Zytec") whereby Zytec became a wholly-owned
subsidiary of CPI. As a result of the merger, each share of Zytec's common
stock, no par value, outstanding immediately prior to the merger was converted
into 1.33 shares of CPI's common stock, $0.01 par value. The Zytec shares were
exchanged for a total of approximately 14.1 million shares of CPI's common
stock. The acquisition was accounted for as a pooling-of-interests; accordingly,
consolidated financial statements presented herein for periods prior to the
merger have been restated to include the combined results of operations,
financial position and cash flows of Zytec as though it had always been a part
of CPI. Hereafter, the merged entity will be collectively referred to as the
Company.
The Company received shareholder approval at its annual shareholders' meeting
held in May 1998 to legally change the Company's corporate name from Computer
Products, Inc. to Artesyn Technologies, Inc. Since that date, the Company's
common stock has been trading under The Nasdaq Stock MarketSM symbol ATSN.
The restatement of the consolidated financial information combines the financial
information of CPI and Zytec giving retroactive effect to the merger as if the
two companies had operated as a single company for all periods presented.
However, the two companies actually operated independently prior to the merger,
and the historical changes and trends in the financial condition and results of
operations of these two companies resulted from independent activities.
Nonetheless, the following management's discussion and analysis of financial
condition and results of operations attempts to relate the activities which
resulted in the changes in financial condition and results of operations of the
combined company, taking into consideration that a trend or change in the
historical results of the combined entity was caused by many events related to
each individual company operating independently as competitors. The financial
information presented on a historical restated basis is not necessarily
indicative of the financial condition and results of operations that may have
been achieved in the past or will be achieved in the future had the companies
operated as a single entity for the periods presented. The following discussion
of the consolidated operations and financial condition of the Company should be
read in conjunction with the Company's consolidated financial statements and
related notes thereto included elsewhere herein.
The Elba Group -- On July 22, 1997, pursuant to an Agreement on the Sale,
Purchase and Transfer of Shares, the Company acquired all the outstanding
capital stock of the following affiliated companies: Elba Electric GmbH, Elba
Modul GmbH, Elba Elektronik AG, Elba Electronics Ltd., Elba-electric-produktion
s.r.o., Elba Electronique S.A.R.L., and KRP Power Source B.V., collectively
referred to as the Elba Group.
The Elba Group is engaged in the design, manufacture and marketing of a wide
range of both AC/DC and DC/DC power conversion products in Europe. Elba's
fastest growing product line is its medium power AC/DC converters (150-750
watts) sold to Original Equipment Manufacturer ("OEM") communications customers
under the Elba and KRP Power Source labels. The Elba Group's customers include
major multinational corporations such as Ericsson, Kodak, Krone AG and Siemens
among others.
The purchase price of 52 million Deutsche marks (approximately $28.5 million)
was paid in cash with proceeds from two seven-year term loans from First Union
National Bank, London Branch. The loans bear interest at LIBOR plus .75%.
Effective December 11, 1998, the Company sold Elba-electric-produktion s.r.o.
(its Czech Republic division) to a third party for 20,000 Deutsche marks and the
repayment of the balance of an intercompany loan of approximately $400,000. In
addition, the sales offices of the Elba Group located in Pfaffikon, Switzerland;
Vaulx-Milieu, France; and Chesterfield, United Kingdom were closed during 1998.
Costs related to such facilities closures were included in the restructuring
charge described in Note 6 of the Notes to Consolidated Financial Statements.
BUSINESS ENVIRONMENT AND RISK FACTORS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes as well as the section under the heading
"Risk Factors that May Affect Future Results." With the exception of historical
information, the matters discussed below may include "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 that involve risks and uncertainties. The Company wishes to caution
readers that a number of important factors, including those identified in the
section entitled "Risk Factors that May Affect Future Results" as well as
factors discussed in the Company's other reports filed with the Securities and
Exchange Commission, could affect the Company's actual results and cause them to
differ materially from those in the forward-looking statements.
RESULTS OF OPERATIONS
For 1998, income from continuing operations was $27.0 million, or $0.67 per
diluted share, compared to $31.9 million, or $0.80 per diluted share, in 1997.
Such amounts include $9.6 million restructuring and related inventory charges in
1998 and a $3.0 million merger-related charge in 1997.
1998 COMPARED TO 1997
Sales for 1998 improved modestly to $532.4 million compared to $527.2 million in
1997. Lower demand from OEM customers as a result of economic turmoil in Asia
and South America, as well as widespread customer inventory reductions, hampered
growth in the Company's primary market sectors: networking, telecommunications,
computing and wireless infrastructure.
On January 1, 1999, the Company's order backlog was $98.3 million compared to
$103.1 million on January 2, 1998. Despite an increase in orders during the
fourth quarter of 1998 which supports management's belief that demand for
product in the end use markets is gradually improving, the Company still has a
cautious demand outlook for 1999.
Gross profit margin for 1998 was 25.8% compared to 26.1% in 1997 primarily due
to the $2.4 million charge for the write-off of duplicate product lines between
the merged companies related to the Company's 1998 restructuring plan further
described below. In addition, material cost and plant rationalization savings
following the merger were offset by new product direct start-up costs. Although
the Company continues to focus on reducing manufacturing costs and improving
overall processes, the Company does not anticipate that gross profit margins
will vary significantly from the current level due to continuing competitive
pricing pressures and changes in product mix.
Operating expenses increased to approximately 17.9% of sales in 1998 from the
16.1% reported in 1997. Operating expenses for 1998 include a $7.2 million
non-recurring charge related to the Company's 1998 restructuring plan. Excluding
the restructuring charge, operating expenses were 16.5% of sales in 1998.
Operating income decreased to 7.9% of sales from 9.9% in 1997, as a result of
lower gross profit margins, increased operating expenses, and restructuring and
related inventory charges.
Selling, general and administrative expenses were $54.5 million in 1998 compared
to $52.1 million in 1997 reflecting the inclusion of a full year of operations
for Elba, which was acquired mid-year 1997, and various integration activities
following the merger. Certain of these additional costs were incurred to begin
implementation of a new company-wide Enterprise Resource Planning ("ERP")
information system and to familiarize the Company's employees, customers,
suppliers and investors with the resources of the new combined company, Artesyn
Technologies. The Company has been taking aggressive steps to curb operating
expenses and to eliminate excess manufacturing resources wherever prudent.
However, the Company expects to incur the following additional expenses in 1999:
higher new product start-up costs, expenses associated with Year 2000 readiness
and compliance, and costs related to the implementation of the ERP system.
Research and development expenses totaled $33.4 million, or 6.3% of sales, in
1998 compared to $30.0 million, or 5.7% of sales, in 1997 reflecting the
Company's continued investment in new product development for its global
communications customers. 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 continue
at or near the same spending levels as a percentage of sales.
RESTRUCTURING CHARGE -- During the first quarter of 1998, the Company recorded a
$9.6 million pre-tax charge in connection with the Company's restructuring plan
following its merger with Zytec. This amount is allocated in the accompanying
Consolidated Statements of Operations as follows: $7.2 million to Restructuring
Charge, as further described below, and $2.4 million to Cost of Sales, which
relates principally to inventory write-offs of duplicate product development
programs which were underway at CPI and Zytec prior to the merger. The
restructuring charge relates primarily to the elimination of duplicate
facilities in an effort to reduce costs pursuant to the Company's integration
plan. Specific restructuring actions included the closure of certain domestic
and foreign manufacturing and other 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, and other related cost-savings actions.
The following table includes the components of the restructuring charge and
related charge for inventory write-offs, the current year payments and other
activities, and the remaining restructuring reserve balance of approximately
$2.8 million which is included in accrued liabilities as of January 1, 1999
($000s):
<TABLE>
<CAPTION>
Employee
Termination Asset Facility Product Line
Benefits Write-offs Closures Rationalization
------------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
Restructuring provision /write-offs $3,956 $1,231 $2,002 $2,411
Cash payments (2,806) - (357) -
Non-cash activities - (1,231) - (2,411)
------------- ------------ ---------- --------------
Reserve balance at January 1, 1999 $1,150 $ - $1,645 $ -
============= ============ ========== ==============
</TABLE>
Employee termination benefits primarily represent severance pay and other
benefits associated with the elimination of approximately 360 positions
worldwide, with more than 70% of the eliminated positions coming from the
rationalization of certain duplicate manufacturing locations and sales offices
in Europe and the remaining 30% relating to duplicate management and
administrative personnel. In the latter part of 1998, the Company's revised its
initial estimate of positions to be eliminated from 400 to 360. The revised
estimated charges for employee termination benefits approximate the initial
estimate. As of January 1, 1999, approximately 300 of the anticipated 360
positions had been eliminated worldwide.
The provision for the facility closures includes leasehold termination payments,
service contracts obligations, and other exit costs associated with facilities
closures discussed above.
As a result of such facilities closures, the Company evaluated whether related
fixed assets (including duplicate management information systems and unusable
manufacturing and testing equipment) had become impaired. The Company used an
estimate of the related undiscounted cash flows over the remaining life of such
machinery and equipment in measuring their recoverability and determined that
such assets were permanently impaired. As a result, these fixed assets were
written down to their net realizable value.
Total expected cash expenditures related to the restructuring charge are
estimated to be approximately $6.0 million. With the exception of certain
lease-related cash requirements, the remaining anticipated cash payments of
approximately $2.8 million are expected to be paid during the first half of
1999.
Provision for income taxes decreased to 33.0% of pretax income in 1998 from
35.5% in 1997. The effective tax rate was lower in 1998 primarily due to lower
state income taxes following the merger. For additional information regarding
income taxes, refer to pages 35 through 36 of the Notes to Consolidated
Financial Statements.
ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" which requires companies to
report all changes in equity during a period, except those resulting from
investment by owners and distributions to owners, in a financial statement for
the period in which they are recognized. The Company has chosen to disclose
Comprehensive Income, which encompasses net income and foreign currency
translation adjustments, in the Consolidated Statements of Shareholders' Equity
and Comprehensive Income. Prior years have been reclassified to conform to the
SFAS 130 requirements.
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information" which
was adopted by the Company in 1998. SFAS 131 establishes standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas and major customers. Prior years have been
reclassified to conform to the SFAS 131 requirements.
In March 1998, the Accounting Standards Executive Committee released Statement
of Position 98-1, (SOP 98-1), "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 requires companies to
capitalize certain costs of computer software developed or obtained for internal
use, provided that those costs are not research and development. In 1998, the
Company adopted the guidelines established by SOP 98-1 in accounting for the
costs of computer software developed or obtained for internal use in connection
with its implementation of the ERP system.
1997 COMPARED TO 1996
Sales increased from $435.7 million in 1996 to $527.2 million in 1997. The 21%
growth primarily resulted from a wider range of product offerings, continued
foreign expansion and the increase of service and support programs.
Gross profit in 1997 increased by $30.6 million compared to 1996 on higher sales
volume and improved margins. The Company's gross margin increased to 26.1% of
sales in 1997 from 24.5% in 1996 due to cost reductions in both materials and
labor as well as higher overhead absorption due to increased production volume.
Operating expenses increased to approximately 16.1% of sales in 1997 from the
15.1% reported in the prior year. In connection with the merger, in the fourth
quarter of 1997, the Company recorded a charge to operating expenses of $3.0
million for direct merger transaction costs consisting primarily of fees for
investment bankers, attorneys, accountants, financial printing and other related
charges. Operating income rose to 9.9% of sales from 9.4% in 1996, as a result
of higher gross profit partially offset by the increase in operating expenses.
Selling, general and administrative expenses in 1997 increased to 9.9% of sales
versus 9.7% in 1996. Sales and marketing expenses increased $5.4 million or 24%
due to increased commission expense resulting from higher sales levels,
additional marketing programs to support the launch of new products, entry into
new markets worldwide and expansion of distribution channels. General and
administrative ("G&A") expenses increased $4.4 million, or 22%, as a result of
the Company's business development activities and the inclusion of the Elba
Group acquired in July 1997. As a percentage of sales, G&A expenses increased to
4.6% from 4.5% in 1996.
Research and development (R&D) expenses in 1997 increased $6.4 million or 27.2%
from 1996. As a percentage of sales, R&D expenses were 5.7% in 1997 versus 5.4%
in 1996. The higher expense level was primarily attributable to the cost of
developing new products consistent with the Company's ongoing commitment to
develop and produce high-quality, innovative products targeted to the
communications industry.
Provision for income taxes increased to 35.5% of pretax income in 1997 from
21.4% in 1996. The effective tax rate was lower in 1996 primarily due to the
recognition of an income tax benefit related to the net operating loss
carryforwards in the Company's Austrian operations.
DISCONTINUED OPERATIONS--On April 17, 1997, the Company announced its intention
to sell its Industrial Automation division, RTP Corp. ("RTP"), pursuant to a
plan of disposal approved by the Company's Board of Directors. Accordingly, the
Company classified RTP as a discontinued operation and recorded an after-tax
non-recurring charge of $2.1 million, or $0.05 per share, against 1997 earnings.
Effective July 5, 1997, the Company sold substantially all of the assets of RTP
Corp. to RT Acquisition Florida Corp. Proceeds from the sale included $2.0
million cash, a subordinated unsecured one-year note in the aggregate principal
amount of approximately $2.2 million bearing interest at the prime rate, and the
assumption of certain of RTP's liabilities.
LIQUIDITY AND CAPITAL RESOURCES
As of January 1, 1999, the Company's cash balance decreased to $41.5 million
from $55.4 million at January 2, 1998 primarily due to $19.4 million spent for
repurchases of the Company's common stock, $19.0 million for principal debt
repayments and $26.8 million for capital expenditures in 1998. These activities
were funded primarily with cash on hand, cash from operations and $4.6 million
proceeds from exercises of stock options.
Cash provided by operations increased to $44.1 million in 1998 versus $38.8
million in 1997 and $30.2 million in 1996. The increase in 1998 was primarily
due to income from operations, excluding the $7.2 million pre-tax restructuring
charge, and smaller increases in accounts receivable and inventories. The
increase in 1997 is mainly the result of a decrease in prepaid expenses and an
increase in accounts payable and accrued liabilities partially offset by
increases in accounts receivable and inventory.
Accounts receivable increased to $88.8 million at January 1, 1999 from $84.4
million at January 2, 1998 partially due to higher sales volume but also due to
a change in payment terms extended to certain OEMs from 35 to 45 days. Days
sales outstanding in receivables increased to 55 days for 1998 compared to 51 in
1997. The increase in inventory levels 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 fiscal year 1998 totaled $26.8 million primarily for
the continued maintenance of facilities and equipment in support of the
Company's current operating activities with an additional $7.7 million related
to the implementation of the new enterprise-wide ERP system. Such capital
expenditures were financed with cash generated from operations. The Company's
current commitment to implement the ERP system 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.
Accounts payable increased $5.2 million, or 14%, from January 2, 1998 due to
increases in capital expenditures including the implementation of the ERP
system, operating expenses, and material purchases to support the Company's
growth in sales.
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 January 1, 1999, the Company repurchased and
retired 1,211,500 shares of its common stock for a total of approximately $19.4
million in cash.
The Company used $24.6 million, $44.7 million and $20.9 million in investing
activities in fiscal years 1998, 1997 and 1996, respectively. The use of cash in
fiscal 1998 reflects capital expenditures of $26.8 million partially offset by
$2.2 million proceeds from the sale of substantially all of the assets of RTP
Corp. The use of cash in fiscal 1997 was due mainly to the acquisition of the
Elba Group for $26.2 million (net of cash acquired) and increased purchases of
property, plant and equipment in line with the continued upgrading of the
Company's overseas manufacturing facilities. The major investing activities for
fiscal 1996 were capital additions to support business operations and the
acquisition of Jeta for $9.6 million (net of cash acquired).
Cash used in financing activities in fiscal 1998 of $33.7 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, approximately $7.6
million on the Company's Austrian subsidiary's revolving loans and notes
payable, and $3.5 million in capital lease principal payments and (2) repurchase
and retirement of 1,211,500 shares of the Company's common stock for $19.4
million, partially offset by $4.6 million in proceeds from stock option
exercises.
Cash provided by financing activities in fiscal 1997 of $27.1 million reflected
borrowings under the 52 million Deutsche mark term loans, net of debt issuance
costs, and $5.5 million proceeds from exercises of stock options partially
offset by $14.2 million long-term debt and capital lease principal repayments
including $3.7 million on the Company's seven-year term loan. Financing
activities used $1.5 million in fiscal 1996 for the repurchase of the Company's
common stock and for the repayment of long-term debt partially offset by
proceeds from issuance of debt and exercises of options.
Effective December 31, 1998, the Company entered into a 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,
replaces 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 restrictive covenants that,
among other things, require the Company to maintain certain financial ratios and
limit the purchase, transfer or distribution of the Company's assets. The funds
are to be used for the repayment of the Company's existing $46.4 million term
loans and for other general corporate purposes. As of January 1, 1999, the
Company had made no borrowings under the revolving credit facility and was in
compliance with the agreement's covenants. On January 8, 1999, the existing term
loans were repaid from borrowings under the new revolving credit facility. Any
amounts outstanding under the revolver are due on December 31, 2001.
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 1999.
QUALITATIVE AND QUANTITATIVE 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 financial instruments.
The Company utilizes derivative financial instruments to reduce financial market
risks. 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. For additional information, refer to Note 17
of the Notes to Consolidated Financial Statements.
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.
Given the current economic situation in Asia, there is a risk that the current
pegging of the Hong Kong dollar to the US dollar will be removed. The Company's
management has assessed the potential exposure in the event the peg is
removed/changed and if there was a devaluation in the Hong Kong dollar. Since
the Company's sales are in US dollars and purchases are either in US dollars or
Hong Kong dollars, the potential effect would be to the carrying value of the
Hong Kong building which currently approximates $6.7 million.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities, which
the Company is required to adopt effective January 1, 2000. SFAS 133 will
require the Company to record all derivatives as either assets or liabilities in
the Consolidated 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. The impact of SFAS
133 on the Company's financial statements will depend on a variety of factors,
including future interpretative guidance from the FASB, the future level of
forecasted and actual foreign currency transactions, the extent of the Company's
hedging activities, the types of hedging instruments used and the effectiveness
of such instruments. However, given the Company's current use of derivatives and
hedging activities, the Company does not believe the effect of adopting SFAS 133
will be material to its consolidated financial statements.
YEAR 2000 INITIATIVES AND EFFECTS
The Company has formed an internal Year 2000 compliance team and developed a
compliance plan 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 and large customers 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 Company is
currently involved in some phase 3 remediation activities while completing the
final assessment of internal applications and infrastructure. The initial
inventory is complete with final assessments of Year 2000 issues scheduled for
completion by the end of the first quarter in 1999. The remaining two phases,
validation and implementation, are expected to start at the beginning of the
second quarter of 1999 and be completed later in 1999.
The Company's current primary business information systems, in both the United
States and its foreign locations, are known to be non-compliant. Upgrades for
the Company's Asia-Pacific locations are complete. European locations are
scheduled for upgrade in the first quarter of 1999. In addition, the Company is
proceeding with a phased installation of a new Year 2000 compliant ERP system to
replace its existing legacy application systems. The Company's goal is to
complete the ERP implementation within all North American Artesyn facilities by
mid-1999. In case of unexpected delays in the implementation of the ERP systems
in North America, the Company's contingency plan will 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. 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 solely 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. 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. 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. The Company expects
these expenditures to be financed through operating cash flows or borrowings, as
applicable.
The Company believes that its Year 2000 plan is sufficient and that the Year
2000 issue will not pose significant operational problems. However, 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.
A "worse case scenario" Year 2000 contingency plan is scheduled to be completed
by the beginning of the second quarter of 1999. The contingency plan will
address plans to minimize any potential impact on Company operations in the case
of unplanned Year 2000 related failures. The plan will include the upgrade of
current information systems to Year 2000 compliant versions as well as
management of materials and inventory to cover potential supplier-missed
shipments.
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.
CONVERSION TO THE EURO CURRENCY
On January 1, 1999, certain member countries of the European Union are scheduled
to establish fixed conversion rates between their existing currencies and the
European Union's common currency ("Euro"). The Company conducts business in
member countries. The transition period for the introduction of the Euro will be
between January 1, 1999 and June 30, 2002. The Company is addressing the issues
involved with the introduction of the Euro. The more important issues facing the
Company include: converting information technology systems; reassessing currency
risk; negotiating and amending licensing agreements and contracts; and
processing tax and accounting records.
The company does not presently expect that introduction and use of the Euro will
materially affect the Company's foreign exchange and hedging activities or the
Company's use of derivative instruments. Management does not expect that the
introduction of the Euro will result in any material increase in costs to the
Company. All costs associated with the introduction of the Euro will be expensed
to operations as incurred. While the Company will continue to evaluate the
impact of the Euro introduction over time, based on currently available
information, management does not believe that the introduction of the Euro
currency will have a material adverse impact on the Company's financial
condition or overall trends in results of operations.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended on the Friday Nearest December 31
(Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- ----------
<S> <C> <C> <C>
Sales $532,392 $527,236 $435,731
Cost of Sales 395,273 389,703 328,810
----------- --------- ----------
Gross Profit 137,119 137,533 106,921
----------- --------- ----------
Expenses
Selling, general and administrative 54,548 52,058 42,232
Research and development 33,401 30,032 23,612
Restructuring charge 7,189 - -
Merger-related charges - 3,000 -
----------- --------- ----------
95,138 85,090 65,844
----------- --------- ----------
Operating Income 41,981 52,443 41,077
----------- --------- ----------
Other Income (Expense)
Interest expense (4,013) (4,945) (4,576)
Interest income 2,396 1,943 1,087
----------- --------- ----------
(1,617) (3,002) (3,489)
----------- --------- ----------
Income from Continuing Operations before Income Taxes 40,364 49,441 37,588
Provision for Income Taxes 13,320 17,559 8,033
----------- --------- ----------
Income from Continuing Operations 27,044 31,882 29,555
Discontinued Operations
Profit (loss) from operations, net of income taxes
of $(222) and $177, respectively - (333) 504
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 $ 27,044 $ 29,820 $ 30,059
=========== ========= ==========
Earnings per Share
Basic
Income from Continuing Operations $ 0.70 $ 0.87 $ 0.84
Discontinued Operations - (0.06) 0.01
----------- --------- ----------
Net Income $ 0.70 $ 0.81 $ 0.85
=========== ========= ==========
Diluted
Income from Continuing Operations $ 0.67 $ 0.80 $ 0.78
Discontinued Operations - (0.05) 0.01
----------- --------- ----------
Net Income $ 0.67 $ 0.75 $ 0.79
=========== ========= ==========
Common and Common Equivalent Shares Outstanding
Basic 38,369 36,650 35,375
Diluted 40,635 40,654 37,870
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of the Friday Nearest December 31
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
ASSETS
Current Assets
<S> <C> <C>
Cash and equivalents $ 41,525 $ 55,392
Accounts receivable, net of allowance for doubtful accounts of
$1,875 at January 1, 1999 and $1,736 at January 2, 1998 88,828 84,479
Inventories 62,460 59,663
Prepaid expenses and other 4,832 8,522
Deferred income taxes, net 7,685 5,293
------------- -------------
Total current assets 205,330 213,349
------------- -------------
Property, Plant & Equipment, Net 75,032 61,581
------------- -------------
Other Assets
Goodwill, net 40,039 40,704
Deferred income taxes, net 2,682 4,509
Other assets, net 2,309 2,034
------------- -------------
Total other assets 45,030 47,247
------------- -------------
$325,392 $322,177
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt and capital leases $ 2,707 $ 15,598
Accounts payable and accrued liabilities 81,653 81,929
------------- -------------
Total current liabilities 84,360 97,527
------------- -------------
Long-Term Liabilities
Long-term debt and capital leases 50,283 52,949
Other long-term liabilities 4,974 5,785
Deferred tax liabilities 4,687 3,240
------------- -------------
Total long-term liabilities 59,944 61,974
------------- -------------
Total liabilities 144,304 159,501
------------- -------------
Commitments and Contingencies (see Notes 8, 10 and 13)
Shareholders' Equity
Preferred stock, par value $0.01; 1,000,000 shares authorized;
none issued or outstanding - -
Common stock, par value $0.01; 80,000,000 shares authorized;
37,882,248 shares issued and outstanding at January 1, 1999
(38,380,964 at January 2, 1998) 379 384
Additional paid-in capital 85,018 78,056
Retained earnings 99,128 88,769
Foreign currency translation adjustment (3,437) (4,533)
------------- ------------
Total shareholders' equity 181,088 162,676
------------- -------------
$325,392 $322,177
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended on the Friday Nearest December 31
(Amounts in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- -----------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $27,044 $29,820 $30,059
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 16,898 13,561 10,287
Deferred income taxes 1,042 (3,395) (2,088)
Provision for inventory writedown 6,407 4,963 1,988
Provision for restructuring charge 7,189 - -
Other non-cash charges 720 2,473 (383)
Changes in operating assets and liabilities:
Increase in accounts receivable (1,032) (22,264) (8,730)
(Increase) decrease in inventories (6,466) (14,489) 2,860
(Increase) decrease in prepaid expenses and other (1) 8,683 24
Increase (decrease) in accounts payable and accrued liabilities (7,659) 18,037 (2,617)
Net cash provided by (used in) discontinued operations - 1,423 (1,220)
----------- ----------- -----------
Net Cash Provided by Operating Activities 44,142 38,812 30,180
------------ ----------- -----------
INVESTING ACTIVITIES
Purchases of property, plant & equipment (26,795) (22,231) (9,387)
Proceeds from sale of property, plant & equipment 54 1,656 -
Purchase of the Elba Group, net of cash acquired - (26,186) -
Purchase of Jeta Power Systems, Inc., net of cash acquired - - (9,577)
Purchase of Zytec Hungary Elektronikai Kft. - - (830)
Proceeds from sale of RTP Corp. 2,150 2,000 -
(Increase) decrease in other assets - 96 (206)
Investing activities of discontinued operations - (32) (897)
------------ ----------- -----------
Net Cash Used in Investing Activities (24,591) (44,697) (20,897)
------------ ----------- -----------
FINANCING ACTIVITIES
Proceeds from issuances of long-term debt - 35,796 20,086
Principal payments on debt and capital leases (18,968) (14,163) (14,899)
Proceeds from revolving credit loans - 14,726 144,806
Payments on revolving credit loans - (14,726) (152,104)
Decrease in bank overdrafts - - (1,220)
Proceeds from exercises of stock options 4,640 5,511 3,888
Repurchases of common stock (19,379) - (2,032)
------------ ----------- -----------
Net Cash Provided by (Used in) Financing Activities (33,707) 27,144 (1,475)
------------ ----------- -----------
Effect of Exchange Rate Changes on Cash and Equivalents 289 (543) 216
------------ ----------- -----------
Increase (Decrease) in Cash and Equivalents (13,867) 20,716 8,024
Cash and Equivalents, Beginning of Year 55,392 34,676 26,652
------------ ----------- -----------
Cash and Equivalents, End of Year $41,525 $55,392 $34,676
============ =========== ===========
Supplemental Cash Flow Disclosures
Cash paid during the year for:
Interest $ 3,511 $ 4,754 $ 4,627
Income taxes 12,442 9,213 5,139
Noncash investing and financing activities:
Fair value of assets acquired in connection with purchase acquisitions - 35,000 14,055
Liabilities assumed in connection with purchase acquisitions - 6,600 1,916
Goodwill reduction from utilization of loss carryforwards - - 606
Common stock issued from conversion of note (including debt
issuance costs written off) - 11,386 -
Tax benefit from exercises of stock options 5,011 3,163 1,934
Equipment acquired through issuance of debt - 736 1,423
Property and equipment acquired through capital lease obligations 1,222 1,505 7,372
Note receivable from sale of RTP Corp. - 2,150 -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
For the Years Ended on the Friday Nearest December 31
(Amounts in Thousands)
<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, December 29, 1995 28,830 $288 $52,375 $30,571 $ (345)
Additional shares issued in
two-for-one stock split 5,982 60 (60) - -
Issuance of common stock 8 - 100 - -
Issuance of common stock under stock
option and employee purchase plans 1,419 14 3,874 - -
Tax benefit from exercises of stock
options - - 1,934 - -
Repurchases and retirement of
common stock (197) (2) (349) (1,681) -
Net income - - - 30,059 - $30,059
Other comprehensive income - foreign
currency translation adjustment, net
of tax of $46 - - - - 168 168
-----------
Comprehensive income $30,227
-------- ------- ---------- --------- ---------- ===========
Balance, January 3, 1997 36,042 360 57,874 58,949 (177)
Issuance of common stock 21 - 146 - -
Issuance of common stock under stock
option and employee purchase plans 1,151 12 5,499 - -
Tax benefit from exercises of stock
options - - 3,163 - -
Conversion of convertible subordinated
note (including debt issuance costs
written off) 1,167 12 11,374 - -
Net income - - - 29,820 - $29,820
Other comprehensive income - foreign
currency translation adjustment, net
of tax of $2,397 - - - - (4,356) (4,356)
-----------
Comprehensive income $25,464
-------- ------- ---------- --------- ---------- ===========
Balance, January 2, 1998 38,381 384 78,056 88,769 (4,533)
Issuance of common stock under stock
option and employee purchase plans 713 7 4,633 - -
Tax benefit from exercises of stock
options - - 5,011 - -
Repurchases and retirement of
common stock (1,212) (12) (2,682) (16,685) -
Net income - - - 27,044 - $27,044
Other comprehensive income - foreign
currency translation adjustment,
net of tax of $539 - - - - 1,096 1,096
-----------
Comprehensive income $28,140
-------- ------- ---------- --------- ---------- ===========
Balance, January 1, 1999 37,882 $379 $85,018 $99,128 $(3,437)
======== ======= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION The consolidated financial statements include the accounts
of Artesyn Technologies, Inc. (formerly named Computer Products, Inc.) and its
subsidiaries (collectively referred to as the "Company"). Intercompany accounts
and transactions have been eliminated in consolidation. On December 29, 1997,
Computer Products, Inc. completed a merger with Zytec Corporation ("Zytec")
whereby Zytec became a wholly-owned subsidiary of Computer Products (the
"merger"). The consolidated financial statements for all periods presented prior
to the merger have been restated as if the Company operated as one entity since
inception. The merger has been accounted for as a pooling-of-interests as
discussed in Note 5.
The Company received shareholder approval at its annual shareholders' meeting
held in May 1998 to legally change the Company's corporate name from Computer
Products, Inc. to Artesyn Technologies, Inc. Since that date, the Company began
trading under The Nasdaq Stock MarketSM symbol ATSN.
FISCAL YEAR The Company's fiscal year ends on the Friday nearest December 31,
which results in a 52- or 53-week year. The fiscal years ended January 1, 1999,
January 2, 1998 and January, 3, 1997 comprise 52, 52 and 53 weeks, respectively.
CASH AND EQUIVALENTS Only highly liquid investments with original maturities of
90 days or less are classified as cash and equivalents. These investments are
carried at cost, which approximates market value.
INVENTORIES Inventories are stated at the lower of cost, on a first-in,
first-out basis, or market.
PROPERTY, PLANT & EQUIPMENT Property, plant and equipment is stated at cost.
Depreciation is provided for on the straight-line method over the estimated
useful lives of the assets ranging from three to 30 years or the lease terms, if
shorter. Leasehold improvements are recorded at cost and are amortized using the
straight-line method over the remaining lease term or the economic useful life,
whichever is shorter. Major renewals and improvements are capitalized, while
maintenance, repairs and minor renewals not expected to extend the life of an
asset beyond its normal useful life are expensed as incurred. The Company
periodically evaluates whether events and circumstances have occurred that may
warrant revision of the estimated useful life of its property, plant and
equipment or whether the remaining balance of property, plant and equipment
should be evaluated for possible impairment. The Company uses an estimate of the
related undiscounted cash flows over the remaining life of the property, plant
and equipment in measuring their recoverability.
GOODWILL The excess of purchase price over net assets of companies acquired
(goodwill), which are accounted for under the purchase method, is capitalized
and amortized on a straight-line basis over periods ranging from 20 to 40 years.
Related accumulated amortization was $9,701,000 and $7,322,000 at January 1,
1999 and January 2, 1998, respectively. Amortization expense was $2,257,000,
$1,550,000 and $837,000 in fiscal years 1998, 1997 and 1996, respectively. The
Company periodically evaluates whether events and circumstances have occurred
that may warrant revision of the estimated useful life of goodwill or whether
the remaining balance of goodwill should be evaluated for possible impairment.
The Company uses an estimate of the related undiscounted cash flows over the
remaining life of the goodwill in measuring its recoverability.
FOREIGN CURRENCY TRANSLATION The functional currency of the Company's European
subsidiaries is each foreign subsidiary's local currency. Assets and liabilities
are translated from their functional currency into US dollars using exchange
rates in effect at the balance sheet date. Income and expense items are
translated using average exchange rates for the period. The effect of exchange
rate fluctuations on translating foreign currency assets and liabilities into US
dollars is included in shareholders' equity. Foreign exchange transaction gains
and losses are included in the results of operations. The functional currency of
the Company's Asian subsidiaries is the US dollar, as their transactions are
substantially denominated in US dollars. Financial exposure may result from the
timing of transactions and the movement of exchange rates.
REVENUE RECOGNITION The Company recognizes revenue as products are shipped and
title is passed to the customer or as services are rendered by the Company.
PRODUCT WARRANTY The Company records estimated product warranty costs in the
period in which the related sales are recognized.
INCOME TAXES Income taxes reflect the current and deferred tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The realization of deferred tax assets is based on historical tax
positions and expectations about future taxable income.
EARNINGS PER SHARE Basic earnings per share ("EPS") is calculated by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding during each period. Diluted earnings per share includes the
potential impact of convertible securities and dilutive common stock equivalents
using the treasury stock method of accounting. The reconciliation of the
numerator and denominator of the EPS calculation is presented in Note 12.
COMPREHENSIVE INCOME In 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" which
requires companies to report all changes in equity in a financial statement for
the period in which they are recognized, except those resulting from investment
by owners and distributions to owners. The Company has chosen to disclose
Comprehensive Income, which encompasses net income and foreign currency
translation adjustments, in the Consolidated Statements of Shareholders' Equity
and Comprehensive Income. Prior years have been reclassified to conform to the
SFAS 130 requirements.
STOCK SPLIT In April 1996, Zytec's board of directors authorized a two-for-one
stock split in the form of a 100% stock dividend distributed on June 3, 1996 to
shareholders of record on May 20, 1996. Applicable per share and number of share
data have been retroactively restated to reflect the stock split, except for the
Consolidated Statements of Shareholders' Equity and Comprehensive Income.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. The
more significant estimates made by management include the provision for doubtful
accounts receivable, inventory write-downs for potentially excess or obsolete
inventory, restructuring charges, warranty reserves, and the amortization period
for intangible assets. Actual results could differ from those estimates.
Management periodically evaluates estimates used in the preparation of the
financial statements for continued reasonableness. Appropriate adjustments, if
any, to the estimates used are made prospectively based on such periodic
evaluation.
ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board
("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities, which the Company is required
to adopt effective January 1, 2000. SFAS 133 will require the Company to record
all derivatives as either assets or liabilities in the Consolidated 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. The impact of SFAS 133 on the Company's financial
statements will depend on a variety of factors, including future interpretative
guidance from the FASB, the future level of forecasted and actual foreign
currency transactions, the extent of the Company's hedging activities, the types
of hedging instruments used and the effectiveness of such instruments. However,
given the Company's current use of derivatives and hedging activities, the
Company does not believe the effect of adopting SFAS 133 will be material to its
consolidated financial statements.
In March 1998, the Accounting Standards Executive Committee released Statement
of Position 98-1, ("SOP 98-1"), "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". SOP 98-1 requires companies to
capitalize certain costs of computer software developed or obtained for internal
use, provided that those costs are not research and development. In 1998, the
Company adopted the guidelines established by SOP 98-1 in accounting for the
costs of computer software developed or obtained for internal use in connection
with its implementation of the ERP system.
RECLASSIFICATIONS Certain prior years' amounts have been reclassified to conform
with the current year's presentation.
2. INVENTORIES
The components of inventories are as follows ($000s):
1998 1997
--------- ---------
Raw materials $30,737 $31,181
Work in process 10,097 12,582
Finished goods 21,626 15,900
--------- ---------
Inventories $62,460 $59,663
========= =========
3. PROPERTY, PLANT & EQUIPMENT
Property, plant & equipment is comprised of the following ($000s):
1998 1997
--------- ---------
Land $2,509 $2,423
Buildings and fixtures 18,136 18,227
Machinery and equipment 105,950 77,812
Leasehold improvements 4,816 1,763
Equipment, furniture and leasehold
improvements under capital leases 13,400 12,214
--------- ---------
144,811 112,439
Less accumulated depreciation and amortization 69,779 50,858
--------- ---------
Property, plant & equipment, net $75,032 $61,581
========= =========
Depreciation and amortization expense was $14,407,000, $11,525,000 and
$8,840,000 in fiscal years 1998, 1997 and 1996, respectively.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are as follows
($000s):
1998 1997
--------- ---------
Accounts payable $42,025 $36,790
Accrued liabilities:
Compensation and benefits 13,543 14,875
Income taxes payable 8,296 14,071
Warranty reserve 4,897 3,457
Restructuring reserve 2,795 -
Other 10,097 12,736
--------- ---------
$81,653 $81,929
========= =========
At January 1, 1999 and January 2, 1998, other accrued liabilities consisted
primarily of accruals for commissions, advertising, professional fees, and other
taxes.
5. BUSINESS COMBINATIONS
Zytec -- On December 29, 1997, Computer Products completed the merger with Zytec
by exchanging approximately 14.1 million shares of its common stock for all the
outstanding common stock of Zytec. Each share of Zytec was exchanged for 1.33
shares of the Company's common stock. In addition, outstanding Zytec employee
stock options were converted at the same exchange factor into options to
purchase up to approximately 3.9 million shares of the Company's common stock.
All applicable share data have been retroactively restated in the consolidated
financial statements. The merger constituted a tax-free reorganization and has
been accounted for as a pooling-of-interests under Accounting Principles Board
Opinion ("APB") No. 16. Accordingly, consolidated financial statements presented
herein for periods prior to the merger have been restated to include the
combined results of operations, financial position and cash flows of the merged
companies.
There were no transactions between Computer Products and Zytec prior to the
combination and certain adjustments were recorded in 1997 to conform Zytec's
accounting policies to the Company's accounting policies. Differences in these
practices prior to 1997 were deemed not to be material to the Company's
financial statements. Certain reclassifications were made to the Zytec financial
statements to conform to the Company's presentation.
Sales and earnings data for the separate companies and the combined amounts as
presented in the consolidated financial statements are displayed in the table
below ($000s). Since the merger was effective on December 29, 1997, the table
reflects sales and earnings data for the entire 1997. Operations from December
29, 1997 to January 2, 1998 would not have had a material impact on the data
presented for fiscal year 1997.
1997 1996
---------- ----------
Sales
Computer Products $262,774 $207,563
Zytec 264,462 228,168
---------- ----------
Combined $527,236 $435,731
========== ==========
Net Income
Computer Products $20,089 $19,578
Zytec 9,731 10,481
---------- ----------
Combined $29,820 $30,059
========== ==========
In connection with the merger, in the fourth quarter of 1997, the Company
recorded a charge to operating expenses of $3.0 million for direct transaction
costs consisting primarily of fees for investment bankers, attorneys,
accountants, financial printing and other related charges.
The ELBA Group -- On July 22, 1997, the Company acquired the Elba Group
("Elba"), a European designer, manufacturer and marketer of a wide range of both
AC/DC and DC/DC power conversion products. The Company purchased Elba for 52
million Deutsche marks (approximately $28.5 million) in cash provided by two
seven-year term loans from a financial institution. At the acquisition date,
Elba had design, sales and manufacturing organizations in Oberhausen and
Einsiedel, Germany; Chomutov, Czech Republic; and Etten-Leur, Netherlands. Elba
also had sales offices in Pfaffikon, Switzerland; Vaulx-Milieu, France; and
Chesterfield, United Kingdom.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the excess of the purchase price over the estimated fair value of
the net assets acquired, or approximately $21.5 million, was recorded as
goodwill which is being amortized on a straight-line basis over a period of 20
years. Elba's results of operations have been included in the Company's
consolidated financial statements from the date of acquisition. The following
unaudited pro forma information combines the consolidated results of operations
of the Company and Elba as if the acquisition had occurred at the beginning of
the periods presented.
Unaudited Combined Pro Forma Information
($000s Except per Share Data)
1997 1996
------------- -------------
Sales $540,545 $462,366
Income from Continuing Operations 32,556 31,312
Per share - basic 0.89 0.89
Per share - diluted 0.81 0.83
Net Income 30,494 31,816
Per share - basic 0.83 0.90
Per share - diluted 0.76 0.84
The unaudited pro forma results have been prepared for comparative purposes only
and include certain adjustments, such as additional amortization expense as a
result of goodwill, increased interest expense on the acquisition debt, and
related income tax effects. The pro forma results do not purport to be
indicative of results that would have occurred had the combination been in
effect for the periods presented, nor do they purport to be indicative of the
results that will be obtained in the future.
Effective December 11, 1998, the Company sold Elba-electric-produktion s.r.o.
(its Czech Republic division) to a third party for 20,000 Deutsche marks and the
repayment of an intercompany loan with a balance of approximately $400,000. The
results of operations of such division were not significant in relation to the
Company's consolidated financial statements; accordingly pro forma disclosures
have not been presented. In addition, the sales offices located in Pfaffikon,
Switzerland; Vaulx-Milieu, France; and Chesterfield, United Kingdom were closed
during 1998. Costs related to such facilities closures were included in the
restructuring charge described in Note 6.
Jeta Power Systems -- Effective August 23, 1996, the Company acquired the
remaining 90% of the outstanding capital stock of Jeta Power Systems, Inc.
("Jeta") for approximately $11.25 million in cash. Jeta designs, manufactures
and markets medium-to-high power systems in the 400 watt to 4 kilowatt range for
applications in telecommunications, networking, computing and instrumentation
markets. The Company had purchased an initial 10% of Jeta's capital stock during
1984 for approximately $433,000. The Company used cash on hand to pay for the
acquisition.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, $7.9 million, representing the excess of the purchase price over
the estimated fair value of the net assets acquired, has been recorded as
goodwill and is being amortized on a straight-line basis over a period of 20
years. Jeta's results of operations have been included in the Company's
consolidated financial statements from the date of acquisition and are not
significant in relation to the Company's consolidated financial statements.
Accordingly, pro forma financial disclosures have not been presented.
Artesyn Hungary Electronics -- In March 1996, Zytec completed the acquisition of
the outstanding stock of BHG Tatabanya Alkatrezsgyarto Kft. (formerly known as
Zytec Hungary Elektronikai Kft). The $830,000 purchase price was paid in cash.
This acquisition has been recorded using the purchase method of accounting.
Artesyn Hungary's results of operations have been included in the Company's
consolidated financial statements from the date of acquisition and are not
significant in relation to the Company's consolidated financial statements.
Accordingly, pro forma financial disclosures have not been presented.
6. RESTRUCTURING
During the first quarter of 1998, the Company recorded a $9.6 million pre-tax
charge in connection with the Company's restructuring plan following its merger
with Zytec. This amount is allocated in the accompanying Consolidated Statements
of Operations as follows: $7.2 million to Restructuring Charge, as further
described below, and $2.4 million to Cost of Sales, which relates principally to
inventory write-offs of duplicate product development programs which were
underway at CPI and Zytec prior to the merger. The restructuring charge relates
primarily to the elimination of duplicate facilities in an effort to reduce
costs pursuant to the Company's integration plan. Specific restructuring actions
included the closure of certain domestic and foreign manufacturing and other
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, and other
related cost-savings actions.
<PAGE>
The following table includes the components of the restructuring charge and
related charge for inventory write-offs, the current year payments and other
activities, and the remaining restructuring reserve balance of approximately
$2.8 million which is included in accrued liabilities as of January 1, 1999
($000s):
<TABLE>
<CAPTION>
Employee
Termination Asset Facility Product Line
Benefits Write-offs Closures Rationalization
------------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
Restructuring provision /write-offs $3,956 $1,231 $2,002 $2,411
Cash payments (2,806) - (357) -
Non-cash activities - (1,231) - (2,411)
------------- ------------ ---------- --------------
Reserve balance at January 1, 1999 $1,150 $ - $1,645 $ -
============= ============ ========== ==============
</TABLE>
Employee termination benefits primarily represent severance pay and other
benefits associated with the elimination of approximately 360 positions
worldwide, with more than 70% of the eliminated positions coming from the
rationalization of certain duplicate manufacturing locations and sales offices
in Europe and the remaining 30% relating to duplicate management and
administrative personnel. In the latter part of 1998, the Company's revised its
initial estimate of positions to be eliminated from 400 to 360. The revised
estimated charges for employee termination benefits approximate the initial
estimate. As of January 1, 1999, approximately 300 of the anticipated 360
positions had been eliminated worldwide.
The provision for the facility closures includes leasehold termination payments,
service contracts obligations, and other exit costs associated with facilities
closures discussed above.
As a result of such facilities closures, the Company evaluated whether related
fixed assets (including duplicate management information systems and unusable
manufacturing and testing equipment) had become impaired. The Company used an
estimate of the related undiscounted cash flows over the remaining life of such
machinery and equipment in measuring their recoverability and determined that
such assets were permanently impaired. As a result, these fixed assets were
written down to their net realizable value.
Total expected cash expenditures related to the restructuring charge are
estimated to be approximately $6.0 million. With the exception of certain
lease-related cash requirements, the remaining anticipated cash payments of
approximately $2.8 million are expected to be paid during the first half of
1999.
7. DISCONTINUED OPERATIONS
On April 17, 1997, the Company announced its intention to sell its Industrial
Automation division, RTP Corp. ("RTP"), pursuant to a plan of disposal approved
by the Board of Directors. Effective July 5, 1997, the Company sold
substantially all of the assets of RTP to RT Acquisition Florida Corp. Proceeds
from the sale included $2.0 million cash, a subordinated unsecured one-year note
in the aggregate principal amount of approximately $2.2 million bearing interest
at the prime rate, and the assumption of certain of RTP's liabilities. An
estimated after-tax loss on the sale of approximately $1.7 million (net of
income tax benefit of $1,152,000) was recorded in the first quarter of 1997
representing the estimated loss on the disposal of RTP's net assets and a
pre-tax provision of $1,000,000 for expected operating losses during the
phase-out period. The actual loss on disposal approximated the amount recorded
in the first quarter of 1997.
RTP's sales from January 4, 1997 through its disposal date were $4,793,000. RTP
sales in 1996 were $14,922,000. RTP's operating results are shown separately as
discontinued operations in the accompanying Consolidated Statements of
Operations.
8. LINE OF CREDIT
Effective December 31, 1998, the Company entered into a 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,
replaces 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 restrictive covenants that,
among other things, require the Company to maintain certain financial ratios and
limit the purchase, transfer or distribution of the Company's assets. The funds
are to be used for the repayment of the Company's existing $46.4 million term
loans and for other general corporate purposes. As of January 1, 1999, the
Company had made no borrowings under the revolving credit facility and was in
compliance with the agreement's covenants. On January 8, 1999, the existing term
loans were repaid from borrowings under the new revolving credit facility. Any
amounts outstanding under the revolver are due on December 31, 2001.
<PAGE>
9. LONG-TERM DEBT AND CAPITAL LEASES
Long-term and capital lease obligations consist of the following ($000s):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
5.58% interest-bearing note (a) $31,023 $28,921
8.25% interest-bearing note (b) 15,400 19,800
4.875% long-term investment loan due July 1, 2002 (c) 611 713
3.50% revolving credit loan (d) - 3,562
6.9% mortgage note (e) - 3,286
3.875% notes payable (f) - 2,414
Loan payable to bank (g) - 1,618
Variable rate demand industrial development revenue bonds (h) - 820
Capital lease obligations (see Note 10) 5,956 7,413
-------- --------
52,990 68,547
Less current maturities 2,707 15,598
-------- --------
Long-term debt and capital leases $50,283 $52,949
======== ========
</TABLE>
(a) On July 15, 1997, the Company and one of its subsidiaries entered into
two separate unsecured seven-year term loans with a bank providing an
aggregate of 52 million Deutsche marks. The term loans bear interest at
LIBOR plus .75% (see Note 17). Proceeds from the term loans were used
to finance the Elba Group acquisition on July 22, 1997 (see Note 5). On
January 8, 1999, the term loans were repaid from borrowings under the
Company's new revolving credit facility (see Note 8).
(b) On April 4, 1995, the Company entered into an unsecured credit
agreement with a bank that provided for a $25 million seven-year term
loan. Proceeds from the term loan were used to redeem the Company's
Debentures. The term loan bears interest at LIBOR plus .75% (see Note
17). On January 8, 1999, the term loan was repaid from borrowings under
the Company's new revolving credit facility (see Note 8).
(c) Interest is payable at 4.875% through June 30, 1999 after which it will
be renegotiated. Principal payments are as follows: 900,000 Austrian
Schillings due semi-annually on January 1 and July 1 of each year, with
interest payable annually.
(d) The Company's Austrian subsidiary had a revolving credit loan with a
bank for financing export sales. The agreement was renewable quarterly
and bore interest at 3.5%. This revolving credit loan was repaid and
terminated during 1998.
(e) On June 28, 1994, the Company obtained a $3,600,000 seven-year
commercial mortgage loan from a bank at a fixed interest rate of 6.9%
for the first three years, repriced thereafter at 250 basis points over
the then prevailing four-year U.S. Treasury Index. The loan proceeds
were used to provide additional working capital. Effective July 1,
1997, the loan agreement was amended to extend the interest rate of
6.9% through June 30, 1998. The note was repaid in June of 1998.
(f) Notes payable include various notes which matured and were repaid from
January to April 1998. The interest rate on each of the notes was
3.875% during 1998.
(g) Loan payable to bank bore interest at rates ranging from 5% to 6.3%
and was repaid during 1998.
(h) The interest rate on demand industrial revenue bonds was established
weekly based on market conditions such that the market value of the
bonds would remain equal to their principal value. The bonds were
repaid during 1998.
Maturities of long-term debt, including amounts borrowed under the revolver
(which has a mandatory repayment date of December 31, 2001) and excluding
capital lease obligations, are as follows: $153,000 in 1999, $153,000 in 2000,
$46,576,000 in 2001, and $152,000 in 2002.
The fair value of the debt and capital leases, based upon discounted cash flow
analysis using current market interest rates, approximates its carrying value at
January 1, 1999.
<PAGE>
10. LEASE OBLIGATIONS
Items under capital leases include certain equipment, furniture and leasehold
improvements. The Company is also obligated under noncancelable operating leases
for facilities and equipment that expire at various dates through 2005 and
contain renewal options at favorable terms. Future minimum annual rental
obligations and noncancelable sublease income are as follows ($000s):
Capital Operating Sublease
Year Leases Leases Income
- ------------------------------------------------ ---------- -----------
1999 $3,022 $8,706 $2,432
2000 2,046 8,284 2,432
2001 1,453 7,469 2,432
2002 100 7,037 2,432
2003 64 6,064 396
Thereafter 61 12,924 -
----------- ---------- -----------
6,746 $50,484 $10,124
========== ===========
Less amount representing interest (790)
-----------
Present value of net minimum
lease payments $5,956
===========
Rental expense under operating leases amounted to $8,269,000, $6,133,000 and
$6,395,000 in fiscal years 1998, 1997 and 1996, respectively. Sublease income
was $2,257,000, $1,941,000 and $1,941,000 for fiscal years 1998, 1997 and 1996,
respectively.
A lease liability has been recorded for a leased manufacturing facility no
longer deployed in the Company's operations. Although the facility is being
subleased, the future lease obligations exceed future sublease income, thereby
creating a loss contract. The aggregate minimum annual rental obligations and
sublease income under this lease have been included in the lease commitments
table presented above. The lease liability is estimated based on contract
provisions and historical and current market rates. This estimate can be
materially affected by changes in market conditions. This lease liability is
included in "other long-term liabilities" in the Consolidated Statements of
Financial Condition and amounted to $4.4 million as of January 1, 1999.
11. INCOME TAXES
The components of the provision for income taxes on income from continuing
operations consist of the following ($000s):
1998 1997 1996
--------- -------- -------
Currently payable:
Federal $8,872 $12,979 $4,410
State 2,173 2,129 2,424
Foreign 1,233 5,846 3,287
--------- -------- -------
Total current 12,278 20,954 10,121
--------- -------- -------
Deferred provision:
Federal (2,252) (3,019) 612
State (251) 140 134
Foreign 3,545 (516) (2,834)
--------- -------- -------
Total deferred 1,042 (3,395) (2,088)
--------- -------- -------
Total provision for
income taxes $13,320 $17,559 $8,033
========= ======== ========
The exercise of nonqualified stock options resulted in state and federal income
tax benefits to the Company related to the difference between the fair market
price of the stock at the date of exercise and the exercise price. In fiscal
1998, 1997 and 1996, the provision for income taxes excludes current tax
benefits of $5,011,000, $3,163,000 and $1,934,000, respectively, related to the
exercise of stock options credited directly to additional paid-in capital.
During fiscal 1996, the Company utilized tax loss carryforwards obtained in a
prior business combination. The effect of utilizing these carryforwards was to
reduce goodwill by approximately $606,000 in 1996.
Income taxes have not been provided on the undistributed earnings of the
Company's foreign subsidiaries, which approximated $68.3 million as of January
1, 1999, as the Company does not intend to repatriate such earnings.
<PAGE>
The components of the Company's income from continuing operations before
provision for income taxes consist of the following ($000s):
1998 1997 1996
------- ------- -------
U.S. $25,240 $28,626 $25,157
Foreign 15,124 20,815 12,431
------- ------- -------
Total income from continuing
operations before income taxes $40,364 $49,441 $37,588
======= ======= =======
The Company's effective tax rate differs from the U.S. statutory federal income
tax rate due to the following:
1998 1997 1996
------- ------- -------
U.S. federal statutory tax rate 35.0% 35.0% 35.0%
Foreign tax effects (1.3) (2.3) (1.8)
Recognition of deferred tax benefit
of NOL carryforward - - (8.4)
Permanent items -non-deductible 0.8 2.7 0.3
Change in the valuation allowance (4.2) (5.2) (10.8)
Effect of AMT and state income taxes 2.2 5.1 6.9
Other 0.5 0.2 0.2
------- ------- -------
Effective income tax rate 33.0% 35.5% 21.4%
======= ======= =======
In May 1996, the Austrian government changed the treatment of net operating loss
("NOL") carryforwards by (a) suspending the use of NOLs during the years 1996
and 1997 retroactively to January 1, 1996 and (b) removing the time limitations
on the use of the NOLs. In light of this new statute and based on the Company's
assessment of the strong financial results of the Austrian operations, the
Company recognized the deferred income tax benefit related to the Austrian NOL
carryforwards. This resulted in a $2,626,000 net reduction of income taxes in
the second quarter of 1996, comprised of a tax benefit of $3,175,000 relating to
recognition of the deferred tax benefit offset by $549,000 in income tax expense
resulting from the retroactive application of this tax law change to first and
second quarter Austrian operations.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and deferred tax liabilities as of January 1,
1999 and January 2, 1998 are as follows ($000s):
1998 1997
-------- ---------
DEFERRED TAX ASSETS
Net operating loss carryforwards $ - $1,118
Tax credit carryforwards - 2,086
Foreign net operating loss carryforwards - 2,665
Lease liabilities 1,751 1,799
Inventory reserves 2,604 2,558
Other accrued liabilities 5,283 3,430
Allowance for bad debt 696 595
Other 33 402
-------- ---------
Gross deferred tax assets 10,367 14,653
Valuation allowance - (4,851)
------- --------
Net deferred tax assets $10,367 $9,802
======== =========
DEFERRED TAX LIABILITIES
Depreciation $(1,708) $(1,300)
Amortization of goodwill (481) (412)
Other (2,498) (1,528)
-------- ---------
Deferred tax liabilities $(4,687) $(3,240)
======== =========
The valuation allowance at January 2, 1998 included approximately $3.2 million
related to the exercise of stock options, which was recognized during fiscal
1998 and was credited directly to additional paid-in capital. During the year
ended January 1, 1999, the valuation allowance was eliminated due to
management's belief that it is more likely than not that future taxable income
will be sufficient to utilize deferred tax assets of approximately $10.4
million. In assessing the likelihood of utilization of existing deferred tax
assets, management has considered the historical results of operations and the
current operating environment.
12. 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 potentially
dilutive common stock. The number of shares used in the calculation for 1996
reflects a two-for-one stock split of Zytec's shares occurring on June 3, 1996.
Also, the number of shares used in the calculation for fiscal years 1997 and
1996 was adjusted to reflect the additional shares issued pursuant to the merger
with Zytec at a conversion ratio of 1.33. The reconciliation of the numerator
and denominator of the EPS calculation is presented below (000s except per share
data):
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
Basic EPS
<S> <C> <C> <C>
Income from continuing operations $27,044 $31,882 $29,555
----------- ----------- -----------
Weighted average shares 38,369 36,650 35,375
----------- ----------- -----------
Per share - basic $ 0.70 $ 0.87 $ 0.84
=========== =========== ===========
Diluted EPS
Income from continuing operations $27,044 $31,882 $29,555
Add: after-tax interest on
convertible note - 548 -
--------- ---------- ----------
$27,044 $32,430 $29,555
---------- ----------- -----------
Weighted average shares 38,369 36,650 35,375
Effect of dilutive items:
Stock options 2,266 2,837 2,495
Convertible note - 1,167 -
----------- ----------- -----------
40,635 40,654 37,870
----------- ----------- -----------
Per share- diluted $ 0.67 $ 0.80 $ 0.78
=========== =========== ==========
Antidilutive weighted options 723 167 433
=========== =========== ===========
</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.
13. COMMITMENTS AND CONTINGENCIES
Grant Agreements
In prior years, the Company received grant assistance, under grant agreements,
from the Industrial Development Authority (" IDA") of Ireland in connection with
the Company's establishment of its Irish manufacturing operations. The funds
received reduced the cost of the facility and equipment and operating expenses.
In October 1997, the Company entered into a new grant agreement whereby the IDA
granted the sum of approximately $3.0 million to the Company in consideration
for the Company providing employment for a given number of Irish citizens, over
a three-year period. As of January 1, 1999, the Company had received
approximately $230,000 of the $3.0 million grant. The funds reduced operating
expenses incurred in connection with the expansion of the Company's operations
in Ireland. In the event of noncompliance with certain terms and conditions of
the above-mentioned grant agreements, the Company may be required to repay
approximately $2.7 million of funds received to date from prior grants.
Management believes that noncompliance with the agreements is unlikely.
Legal Proceedings
The Company is a party to various legal proceedings which have arisen in the
ordinary course of business. While the results of these matters cannot be
predicted with certainty, the Company believes that losses, if any, resulting
from the ultimate resolution of these matters will not have a material adverse
effect on the Company's consolidated results of operations, cash flows or
financial position.
Purchase Commitments
The Company has long-term relationships pertaining to the purchase of certain
raw materials with various suppliers through December 31, 1999. These purchase
commitments are not expected to exceed usage requirements.
14. STOCK REPURCHASES
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 January 1, 1999, the Company repurchased and
retired 1,211,500 shares of its common stock for a total of approximately $19.4
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.
During fiscal 1996, the Company repurchased and retired a total of 197,000
shares of its common stock pursuant to a share buy-back plan announced in May
1995. The Company did not repurchase any shares during 1997. 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. In September 1997, the
Company terminated such stock repurchase program.
15. STOCK-BASED COMPENSATION PLANS
EMPLOYEE STOCK OPTION PLANS Under the Company's 1981 Incentive Stock Option
Plan, options were granted to purchase up to 2,000,000 shares of the Company's
common stock at prices not less than the fair market value at date of grant. The
options generally vest at the rate of 25% per year beginning one year from the
date of grant. The options expire 10 years from the date of grant or three
months after termination of employment, if earlier. This plan was replaced by
the 1990 Performance Equity Plan ("PEP").
The Company established the PEP plan in 1990 under which it had reserved
3,000,000 shares of common stock for granting of either incentive or
nonqualified stock options to key employees and officers. The Company increased
authorized shares under the PEP plan to 5,950,000 in 1997. Both incentive or
nonqualified stock options have been granted at prices not less than the fair
market value on the date of grant as determined by the Company's Board of
Directors. The maximum term of the options is 10 years, although some options
have been granted with a five-year term. Beginning with grants made in 1995, the
majority of the options become exercisable after the price of the Company's
common stock achieves certain levels for specified periods of time or upon the
passage of a certain number of years from the date of grant. For grants made
prior to 1995, options vest at the rate of 25% per year beginning one year from
the date of grant. As of January 1, 1999, 842,262 stock options were reserved
for future grants.
The Zytec stock options outstanding at the date of the merger were converted to
the Company's stock options. The Zytec option activity and share prices have
been restated, for all years presented, to the Company's equivalents using the
exchange ratio of 1.33 shares of the Company's common stock to one share of
Zytec common stock. Zytec existing options generally expire six years from the
date of grant, or three months after termination of employment, if earlier.
Options vest at the rate of 20% per year beginning one year from the date of
grant. No additional grants from the Zytec plans are allowed to be made after
December 29, 1997.
OUTSIDE DIRECTORS STOCK OPTION PLANS The Company established an Outside
Directors Stock Option Plan in 1986 under which it authorized and reserved
250,000 shares of common stock for granting of nonqualified stock options to
directors of the Company who are not employees of the Company at exercise prices
not less than the fair market value on the date of grant. The plan was replaced
by the 1990 Outside Directors Stock Option Plan under which the Company
initially authorized and reserved 250,000 shares. The Company increased
authorized shares under such plan to 500,000 in 1996. Effective in 1996, upon
initial election or appointment to the Board of Directors and each year
thereafter, outside directors shall receive an option to purchase 10,000 shares
of common stock provided that they own a given number of shares of common stock
of the Company based on a formula as defined in the plan. The options granted
under both Outside Directors plans fully vest on the one-year anniversary of the
date of grant. As of January 1, 1999, 20,000 stock options were reserved for
future grants. Management is requesting shareholder approval at its next annual
shareholders' meeting in May 1999 to increase the number of stock options
authorized under the Outside Directors Stock Option Plan.
The Company applies APB No. 25, "Accounting for Stock Issued to Employees" and
related Interpretations with supplemental disclosures in accounting for
stock-based compensation. In accordance with APB 25, as the exercise price of
the Company's stock options equals the market price of the underlying stock on
the date of grant, no compensation cost has been recognized for its fixed stock
option plans. Pro forma information regarding net income and earnings per share
is required by SFAS 123 "Accounting for Stock-Based Compensation" and has been
determined as if the Company had accounted for its employee and outside
directors stock-based compensation plans under the fair value method. The fair
value of each option grant was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
1998 1997 1996
----------- --------- -----------
Risk-free interest rate 5.3% 6.2% 6.0%
Dividend yield - - -
Expected volatility 70% 63% 52%
Expected life 2.7 years 3.2 years 3.4 years
The Company's pro forma information follows ($000s except per share data):
1998 1997 1996
--------- --------- ----------
Net Income As reported $27,044 $29,820 $30,059
========= ========= ==========
Pro forma $19,993 $24,028 $27,354
========= ========= ==========
EPS - Basic As reported $ 0.70 $ 0.81 $ 0.85
========= ========= ==========
Pro forma $ 0.52 $ 0.66 $ 0.77
========= ========= ==========
EPS- Diluted As reported $ 0.67 $ 0.75 $ 0.79
========= ========= ==========
Pro forma $ 0.50 $ 0.61 $ 0.72
========= ========= ==========
The effects of applying SFAS 123 in this pro forma disclosure are not
necessarily indicative of future results. SFAS 123 does not apply to awards
prior to 1995.
The following table summarizes activity under all plans for the years ended
1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ---------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of year 6,178,804 $10.53 4,808,247 $ 6.51 4,163,603 $ 2.77
Options granted 1,266,000 16.61 2,876,493 14.99 2,345,771 10.81
Options exercised (712,784) 6.49 (1,055,662) 4.43 (1,403,047) 2.70
Options canceled (345,823) 13.91 (450,274) 10.36 (298,080) 6.08
---------- ---------- ----------- --------- ----------- ---------
Options outstanding, end of year 6,386,197 $12.01 6,178,804 $10.53 4,808,247 $ 6.51
========== =========== ===========
Options exercisable, end of year 2,763,093 1,947,762 1,787,520
========== =========== ===========
Weighted-average fair value of
options granted during the year $7.88 $6.87 $4.42
=========== =========== ===========
</TABLE>
The following table summarizes information about stock options outstanding at
January 1, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- ----------------------------------
Weighted-
Average
Remaining Weighted- Weighted-
Range of Number Contractual Life Average Number Average
Exercise Outstanding (Years) Exercise Exercisable Exercise Price
Prices at 1/1/99 Price at 1/1/99
- ------------------- ----------------- ------------------ -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$0.75 - 4.32 1,316,071 3.01 $ 3.12 851,798 $ 2.77
4.38 - 9.59 1,547,659 4.30 8.51 552,834 6.96
10.38 - 15.75 1,085,963 4.99 13.02 326,087 12.99
16.00 - 16.00 1,172,940 5.44 16.00 373,350 16.00
16.44 - 27.50 1,077,354 7.48 19.49 622,582 18.28
29.50 - 29.56 186,210 4.90 29.56 36,442 29.56
----------------- ---------------
$ 0.75 - 29.56 6,386,197 4.91 $ 12.01 2,763,093 $ 10.45
================= ===============
</TABLE>
EMPLOYEE STOCK PURCHASE PLANS In May 1996, the Company's Board of Directors
established an employee stock purchase plan effective July 1, 1996 that allows
substantially all employees to purchase shares of the Company's common stock.
Under the terms of the plan, eligible employees may purchase shares of common
stock through the accumulation of payroll deductions of at least 2% and up to 6%
of their base salary. The purchase price is an amount equal to 85% of the market
price determined on the tenth trading day following each three-month offering
period. The Company's policy is to purchase these shares on the market rather
than issue them from treasury; therefore, the 15% employee discount is currently
being recognized as compensation expense. Such amounts were not significant in
fiscal years 1998, 1997 and 1996. Employees purchased 51,997, 17,864 and 8,707
shares in 1998, 1997 and 1996, respectively.
On October 9, 1996, Zytec's shareholders approved a stock purchase plan allowing
substantially all of Zytec's employees to purchase, through payroll deductions,
newly issued shares of Zytec's common stock. The plan allowed Zytec's employees
to purchase common stock on a quarterly basis at the lower of 85% of the market
price at the beginning or end of each calendar quarter. Employees purchased
71,742 shares in 1997 at purchase prices ranging from $9.03 to $22.41. No shares
were issued in 1996. The plan was terminated effective December 29, 1997. Under
SFAS 123, compensation cost of approximately $286,000 was recognized in 1997 for
the fair value of the employees' purchase rights, which was estimated using the
Black-Scholes model with the following weighted-average assumptions for 1997:
risk-free interest rate of 5.73%, dividend yield of 0%, expected volatility of
69% and expected life of .25 years. The weighted-average fair value of the
purchase rights granted in 1997 was $5.03.
16. EMPLOYEE BENEFIT PLANS
The Company provides retirement benefits to its employees through the Computer
Products Inc. Employees' Thrift and Savings Plan (the "Plan"). As allowed under
Section 401(k) of the Internal Revenue Code, the Plan provides tax deferred
salary deductions for eligible employees. The Plan permits substantially all
United States employees to contribute up to 15% of their base compensation (as
defined) to the Plan, limited to a maximum amount as set by the Internal Revenue
Service. The Company may, at the discretion of the Board of Directors, make a
matching contribution to the Plan. Costs charged to operations for matching
contributions were approximately $580,000, $444,000, and $400,000, respectively,
for fiscal 1998, 1997, and 1996. Effective January 1, 1999, the Plan name was
changed to Artesyn Technologies, Inc. Employees' Thrift and Savings Plan.
The Company also had a defined contribution 401(k) plan covering substantially
all domestic employees of the former Zytec. The Company's matching contributions
to the plan were based on employee contributions to the plan. Costs charged to
operations were $835,000, $657,000, and $424,000, respectively, for fiscal 1998,
1997, and 1996. Effective December 31, 1998, this plan was terminated and funds
were transferred into the Company's Employees' Thrift and Savings Plan.
During 1998, the Company established a noncontributory profit-sharing plan
covering substantially all North America employees. The Company contributed
approximately $157,000 to such plan in 1998.
In April 1996, Zytec's board of directors established a noncontributory
profit-sharing plan covering substantially all Zytec employees. The plan was
effective July 1, 1996. The Company contributed $1.3 million to such plan in
1997. No contributions were made to such plan in 1996. Effective December 29,
1997, this plan was terminated.
Substantially all employees of the Company's Austrian subsidiary are entitled to
benefit payments under a severance plan. The benefit payments are based
primarily on the employees' salaries and the number of years of service and are
paid upon the employees' voluntary retirement. At January 1, 1999 and January 2,
1998, the Company had recorded a liability of $924,000 and $681,000,
respectively, related to this severance plan. The Company recorded $261,000,
$260,000 and $106,000 in severance expense during 1998, 1997, and 1996,
respectively. The Company has invested in Austrian bonds of $344,000 and
$294,000 at January 1, 1999 and January 2, 1998, respectively, to partially fund
the severance plan as required by Austrian law.
17. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Foreign Exchange 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 applicable period.
The Company transacts business in various foreign currencies, primarily Irish
punt, Deutsche mark, Austrian schilling, 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 January 1, 1999, the Company's
outstanding notional amount for currency forward contracts was approximately
$12.8 million maturing in three to six 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 for fiscal years 1998, 1997 and 1996 was not
material. Deferred gains or losses attributable to the foreign currency
instruments are not material.
Interest Rate Instruments -- On July 14, 1997, the Company entered into two
interest rate swap agreements with a bank pursuant to which it exchanged its
floating rate interest obligations on the aggregate 52 million Deutsche marks
notional principal loan amount for a fixed rate payment obligation of 5.58% per
annum for a seven-year period beginning August 1, 1997. The fixing of the
interest rates for these periods offsets the Company's exposure to the
uncertainty of floating interest rates during the term of the loans. The
differential paid or received on these interest rate swaps is recognized as an
adjustment to interest expense. Pursuant to the Company entering into the $200
million credit agreement with a syndicate of banks, on January 8, 1999, such
swaps were amended to apply to $31.0 million of the current outstanding balance
under the new agreement (see Note 8).
In May 1995, the Company entered into an Interest Rate Collar Agreement with a
bank, which set boundaries for the interest payment terms on its $25 million
term loan. The agreement placed a ceiling of 9.75% on the Company's floating
rate option in exchange for the bank's ability to elect a fixed rate option of
8.25%. In June 1995, the bank exercised its option to receive interest at the
fixed rate for the remaining term of the loan. The differential paid or received
on these interest rate swaps is recognized as an adjustment to interest expense.
Pursuant to the Company entering into the $200 million credit agreement with a
syndicate of banks, on January 8, 1999, such swap was amended to apply to $15.4
million of the current outstanding balance under the new agreement (see Note 8).
The Company enters into various other types of financial instruments in the
normal course of business. Fair values for certain financial instruments are
based on quoted market prices. For other financial instruments, fair values are
based on the appropriate pricing models, using current market information. The
amounts ultimately realized upon settlement of these financial instruments will
depend on actual market conditions during the remaining life of the instruments.
Fair values of cash and equivalents, accounts receivable, accounts payable,
other current liabilities and debt reflected in the January 1, 1999 and January
2, 1998 Consolidated Statements of Financial Condition approximate carrying
value at those dates.
CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the
Company to concentrations of credit risk consist principally of cash and
equivalents, trade accounts receivable and financial instruments used in hedging
activities. The Company's cash management and investment policies restrict
investments to low-risk, highly-liquid securities, and the Company performs
periodic evaluations of the credit standing of the financial institutions with
which it deals. The Company sells its products to customers in various
geographical areas. The Company performs ongoing credit evaluations of its
customers' financial condition and generally does not require collateral. The
Company maintains reserves for potential credit losses, and such losses
traditionally have been within management's expectations and have not been
material in any year. As of January 1, 1999 and January 2, 1998, management
believes the Company had no significant concentrations of credit risk.
18. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information" which was adopted by the Company in 1998.
SFAS 131 establishes standards for reporting information about operating
segments and related disclosures about products and services, geographic areas
and major customers.
The Company operates in one industry segment encompassing the design,
development, manufacture, sale and service of electronic products and subsystems
The Company sells its products directly to OEMs and also to a network of
industrial and retail distributors throughout the world. The Company's principal
markets are in the United States, Europe and Asia-Pacific, with the United
States and Europe being the largest based on sales. The Company's principal
market focus is on the communications industry. Sales are in US dollars and
certain European currencies. Intercompany sales are in US dollars and are based
on cost plus a reasonable profit.
As the Company operates and tracks its results in one operating segment, certain
disclosure requirements are not applicable. Information about the Company's
operations in different geographical regions is shown below. Sales are
attributed to geographical areas based on selling location, and long-lived
assets consist of property, plant and equipment ($000s):
1998 1997 1996
---------- ---------- ---------
SALES
United States $356,922 $339,506 $296,299
Austria 83,261 80,136 58,240
Ireland 40,045 57,165 47,183
Hong Kong/PRC 31,443 39,753 34,009
Other foreign countries 20,721 10,676 -
---------- ---------- ---------
Total sales $532,392 $527,236 $435,731
========== ========== =========
LONG-LIVED ASSETS
United States $36,841 $27,894 $24,277
Austria 9,172 6,829 4,098
Ireland 6,157 6,309 6,147
Hong Kong/PRC 20,025 17,509 14,149
Other foreign countries 2,837 3,040 -
---------- ---------- ---------
Total long-lived assets $75,032 $61,581 $48,671
========== ========== =========
The following table includes sales to customers in excess of 10% of total sales:
1998 1997 1996
---------- ---------- ---------
Customer A 17% 15% 14%
Customer B 11% 9% 2%
Customer C 10% 6% 4%
<PAGE>
19.SELECTED CONSOLIDATED QUARTERLY DATA (UNAUDITED)
($000s Except Per Share Data)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
FISCAL 1998
<S> <C> <C> <C> <C>
Sales $147,178 $121,824 $124,582 $138,808
Gross profit 35,810 32,422 34,033 34,854
Net income 3,236 6,175 8,000 9,633
Per share - basic 0.08 0.16 0.21 0.25
- diluted 0.08 0.15 0.20 0.24
Stock price per common share
High 26.63 26.88 19.25 19.63
Low 18.88 12.88 13.75 11.75
FISCAL 1997
Sales $114,463 $130,878 $133,744 $148,151
Gross profit 29,556 35,798 36,292 35,887
Income from continuing operations 7,076 10,437 10,383 3,986
Per share - basic 0.20 0.29 0.28 0.11
- diluted 0.19 0.26 0.25 0.10
Net income 5,014 10,437 10,383 3,986
Per share - basic 0.14 0.29 0.28 0.11
- diluted 0.13 0.26 0.25 0.10
Stock price per common share
High 18.75 25.25 33.44 30.88
Low 13.75 13.75 23.25 14.56
</TABLE>
Net income for the first quarter of 1998 includes a $7.2 million pre-tax
restructuring charge and a $2.4 million charge to cost of sales related
principally to inventory write-offs of duplicate product development programs
following the merger with Zytec. Net income for the fourth quarter of 1997
includes direct merger costs of $3.0 million.
Quarterly sales and gross profit amounts exclude sales and gross profits of RTP
Corp., which the Company classified as discontinued operations in the first
quarter of 1997.
Data in the above table are presented on a 13-week period.
The sum of the quarterly earnings per share amounts differs from those reflected
in the Company's consolidated statements of operations due to the weighting of
common and common equivalent shares outstanding during each of the respective
periods.
The Company's common stock is traded on The Nasdaq Stock MarketSM under the
symbol ATSN. As of January 1, 1999, there were approximately 14,400 shareholders
consisting of record holders and individual participants in security position
listings. To date, the Company has not paid any cash dividends on its capital
stock. The Board of Directors presently intends to retain all earnings for use
in the Company's business and does not anticipate paying cash dividends in the
foreseeable future.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Artesyn Technologies, Inc. :
We have audited the accompanying consolidated statements of financial condition
of Artesyn Technologies, Inc. (a Florida corporation, formerly named Computer
Products, Inc.) and subsidiaries as of January 1, 1999 and January 2, 1998, and
the related consolidated statements of operations, shareholders' equity and
comprehensive income and cash flows for each of the three fiscal years in the
fiscal period ended January 1, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
statements of operations, shareholders' equity and cash flows for the fiscal
year ended January 3, 1997 of Zytec Corporation, a company acquired on December
29, 1997 in a transaction accounted for under the pooling-of-interests method of
accounting, as discussed in Note 5. Such statements are included in the
consolidated financial statements of Artesyn Technologies, Inc. and reflect
total sales of 52% in fiscal 1996 of the related consolidated totals. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to amounts included for Zytec
Corporation, is based solely upon the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Artesyn Technologies, Inc. and
subsidiaries as of January 1, 1999 and January 2, 1998, and the results of their
operations and their cash flows for each of the three fiscal years in the fiscal
period ended January 1, 1999 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
January 22, 1999.
STATEMENT OF MANAGEMENT RESPONSIBILITY
The Company's management is responsible for the preparation, integrity and
objectivity of the consolidated financial statements and other financial
information presented in this report. The accompanying financial statements have
been prepared in conformity with generally accepted accounting principles and
reflect the effects of certain estimates and judgments made by management.
The Company's management maintains an effective system of internal control that
is designed to provide reasonable assurance that assets are safeguarded and
transactions are properly recorded and executed in accordance with management's
authorization. The system is continuously monitored by direct management review
and by internal auditors who conduct an extensive program of audits throughout
the company. The Company selects and trains qualified people who are provided
with and expected to adhere to the Company's standards of business conduct.
These standards, which set forth the highest principles of business ethics and
conduct, are a key element of the Company's control system. Additionally, our
independent certified public accountants, Arthur Andersen LLP, obtain a
sufficient understanding of the internal control structure in order to plan and
complete the annual audit of the Company's consolidated financial statements.
The Audit Committee of the Board of Directors, which consists of six outside
directors, meets regularly with management, the internal auditors and the
independent certified public accountants to review accounting, reporting,
auditing and internal control matters. The Committee has direct and private
access to both internal and external auditors.
JOSEPH M. O'DONNELL
Co-Chairman of the Board, President and Chief Executive Officer
RICHARD J. THOMPSON
Vice President, Finance and Chief Financial Officer
<PAGE>
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
As noted above, the foregoing discussion and the letter to shareholders may
include forward-looking statements which involve risks and uncertainties. In
addition, the Company identified the following risk factors that could affect
its actual results and cause them to differ materially from those in the
forward-looking statements.
RISKS RELATED TO NEW PRODUCTS The markets for the Company's products are
characterized by rapidly changing technologies, increasing customer demands,
evolving industry standards, frequent new product introductions and, in some
cases, short product life cycles. The development of new, technologically
advanced products is a complex and uncertain process requiring high levels of
innovation and cost, as well as the accurate anticipation of technological and
market trends. There can be no assurance that the Company will successfully
develop, introduce or manage the transition of new products. The failure of or
the delay in anticipating technological advances or developing and marketing
product enhancements or new products that respond to any significant
technological change could have a material adverse effect on the business,
operating results and financial condition of the Company.
RELIANCE ON CUSTOMERS Sales to three customers accounted for approximately 17%,
11% and 10%, respectively, of sales in 1998. Decisions by a small number of
customers to defer their purchasing decisions or to purchase products elsewhere
could have a material adverse effect on the business, results of operations and
financial condition of the Company.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS The Company has experienced erratic
quarterly growth in sales as a result of economic turmoil in Asia and South
America, as well as widespread customer inventory reductions. Due to the rapidly
changing nature of the markets for its products, as well as the likelihood of
increased competition, there can be no assurance that the Company's sales and
operating results will resume their past growth rates. If sales are below
expectations in any given quarter, the adverse impact of any shortfall on the
operating results of the Company may be magnified to the extent the Company is
unable to adjust spending to compensate for the shortfall. Accordingly, there
can be no assurance that the Company will be able to sustain profitability in
the future, particularly on a quarter-to-quarter basis.
COMPETITION; INCREASED COMPETITION DUE TO INDUSTRY CONSOLIDATION The industry in
which the Company competes is highly competitive and characterized by increasing
customer demands for product performance, shorter manufacturing cycles and lower
prices. These trends result in frequent introductions of new products with added
capabilities and features and continuous improvements in the relative
price/performance of the products. Increased competition could result in price
reductions, reduced profit margins and loss of market share, each of which could
adversely affect the Company's results of operations and financial condition.
The Company's principal competitors include Lucent Technologies, Delta Product
and Astec (BSR) plc. Certain of the Company's major competitors have also been
engaged in merger and acquisition transactions. Such consolidations by
competitors are likely to create entities with increased market share, customer
bases, technology and marketing expertise, sales force size, and/or proprietary
technology. These developments may adversely affect the Company's ability to
compete in such markets.
RISKS RELATED TO GROSS MARGIN The Company's gross margin percentage is a
function of the product mix sold in any period. Other factors such as unit
volumes, heightened price competition, changes in channels of distribution,
shortages in components due to timely supplies of parts from vendors or ability
to obtain items at reasonable prices, and availability of skilled labor, also
may continue to affect the cost of sales and the fluctuation in gross margin
percentages in future periods.
RISKS RELATED TO BACKLOG The Company has attempted to reduce its product
manufacturing lead times and its backlog of orders. To the extent that backlog
is reduced during any particular period, it could result in more variability and
less predictability in the Company's quarter-to-quarter sales and operating
results. If manufacturing lead times are not reduced, the Company's customers
may cancel, or not place, orders if shorter lead times are available from other
manufacturers
RISKS RELATED TO INTELLECTUAL PROPERTY RIGHTS The Company currently relies upon
a combination of patents, copyrights, trademarks and trade secret laws to
establish and protect its proprietary rights in its products. There can be no
assurance that the steps taken by the Company in this regard will be adequate to
prevent misappropriation of its technology or that the Company's competitors
will not independently develop technologies that are substantially equivalent or
superior to the Company's technology. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent, as
do the laws of the United States. Although the Company continues to evaluate and
implement protective measures, there can be no assurance that these efforts will
be successful or that third parties will not assert intellectual property
infringement claims against the Company.
RISKS RELATED TO ACQUISITIONS Acquisitions of complementary businesses and
technologies, including technologies and products under development, have been
an important part of the Company's business strategy. Acquisitions require
significant financial and management resources both at the time of the
transaction and during the process of integrating the newly acquired business
into the Company's operations. The Company's operating results could be
adversely affected if it is unable to successfully integrate such new companies
into its operations. Future acquisitions by the Company could also result in
issuances of equity securities or the rights associated with the equity
securities, which could potentially dilute earnings per share. In addition,
future acquisitions could result in the incurrence of additional debt, taxes, or
contingent liabilities, and amortization expenses related to goodwill and other
intangible assets. These factors could adversely affect the Company's future
operating results and financial position.
DEPENDENCE ON SOLE SOURCE SUPPLIERS As a result of the custom nature of certain
of the Company's manufactured products, components used in the manufacture of
these products are currently obtained from a limited number of suppliers.
Although there are a limited number of manufacturers of certain components,
management believes that other suppliers could provide similar components on
comparable terms. A change in suppliers, however, could cause a delay in
manufacturing and a possible loss of sales that could adversely affect the
Company's future operating results and financial position.
RISKS RELATED TO INTERNATIONAL SALES International sales have been, and are
expected to continue to be, an increasingly important contributor to sales of
the Company. International sales are subject to certain inherent risks,
including unexpected changes in regulatory requirements and tariffs,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems in collecting accounts receivable and potentially adverse tax
consequences. Other risks of international sales include changes in economic
conditions in the international markets in which the products are sold,
political and economic instability, fluctuations in currency exchange rates,
import and export controls, and the burden and expense of complying with foreign
laws. In addition, sales in developing nations may fluctuate to a greater extent
than sales to customers in developed nations, as those markets are only
beginning to adopt new technologies and establish purchasing practices. These
risks may adversely affect the operating results and financial condition of the
Company.
RISKS RELATED TO GOVERNMENT REGULATIONS AND PRODUCT CERTIFICATION The Company's
operations are subject to laws, regulations, government policies and product
certification requirements worldwide. Changes in such laws, regulations,
policies or requirements could affect the demand for the Company's products or
result in the need to modify products, which may involve substantial costs or
delays in sales and could have an adverse effect on the Company's future
operating results.
RISKS RELATED TO FOREIGN MANUFACTURING OPERATIONS The Company manufactures a
significant amount of its products in foreign locations. Approximately 30% of
the Company's 1998 sales were from products manufactured in Asia-Pacific, 28%
from products manufactured in Europe and the remaining 42% from domestic
operations.
The supply and cost of these products can be adversely affected, among other
reasons, by changes in foreign currency exchange rates, increased import duties,
imposition of tariffs, imposition of import quotas, interruptions in sea or air
transportation and political or economic changes. From time to time, the Company
explores opportunities to diversify its sourcing and/or production of certain
products to other low cost locations or with other third parties to reduce its
dependence on production in any one location. In addition, the Company has taken
necessary measures, including insuring against certain risks, to mitigate its
exposure to potential political and economic changes in Hong Kong and China. In
the event of confiscation, expropriation, nationalization, or governmental
restrictions in the above mentioned foreign or other locations, earnings could
be adversely affected from business disruption resulting in delays and/or
increased costs in the production and delivery of products.
VOLATILITY OF STOCK PRICE The market price of the Company's common stock has
been, and, may continue to be, relatively volatile. Factors such as new product
announcements by the Company, its customers or its competitors, quarterly
fluctuations in operating results, challenges associated with integration of
businesses and general conditions in the markets in which the Company competes,
such as a decline in industry growth rates, may have a significant impact on the
market price of the Company's common stock. These conditions, as well as factors
which generally affect the market for stocks of technology companies, could
cause the price of the Company's common stock to significantly fluctuate over
relatively short periods.
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Subsidiaries of the Company, all of which are wholly-owned by the Company and
are included in the consolidated financial statements, include the following:
Name State or Country of Incorporation
- ---- ---------------------------------
Artesyn Asia-Pacific Ltd. Hong Kong
Artesyn Austria GmbH Austria
Artesyn Communication Products, Inc. Wisconsin
Artesyn Elektronische Gerate Beleilgungs-
Und Verwalungs - GmbH Germany
Artesyn Energy Systems S.p.A. Italy
Artesyn France S.A.R.L. France
Artesyn FSC Inc. Barbados
Artesyn Germany GbR Germany
Artesyn Germany GmbH Germany
Artesyn GmbH & Co. KG Germany
Artesyn Hungary Electronikai Kft. Hungary
Artesyn International, Ltd. Cayman Islands, B.W.I.
Artesyn Ireland, Ltd. Cayman Islands, B.W.I.
Artesyn Netherlands BV Netherlands
Artesyn North America Inc. Delaware
Artesyn Solutions Inc. Delaware
Artesyn UK Ltd. England
C.P. Power Products (Zhong Shan) Co., Ltd. People's Republic of China
Jeta Power Systems, Inc. California
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in or incorporated by reference in this
Form 10-K, into the Company's previously filed Form S-3 (Registration Statement
File Nos. 33-70326 and 33-49176), Form S-4/A (Registration Statement File No.
333-36375) and Form S-8 (Registration Statement File Nos. 33-42516, 33-63501,
33-63503, 33-63499, 333-03937, 333-08475, 333-45691 and 333-58771).
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 26, 1999.
EXHIBIT 23-2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Artesyn Technologies, Inc. on Form S-3 (File Nos. 33-70326 and 33-49176), Form
S-4/A (File No. 333-36375) and Form S-8 (File Nos. 33-42516, 33-63501, 33-63503,
33-63499, 333-03937, 333-08475, 333-45691 and 333-58771) of our report dated
February 18, 1997, on our audit of the consolidated financial statements and
financial statement schedule of Zytec Corporation as of December 31, 1996, and
for the year then ended, which report is included in this Annual Report on Form
10-K.
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
March 26, 1999
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