SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the
quarterly period September 28, 1997
[] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the
transition period from _____ to _____.
Commission File No. 0-22428
ZYTEC CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1465891
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7575 MARKET PLACE DRIVE, EDEN PRAIRIE, MINNESOTA 55344
(Address of principal executive offices) (Zip Code)
(612) 941-1100
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports); and, (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of October 31, 1997 there were outstanding 9,642,528 shares of the
registrant's common stock, no par value.
<PAGE>
ZYTEC CORPORATION
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets as of September 28, 1997 and
December 31, 1996 3
Statements of Operations for the three
months and nine months ended September 28,
1997 and September 29, 1996 4
Statements of Cash Flows for the nine months
ended September 28, 1997 and September 29, 1996 5
Notes to Consolidated Financial Statements 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 9-12
RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZYTEC CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF SEPTEMBER 28, 1997 AND DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 28, December 31,
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,695 $ 8,535
Accounts receivable 37,178 26,213
Inventories 25,101 20,776
Other current assets 4,601 3,182
---------- ----------
Total current assets 74,575 58,706
Property, plant and equipment, net 25,087 19,985
Deferred income taxes 2,727 3,067
Other assets 1,488 1,719
---------- ----------
Total assets $ 103,877 $ 83,477
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Debt and capital lease obligations,
current portion $ 9,392 $ 8,997
Accounts payable 15,959 11,486
Accrued expenses 11,491 7,279
---------- ----------
Total current liabilities 36,842 27,762
Debt and capital lease obligations,
less current portion 20,099 20,861
Other liabilities 2,051 1,867
---------- ----------
Total liabilities 58,992 50,490
---------- ----------
Commitments
Stockholders' equity:
Common stock, no par value:
25,000,000 shares authorized,
9,603,019 and 9,167,104 shares
outstanding at September 28, 1997 and
December 31, 1996, respectively 15,037 13,271
Retained earnings 31,286 20,166
Foreign currency translation adjustments (1,438) (450)
---------- ----------
Total stockholders' equity 44,885 32,987
---------- ----------
Total liabilities and stockholders' equity $ 103,877 $ 83,477
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
ZYTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS AND THE NINE MONTHS ENDED
SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 61,918 $ 53,693 $ 190,850 $ 175,489
Cost of goods sold 50,774 46,098 156,002 151,076
------------ ------------ ------------ ------------
Gross profit 11,144 7,595 34,848 24,413
------------ ------------ ------------ ------------
Other revenue 535 319 1,680 1,075
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative 3,095 2,556 9,443 7,698
Research and development 2,665 2,145 8,003 7,030
------------ ------------ ------------ ------------
Total operating expenses 5,760 4,701 17,446 14,728
------------ ------------ ------------ ------------
Operating income 5,919 3,213 19,082 10,760
Other income (expense):
Interest expense (407) (504) (1,175) (1,456)
Other, net 449 201 (104) (209)
------------ ------------ ------------ ------------
Income before income tax expense 5,961 2,910 17,803 9,095
Income tax expense 2,153 1,136 6,683 324
------------ ------------ ------------ ------------
Net income $ 3,808 $ 1,774 $ 11,120 $ 8,771
============ ============ ============ ============
Net income per share:
Primary $ 0.33 $ 0.18 $ 1.00 $ 0.87
============ ============ ============ ============
Fully diluted $ 0.32 $ 0.18 $ 0.95 $ 0.87
============ ============ ============ ============
Common and common equivalent shares
outstanding:
Primary 12,129,975 10,073,468 11,489,670 10,025,901
============ ============ ============ ============
Fully diluted 12,434,652 10,109,944 12,171,299 10,076,975
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
ZYTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 28, September 29,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,120 $ 8,771
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 4,298 2,937
Changes in operating assets and liabilities (9,158) (8,667)
Deferred income taxes 45 (3,312)
Other 272 113
---------- ----------
Net cash provided by (used in) operating activities 6,577 (158)
---------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment (7,655) (2,606)
Cash paid for Zytec Hungary Elektronikai Kft. -- (834)
Increase in other assets -- (163)
---------- ----------
Net cash used in investing activities (7,655) (3,603)
---------- ----------
Cash flows from financing activities:
Proceeds from debt and capital lease obligations 4,890 6,775
Payments of debt and capital lease obligations (6,347) (7,241)
Proceeds from revolving credit agreement 11,089 128,887
Payments on revolving credit agreement (11,089) (124,794)
Sale of common stock for cash 1,763 525
Change in bank overdrafts -- (717)
Other -- 204
---------- ----------
Net cash provided by financing activities 306 3,639
---------- ----------
Effect of exchange rate changes on cash (68) 122
---------- ----------
Change in cash and cash equivalents (840) --
Cash and cash equivalents, beginning of period 8,535 2
---------- ----------
Cash and cash equivalents, end of period $ 7,695 $ 2
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
ZYTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation of Interim Consolidated Financial Statements:
The consolidated financial statements as of September 28, 1997 and for the
periods ended September 28, 1997 and September 29, 1996, have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The consolidated financial statements
reflect all adjustments, consisting of normal recurring adjustments, which
the Company considers necessary for a fair presentation of the results for
the indicated periods. The results of operations for any interim period are
not necessarily indicative of results for the full year. Certain
information and accounting policies and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. The year-end balance sheet data was derived
from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. These consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's latest annual report
on Form 10-K.
2. Selected Balance Sheet Data:
<TABLE>
<CAPTION>
(In thousands)
September 28, December 31,
1997 1996
---------- ----------
<S> <C> <C>
Inventories:
Work in process and finished goods $ 8,415 $ 6,123
Parts and subassemblies 16,686 14,653
---------- ----------
$ 25,101 $ 20,776
========== ==========
Property, plant and equipment:
Land and land improvements $ 76 $ 76
Building and building improvements 1,821 1,829
Equipment, furniture and leasehold improvements 30,285 23,488
Equipment, furniture and leasehold improvements
under capital leases 12,005 11,525
---------- ----------
44,187 36,918
Less accumulated depreciation (17,497) (15,293)
Less accumulated amortization (3,793) (2,603)
---------- ----------
22,897 19,022
Construction in progress and deposits on equipment 2,190 963
---------- ----------
$ 25,087 $ 19,985
========== ==========
</TABLE>
<PAGE>
ZYTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Supplemental Cash Flow Data:
The following provides supplemental disclosures of cash flow activities for
the nine months ended September 28, 1997 and September 29, 1996,
respectively:
<TABLE>
<CAPTION>
(In thousands)
Increase (Decrease)
In Cash and Cash Equivalents
----------------------------
September 28, September 29,
1997 1996
---------- ----------
<S> <C> <C>
Changes in operating assets and liabilities:
Accounts receivable $ (11,911) $ (3,178)
Inventories (4,921) (86)
Other current assets (1,690) (149)
Accounts payable 4,837 (6,358)
Accrued expenses 4,527 1,104
---------- ----------
$ (9,158) $ (8,667)
========== ==========
Significant noncash investing and financing transactions:
Property, equipment, furniture and leasehold improve-
ments acquired through capital lease obligations $ 1,306 $ 5,342
Equipment, furniture and leasehold improvements
acquired through issuance of debt 739 1,425
</TABLE>
4. Net Income Per Common Share:
Net Income per common share is based on the weighted average number of
common and common equivalent shares, assuming the exercise of stock
options, when dilutive.
In February 1997, Statement of Financial Accounting Standards No. 128 (SFAS
No. 128), Earnings per Share (EPS) was issued by the Financial Accounting
Standards Board. This standard, which the Company must adopt effective with
its fourth quarter of 1997, requires dual presentation of basic and diluted
EPS on the face of the statement of operations. Net income per common share
currently presented by the Company is comparable to the diluted EPS
required under SFAS No. 128. Basic EPS for the Company would be calculated
based on only common shares outstanding without considering the dilutive
effects of common stock equivalents.
5. Income Taxes:
The effective tax rates for the third quarters of 1997 and 1996 and for
year-to-date 1997 differ from the federal statutory tax rate primarily due
to state taxes. The 1996 year-to-date effective tax rate differs from the
statutory rate primarily due to the recognition of the deferred income tax
benefit of the Austrian NOL carryforwards in the second quarter of 1996 and
due to state taxes.
In May 1996, the Austrian government changed the treatment of 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
<PAGE>
based on its assessment of the financial results of its Austrian
operations, the Company recognized the deferred income tax benefit related
to the Austrian NOL carryforwards in the second quarter of 1996. This
resulted in a $2,626,000 net reduction of income taxes in the second
quarter, 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.
6. Derivative Accounting Policy:
The Company utilizes financial instruments (foreign currency option and
forward contracts) from time to time to limit the financial risk of foreign
currency exchange rates primarily related to certain receivables. All
hedging instruments are designated as, and effective as, hedges and are
fully correlated as required by generally accepted accounting principles.
The Company does not use hedging instruments of a speculative nature.
Realized and unrealized gains and losses for qualifying hedge instruments
are deferred until offsetting gains and losses on the underlying
transactions are recognized in earnings. These gains and losses are
recognized in other income/expense. The cash flows from these contracts are
classified in the Consolidated Statements of Cash Flows in the same
category as the transaction hedged.
7. Proposed Merger With Computer Products, Inc.:
On September 2, 1997, Zytec Corporation entered into an Agreement and Plan
of Merger with Computer Products, Inc. (CPI). Under this Agreement, each
share of common stock of Zytec wil be convereted into 1.33 shares of common
stock of CPI. The agreement is subject to the approval of the shareholders
of both Zytec and CPI and the receipt of various governmental approvals.
The transaction will be accounted for as a pooling-of-interest and is
intended to qualify as a tax-free reorganization. The transaction is
anticipated to close in the fourth quarter of 1997.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. This Form 10-Q and other materials filed or to be
filed by the Company with the Securities and Exchange Commission, as well as
other written materials or oral statements that the Company may make or publish
from time to time, contain forward-looking statements relating to business
prospects, plans for future expansion, anticipated financial performance and
similar matters. These statements by their nature involve substantial risks and
uncertainties, and actual results may differ materially from the anticipated
results or other expectations expressed in the forward-looking statements. These
risks and uncertainties include, but are not limited to, changes in order
quantities by customers, general conditions in the computer and other electronic
equipment market, and the risks and uncertainties described in Management's
Discussion and Analysis of Results of Operations and Financial Condition.
PROPOSED MERGER WITH COMPUTER PRODUCTS, INC.
On September 2, 1997, Zytec Corporation entered into an Agreement and Plan of
Merger with Computer Products, Inc. (CPI). Under this Agreement, each share of
common stock of Zytec wil be convereted into 1.33 shares of common stock of CPI.
The agreement is subject to the approval of the shareholders of both Zytec and
CPI and the receipt of various governmental approvals. The transaction will be
accounted for as a pooling-of-interest and is intended to qualify as a tax-free
reorganization. The transaction is anticipated to close in the fourth quarter of
1997.
RESULTS OF OPERATIONS
The Company's business falls into two business segments: power supply design and
manufacture (Power Conversion) and Services and Logistics. In the first nine
months of 1997, Power Conversion represented 90 percent of the Company's sales
and Services and Logistics represented 10 percent. The Power Conversion segment
is further segmented geographically between the US and Europe. In the first nine
months of 1997, US Power operations represented 73 percent of power sales, while
European operations represented 27 percent. This split is similar to that in
1996.
The following table sets forth certain information derived from the Company's
Consolidated Statements of Operations for the three month and nine month periods
ended September 28, 1997 and September 29, 1996, expressed as a percentage of
net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPT. 28, SEPT. 29, SEPT. 28, SEPT. 29,
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold (82.0) (85.9) (81.7) (86.1)
----- ----- ----- -----
Gross profit 18.0 14.1 18.3 13.9
Other revenue 0.9 0.6 0.8 0.6
Selling, general and administrative (5.0) (4.7) (4.9) (4.4)
Research and development (4.3) (4.0) (4.2) (4.0)
----- ----- ----- -----
Operating income 9.6 6.0 10.0 6.1
Other income (expense):
Interest expense (0.7) (0.9) (0.6) (0.8)
Other, net 0.7 0.3 (0.1) (0.1)
----- ----- ----- -----
Income before income taxes 9.6 5.4 9.3 5.2
Income tax expense (3.5) (2.1) (3.5) (0.2)
----- ----- ----- -----
Net income 6.1 % 3.3 % 5.8 % 5.0 %
===== ===== ===== =====
</TABLE>
<PAGE>
NET SALES
Net sales in the third quarter of 1997 were $61,918,000, the second highest in
the Company's history, and an increase of 15.3 percent from net sales of
$53,693,000 in the third quarter of 1996. In the first nine months of 1997,
sales increased 8.8 percent to $190,850,000 from $175,489,000 in 1996. As
expected by the Company, sales in the third quarter of 1997 were lower than the
$71,334,000 experienced in the second quarter of 1997, primarily due to
decreases at two customers. Demand from one customer for a high volume product
was unusually strong in the second quarter (the customer's final fiscal quarter
of the year) and lower than normal in the third quarter, and demand for certain
products at another customer was reduced because the customer's related products
are nearing the end of their life cycle. The Company continues to expect that
second quarter 1997 sales will be the largest quarterly sales of the year.
The increase in sales in the third quarter of 1997 as compared to the third
quarter of 1996 by segment was an increase of 12 percent for US Power, an
increase of 23 percent for Europe Power, and an increase of 18 percent for
Services and Logistics. Compared to the first nine months of 1996, US Power
sales in the first nine months increased 5 percent, Europe Power sales increased
17 percent and the Services and Logistics business grew 20 percent. The
difference in growth rates between US and Europe sales does not indicate a
trend: in comparing the second and third quarters of 1996 with those of 1997, US
Power sales are being affected by the phasing out of one customer's major
program due to normal life cycle, while Europe Power sales have increased by the
rapid startup of another customer's program.
GROSS MARGIN
Gross margin was 18.0 percent in the third quarter of 1997, up 3.9 percentage
points from 14.1 percent in the third quarter of 1996. In the first nine months
of 1997, gross margin was 18.3 percent, up 4.4 percentage points from 13.9
percent in the first nine months of 1996. Gross margin benefited from a
favorable change in product mix and a favorable foreign exchange environment.
With respect to mix of products, the Company's sales into the internetworking
hardware market over the last several years have grown rapidly. Internetworking
margins generally are higher than historical margins. From quarter to quarter,
mix can cause margin to vary due to customer schedule and to the startup cycle
of new products. The Company expects to retain the margin improvements that have
resulted from its business focus. Short run mix effects also added to the
strength of third quarter 1997 margin, and these short run effects may not
continue to be positive in subsequent quarters.
The strength of the US dollar helped improve third quarter 1997 gross margin by
approximately 2.9 percentage points over that of third quarter 1996. This is
because much of the Company's European product is sold in dollars, while most
European costs are incurred in Austrian schillings. From third quarter 1996 to
third quarter 1997, the dollar has strengthened against the schilling, which
improved gross margin.
OTHER REVENUE
Other revenue, which consists of customer payments to fund development of custom
power supplies, was $535,000 in the third quarter of 1997, a 68 percent increase
from $319,000 in the third quarter of 1996. In the first nine months, funding
increased to $1,680,000 in 1997 from $1,075,000 in 1996. Other revenue
represented 20 percent and 15 percent of research and development expense in the
third quarters of 1997 and 1996, respectively. The 1997 revenues are higher than
average and are primarily the result of the 30 product wins in the first nine
months of 1997, compared with 20 wins for all of 1996.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses of $3,095,000, or 5.0
percent of sales, in the third quarter of 1997 compared with $2,556,000, or 4.7
percent of sales, in the third quarter of 1996. In the first nine months of
1997, SG&A expenses were $9,443,000, or 4.9 percent of sales, compared with
$7,698,000, or 4.4 percent in 1996. The increased rate is a result of
development of separate administrative facilities in the Services and Logistics
operation, which was not fully accomplished during the first half of 1996, and
by increased spending in US Power related to
<PAGE>
growth. In Europe Power Conversion, the trend of reduction in SG&A expenses as a
percent of sales continued.
RESEARCH AND DEVELOPMENT
Research and development (R&D) expenses were $2,665,000 in the third quarter of
1997, an increase of 24.2 percent from $2,145,000 in the third quarter of 1996.
In the first nine months, R&D expenses were $8,003,000 for 1997, an increase of
13.8 percent from $7,030,000 in 1996. This spending increase is due to an
overall increase in the number of new programs; however, the increase does not
reflect the level of spending that will be necessary to support the large number
of program wins in the first nine months of 1997. A new engineering department
is being added in Broomfield, Colorado, and additional engineers have been added
to the Vienna, Austria engineering facility. As a result, the Company expects
research and development spending level in the last quarter of 1997 to be as
much as 30 percent greater than that during the first three quarters of 1997.
INTEREST EXPENSE
Interest expense of $407,000 in the third quarter of 1997 was 19 percent less
than interest expense of $504,000 in the third quarter of 1996. The decrease
results primarily from lower net borrowing levels in third quarter 1997.
OTHER INCOME (EXPENSE)
Other income (expense) was $449,000 in the third quarter of 1997 compared to
$201,000 in the third quarter of 1996. The 1997 amount was composed primarily of
refunds of customs fees paid in prior periods and cancellation charges to
customers.
INCOME TAXES
The Company's consolidated effective tax rate for the third quarter of 1997 was
36.1 percent, a decrease of 2.9 percentage points from the third quarter of 1996
effective tax rate of 39.0 percent. The decrease results from growth in the
relative significance of operations in Austria and Hungary, which experience
lower tax rates than US operations.
The consolidated effective tax rate for the first nine months of 1997 was 37.5%.
On a proforma basis, the effective tax rate for the first nine months of 1996
would have been 38.5% without recognition of the benefit of the Austrian
subsidiary's net operating loss (NOL) carryforwards. In May 1996, the Austrian
government changed the treatment of 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 its assessment of the financial results of its Austrian
operations, the Company recognized the deferred income tax benefit related to
the Austrian NOL carryforwards in the second quarter of 1996. Because the tax
benefit of the Austrian NOL carryforwards has been recognized, the Company
expects that its future consolidated effective tax rate will stabilize at
approximately 37 to 40 percent, based on Austria's 34 percent statutory tax rate
and US's 40 percent effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
In the first nine months of 1997, the Company's operating activities provided
cash of $6,577,000. Net income, depreciation and amortization, and other
non-cash charges provided cash of $15,735,000, and changes in operating assets
and liabilities used cash of $9,158,000. Cash and cash equivalents were
$7,695,000 at September 28, 1997 and $8,535,000 at December 31, 1996. Working
capital was $37,733,000 at September 28, 1997 and $30,944,000 at December 31,
1996, a growth of 21.9 percent. This is consistent with management's
expectations.
Accounts receivable increased $11,911,000 during the first three quarters of
1997, resulting in average days sales outstanding (DSO) of 54.8 in the third
quarter of 1997 compared with 45.5 in the second quarter of 1997. The increased
DSO in the third quarter resulted primarily from temporary delays in payment
from two large customers which were satisfactorily resolved in early October.
Inventory turnover averaged 8.1 times annualized in the third quarter of 1997,
8.3 times in the first nine months of 1997 and 7.5 times in all of 1996. As
expected, inventory turnover has decreased slightly from recent quarters due to
implementation of a limited finished goods inventory strategy
<PAGE>
with certain customers. The Company expects that its inventory turnover will
continue to be significantly higher than industry norms.
Investing activities required cash of $7,655,000 in the first nine months of
1997. Capital expenditures, including renovation of the Kindberg, Austria
factory, purchase of automated insertion and test equipment, and purchase of
material handling and storage equipment for the Company's California operation,
were $9,700,000, including $1,306,000 acquired through capital lease obligations
and $739,000 through debt financing. The Company expects to purchase capital
equipment at higher than historical levels during 1997 as it adds surface mount
capacity in the US and Europe. Cash of $306,000 was provided by financing
activities in the first nine months of 1997. This was comprised of $1,763,000
from the sale of common stock through normal option exercise activity and sale
of shares under the employee stock purchase plan, offset by $1,457,000 net
reduction of lease and note payable obligations.
The Company has two bank lines of credit which are described in Note 4 of the
Consolidated Financial Statements for the year ended December 31, 1996. The US
facility provides up to $23,000,000 in borrowings through May 2000. This
facility is unsecured and requires the Company to maintain certain leverage,
interest coverage, current and funded debt ratios. At September 28, 1997, there
were no borrowings under this facility and the Company was meeting its
covenants. The Company's other line of credit is guaranteed by the Austrian
National Bank and is used to finance Austrian export sales. At September 28,
1997, borrowings under this line were $3,643,000. In the fourth quarter of 1996,
the Company completed a convertible subordinated debenture financing of
$12,000,000. The debentures, which bear interest at 7.5 percent and mature in
the year 2001, are convertible into common stock at $13.68 per share.
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
------ -----------
10.1 First Amendment and Consent to Note and Warrant
Purchase Agreement between Zytec Corporation and BMO
Nesbitt Burns Capital (U.S.), Inc. dated July 31,
1997. (Original agreement dated December 23, 1996).
11.1 Computation of Net Income Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a Form 8-K with the Securities and Exchange
Commission on September 11, 1997 reporting that the Company
entered into an Agreement and Plan of Merger with Computer
Products, Inc. on September 2, 1997.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZYTEC CORPORATION
(Registrant)
Date: November 7, 1997 By /s/ John B. Rogers
----------------------------------
John B. Rogers
Vice President Finance & Treasurer
(Principal financial and principal
accounting officer)
Exhibit 10.1
ZYTEC CORPORATION
FIRST AMENDMENT AND CONSENT TO NOTE AND
WARRANT PURCHASE AGREEMENT
BMO Nesbitt Burns Capital (U.S.), Inc.
111 West Monroe Street
20th Floor
Chicago, Illinois 60603
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Ladies and Gentlemen:
Reference is hereby made to that certain Note and Warrant Purchase
Agreement made as of December 23, 1996, as heretofore and hereafter amended (as
so amended, the "Purchase Agreement"), among the undersigned, Zytec Corporation,
a Minnesota Corporation (the "Company"), and you (the "Lender") and the "Note"
and related documents referenced therein. All defined terms used herein shall
have the same meaning as in the Purchase Agreement unless otherwise defined
herein.
The Company has recently entered into a Fourth Amendment to Credit
Agreement, dated as of July 23, 1997 (the "Fourth Amendment to Credit
Agreement"), in connection with financing provided to the Company by Harris
Trust & Savings Bank and Firstar Bank of Minnesota, National Association. A copy
of the Fourth Amendment to Credit Agreement is attached hereto as Exhibit A.
The Company has requested that the Lender acknowledge, affirm and
approve the Fourth Amendment to Credit Agreement and the terms contained
therein, and the Lender is willing to do so under the terms and conditions set
forth in this Amendment.
1. ACKNOWLEDGMENT AND CONSENT.
The Lender does hereby acknowledge, affirm, approve and consent to the
terms of the Fourth Amendment to Credit Agreement. The Lender further
acknowledges that the Purchase Agreement, Note and related documents remain in
full force and effect as of today's date.
2. REPRESENTATIONS.
In order to induce the Lender to execute and deliver this Amendment,
the Company hereby represents to the Lender that as of the date hereof, the
Company is in full compliance with all of the terms and conditions of the
Purchase Agreement and no Event of Default has occurred and is continuing under
the Purchase Agreement or shall result after giving effect to this Amendment.
3. MISCELLANEOUS.
(a) Reference to this specific Amendment need not be made in any note,
document, letter, certificate, the Purchase Agreement itself, the Note or any
communication issued or made pursuant to or with respect to the Purchase
Agreement or the Note, any reference to the Purchase Agreement being sufficient
to refer to the Purchase Agreement as amended hereby.
(b) This Amendment may be executed in any number of counterparts and by
the different parties on different counterparts, all of which taken together
shall constitute one and the same agreement. Any of the parties hereto may
execute this Amendment by signing any such counterpart and each of such
counterparts shall for all purposes be deemed to be an original. This Amendment
shall be governed by the internal laws of the State of Minnesota.
Upon acceptance hereof by the Agent and the Lenders in the manner
hereinafter set forth, this Amendment shall be contracted between us for the
purposes hereinabove set forth.
Dated as of this 31 day of July, 1997.
<PAGE>
ZYTEC CORPORATION
By: /s/ John B. Rogers
----------------------------
Its Vice President Finance & Treasurer
Accepted and agreed to as of the day and year last above written.
BMO NESBITT BURNS CAPITAL (U.S.), INC.
By: /s/ William C. Morro
----------------------------
Its President
<PAGE>
EXHIBIT A TO EXHIBIT 10.1
ZYTEC CORPORATION
FOURTH AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Firstar Bank of Minnesota,
National Association
Bloomington, Minnesota
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of May 30,
1996, as amended through the Third Amendment thereto dated as of December 23,
1996 (as so amended, THE "CREDIT AGREEMENT") among the undersigned, Zytec
Corporation, a Minnesota corporation (the "COMPANY"), and (the "LENDERS") and
Harris Trust and Savings Bank, as agent for the Lenders (the "AGENT"). All
defined terms used herein shall have the same meaning as in the Credit Agreement
unless otherwise defined herein.
The Company has requested that the Lenders amend certain Sections of the Credit
Agreement, and the Lenders are willing to do so under the terms and conditions
set forth in this Amendment.
1. AMENDMENTS.
Upon the execution of this Amendment by the Company, the Lenders and
the Agent, the Credit Agreement shall be amended as follows:
1.1 The definition of "Termination Date" appearing in Section
4.1 of the Credit Agreement is hereby amended by deleting the date "May
30, 1999" appearing therein and substituting therefor the date "May 30,
2000."
1.2 Section 7.13 of the Credit Agreement is hereby amended by
deleting the amount "$4,000,000" appearing therein and substituting
therefor the amount "$8,000,000."
1.3 Section 7.14 of the Credit Agreement is hereby amended by
deleting the amount "$13,500,000" appearing therein and substituting
therefor the amount "$20,000,000."
1.4 Section 7.15(a) of the Credit Agreement is hereby amended
by deleting the amount "$8,000,000" appearing therein and substituting
therefor the amount "$12,000,000."
1.5. Section 7.17 of the Credit Agreement is hereby amended by
(A) deleting the "." appearing at the end thereof and substituting
therefor "; and" and (B) inserting immediately thereafter new
subsection (g) as follows:
"(g)loans from the Company to certain of its suppliers in the
aggregate principal amount not to exceed $140,000."
2. REPRESENTATIONS.
In order to induce the lenders to execute and deliver this amendment,
the Company hereby represents to the lenders that as of the date hereof, the
representations and warranties set forth in Section 5 of the Credit Agreement
are and shall be and remain true and correct (except that the representations
contained in Section 5.5 shall be deemed to refer to the most recent financial
statements of the company delivered to the Lenders) and the Company is in full
compliance with all of the terms and conditions of the Credit Agreement and no
Default or Event of Default has occurred and is continuing under the Credit
Agreement or shall result after giving effect to this Amendment.
3. MISCELLANEOUS.
(a) Reference to this specific Amendment need not be made in any note,
document, letter, certificate, the Credit Agreement itself, the Notes or any
communication issued or made pursuant to or with respect to the Credit Agreement
or the Notes, any reference to the Credit Agreement being sufficient to refer to
the Credit Agreement as amended hereby.
(b) This Amendment may be executed in any number of counterparts, and
by the different parties on different counterparts, all of which taken together
shall constitute one and the same agreement. Any of the parties hereto may
execute this Amendment by signing any such counterpart and each of such
counterparts shall for all purposes be deemed to be an original. This Amendment
shall be governed by the internal laws of the State of Illinois.
<PAGE>
Upon acceptance hereof by the Agent and the Lenders in the manner hereinafter
set forth, this Amendment shall be a contract between us for the purposes
hereinabove set forth.
Dated as of this 23rd day of July, 1997, but retroactively effective as of the
29th day of June, 1997.
ZYTEC CORPORATION
By: /s/ John B. Rogers
Its: Vice President Finance & Treasurer
Accepted and agreed to as of the day and year last above written.
HARRIS TRUST AND SAVINGS BANK
individually and as Agent
By: /s/ Catherine C. Ciolek
Its: Vice President
FIRSTAR BANK OF MINNESOTA,
NATIONAL ASSOCIATION
By: /s/ Karen S. Paris
Its: Vice President
EXHIBIT 11.1
ZYTEC CORPORATION
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
September 28, September 28, September 28, September 29,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income, as stated $ 3,808,000 $ 1,774,000 $ 11,120,000 $ 8,771,000
Convertible debt interest reduction, net of tax 138,000 -- 410,000 --
------------ ------------ ------------ ------------
Net income, as adjusted 3,946,000 1,774,000 11,530,000 8,771,000
Net income per common and common
equivalent share, primary $ 0.33 $ 0.18 $ 1.00 $ 0.87
Net income per common and common
equivalent share, fully diluted $ 0.32 $ 0.18 $ 0.95 $ 0.87
Primary:
Weighted average number of common
shares outstanding 9,515,428 9,102,513 9,371,870 8,935,519
Common equivalent shares:
Dilutive shares from convertible debt 877,193 877,193
Dilutive stock options and warrants,
using Modified Treasury Stock
Method 1,737,354 970,955 1,240,607 1,090,382
------------ ------------ ------------ ------------
12,129,975 10,073,468 11,489,670 10,025,901
============ ============ ============ ============
Fully Diluted:
Weighted average number of common
shares outstanding 9,515,428 9,102,513 9,371,870 8,935,519
Common equivalent shares:
Dilutive shares from convertible debt 877,193 877,193
Dilutive stock options and warrants,
using Modified Treasury Stock
Method 2,042,031 1,007,431 1,922,236 1,141,456
------------ ------------ ------------ ------------
12,434,652 10,109,944 12,171,299 10,076,975
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-28-1997
<CASH> 7,695
<SECURITIES> 0
<RECEIVABLES> 37,178
<ALLOWANCES> 0
<INVENTORY> 25,101
<CURRENT-ASSETS> 74,575
<PP&E> 46,377
<DEPRECIATION> 21,290
<TOTAL-ASSETS> 103,877
<CURRENT-LIABILITIES> 36,842
<BONDS> 20,099
0
0
<COMMON> 15,037
<OTHER-SE> 29,848
<TOTAL-LIABILITY-AND-EQUITY> 103,877
<SALES> 190,850
<TOTAL-REVENUES> 192,530
<CGS> 156,002
<TOTAL-COSTS> 156,002
<OTHER-EXPENSES> 8,003
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,175
<INCOME-PRETAX> 17,803
<INCOME-TAX> 6,683
<INCOME-CONTINUING> 11,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,120
<EPS-PRIMARY> 1.00
<EPS-DILUTED> .95
</TABLE>
