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 June 29, 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 August 1, 1997, there were outstanding 9,498,577 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 June 29, 1997 and
December 31, 1996 3
Statements of Operations for the three
months and six months ended June 29, 1997
and June 30, 1996 4
Statements of Cash Flows for the six months
ended June 29, 1997 and June 30, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 13
HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZYTEC CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 29, 1997 AND DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
June 29, December 31,
1997 1996
--------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 8,806 $ 8,535
Accounts receivable 35,602 26,213
Inventories 24,731 20,776
Other current assets 4,247 3,182
--------- ---------
Total current assets 73,386 58,706
Property, plant and equipment, net 23,324 19,985
Deferred income taxes 2,764 3,067
Other assets 1,568 1,719
--------- ---------
Total assets $ 101,042 $ 83,477
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Debt and capital lease obligations,
current portion $ 8,243 $ 8,997
Accounts payable 18,474 11,486
Accrued expenses 12,273 7,279
--------- ---------
Total current liabilities 38,990 27,762
Debt and capital lease obligations,
less current portion 19,947 20,861
Other liabilities 1,976 1,867
--------- ---------
Total liabilities 60,913 50,490
--------- ---------
Commitments
Stockholders' equity:
Common stock, no par value:
25,000,000 shares authorized,
9,410,542 and 9,167,104 shares
outstanding at June 29, 1997 and
December 31, 1996, respectively 13,982 13,271
Retained earnings 27,478 20,166
Foreign currency translation adjustments (1,331) (450)
--------- ---------
Total stockholders' equity 40,129 32,987
--------- ---------
Total liabilities and stockholders' equity $ 101,042 $ 83,477
========= =========
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
ZYTEC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS AND THE SIX MONTHS ENDED
JUNE 29, 1997 AND JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
----- -----
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 71,334 $ 60,709 $ 128,932 $ 121,796
Cost of goods sold 57,578 51,837 105,228 104,978
------------ ------------ ------------ ------------
Gross profit 13,756 8,872 23,704 16,818
------------ ------------ ------------ ------------
Other revenue 537 403 1,145 756
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative 3,454 2,682 6,348 5,142
Research and development 2,708 2,495 5,338 4,885
------------ ------------ ------------ ------------
Total operating expenses 6,162 5,177 11,686 10,027
------------ ------------ ------------ ------------
Operating income 8,131 4,098 13,163 7,547
Other income (expense):
Interest expense (385) (571) (768) (952)
Other, net (147) (281) (553) (410)
------------ ------------ ------------ ------------
Income before income tax expense 7,599 3,246 11,842 6,185
Income tax expense (benefit) 2,890 (1,643) 4,530 (812)
------------ ------------ ------------ ------------
Net income $ 4,709 $ 4,889 $ 7,312 $ 6,997
============ ============ ============ ============
Net income per share:
Primary $ 0.42 $ 0.48 $ 0.68 $ 0.70
============ ============ ============ ============
Fully diluted $ 0.41 $ 0.48 $ 0.66 $ 0.69
============ ============ ============ ============
Common and common equivalent shares outstanding:
Primary 11,505,047 10,243,785 11,104,531 9,998,888
============ ============ ============ ============
Fully diluted 11,696,521 10,280,725 11,439,997 10,204,246
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
ZYTEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE SIX MONTHS ENDED JUNE 29, 1997 AND JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 29, June 30,
1997 1996
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 7,312 $ 6,997
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 2,751 1,794
Changes in operating assets and liabilities (3,581) (11,370)
Deferred income taxes 31 (3,347)
Other 342 111
--------- ---------
Net cash provided by (used in)
operating activities 6,855 (5,815)
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (5,737) (2,173)
Cash paid for Zytec Hungary Elektronikai Kft. -- (834)
Increase in other assets -- (106)
--------- ---------
Net cash used in investing activities (5,737) (3,113)
--------- ---------
Cash flows from financing activities:
Proceeds from debt and capital lease obligations 2,724 4,122
Payments of debt and capital lease obligations (4,250) (4,339)
Proceeds from revolving credit agreement 7,564 104,864
Payments on revolving credit agreement (7,564) (96,323)
Sale of common stock for cash 708 433
Change in bank overdrafts -- (192)
Other -- 204
--------- ---------
Net cash (used in) provided by
financing activities (818) 8,769
--------- ---------
Effect of exchange rate changes on cash (29) 159
--------- ---------
Change in cash and cash equivalents 271 --
Cash and cash equivalents, beginning of period 8,535 2
--------- ---------
Cash and cash equivalents, end of period $ 8,806 $ 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 June 29, 1997 and for the
period ended June 29, 1997 and June 30, 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)
June 29, December 31,
1997 1996
-------- --------
<S> <C> <C>
Inventories
Work in process and finished goods $ 7,133 $ 6,123
Parts and subassemblies 17,598 14,653
-------- --------
$ 24,731 $ 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 27,597 23,488
Equipment, furniture and leasehold improvements
under capital leases 11,374 11,525
-------- --------
40,868 36,918
Less accumulated depreciation (16,645) (15,293)
Less accumulated amortization (3,224) (2,603)
-------- --------
20,999 19,022
Construction in progress and deposits on equipment 2,325 963
-------- --------
$ 23,324 $ 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 six months ended June 29, 1997 and June 30, 1996, respectively:
<TABLE>
<CAPTION>
(In thousands)
Increase (Decrease)
-------------------
In Cash and Cash Equivalents
----------------------------
June 29, June 30,
1997 1996
----------- ----------
<S> <C> <C>
Changes in operating assets and liabilities:
Accounts receivable $ (10,410) $ (3,158)
Inventories (4,494) $ (6,153)
Other current assets (1,310) (17)
Accounts payable 7,351 (2,999)
Accrued expenses 5,282 957
----------- ----------
$ (3,581) $ (11,370)
=========== ===========
Significant noncash investing and financing transactions:
Property, equipment, furniture and leasehold improve-
ments acquired through capital lease obligations $ 683 $ 4,911
Equipment, furniture and leasehold improvements
acquired through issuance of debt 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 rate of 38.0 percent for the second quarter of 1997
differs from the federal statutory tax rate primarily due to state
taxes. The 1996 second quarter effective tax (benefit) rate of (50.6)
percent differs from the statutory rate primarily due to recognition of
the benefit of the Austrian subsidiary's net operating loss (NOL)
carryforwards and recognition of retroactive tax expense for the first
quarter, as discussed further below, and due to state taxes. On a pro
forma basis, the effective tax rate for second quarter 1996 without
recognition of the NOL benefit and first quarter expense would have
been 38.2 percent.
<PAGE>
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. 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.
<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.
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 half 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 half of
1997, US Power operations represented 74 percent of power sales, while European
operations represented 26 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 six month periods
ended June 29, 1997 and June 30, 1996, expressed as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold (80.7) (85.4) (81.6) (86.2)
----- ----- ----- -----
Gross profit 19.3 14.6 18.4 13.8
Other revenue 0.7 0.7 0.8 0.6
Selling, general and administrative (4.8) (4.4) (4.9) (4.2)
Research and development (3.8) (4.1) (4.1) (4.0)
----- ----- ----- -----
Operating income 11.4 6.8 10.2 6.2
Other income (expense):
Interest expense (0.5) (0.9) (0.6) (0.8)
Other, net (0.2) (0.5) (0.4) (0.3)
----- ----- ----- -----
Income before income taxes 10.7 5.4 9.2 5.1
Income tax (expense) benefit (4.1) 2.7 (3.5) 0.6
----- ----- ----- -----
Net income 6.6 % 8.1 % 5.7 % 5.7 %
===== ===== ===== =====
</TABLE>
NET SALES
Net sales in the second quarter of 1997 were $71,334,000, a record for the
Company, and an increase of 17.5 percent from net sales of $60,709,000 in the
second quarter of 1996. In the first half, sales increased 5.9 percent to
$128,932,000 from $121,796,000 in 1996. The Company expects that second quarter
sales will be the largest quarterly sales of the year. The Company believes
there is no seasonal pattern to its sales, and that rates of growth are a
function of demand in the industry and patterns controlled by startup of new
products. The increase in sales in the second quarter of 1997 as compared to the
second quarter of 1996 by segment was an increase of 14 percent for US Power, an
increase of 22 percent for Europe Power, and an increase of 31 percent for
Services and Logistics. Compared to the first half of 1996, US Power sales
increased 2 percent, Europe Power sales increased 14 percent and the
<PAGE>
Services and Logistics business grew 21 percent. The difference in growth rates
between US and Europe sales does not indicate a trend: during the second
quarter, US Power sales were affected by the phasing out of one customer's major
program due to normal life cycle, while Europe Power sales were increased by
rapid startup of another customer's program.
GROSS MARGIN
Gross margin was 19.3 percent for the second quarter of 1997, the highest gross
margin rate yet attained by the Company, and an improvement of 4.7 percentage
points from 14.6 percent in the second quarter of 1996. In the first half of
1997, gross margin was 18.4 percent, up 4.6 percentage points from 13.8 percent
in the first half of 1996. Gross margin benefited from a favorable mix of
products, favorable fixed costs utilization due to high volume, 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 second quarter 1997 margin, and these short run effects may not be
positive in subsequent quarters.
With respect to utilization of fixed costs, the Company's facility in Colorado
is fully operational and is producing about 40 percent of the US Power group's
product. Thus, this plant is more efficient than it was in the second quarter of
1996, when it was still in startup and produced 8.5 percent of the US product.
The effect of better utilization of Colorado fixed costs added about 0.4
percentage points to gross margin in the second quarter of 1997 compared with
the second quarter of 1996.
The strength of the dollar helped improve second quarter 1997 gross margin
approximately 1.8 percentage points over that of second quarter 1996. This is a
result of the fact that much of the Company's European product is sold in
dollars, while most European costs are incurred in Austrian schillings. During
the second quarter, the dollar was strengthening against the schilling, which
improved gross margin.
OTHER REVENUE
Other revenue, which consists of customer payments to fund development of custom
power supplies, was $537,000 in the second quarter of 1997, a 33 percent
increase from $403,000 in the second quarter of 1996. In the first half, funding
increased to $1,145,000 in 1997 from $756,000 in 1996. Other revenue represented
20 percent and 16 percent of research and development expense in the second
quarters of 1997 and 1996, respectively. The 1997 revenues are higher than
average and are the result of the 24 product wins in the first half of 1997,
compared with 20 wins for all of 1996.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses of $3,454,000, or 4.8
percent of sales, in the second quarter of 1997 compared with $2,682,000, or 4.4
percent of sales, in the second quarter of 1996. In the first half, SG&A
expenses were $6,348,000, or 4.9 percent of sales, compared with $5,142,000, or
4.2 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 growth. In Europe Power Conversion, the trend of reduction
in SG&A as a percent of sales continued.
RESEARCH AND DEVELOPMENT
Research and development (R&D) expenses were $2,708,000 in the second quarter of
1997, an increase of 8.5 percent from $2,495,000 in the second quarter of 1996.
In the first half, R&D expenses were $5,338,000 for 1997, an increase of 9.3
percent from $4,885,000 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 half 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 in the last half of 1997 to be as much as 30 percent
greater than the first half of 1997.
<PAGE>
INTEREST EXPENSE
Interest expense of $385,000 in the second quarter of 1997 was 33 percent less
than interest expense of $571,000 in the second quarter of 1996. In 1996, the
Company was borrowing against its United States bank credit line. In the fourth
quarter, this credit was substantially replaced with a smaller convertible
subordinated debenture, and several equipment leases matured, reducing interest
expense.
OTHER EXPENSE
Other expense was $147,000 in the second quarter of 1997, compared with $281,000
in the second quarter of 1996. While other expense contains a number of
non-operating items, the largest component is the financial effects of foreign
exchange conversion and translation. In the second quarter of 1997, the dollar
continued to strengthen against European currencies, which gave rise to improved
gross margin in Europe, as discussed above. The gain in gross margin was partly
offset by translation effects, which are recorded in Other Expense. At the end
of the quarter, the Company had no open foreign currency options or forward
contracts because of the strength of the dollar. In mid July, the Company began
to hedge certain foreign currency exposurers using forward contracts.
INCOME TAXES
The Company's consolidated effective tax expense/(benefit) rate was 38.0 percent
in the second quarter of 1997 and (50.6) percent in the second quarter of 1996.
On a pro forma basis, the effective tax rate for second quarter 1996 would have
been 38.2 percent without recognition of the benefit of the Austrian
subsidiary's net operating loss (NOL) carryforwards and retroactive recognition
of tax expense for the first quarter. 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. The effect of this was to generate
an income tax benefit for the second quarter of 1996 which added 22 cents to
EPS. 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 38 to 39 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 half of 1997, the Company's operating activities provided cash of
$6,855,000. Net income and depreciation and amortization provided cash of
$10,063,000 and changes in operating assets and liabilities used cash of
$3,581,000. Cash and cash equivalents were $8,806,000 at June 29, 1997 and
$8,535,000 at December 31, 1996. Working capital was $34,396,000 at June 29,
1997 and $30,944,000 at December 31, 1996, a growth of 11.2 percent. This is in
line with management's expectations.
Accounts receivable increased $10,410,000 during the first half of 1997,
resulting in average days sales outstanding (DSO) of 45.5 in the second quarter
of 1997, which was normal for the Company.
Inventory turnover averaged 9.3 times annualized in the second quarter of 1997,
8.5 times in the first half of 1997 and 7.5 times in all of 1996. Inventory has
generally been improving slightly as processes normalize for the Colorado
facility. In addition, the strong sales increases from first to second quarter
favored higher inventory turnover. During the balance of 1997, the Company
expects inventory turnover to decrease slightly as a result of its successful
implementation of a limited finished goods inventory strategy with certain
customers; however, the Company expects that its inventory turnover will
continue to be significantly higher than industry norms.
Investing activities required cash of $5,737,000 in the first half of 1997.
Capital expenditures to renovate the Kindberg, Austria factory, purchase
automated insertion and test equipment, and provide material handling and
storage equipment for the Company's California operation were $6,420,000,
including $683,000 acquired through capital lease obligations. 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 $818,000
was used by financing activities in the first half, primarily to pay lease and
note payable obligations. This was offset by $708,000 provided by the sale of
common stock which was the result of normal option exercise activity, as well
the sale of shares under the employee stock purchase plan (ESPP).
<PAGE>
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 June 29, 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 June 29, 1997, borrowings under
this line were $3,693,000. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on April 28, 1997. The
following members were elected to the Company's Board of Directors to hold
office for the ensuing year:
Nominee In Favor Withheld
------- -------- --------
Ronald D. Schmidt 8,832,581 31,819
John M. Steel 8,832,381 32,019
Josef J. Matz 8,831,681 32,719
Sherman Winthrop 8,831,381 33,019
Lawrence J. Matthews 8,832,131 32,269
Gary C. Flack 8,824,222 40,177
Dr. Fred C. Lee 8,832,351 32,049
Ervin F. Kamm, Jr. 8,824,331 40,069
James S. Womack 8,832,651 31,749
Thomas J. Kent 8,825,881 38,519
Ratification of the selection of Coopers & Lybrand L.L.P. as independent
accounts to audit the consolidated financial statements of Zytec Corporation for
the year ending December 31, 1997. The votes of the stockholders on this
proposal were as follows:
In Favor Opposed Abstained Broker Non-Vote
-------- ------- --------- ---------------
8,826,017 11,091 27,292 -0-
No other matters were submitted to a vote of the Stockholders during the quarter
ended June 29, 1997.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
------ -----------
10.1 Fourth Amendment to Credit Agreement between Zytec
Corporation, the Lenders named therein, and Harris
Trust and Savings Bank, Individually and as Agent
dated July 23, 1997. (Original agreement dated May
30, 1996.)
10.2 Third Addendum to Lease Agreement between Zytec
Corporation and Superior Investments I, Inc. dated
May 23, 1997. (Original Agreement dated January 16,
1996.)
10.3 Fourth Addendum to Lease Agreement between Zytec
Corporation and Superior Investments I, Inc. dated
June 27, 1997. (Original Agreement dated January 16,
1996.)
11.1 Computation of Net Income Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any current reports on Form 8-K
during the quarter ended June 29, 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: August 11, 1997 By /s/ John B. Rogers
----------------------------------
John B. Rogers
Vice President Finance & Treasurer
(Principal financial and
principal accounting officer)
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 10.2
THIRD ADDENDUM
THIS ADDENDUM to that certain Lease Agreement by and between ZYTEC CORPORATION
("Lessee") and SUPERIOR INVESTMENTS I, INC. ("Lessor"), dated January 16,
1996 ("Lease Agreement") is made and entered into as of May 23, 1997.
WITNESSED:
WHEREAS, ZYTEC CORPORATION and SUPERIOR INVESTMENTS I, INC. entered into the
Lease Agreement dated January 16, 1996 for approximately 83,179 square
feet of 2400 Industrial Lane, Broomfield, Colorado 80020.
WHEREAS, the Lease Agreement was modified by a First Addendum dated January 18,
1996.
WHEREAS, the Lease Agreement was modified by a Second Lease Addendum dated
January 22, 1996.
WHEREAS, the Lease Agreement was clarified with regards to square feet by a
Memorandum of Lease dated May 10, 1996.
NOW THEREFORE, in consideration of the mutual covenants contained, it is agreed
that the Lease Agreement is hereby amplified, modified and amended in the
following respects to be effective May 23, 1997, TO WIT:
1. The Premises effective July 1, 1997, shall be expanded to
include an additional 4,877 rentable square feet adjacent to
and to the north of the existing Premises (hereinafter
referred to as the "Expansion Area") as shown on the attached
Exhibit A increasing Lessee's Premises to a total rentable
area of 77,922 square feet. Whenever referred to in the Lease
Agreement, Lessee's proportionate share shall be 39.1%.
2. The additional base rental(1) payment for the Expansion Area
beginning July 1, 1997 shall be based on the per square
footage rate for "OFFICE/MANUFACTURING" area in Exhibit D of
the lease agreement and as shown below:
Date Annual Base Rent per s.f.
---- -------------------------
7/1/97-1/31/99 $3.12
2/1/99-1/31/00 $5.07
2/1/00-1/31/01 $5.22
2/1/01-1/31/02 $5.38
2/1/02-1/31/03 $5.54
2/1/03-1/31/04 $5.71
2/1/04-1/31/05 $5.88
2/1/05-1/31/06 $6.05
3. In consideration for this Third Addendum, Lessor shall provide
Lessee's agreed upon improvements to be completed in the
Expansion Area substantially as shown on the attached drawing
(Exhibit B). Notwithstanding the above, Lessor shall not be
obligated to install any improvements not specifically
indicated on Exhibit B to be performed by Lessor at Lessor's
cost and except as noted on the attached Exhibit B, Lessee
agrees to accept the Expansion Premises in its "as-is"
condition.
4. In consideration for this Third Addendum, Lessee agrees to
waive its Option to Expand and its First Right of Refusal as
described in paragraph 2a) and 2b) in the Lease Addendum dated
1/18/96 for unit 2600 only as described in the attached
Exhibit A.
5. This addendum shall not be binding on any party, unless and
until signed by both parties hereto.
Except as specifically mentioned herein, all other terms and conditions of the
original Lease Agreement shall remain the same and unchanged.
LESSEE: ZYTEC CORPORATION
By: /s/ Max Davis Date: 5/29/97
- ----------------------------------------------
LESSOR: SUPERIOR INVESTMENTS I, INC.
By: /s/ Bryan L. Sperry Date: 5/29/97
- ----------------------------------------------
(1) Along with the additional Base Rent for the Expansion Area, Lessee
shall be responsible for Operating Expenses on the Expansion Area as
defined in paragraph 5 of the Lease Agreement
EXHIBITS ATTACHED TO THIRD ADDENDUM
EXHIBIT A -- ORIGINAL DOCUMENT CONTAINS A FLOOR PLAN DRAWING OF THE BUILDING.
EXHIBIT B -- ORIGINAL DOCUMENT CONTAINS A FLOOR PLAN DRAWING INDICATING AGREED
UPON IMPROVEMENTS.
EXHIBIT 10.3
FOURTH ADDENDUM
THIS ADDENDUM to that certain Lease Agreement by and between ZYTEC CORPORATION
("Lessee") and SUPERIOR INVESTMENTS I, INC. ("Lessor"), dated January 16,
1996 ("Lease Agreement") is made and entered into as of June 27, 1997.
WITNESSED:
WHEREAS, ZYTEC CORPORATION and SUPERIOR INVESTMENTS I, INC. entered into the
Lease Agreement dated January 16, 1996 for approximately 83,179 square
feet of 2400 Industrial Lane, Broomfield, Colorado 80020.
WHEREAS, the Lease Agreement was modified by a First Addendum dated January 18,
1996.
WHEREAS, the Lease Agreement was modified by a Second Lease Addendum dated
January 22, 1996.
WHEREAS, the Lease Agreement was clarified with regards to square feet by a
Memorandum of Lease dated May 10, 1996.
WHEREAS, the Lease Agreement was modified to expand the Premises by a Third
Addendum dated May 23, 1997.
NOW THEREFORE, in consideration of the mutual covenants contained, it is agreed
that the Lease Agreement is hereby amplified, modified and amended in the
following respects to be effective June 27, 1997, TO WIT:
1. The Premises effective July 1, 1997, shall be expanded to
include an additional 3,262 rentable square feet known as
suite 2800B adjacent to and to the north of the existing
Premises (hereinafter referred to as the "Expansion Area") as
shown on the attached Exhibit A increasing Lessee's Premises
to a total rentable area of 81,184 square feet. Whenever
referred to in the Lease Agreement, Lessee's proportionate
share shall be 40.74%.
2. The additional base rental(1) payment for the Expansion Area
beginning July 1, 1997 shall be based on the per square
footage rate for "OFFICE/MANUFACTURING" area in Exhibit D of
the lease agreement and as shown below:
Date Annual Base Rent per s.f.
---- -------------------------
7/1/97-1/31/99 $3.12
2/1/99-1/31/00 $5.07
2/1/00-1/31/01 $5.22
2/1/01-1/31/02 $5.38
2/1/02-1/31/03 $5.54
2/1/03-1/31/04 $5.71
2/1/04-1/31/05 $5.88
2/1/05-1/31/06 $6.05
3. In consideration for this Fourth Addendum, Lessor shall
provide Lessee's agreed upon improvements to be completed in
the Expansion Area substantially as shown on the attached
drawing (Exhibit B). Notwithstanding the above, Lessor shall
not be obligated to install any improvements not specifically
indicated on Exhibit B to be performed by Lessor at Lessor's
cost and except as noted on the attached Exhibit B, Lessee
agrees to accept the Expansion Premises in its "as-is"
condition.
4. Lessee shall have the right to terminate its use of the
Expansion Area (2800B only) along with the associated rent
therewith (herein defined as the "2800B Termination Option")
on the first day of any month beginning January 1, 1998
(herein defined as the "Termination Date") under the following
terms and conditions. Lessee shall not be in default of the
Lease and Lessee shall provide six (6) months prior written
notice to Lessor notifying it of Lessee's intention to
terminate its use of the Expansion Area (2800B as shown on the
attached Exhibit A).
In the event Lessee exercises the 2800B Termination Option,
Lessee covenants and agrees to surrender full and complete
possession of the Expansion Area (2800B) to Lessor on or
before the Termination Date vacant, broom--clean, in good
order and condition, and, in accordance with the provisions of
the Lease Agreement, and thereafter the Expansion Area (2800B)
shall be free and clear of all leases, tenancies, and rights
of occupancy of any entity claiming by or through Lessee.
5. This addendum shall not be binding on any party, unless and
until signed by both parties hereto.
Except as specifically mentioned herein, all other terms and conditions of the
original Lease Agreement shall remain the same and unchanged.
LESSEE: ZYTEC CORPORATION
By: /s/ Walter Arnason Date: 6/27/97
- ---------------------------------------------------
LESSOR: SUPERIOR INVESTMENTS I, INC.
By: /s/ Bryan L. Sperry Date: 6/27/97
- ---------------------------------------------------
(1) Along with the additional Base Rent for the Expansion Area, Lessee
shall be responsible for Operating Expenses on the Expansion Area as
defined in paragraph 5 of the Lease Agreement.
EXHIBITS ATTACHED TO FOURTH ADDENDUM
EXHIBIT A -- ORIGINAL DOCUMENT CONTAINS A FLOOR PLAN DRAWING OF THE BUILDING.
EXHIBIT B -- ORIGINAL DOCUMENT CONTAINS A FLOOR PLAN DRAWING INDICATING AGREED
UPON IMPROVEMENTS.
EXHIBIT 11.1
ZYTEC CORPORATION
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income, as stated $ 4,709,000 $ 4,889,000 $ 7,312,000 $ 6,997,000
Convertible debt interest reduction, net of tax 137,000 -- 272,000 --
----------- ----------- ----------- -----------
Net income, as adjusted 4,846,000 4,889,000 7,584,000 6,997,000
Net income per common and common
equivalent share, primary $ 0.42 $ 0.48 $ 0.68 $ 0.70
Net income per common and common
equivalent share, fully diluted $ 0.41 $ 0.48 $ 0.66 $ 0.69
Primary:
Weighted average number of common
shares outstanding 9,353,751 8,950,141 9,301,568 8,852,022
Common equivalent shares:
Dilutive shares from convertible debt 877,193 877,193
Dilutive stock options and warrants,
using Modified Treasury Stock
Method 1,274,103 1,293,644 925,770 1,146,866
----------- ----------- ----------- -----------
11,505,047 10,243,785 11,104,531 9,998,888
=========== =========== =========== ===========
Fully Diluted:
Weighted average number of common
shares outstanding 9,353,751 8,950,141 9,301,568 8,852,022
Common equivalent shares:
Dilutive shares from convertible debt 877,193 877,193
Dilutive stock options and warrants,
using Modified Treasury Stock
Method 1,465,577 1,330,584 1,261,236 1,352,224
----------- ----------- ----------- -----------
11,696,521 10,280,725 11,439,997 10,204,246
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-29-1997
<CASH> 8,806
<SECURITIES> 0
<RECEIVABLES> 35,602
<ALLOWANCES> 0
<INVENTORY> 24,731
<CURRENT-ASSETS> 73,386
<PP&E> 43,193
<DEPRECIATION> 19,869
<TOTAL-ASSETS> 101,042
<CURRENT-LIABILITIES> 38,990
<BONDS> 19,947
0
0
<COMMON> 13,982
<OTHER-SE> 26,147
<TOTAL-LIABILITY-AND-EQUITY> 101,042
<SALES> 128,932
<TOTAL-REVENUES> 130,077
<CGS> 105,228
<TOTAL-COSTS> 105,228
<OTHER-EXPENSES> 5,338
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 768
<INCOME-PRETAX> 11,842
<INCOME-TAX> 4,530
<INCOME-CONTINUING> 7,312
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,312
<EPS-PRIMARY> .68
<EPS-DILUTED> .66
</TABLE>
