Filed On 8/8/97 · SEC File 0-04466 · Accession Number 23071-97-13
As Of Filer Filing On/For/As Docs:Pgs
8/08/97 Artesyn Technologies Inc 10-Q 7/04/97 5:61
Document/Exhibit Description Pages Size
1: 10-Q Second Quarter 1997 16± 78K
2: EX-10 Amendment to Firstar Loan Agreement 2 13K
3: EX-10 Sale of Rtp Corp. Agreement 40± 171K
4: EX-11 Eps Calculation 2 8K
5: EX-27 Financial Data Schedule 1 6K
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JULY 4, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-4466
COMPUTER PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA
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(State or other jurisdiction of incorporation or organization)
59-1205269
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(I.R.S. Employer Identification No.)
7900 Glades Road, Suite 500, Boca Raton, Florida 33434
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 451-1000
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NOT APPLICABLE
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Former name, address and fiscal year if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares of Common Stock, $.01 par value, of the Registrant issued
and outstanding as of August 1, 1997, was 24,171,160 shares.
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COMPUTER PRODUCTS, INC.
INDEX TO FORM 10-Q
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Statements of Operations - For the Thirteen
and Twenty-Six Weeks Ended July 4, 1997 and
June 28, 1996 3
Statements of Financial Condition - July 4, 1997
and January 3, 1997 4
Statements of Cash Flows - For the
Twenty-Six Weeks Ended July 4, 1997 and
June 28, 1996 5
Notes to Condensed Consolidated Financial
Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Exhibit No 10.33
Exhibit No 10.34
Exhibit No. 11
Exhibit No. 27
SIGNATURE
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PART I. FINANCIAL INFORMATION
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except Per Share Data)
(Unaudited)
· Enlarge/Download Table
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
JULY 4, JUNE 28, JULY 4, JUNE 28,
1997 1996 1997 1996
------- ------ -------- --------
SALES $59,544 $48,066 $116,409 $95,432
COST OF SALES 37,502 30,332 74,760 60,596
------- ------- -------- -------
GROSS PROFIT 22,042 17,734 41,649 34,836
------- ------ -------- -------
EXPENSES:
Selling, general & administrative 8,860 7,388 17,572 14,780
Research & development 5,223 3,925 9,694 7,414
------- ------ ------ ------
14,083 11,313 27,266 22,194
------- ------ ------ ------
OPERATING INCOME 7,959 6,421 14,383 12,642
------- ------ ------ -------
OTHER INCOME (EXPENSE):
Interest expense (570) (654) (1,160) (1,363)
Interest income 347 258 674 475
Foreign exchange gain (loss) 111 (320) 77 (326)
------- ------ -------- -------
(112) (716) (409) (1,214)
------- ------ -------- -------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES 7,847 5,705 13,974 11,428
PROVISION FOR INCOME TAXES 2,119 1,487 3,773 3,032
------- ------ -------- -------
INCOME FROM CONTINUING OPERATIONS 5,728 4,218 10,201 8,396
DISCONTINUED OPERATIONS
Profit (loss)from operations, net of income
taxes of $58, ($222) and $41, respectively - 164 (333) (102)
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 $5,728 $4,382 $8,139 $8,294
======= ====== ======== =======
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
PRIMARY-
Income from Continuing Operations $ 0.23 $ 0.17 $ 0.41 $ 0.34
Discontinued Operations - 0.01 (0.08) -
------ ------ ------ -------
Net Income $ 0.23 $ 0.18 $ 0.33 $ 0.34
====== ====== ====== =======
ASSUMING FULL DILUTION-
Income from Continuing Operations $ 0.23 $ 0.17 $ 0.40 $ 0.33
Discontinued Operations - 0.01 (0.08) -
------ ------ ------- -------
Net Income $ 0.23 $ 0.18 $ 0.32 $ 0.33
====== ====== ====== =======
COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING:
Primary 24,882 24,508 24,776 24,331
Fully Diluted 25,161 24,691 25,146 24,760
The accompanying notes are an integral part of these consolidated financial
statements.
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands Except Share Data)
· Download Table
JULY 4, JANUARY 3,
1997 1997
(UNAUDITED) (AUDITED)
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ASSETS
CURRENT ASSETS
Cash and equivalents $ 32,639 $ 26,141
Accounts receivable, net 38,881 35,989
Inventories 34,255 28,726
Prepaid expenses 3,626 2,038
Deferred income taxes, net 1,304 965
Current assets of discontinued operations 5,681 7,646
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Total current assets 116,386 101,505
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PROPERTY, PLANT & EQUIPMENT, NET 30,052 28,686
-------- --------
OTHER ASSETS
Goodwill, net 19,328 20,022
Deferred income taxes, net 1,241 863
Other assets, net 1,211 1,171
Long-term assets of discontinued operations 1,356 1,594
-------- --------
Total other assets 23,136 23,650
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$169,754 $153,841
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 4,861 $ 4,155
Accounts payable and accrued liabilities 42,928 34,210
Current liabilities of discontinued operations 1,244 2,055
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Total current liabilities 49,033 40,420
LONG-TERM DEBT 21,161 23,408
LEASE LIABILITIES 5,889 5,994
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TOTAL LIABILITIES 76,083 69,822
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SHAREHOLDERS' EQUITY
Preferred stock, par value $.01; 1,000,000 shares
authorized; none issued
Common stock, par value $.01; 80,000,000 shares
authorized; 24,036,076 shares issued and
outstanding at July 4, 1997 (23,849,759
at January 3, 1997) 240 239
Additional paid-in capital 47,743 44,724
Retained earnings 46,922 38,783
Foreign currency translation adjustment (1,414) 273
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TOTAL SHAREHOLDERS' EQUITY 93,491 84,019
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$169,574 $153,841
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The accompanying notes are an integral part of these consolidated financial
statements.
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
· Download Table
TWENTY-SIX WEEKS ENDED
JULY 4, JUNE 28,
1997 1996
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OPERATING ACTIVITIES:
Net income $8,139 $8,294
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,390 2,831
Provision for discontinued operations 1,636 -
Other non-cash charges 52 1,756
Changes in operating assets and liabilities:
Increase in accounts receivable (3,872) (1,166)
(Increase) decrease in inventories and
prepaid expenses (7,536) 115
Increase (decrease) in accounts payable
and accrued liabilities 9,115 (5,658)
Net cash provided by (used in) discontinued
operations 1,423 (11)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 12,347 6,161
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (4,688) (2,792)
Proceeds from sale of property, plant and equipment 25 70
Investing activities of discontinued operations (32) (667)
(Increase) decrease in other assets (162) 78
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NET CASH USED IN INVESTING ACTIVITIES (4,857) (3,311)
-------- --------
FINANCING ACTIVITIES:
Principal payments on debt and capital leases (1,660) (1,979)
Proceeds from exercises of stock options 979 2,217
Repurchases of common stock - (2,032)
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NET CASH USED IN FINANCING ACTIVITIES (681) (1,794)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
EQUIVALENTS (311) (47)
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INCREASE IN CASH AND EQUIVALENTS 6,498 1,009
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 26,141 26,650
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CASH AND EQUIVALENTS, END OF PERIOD $32,639 $27,659
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JULY 4, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Certain information and footnote disclosures required by
generally accepted accounting principles for complete financial statements have
been condensed or omitted.
In the opinion of management, the accompanying financial statements include all
adjustments (consisting of normal recurring accruals) considered necessary to
present fairly the financial position, results of operations, and cash flows of
Computer Products, Inc. (the "Company"). The results of operations for the
thirteen and twenty-six weeks ended July 4, 1997 are not necessarily indicative
of the results that may be expected for fiscal year 1997. For further
information, these Condensed Consolidated Financial Statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's 1996 Annual Report to Shareholders and Form 10-Q for the thirteen week
period ended April 4, 1997.
Certain prior year amounts have been reclassified to reflect discontinued
operations as described in Note 6.
2. INVENTORIES
The components of inventory are as follows ($000s):
July 4, January 3,
1997 1997
-------- --------
Raw materials $18,720 $14,953
Work in process 5,828 4,424
Finished goods 9,707 9,349
-------- --------
$34,255 $28,726
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3. PROPERTY, PLANT & EQUIPMENT, NET
Related accumulated depreciation was $28,125,000 and $26,064,000
at July 4, 1997 and January 3, 1997, respectively.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities are ($000s):
July 4, January 3,
1997 1997
------- -------
Accounts payable $21,288 $16,136
Accrued liabilities:
Compensation and benefits 6,028 5,793
Income taxes payable 6,247 5,080
Accrued loss on disposal of subsidiary 1,560 -
Other 7,805 7,201
-------- -------
$42,928 $34,210
======= =======
5. INCOME TAXES
The provision for income taxes reflects federal, state, and foreign taxes. The
effective income tax rate on pretax earnings differs from that computed at the
United States federal statutory rate for the following reasons:
Twenty-Six Weeks Ended
July 4, June 28,
1997 1996
------- --------
Provision computed at United States
federal statutory rate 35.0% 35.0%
Effect of state income taxes 4.8 4.2
Amortization of goodwill 0.2 0.2
Foreign tax effects (7.2) (4.1)
Change in the valuation allowance (5.9) (9.0)
Other 0.1 0.2
------- -------
Effective tax rate 27.0% 26.5%
======= ========
6. 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.
At April 4, 1997, the estimated loss on the disposal of the discontinued
operations of $1,729,000 (net of income tax benefit of $1,152,000) represented
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.
RTP's sales for the thirteen and twenty-six weeks ended July 4, 1997 were
$2,541,000 and $4,793,000, respectively. Prior year's RTP sales for the
comparable periods were $3,607,000 and $6,677,000, respectively. RTP's operating
results for the second quarter of 1997 and 1996 are shown separately in the
accompanying consolidated statements of operation.
Assets and liabilities of the discontinued operations have been separately
classified in the accompanying statements of financial condition and consist of
the following ($000s):
July 4, January 3,
1997 1997
---------- ---------
Accounts receivable, net $2,526 $4,129
Inventories 3,144 3,494
Prepaid expenses and other 51 100
Property, Plant & Equipment, net 1,316 1,517
---------- --------
Total assets $7,037 $9,240
========== =========
Accounts payable and other accruals $1,244 $2,055
========== =========
All prior year amounts have been restated for the discontinued operations to
conform with the current year's presentation.
7. DERIVATIVE FINANCIAL INSTRUMENTS
FOREIGN EXCHANGE INSTRUMENTS --The Company enters into foreign currency forward
contracts to minimize its exposure to potentially adverse changes in foreign
currency exchange rates on anticipated but not firmly committed purchases or
sales denominated in foreign currencies made by its international subsidiaries.
The foreign exchange contracts on receivables require the Company to exchange
European ECU for Irish Punts. The foreign exchange contracts on payables require
the Company to exchange Japanese Yen to receive US dollars. At July 4, 1997, the
Company had $5.9 million of forward currency exchange contracts maturing in one
to three months. No contracts were outstanding as of January 3, 1997. The amount
of any gain or loss on these contracts during the period was not material. The
Company does not hold or issue financial instruments for trading purposes.
INTEREST RATE INSTRUMENTS -- The Company periodically enters into interest rate
swaps, cap and collar agreements to reduce the impact of changes in interest
rates on its floating rate debt. The swap agreement is a contract to exchange
floating rate for fixed interest payments periodically over the life of the
agreement without the exchange of the underlying notional amounts. The notional
amounts of interest rate agreements are used to measure interest to be paid or
received and do not represent the amount of exposure to credit loss. The
differential paid or received on interest rate agreements is recognized as an
adjustment to interest expense. See Note 9 - Subsequent Events.
8. NEW ACCOUNTING PRONOUNCEMENT
On March 3, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". This
statement simplifies the standards for computing and presenting earnings per
share ("EPS") and makes them comparable to international EPS standards. SFAS 128
replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures. SFAS 128 will
be effective beginning with the fourth quarter of 1997 and, upon adoption, will
require restatement of all prior periods presented. The Company has quantified
the impact of applying the new standard to the second quarter results. Pro forma
information is as follows:
Thirteen Weeks Twenty-Six Weeks
Ended Ended
July 4, June 28, July 4, June 28,
1997 1996 1997 1996
-------- --------- ---------- -----------
EARNINGS PER COMMON SHARE
Income from Continuing Operations $0.24 $0.18 $0.43 $0.36
Discontinued Operations, net of tax - 0.01 (0.09) -
------- -------- -------- --------
Net Income $0.24 $0.19 $0.34 $0.36
======== ======== ======== ========
EARNINGS PER COMMON SHARE - ASSUMING DILUTION
Income from Continuing Operations $0.23 $0.17 $0.41 $0.34
Discontinued Operations, net of tax - 0.01 (0.08) -
------- ------- -------- -------
Net Income $0.23 $0.18 $0.33 $0.34
======== ======== ========= =========
9. SUBSEQUENT EVENTS
SALE OF SUBSIDIARY
Effective July 5, 1997, the Company sold its industrial automation division, RTP
Corp., to RT Acquisition Florida Corp. Proceeds from the sale, which are subject
to adjustment, included $2.0 million cash and a subordinated unsecured five-year
note in the aggregate principal amount of approximately $2.5 million bearing
interest at the prime rate. The estimated after-tax loss on the sale of $1.7
million was recorded in the first quarter of 1997.
ACQUISITION
Effective July 22, 1997, the Company acquired the Elba Group, a privately-held
European designer, manufacturer and marketer of a wide range of both AC/DC and
DC/DC power conversion products. Computer Products purchased Elba for
approximately $29 million in cash provided by two seven-year term loans from a
financial institution. Elba has design, sales and manufacturing organizations in
Oberhausen and Einsiedel, Germany; Chomutov, Czech Republic and Etten-Leur,
Netherlands. The Company also has sales offices in Pfaffikon, Switzerland;
Vaulx-Milieu, France; and Chesterfield, United Kingdom.
The acquisition will be 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 will be recorded as goodwill and will be amortized on a
straight line basis over a period of 20 years.
LOAN AGREEMENTS
Effective July 15, 1997, the Company amended and restated its existing revolving
and term loan agreement to reprice its outstanding term loan and to provide for
a new $20 million three-year multi-currency revolving working capital line of
credit. The new multi-currency revolving facility, which expires in April 2000,
replaces the Company's previous $20 million credit line which would have expired
on April 1, 1998. The interest rate on the revolver is at the London Interbank
Offering Rate "Libor" plus .50%. No borrowings are outstanding under the
existing line. The Company's 1995 seven-year term loan, which has an outstanding
balance of $22 million, was repriced to bear interest at Libor plus .75%
compared to the previous rate set at Libor plus 1.5%.
In addition, effective 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%, or approximately 5.6%. Proceeds from the term loans were used to
finance the Elba Group acquisition on July 22, 1997.
Effective 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 amount
for a fixed rate payment obligation of 5.58% per annum for a seven-year period
beginning July 22, 1997.
COMPUTER PRODUCTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ACQUISITION
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 segment is its medium power AC/DC converters (150-750
watts) sold to 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. Elba currently has 375
employees. Management believes that the acquisition of the Elba Group adds
significant design expertise along with a strong product offering and important
relationships with the world's leading Wireless and Telecommunications equipment
manufacturers. The acquisition also expands the Company's European presence,
adds low cost manufacturing capacity in the Czech Republic and is expected to be
accretive to Computer Products' earnings.
The purchase price of 52 million Deutsche marks (approximately $29 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%. It is
the intention of the Company, subject to a review of each acquired company, to
continue to use the acquired assets in substantially the same manner as prior to
the acquisition with certain changes to operating procedures and upgrades to or
changes of existing equipment.
SALE OF SUBSIDIARY
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. Accordingly, the Company classified RTP as a
discontinued operation and recorded an after-tax non-recurring charge of $2.1
million, or $0.08 per share, against first quarter 1997 earnings. Effective July
5, 1997, the Company sold its industrial automation division, RTP Corp., to RT
Acquisition Florida Corp. Proceeds from the sale, which are subject to
adjustment, included $2.0 million cash and a subordinated unsecured five-year
note in the aggregate principal amount of approximately $2.5 million bearing
interest at the prime rate.
RESULTS OF OPERATIONS
For the second quarter of 1997, income from continuing operations increased 36%
to $5.7 million, or $0.23 per share, from the $4.2 million, or $0.17 per share,
reported for the comparable year-ago quarter. Sales from continuing operations
for the quarter increased 24% to a record $59.5 million from $48.1 million a
year ago. For the first six months, sales from continuing operations totaled
$116.4 million, up 22% from $95.4 million in 1996. Income from continuing
operations increased 21% to $10.2 million, or $0.41 per share, up from $8.4
million, or $0.34 per share, in 1996.
The following table displays sales by product category for the twenty-six weeks
ended July 4, 1997 and June 28, 1996:
(DOLLARS IN THOUSANDS)
JULY 4, JUNE 28,
1997 1996
--------- --------
Power Conversion $105,543 $87,205
90.7% 91.4%
Computer Systems 10,866 8,227
9.3% 8.6%
-------- -------
Total $116,409 $95,432
======== =======
Sales from continuing operations for the thirteen and twenty-six weeks ended
July 4, 1997 increased $11.5 million (24%) and $21 million (22%), respectively,
over the comparable prior year periods as a result of a wider range of product
offerings, the continued foreign expansion and the increase of service and
support programs. Specifically, year-to-date Power Conversion sales improved 21%
while Computer Systems sales increased 32% compared to the six-month period a
year ago.
Sales to customers in Asia and the Pacific Rim increased 224% from $4.5 million
in the six-month period of 1996 to $14.7 million for the comparable period in
1997 mainly due to the award of a significant Original Equipment Manufacturer
("OEM") program with shipments beginning in the second quarter of 1996.
Likewise, the Company's European Power Conversion business recorded a 32%
increase in sales for the second quarter of 1997 compared to the year ago
quarter again due to increased demand from OEM communications customers. The
Company anticipates additional sales growth in Power Conversion during the
remainder of this fiscal year and will continue to consider acquisition and
partnership opportunities to increase market share and expand product range.
As mentioned above, Computer Systems sales were 32% higher than the year ago
period as this division continues to transition from the computer industry to
the communications sector. Similar to the Power Conversion division, Computer
Systems has concentrated its marketing efforts on the high-growth communications
industry, where it provides networking, telecommunications and video-on-demand
solutions for a variety of customers, including OEMs. With its initiative to
develop new products aimed at customers in the communications industry, the
Company expects this division to increase its sales volume through the remainder
of the fiscal year
Orders for the second quarter of 1997 increased to $64.5 million representing a
33% improvement compared to the year ago quarter. The large increase is the
result of entering the production phase of new OEM programs awarded to both the
Power Conversion and Computer Systems divisions during 1996. At July 4, 1997,
order backlog was $58.5 million compared to $45.9 million at January 3, 1997.
Although gross profit for the thirteen and twenty-six weeks ended July 4, 1997
increased by $4.3 million and $6.8 million, respectively, over the comparable
prior year periods, gross margin for the second quarter of 1997 was level with
prior year's at 37% while the current year-to-date margin of 35.8% was down
compared to the 36.5% reported for the six-month period a year ago. Margins
continue to be adversely impacted by the shift in sales mix to the Company's
high-volume, lower-margin OEM customers coupled with lower standard product
sales to the distribution sales channel. Although the Company continues to focus
on reducing manufacturing costs and improving overall processes, the Company
does not anticipate that gross margins will increase significantly from 1996
levels due to continuing competitive pricing pressures and changes in product
mix, especially as more OEM programs are awarded.
For the thirteen and twenty-six weeks ended July 4, 1997, selling, general and
administrative ("SG&A") expenses as a percentage of sales decreased to
approximately 15% from 15.5% for the comparable prior year periods. In absolute
dollar terms, SG&A increased $1.5 million in the second quarter of 1997 mostly
due to higher sales and marketing expenses. Specific factors included higher
commission expense from increased sales volume, the cost of additional marketing
programs to support the launch of new products, and expansion of distribution
channels. The Company plans to invest significant resources to expand its
presence in Asia, the Pacific Rim and Europe; accordingly, selling expenses are
expected to continue to increase in absolute dollars through the remainder of
1997 while general and administrative expenses should continue to decline as a
percentage of sales.
Research and development ("R&D") spending increased approximately $1.3 million,
or 33%, compared to the second quarter of 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 at the communications industry. As a percentage of sales, R&D
expenses were 8.8% for the second quarter of 1997 versus 8.2% for the comparable
prior year period. The Company believes that the timely introduction of new
technology and products is an important component of its competitive strategy
and anticipates future R&D spending will not significantly differ from the
historical trend as a percentage of sales of approximately 8%.
The provision for income taxes as a percentage of pretax income for the
twenty-six weeks ended July 4, 1997 increased to 27% from 26.5% and 26% for the
comparable prior year period and prior fiscal year, respectively. The effective
tax rate for 1997 increased primarily due to lower change in valuation allowance
offset by higher income from foreign operations which are taxed at a lower rate.
See Note 5 to the Condensed Consolidated Financial Statements for the Company's
effective tax rate reconciliation.
LIQUIDITY AND CAPITAL RESOURCES
At July 4, 1997, the Company's cash balance was $32.6 million compared to $26.1
million at January 3, 1997 despite purchases of equipment and the long-term debt
principal repayment of $1.5 million on the Company's existing seven-year term
loan.
Inventories increased $5.5 million, or 19%, from January 3, 1997 primarily in
the Power Conversion division as a result of production planning to meet
manufacturing lead times and anticipated demand for new product introductions.
Accounts receivable increased $2.9 million, or 8%, from January 3, 1997 due to
sales growth, including the continued expansion in international operations that
typically have longer collections cycles. Days sales outstanding in receivables
were 59 days at July 4, 1997 compared to 56 days at January 3, 1997.
Accounts payable increased $5.2 million, or 32%, from January 3, 1997 due to
increases in capital expenditures, operating expenses, and material purchases to
support the growth in sales.
Cash provided by operations increased to $12.3 million for the twenty-six weeks
ended July 4, 1997 from $6.2 million for the twenty-six weeks ended June 28,
1996 primarily as a result of an increase in accounts payable and accrued
liabilities.
Net cash used in investing activities increased to $4.9 million for the
twenty-six weeks ended July 4, 1997 from $3.3 million for the twenty-six weeks
ended June 28, 1996 due to higher equipment purchases.
Net cash used in financing activities for the twenty-six weeks ended July 4,
1997 reflects mainly long-term debt principal repayments including $1.5 million
on the Company's seven-year term loan partially offset by proceeds from
exercises of stock options.
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%, or approximately 5.6%.
Proceeds from the term loans were used to finance the purchase of the Elba
Group. In addition, the Company amended and restated its existing revolving and
term loan agreement to reprice its outstanding term loan and to provide for a
new $20 million three-year multi-currency revolving working capital line of
credit.
The new multicurrency revolving facility, which expires in April 2000, replaces
the Company's previous $20 million credit line which would have expired on April
1, 1998. The interest rate on the revolver was reduced from Libor plus .75% to
Libor plus .50%. As of July 4, 1997, the Company had made no borrowings under
the existing line of credit and was in compliance with the agreement's
covenants.
Effective July 15, 1997, the Company's 1995 seven-year term loan, which has an
outstanding balance of $22 million, was repriced to bear interest at Libor plus
.75% compared to the previous rate set at Libor plus 1.5%.
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 obligations and outstanding
lease commitments through the remainder of fiscal 1997.
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-Q constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
are based on the Company's current expectations with respect to future sales,
operating efficiencies, growth and working capital needs. Such statements
involve risks and uncertainties which may cause actual results to differ
materially from those set forth in these forward-looking statements. Factors
that might affect such forward-looking statements include, among others, general
economic conditions and growth in the power supply and communications
industries, changes in customer mix, competitive factors and pricing pressures,
changes in product mix, the timely development and acceptance of new products,
ability to integrate the Elba Group operations with those of the Company,
ability to attract and retain customers including new OEM communications
customers, ability to attract and retain personnel, inventory risks due to
shifts in market demand, changes in absorption of manufacturing overhead,
domestic and foreign regulatory approvals particularly as it relates to the Elba
acquisition and other risks described in the Company's various reports filed
with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Shareholders on May 8, 1997.
(c) The following matters were voted upon at the Annual Meeting of
Shareholders:
1. The election of the nominees for Directors who will serve for a
term to expire at the Annual Meeting of Shareholders to be held in
1998 was voted on by the shareholders. The nominees, all of whom were
elected, were: Edward S. Croft, III, Joseph M. O'Donnell, Stephen A.
Ollendorff, Phillip A. O'Reilly, Bert Sager, and Lewis Solomon. The
Inspectors of Election certified the following vote tabulations:
FOR WITHHELD
Edward S. Croft, III 20,685,845 762,950
Joseph M. O'Donnell 20,715,547 733,248
Stephen A. Ollendorff 20,704,205 744,590
Phillip A. O'Reilly 20,777,007 671,788
Bert Sager 20,674,024 774,771
Lewis Solomon 20,781,144 677,651
2. A proposal to amend the 1990 Performance Equity Plan to increase the
authorized shares of common stock currently available for grant from
4,450,000 to 5,950,000 was approved by the shareholders. The Inspectors of
Election certified the following vote tabulations:
FOR AGAINST ABSTAIN
14,798,315 2,709,784 108,350
3. A proposal to amend the 1990 Performance Equity Plan to increase the
authorized shares of common stock available for grant in future years was
approved by the shareholders. The Inspectors of Election certified the
following vote tabulations:
FOR AGAINST ABSTAIN
9,206,455 6,869,639 99,441
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit No. 10.33 - Asset Purchase Agreement among RT Acquisition Florida
Corp., RTP Corp. and Computer Products Inc. dated as of July 5, 1997.
Exhibit No. 10.34 - Amendment to Installment or Single Payment Note by and
between Firstar Bank Madison, N.A., Heurikon Corporation and Computer Products
Inc. dated as of May 23, 1997.
Exhibit No. 11 -- Computation of earnings per common and common equivalent
share for the thirteen weeks ended July 4, 1997 and June 28, 1996.
Exhibit No. 27 -- Financial Data Schedule.
(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the thirteen week period
ended July 4, 1997.
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.
COMPUTER PRODUCTS, INC.
(Registrant)
DATE: August 8, 1997 BY: Richard J. Thompson
-------------------
Richard J. Thompson
Vice President Finance
Chief Financial Officer
Dates Referenced Herein and Documents Incorporated By Reference
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