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Artesyn Technologies Inc · 10-Q · For 7/4/97

Filed On 8/8/97   ·   SEC File 0-04466   ·   Accession Number 23071-97-13

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  As Of               Filer                 Filing     On/For/As Docs:Pgs

 8/08/97  Artesyn Technologies Inc          10-Q        7/04/97    5:61

Quarterly Report   ·   Form 10-Q
Filing Table of Contents

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 


10-Q   ·   Second Quarter 1997
Document Table of Contents

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11st Page
2Item 1. Condensed Consolidated Financial Statements:
"Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-15
"Item 4. Submission of Matters to a Vote of
8Item 4. Submission of Matters to a Vote of Security Holders
9Item 6. Exhibits and Reports on Form 8-K
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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. ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) FLORIDA ------------------------------------------------------------------------------ (State or other jurisdiction of incorporation or organization) 59-1205269 ------------------------------------------------------------------------------ (I.R.S. Employer Identification No.) 7900 Glades Road, Suite 500, Boca Raton, Florida 33434 ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (561) 451-1000 ------------------ NOT APPLICABLE ------------------------------------------------------------------------------ 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.
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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) ------------ ---------- 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 -------- --------- Total current assets 116,386 101,505 -------- -------- 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 -------- -------- $169,754 $153,841 ======== ======== 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 -------- -------- Total current liabilities 49,033 40,420 LONG-TERM DEBT 21,161 23,408 LEASE LIABILITIES 5,889 5,994 -------- -------- TOTAL LIABILITIES 76,083 69,822 -------- -------- 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 -------- -------- TOTAL SHAREHOLDERS' EQUITY 93,491 84,019 -------- -------- $169,574 $153,841 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
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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 -------- -------- 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) -------- -------- 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 -------- -------- 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) -------- -------- NET CASH USED IN FINANCING ACTIVITIES (681) (1,794) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS (311) (47) -------- -------- INCREASE IN CASH AND EQUIVALENTS 6,498 1,009 CASH AND EQUIVALENTS, BEGINNING OF PERIOD 26,141 26,650 -------- -------- CASH AND EQUIVALENTS, END OF PERIOD $32,639 $27,659 ======== ======== The accompanying notes are an integral part of these consolidated financial statements.
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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 ======== ======== 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.
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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.
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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
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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.
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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

Referenced-On Page
This 10-Q Filing   Date First   Last      Other Filings
6/28/967910-Q
1/3/974710-K
3/3/976
4/4/97610-Q
4/17/9767
5/8/978DEF 14A
5/23/979
For The Period Ended7/4/971910-Q/A
7/5/9769
7/14/976
7/15/9767
7/22/97678-K
8/1/971
Filed On / Filed As Of8/8/9710
4/1/9867
 
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