10-Q 1 0001.txt ================================================================================ 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 June 30, 2000 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 ARTESYN TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) FLORIDA (State or other jurisdiction of incorporation or organization) 59-1205269 7900 Glades Road, Suite 500, Boca Raton, FL (I.R.S. Employer (Address of principal Identifications Number) executive offices) (561) 451-1000 33434 (Registrant's phone number, including area code) (Zip 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 The number of shares of Common Stock, $.01 par value, of the Registrant issued and outstanding as of July 31, 2000 was 37,842,755 shares. ================================================================================ Artesyn Technologies, 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 June 30, 2000 and July 2, 1999 3 Statements of Financial Condition - June 30, 2000 and December 31, 1999 4 Statements of Cash Flows - For the Twenty-Six Weeks Ended June 30, 2000 and July 2, 1999 5 Statement of Shareholders' Equity and Comprehensive Income - For the Twenty-Six Weeks Ended June 30, 2000 6 Notes to Condensed Consolidated Financial Statements 7-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-15 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15-16 PART II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 17 Item 6. Exhibits and Reports on Form 8-K 17 Signatures PART I. FINANCIAL INFORMATION Item 1. Financial Statements ARTESYN TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in Thousands Except Per Share Data) (Unaudited)
Twenty-Six Weeks Thirteen Weeks Ended Ended ----------------------------- ----------------------------- June 30, July 2, June 30, July 2, 2000 1999 2000 1999 ------------- ------------ ------------ ------------- Sales $164,322 $150,427 $323,941 $285,543 Cost of Sales 119,162 112,310 237,727 213,885 ------------- ------------ ------------ ------------- Gross Profit 45,160 38,117 86,214 71,658 ------------- ------------ ------------ ------------- Expenses Selling, general & administrative 15,745 12,332 29,970 25,338 Research & development 10,839 9,373 21,191 18,240 Amortization of goodwill 1,884 552 2,419 1,120 ------------- ------------ ------------ ------------- 28,468 22,257 53,580 44,698 ------------- ------------ ------------ ------------- Operating Income 16,692 15,860 32,634 26,960 ------------- ------------ ------------ ------------- Other Income (Expense) Interest expense (1,442) (735) (2,331) (1,425) Interest income 537 300 859 641 ------------- ------------ ------------ ------------- (905) (435) (1,472) (784) ------------- ------------ ------------ ------------- Income before Income Taxes 15,787 15,425 31,162 26,176 Provision for Income Taxes 5,206 5,015 9,972 8,455 ------------- ------------ ------------ ------------- Net Income $ 10,581 $ 10,410 $ 21,190 $ 17,721 ============= ============ ============ ============= Earnings per Share Basic $ 0.28 $ 0.28 $ 0.57 $ 0.48 ============= ============ ============ ============= Diluted $ 0.27 $ 0.27 $ 0.55 $ 0.45 ============= ============ ============ ============= Common and Common Equivalent Shares Outstanding Basic 37,389 37,061 37,254 37,271 Diluted 38,844 38,852 38,643 38,952
The accompanying notes are an integral part of these consolidated financial statements. 3 ARTESYN TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Amounts in Thousands Except Share Data) (Unaudited)
June 30, December 31, 2000 1999 --------------- ---------------- ASSETS Current Assets Cash and equivalents $ 36,579 $ 37,562 Accounts receivable, net 106,769 90,334 Inventories 105,974 89,370 Prepaid expenses and other 16,377 15,129 --------------- ---------------- Total current assets 265,699 232,395 --------------- ---------------- Property, Plant & Equipment, net 92,756 88,468 --------------- ---------------- Other Assets Goodwill, net 61,537 32,436 Other assets 5,672 5,751 --------------- ---------------- Total other assets 67,209 38,187 --------------- ---------------- $425,664 $359,050 =============== ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current maturities of long-term debt $ 6,127 $ 1,956 Accounts payable and accrued liabilities 112,165 102,802 --------------- ---------------- Total current liabilities 118,292 104,758 Long-Term Debt 69,605 44,154 Other Long-Term Liabilities 15,431 10,226 --------------- ---------------- Total Liabilities 203,328 159,138 --------------- ---------------- Shareholders' Equity Preferred stock, par value $.01; 1,000,000 shares authorized; none issued - - Common stock, par value $.01; 80,000,000 shares authorized; 37,698,114 issued and outstanding at June 30, 2000 (37,126,630 shares at December 31, 1999) 377 371 Additional paid-in capital 104,320 94,465 Retained earnings 131,039 114,510 Foreign currency translation adjustment (13,400) (9,434) --------------- ---------------- Total shareholders' equity 222,336 199,912 --------------- ---------------- $425,664 $359,050 =============== ================
The accompanying notes are an integral part of these consolidated financial statements. 4 ARTESYN TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) (Unaudited)
Twenty-Six Weeks Ended June 30, July 2, 2000 1999 ------------ ----------- OPERATING ACTIVITIES Net income $ 21,190 $17,721 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,385 9,464 Other non-cash charges 7,880 4,799 Changes in operating assets and liabilities: Accounts receivable (18,473) (5,073) Inventories and prepaid expenses and other (23,905) (14,781) Accounts payable and accrued liabilities 10,889 22,773 ------------ ----------- Net Cash Provided by Operating Activities 9,966 34,903 ------------ ----------- INVESTING ACTIVITIES Purchases of property, plant and equipment (16,011) (17,984) Proceeds from sale of property, plant and equipment 1,387 - Purchase of Spider Software Limited, net of cash acquired (27,948) - Decrease in other assets - 2,873 ------------ ----------- Net Cash Used in Investing Activities (42,572) (15,111) ------------ ----------- FINANCING ACTIVITIES Principal payments on debt and capital leases (8,036) (19,495) Proceeds from revolving credit loans, net of costs 38,933 17,493 Repurchases and retirement of common stock (5,373) (19,273) Proceeds from exercises of stock options 7,362 4,786 ------------ ----------- Net Cash Provided by (Used in) Financing Activities 32,886 (16,489) ------------ ----------- Effect of Exchange Rate Changes on Cash and Equivalents (1,263) (1,448) ------------ ----------- Increase (decrease) in Cash and Equivalents (983) 1,855 Cash and Equivalents, Beginning of Period 37,562 41,525 ------------ ----------- Cash and Equivalents, End of Period $ 36,579 $ 43,380 ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. 5 ARTESYN TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME For the Twenty-Six Weeks Ended June 30, 2000 (Amounts in Thousands) (Unaudited)
Common Stock Foreign --------------------------- Additional Currency Compre- Paid-in- Retained Translation hensive Shares Amount Capital Earnings Adjustment Income ---------- ------------- --------------- -------------- -------------- ----------- Balance, December 31, 1999 37,127 $ 371 $ 94,465 $114,510 $ (9,434) Issuance of common stock under stock option plans 854 9 7,348 Tax benefit from exercises of stock options 3,217 Repurchases of common stock (283) (3) (710) (4,660) Net income 21,190 $21,190 Other comprehensive income - foreign currency translation adjustment, net of tax benefit of $1,604 (3,966) (3,966) ----------- Comprehensive income $17,224 ---------- ------------- --------------- -------------- -------------- =========== Balance, June 30, 2000 37,698 $ 377 $ 104,320 $131,039 $(13,400) ========== ============= =============== ============== ==============
The accompanying notes are an integral part of these consolidated financial statements. 6 Artesyn Technologies, Inc. Notes to Condensed Consolidated Financial Statements June 30, 2000 (Unaudited) 1. Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States for complete financial statements have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated 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 Artesyn Technologies, Inc. (the "Company"). The results of operations for the thirteen and twenty-six weeks ended June 30, 2000 are not necessarily indicative of the results that may be expected for the entire fiscal year 2000. In addition, these Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1999 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform with the current year's presentation. 2. Inventories The components of inventory are as follows ($000s): June 30, December 31, 2000 1999 -------------------- -------------------- Raw materials $ 59,064 $43,220 Work-in-process 14,591 12,475 Finished goods 32,319 33,675 -------------------- -------------------- $105,974 $89,370 ==================== ==================== 3. Property Plant & Equipment, Net Related accumulated depreciation was $89.7 million and $81. 6 million at June 30, 2000 and December 31, 1999, respectively. 7 4. Accounts Payable and Accrued Liabilities The components of accounts payable and accrued liabilities are as follows ($000s): June 30, December 31, 2000 1999 ---------------- ----------------- Accounts payable $ 57,141 $ 50,065 Accrued liabilities: Compensation and benefits 17,743 16,661 Income taxes payable 13,672 17,334 Warranty reserve 7,212 6,015 Commissions 1,771 1,860 Other 14,626 10,867 ---------------- ----------------- $112,165 $ 102,802 ================ ================= At June 30, 2000 and December 31, 1999, other accrued liabilities consisted primarily of accruals for professional fees, consulting, subcontracting fees, interest and other taxes. As of June 30, 2000, the restructuring reserve balance of approximately $471,000, is comprised of $256,000 for employee termination benefits and $216,000 for facility closures and is included in other accrued liabilities. Cash payments for facility closures and termination benefits totaled $63,000 and $38,000 for the twenty-six weeks ended June 30, 2000. With the exception of certain lease-related cash requirements (which are payable through the first quarter of 2001), the remaining anticipated cash payments are expected to be incurred in fiscal year 2000. 5. Acquisition Effective March 27, 2000, the Company acquired 100% of the capital stock of Spider Software Limited ("Spider"). The purchase price included approximately $33 million of fixed cash payments, of which $28 million was paid in the first quarter of 2000 and the remaining $5 million will be paid in equal installments in March 2002 and March 2003. Approximately $11 million of contingent consideration is to be paid based on Spider's ability to achieve certain earnings targets through March 2003. Spider supplies embedded telecommunications and networking software to the communications market place. The acquisition was accounted for under the purchase method of accounting. Accordingly, goodwill of approximately $34.0 million was recorded, representing the excess of the purchase price over the estimated fair value of the net assets acquired and transaction costs, and is being amortized on a straight-line basis over a period of six years. Spider's results of operations have been included in the Company's consolidated financial statements from the date of acquisition. The following unaudited pro forma information combines the consolidated results of operations of the Company and Spider as if the acquisition had occurred at the beginning of the periods presented.
Unaudited Consolidated Pro Forma Information ($000 Except per share data) ------------------------------------------------------------------- Thirteen Weeks Ended Twenty-Six Weeks Ended -------------------------------- ------------------------------- June 30, July 2, June 30, July 2, 2000 1999 2000 1999 -------------- -------------- -------------- ------------- Sales $164,322 $151,249 $325,108 $287,080 Net income 10,581 8,287 19,315 13,496 Earnings per share - Basic 0.28 0.22 0.52 0.36 Earnings per share - Diluted 0.27 0.21 0.50 0.35
8 The unaudited consolidated pro forma results have been prepared for comparative purposes only and include certain adjustments, such as additional amortization expense resulting from goodwill, increased interest expense on the acquisition debt, and related income tax effects. The combined pro forma results do not purport to be indicative of results that would have occurred had the combination been in effect for the periods presented, nor do they purport to be indicative of the results that will be obtained in the future. 6. 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 -------------------------------- June 30, July 2, 2000 1999 -------------- -------------- Provision computed at United States federal statutory rates 35.0% 35.0% Amortization of goodwill 0.3 0.3 Foreign tax effects (6.5) (6.4) Effect of state income taxes 3.2 3.2 Other - 0.2 -------------- -------------- Effective tax rate 32.0% 32.3% ============== ============== 7. Comprehensive Income The components of the Company's comprehensive income are as follows:
Thirteen Weeks Ended Twenty-Six Weeks Ended -------------------------------- ------------------------------- June 30, July 2, June 30, July 2, 2000 1999 2000 1999 -------------- -------------- -------------- ------------- Net income $10,581 $10,410 $21,190 $17,721 Foreign currency translation adjustment (1,812) (3,557) (5,570) (7,962) Tax benefit 439 1,149 1,604 2,572 -------------- -------------- -------------- ------------- (1,373) (2,408) (3,966) (5,390) -------------- -------------- -------------- ------------- Comprehensive income $ 9,208 $ 8,002 $17,224 $12,331 ============== ============== ============== =============
9 8. Earnings Per Share The following data show the amounts used in computing earnings per share ("EPS") and the effects on income and the weighted-average number of shares of potential dilutive common stock. The reconciliation of the numerator and denominator of the EPS calculation is presented below ($000s except per share data and anti-dilutive weighted options).
Twenty-Six Weeks Thirteen Weeks Ended Ended ------------------------- ------------------------- June 30, July 2, June 30, July 2, 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Basic EPS Net income $ 10,581 $ 10,410 $ 21,190 $ 17,721 ---------- ---------- ---------- ---------- Weighted average shares 37,389 37,061 37,254 37,271 ---------- ---------- ---------- ---------- Per share - Basic $ 0.28 $ 0.28 $ 0.57 $ 0.48 ========== ========== ========== ========== Diluted EPS Net income $ 10,581 $ 10,410 $ 21,190 $ 17,721 ---------- ---------- ---------- ---------- Weighted average shares 37,389 37,061 37,254 37,271 Effect of dilutive items - Stock options 1,455 1,791 1,389 1,681 ---------- ---------- ---------- ---------- 38,844 38,852 38,643 38,952 ---------- ---------- ---------- ---------- Per share- Diluted $ 0.27 $ 0.27 $ 0.55 $ 0.45 ========== ========== ========== ========== Anti-dilutive weighted options 1,448,354 701,120 1,292,358 1,279,021 ========== ========== ========== ==========
The above anti-dilutive weighted options to purchase shares of common stock were not included in computing diluted earnings per share because their inclusion would be anti-dilutive for the respective periods. 9. Shareholders' Equity As part of the previously announced three-year, up to 4.0 million share repurchase program implemented in 1998, the Company repurchased 282,500 shares of its common stock for a total of approximately $5.4 million, during the first half of 2000. To date, the Company has repurchased approximately 3.4 million of the approved 4.0 million shares for a total of approximately $56.7 million, which was funded with cash from operations. The excess of the cost of shares repurchased over par value was allocated to additional paid-in capital based on the pro rata share amount of additional paid-in capital for all outstanding shares with the difference charged to retained earnings. 10. Derivative Financial Instruments The Company transacts business in various foreign currencies, primarily Irish punts, German marks, Japanese yen and other European currencies. The Company has established balance sheet hedging programs to protect against reductions in value and volatility of future cash flows caused by changes in foreign exchange rates. As of June 30, 2000, the Company's outstanding notional amount for currency forward contracts and purchased option contracts was approximately $22.3 million and $26.6 million, respectively, maturing in three to six months. At December 31, 1999, the Company's outstanding notional amount for currency forward contracts and purchased option contracts was approximately $27.2 million and $39.9 million, respectively, maturing in three to twelve months. The amount of any gain or loss on 10 these contracts during either period was not material. Deferred gains or losses attributable to the foreign currency instruments are not material. 11. Subsequent Event On August 4, 2000, the Company acquired Azcore Technologies ("Azcore"), based in Tuscon, Arizona. Azcore is primarily involved in the design and manufacture of high-efficiency DC-DC converters, with a special emphasis on surface mount technology design. These products have applications across the Company's spectrum of customers, including those in computing, mass storage, carrier and enterprise networking, access, and wireless infrastructure. The total purchase price was $13.8 million, including $5.8 million paid at the time of closing from cash on hand, and $8.0 million in contingent earn-out payments. The acquisition will be accounted for under the purchase method of accounting. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations For the Thirteen and Twenty-Six Weeks Ended June 30, 2000 compared to the Thirteen and Twenty-Six Weeks Ended July 2, 1999 Sales. Sales for the second quarter of fiscal year 2000 were $164.3 million compared to $150.4 million for the comparable period in 1999, an increase of $13.9 million or 9%. Sales for the twenty-six weeks ended June 30, 2000 increased $38.4 million, or 13%, from $285.5 million in 1999 to $323.9 million in 2000. The increase is primarily the result of increased sales to computing and wireless communication original equipment manufacturers. These customers represent high-growth sectors within the communications industry, and Artesyn Technologies, Inc. ("Artesyn") has positioned itself to take advantage of this growth. Artesyn also experienced an increase in sales to its distribution customers, which market Artesyn's product to individual manufacturers in a variety of industries. Customer demand remained strong in the second quarter of 2000 in comparison to 1999. Orders for the second quarter of 2000 grew to $226.3 million representing a 42% increase over the $159.3 million of orders received in the prior year's comparable quarter. For the twenty-six weeks ended June 30, 2000, orders increased $118.1 million, or 39%, from $304.2 million in 1999 to $422.3 million in 2000. At June 30, 2000, Artesyn's order backlog was $237.5 million compared to a backlog of $140.4 million at December 31, 1999, representing a 69% increase. Backlog consists of purchase orders on hand having delivery dates scheduled within the next six months. During the second quarter of 2000, Artesyn began to experience an interruption in the supply of certain key components used to manufacture certain products, reducing sales by preventing Artesyn from fulfilling orders that had been booked. Proper resource management helped to lessen the impact of the interruption, and no significant disruptions were encountered. The availability of these components may continue to reduce Artesyn's level of sales for the rest of 2000, although the magnitude of its effect is unknown. Gross Margin. Gross margin as a percent of revenue for the second quarter of 2000 increased to 27.5% compared to 25.3% for the second quarter of 1999. For the first half of the year, gross margin as a percent of revenue increased from 25.1% in 1999 to 26.6% in 2000. The increase in gross margin as a percent of revenue is primarily the result of a favorable change in the sales mix of Artesyn's products. For both the quarter and the twenty-six weeks ended June 30, 2000, sales of single board computers and protocol software along with sales of power products to distribution customers increased as a percent of total sales over comparable periods in 1999. Sales of these products and sales to these customers generally yield higher gross margins than other products offered by Artesyn. In addition, Artesyn's acquisition of Spider Software, Ltd. ("Spider") in the first quarter of 2000 caused gross margin as a percent of revenue to increase in 2000 compared to 1999. While the inclusion of Spider's total revenue is not material to the results of Artesyn in the thirteen or twenty-six weeks ended June 30, 2000, the nature of Spider's software business dictates that most of its costs are classified as operating expenses as opposed to cost of sales, resulting in higher gross margin as a percent of sales. Management expects these factors will continue to positively effect gross margin as a percent of revenue in comparison to 1999 for the rest of the year. Operating Expenses. Selling, general and administrative expenses were $15.7 million (or 9.6% of sales) in the second quarter of 2000 compared to $12.3 million (or 8.2% of sales) for the comparable prior year 12 period. For the twenty-six weeks ended June 30, 2000, selling, general and administrative expenses were $30.0 million (or 9.3% of sales) compared to $25.3 million (or 8.9% of sales) for the comparable prior year period. These increases are primarily the result of expenses related to the implementation of Artesyn's new enterprise wide resource planning ("ERP") system, the initiation of several new marketing programs, and the inclusion of the results of Spider. Artesyn maintained its significant investment in research and development which totaled $10.8 million, or 6.6% of sales, in the second quarter of 2000 compared to $9.4 million, or 6.2% of sales, for the second quarter of 1999. For the first half of the year, research and development expenses totaled $21.2 million, or 6.5% of sales, in 2000 and $18.2 million, or 6.4% of sales in 1999. Artesyn believes that the timely introduction of new technology and products is an important component of its competitive strategy. In early 2000, Artesyn announced plans to increase research and development spending during 2000 in order to accelerate the introduction of new products into the market. The incremental spending is expected to increase slightly from the current level of research and development expenses as a percentage of sales for the remainder of 2000. The increased spending is contingent on Artesyn's ability to hire qualified engineers in a highly competitive market. Amortization of Goodwill. Amortization expense for the second quarter of 2000 was $1.9 million, an increase of $1.3 million, or 241%, over the second quarter of 1999. For the twenty-six weeks ended June 30, 2000, amortization expense increased $1.3 million, or 116%, over the comparable 1999 period. These increases were the result of the inclusion of amortization expense related to goodwill associated with the acquisition of Spider. Interest Expense. Interest expense in the second quarter of 2000 increased from $0.7 million in 1999 to $1.4 million in 2000, an increase of 96%. For the twenty-six weeks ended June 30, 2000, interest expense increased $0.7 million, or 88%, from $0.8 million in 1999 to $1.5 million in 2000. These increases were primarily the result of additional outstanding borrowing related to the acquisition of Spider. Net Income. Net income for the second quarter of 2000 was $10.6 million, or $0.27 per diluted share, compared to $10.4 million, or $0.27 per diluted share, for the comparable year-ago quarter. For the twenty-six weeks ended, net income was $21.2 million, or $0.55 per diluted share, in 2000, compared to $17.7 million, or $0.45 per diluted share, in 1999. Acquisition. On August 8, 2000, Artesyn acquired Azcore Technologies ("Azcore"), based in Tuscon, Arizona. Azcore is primarily involved in the design and manufacture of high-efficiency DC-DC converters, with a special emphasis on surface mount technology design. These products have applications across Artesyn's spectrum of customers, including those in computing, mass storage, carrier and enterprise networking, access, and wireless infrastructure. The total purchase price was approximately $13.8 million, including $5.8 million paid at the time of closing from cash on hand, and $8.0 million in contingent earn-out payments. The acquisition will be accounted for under the purchase method of accounting. Liquidity and Capital Resources At June 30, 2000, Artesyn's cash and equivalents decreased to $36.6 million from $37.6 million on December 31, 1999. This decrease was the result of cash from operations, $7.4 million in proceeds from exercises of stock options and the issuance of $38.9 million of long term debt offset by $5.4 million spent for repurchases of Artesyn's common stock, $16.0 million for capital expenditures, $8.0 of principal debt repayments and $27.9 million for the purchase of Spider, net of cash acquired. Cash provided by operations decreased to $10.0 million for the twenty-six weeks ended June 30, 2000 compared with $34.9 million provided in the same period in 1999. Cash from operations was impacted 13 by a significant increase in accounts receivable and inventory in 2000. Accounts receivable increased $18.4 million and inventory increased $23.9 million in 2000. These increases were the result of Artesyn's increased level of business activity and circumstances related to the availability of components, as previously discussed. The availability of components affected Artesyn's ability to complete certain orders, resulting in increases to raw material and work-in-process inventory. The increases in accounts receivable and inventory were somewhat offset by increases in accounts payable and accrued liabilities of $10.9 million. Capital expenditures for the first half of 2000 totaled $16.0 million primarily for the continued upgrade of facilities and equipment in support of Artesyn's current operating activities, including $2.5 million related to the implementation of the new ERP system. Artesyn's current overall commitment to fully implement the ERP system is approximately $25 million, of which approximately $22 million is to be capitalized and amortized and $3 million is to be expensed as incurred. The overall commitment is expected to be incurred over a three year period. As of June 30, 2000, $21.5 million of total commitment had been incurred, approximately $20.3 million of which was capitalized and $1.2 million was expensed. Spider Software Limited was acquired for approximately $33.0 million of fixed cash payments and approximately $11.0 million of contingent consideration based on Spider's ability to achieve certain earnings targets through March 2003, which will be made annually if the specified earn out targets are met. Cash payments of $28.0 million were paid in the first quarter of 2000 and the remaining fixed cash payments of $5.0 million will be paid in equal installments in March 2002 and March 2003. Net cash provided in financing activities of $32.9 million for the twenty-six weeks ended June 30, 2000 reflects net proceeds from revolving credit loans less principal payments on capital leases of $30.9 million and $7.4 million in proceeds from stock option exercises partially offset by the repurchase and retirement of 282,500 shares of Artesyn's common stock for $5.4 million. Net cash used in financing activities of $16.5 million for the twenty-six weeks ended July 2, 1999 reflects mainly the repurchase and retirement of 1,251,200 shares of Artesyn's common stock for $19.3 million partially offset by $4.8 million in proceeds from stock option exercises. Effective December 31, 1998, Artesyn entered into a revolving credit agreement with a syndicate of banks which provided a three-year, multi-currency $200 million credit facility. The revolving facility, which expires on December 31, 2001, provides for various interest rate options on the facility based on London Interbank Offering Rates ("LIBOR") plus .625% and includes a fee of .20% on the unused balance, both payable quarterly. The agreement contains certain negative covenants, which are typical of an agreement of this size and nature, that, among other things, require Artesyn to maintain certain financial ratios and limit the purchase, transfer or distribution of company assets. During the first half of 2000, Artesyn borrowed an additional $39 million under the revolving credit facility of which $28 million was used to finance the acquisition of Spider. $7.0 million of that amount was repaid in the second quarter. Any amounts outstanding under the facility are due on December 31, 2001. Artesyn is in compliance in all material respects with the agreement's covenants. Based on current plans and business conditions, Artesyn believes that its cash and equivalents, its available credit line, cash generated from operations, and other financing activities are expected to be adequate to meet capital expenditures, working capital requirements, debt and capital lease obligations and operating lease commitments for the next twelve months. Recent Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS 133 will require Artesyn to record all derivatives as either assets or liabilities in the Consolidated Statement of Financial Position and measure those instruments at fair value. The accounting 14 for changes in the fair value depends on the intended use of the derivative and the resulting designation. The impact of SFAS 133 on Artesyn's financial statements will depend on a variety of factors, including future interpretative guidance from the FASB, the future level of forecasted and actual foreign currency transactions, the extent of Artesyn's hedging activities, the types of hedging instruments used and the effectiveness of such instruments. However, given Artesyn's current use of derivatives and hedging activities, Artesyn does not believe the effect of adopting SFAS 133 will be material to its consolidated financial statements. In June 1999, the FASB issued SFAS 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement 133." The Statement defers the effective date of SFAS 133 to fiscal 2001 at which time adoption is planned. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of SFAS No. 133." The statement establishes accounting and reporting standards for derivative instruments, including certain derivative investments embedded in other contracts, and for hedging activities. In addition, SFAS No. 138 addresses a limited number of issues causing implementation difficulties for numerous entities that apply SFAS No. 133 and amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities. As a result of SFAS No. 137, Artesyn has deferred the adoption of both SFAS No. 133 and SFAS No. 138 until fiscal 2001. Artesyn does not believe the adoption of SFAS No. 138 will have a material effect on consolidated financial statements. In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "Revenue Recognition" ("SAB No. 101"), which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB No. 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. We believe our revenue recognition practices are in conformity with the guidelines prescribed in SAB No. 101. Item 3. Quantitative and Qualitative Disclosures About Market Risk Artesyn is exposed to the impact of interest rate changes and foreign currency fluctuations. In the normal course of business, Artesyn employs established policies and procedures to manage its exposure to changes in interest rates and fluctuations in the value of foreign currencies using a variety of derivative financial instruments. Artesyn manages its interest rate risk on its variable rate debt instruments through use of interest rate swaps pursuant to which Artesyn exchanges its floating rate interest obligations for fixed rates. The fixing of the interest rates offsets Artesyn's exposure to the uncertainty of floating interest rates during the term of the loans. Artesyn has significant assets and operations in Europe and Asia and, as a result, its financial performance could be affected by significant fluctuations in foreign exchange rates. To mitigate potential adverse trends, Artesyn's operating strategy takes into account changes in exchange rates over time. Accordingly, Artesyn enters into various forward contracts that change in value as foreign exchange rates change to protect the value of its existing foreign currency assets, liabilities, commitments and anticipated foreign currency revenues. The principal currencies hedged are the Japanese yen, the Deutsche mark, and the Irish punt. It is Artesyn's policy to enter into foreign currency and interest rate transactions only to the extent considered necessary to meet its objectives as stated above. Artesyn does not enter into foreign currency or interest rate transactions for speculative purposes. 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 Artesyn's current expectations with respect 15 to future sales, operating efficiencies, research and development expenditures, 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, growth and changes 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, the availability of components used in the manufacture of products, 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 and other risks described in Artesyn's various reports filed with the Securities and Exchange Commission. 16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) Artesyn held its Annual Meeting of Shareholders on May 4, 2000 (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 2001, was voted on by the shareholders. The nominees, all of whom were elected, were Edward S. Croft III, Fred C. Lee, Lawrence J. Matthews, Joseph M. O'Donnell, Stephen A. Ollendorf, Phillip A. O'Reilly, Bert Sager, A. Eugene Sapp Jr., Ronald D. Schmidt, Lewis Solomon, and John M. Steel. The Inspectors of Election certified the following vote tabulations. For Withheld ------------- -------------- Edward S. Croft III 32,930,035 669,484 Fred C. Lee 32,940,165 659,354 Lawrence J. Matthews 32,822,741 776,778 Joseph M. O'Donnell 32,809,555 789,964 Stephen A. Ollendorf 32,625,971 973,548 Phillip A. O'Reilly 32,919,412 670,107 Bert Sager 32,871,523 727,996 A. Eugene Sapp, Jr. 32,882,807 716,712 Ronald D. Schmidt 32,937,952 661,569 Lewis Solomon 32,933,639 665,880 John M. Steel 32,931,123 668,396 2. A proposal to approve the 2000 Performance Equity Plan was adopted. The Inspectors of Election certified the following vote tabulations. For Against Abstain --- ------- ------- 22,427,261 5,253,618 125,059 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. ----------- 10.1 Employment agreement, dated as of this January 1, 2000, by and between ARTESYN TECHNOLOGIES, INC., a Florida corporation, and JOSEPH M. O'DONNELL. 10.2 Employment agreement, dated as of this January 1, 2000, by and between ARTESYN TECHNOLOGIES, INC., a Florida corporation, and RICHARD J. THOMPSON. 27 Financial Data Schedule (b) Reports on Form 8-K Artesyn did not file any reports on Form 8-K during the thirteen-week period ended June 30, 2000. 17 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. ARTESYN TECHNOLOGIES, INC. -------------------------- (Registrant) DATE: August 14, 2000 BY: /s/Richard J. Thompson ---------------------- Richard J. Thompson Vice President Finance Chief Financial Officer 18 Exhibit Index Exhibit No. Description ----------- ----------- 10.1 Employment agreement, dated as of this January 1, 2000, by and between ARTESYN TECHNOLOGIES, INC., a Florida corporation, and JOSEPH M. O'DONNELL. 10.2 Employment agreement, dated as of this January 1, 2000, by and between ARTESYN TECHNOLOGIES, INC., a Florida corporation, and RICHARD J. THOMPSON. 27 Financial Data Schedule