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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





---




FORM 10-Q





QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934





For the
quarterly period ended September 27, 2002





Commission File No. 0-4466





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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 Identifications Number)

(Address of principal 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 October 25, 2002 was 38,382,133 shares.





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##### Table of Contents




ARTESYN TECHNOLOGIES, INC.





Index to Form 10-Q





Page NumberPART I.    Financial InformationItem 1.

Condensed Consolidated Financial Statements (unaudited):Statements of OperationsFor the Thirteen and Thirty-Nine Weeks Ended September 27, 2002 and September 28, 2001

3Balance SheetsSeptember 27, 2002 and December 28, 2001 (audited)

4Statements of Cash FlowsFor the Thirty-Nine Weeks Ended September 27, 2002 and September 28, 2001

5Statement of Shareholders Equity and Comprehensive LossFor the Thirty-Nine Weeks Ended September 27, 2002

6Notes to Condensed Consolidated Financial Statements

7-14Item 2

Managements Discussion and Analysis of Financial Condition and Results of Operations

15-25Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26Item 4.

Controls and Procedures

26PART II.    Other InformationItem 6.

Exhibits and Reports on Form 8-K

27Signature

28Officer Certifications

29









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##### Table of Contents




PART I.    FINANCIAL INFORMATION





Item 1.Condensed Consolidated Financial Statements





ARTESYN TECHNOLOGIES, INC.





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(Amounts in Thousands Except Per Share Data)


(Unaudited)





Thirteen Weeks Ended


Thirty-Nine Weeks EndedSeptember 27, 2002


September 28, 2001


September 27, 2002


September 28, 2001Sales

$
86,020


$
108,572


$
267,420


$
386,563Cost of sales


76,599



102,269



234,724



346,019Gross profit


9,421



6,303



32,696



40,544Expenses:Selling, general & administrative


8,002



10,907



26,596



42,274Research & development


8,537



9,561



25,399



33,272Restructuring and related charges


1,449



4,967



9,574



13,168Amortization of goodwill






2,048







6,006Impairment of goodwill


51,856







51,856



69,844



27,483



113,425



94,720Operating loss


(60,423
)


(21,180
)


(80,729
)


(54,176
)Other income (expense):Interest expense


(1,864
)


(1,719
)


(6,095
)


(5,803
)Interest income


360



188



914



773(1,504
)


(1,531
)


(5,181
)


(5,030
)Loss before income taxes


(61,927
)


(22,711
)


(85,910
)


(59,206
)Benefit from income taxes


(6,256
)


(6,133
)


(12,732
)


(15,986
)Net loss

$
(55,671
)

$
(16,578
)

$
(73,178
)

$
(43,220
)Basic and diluted loss per share

$
(1.45
)

$
(0.43
)

$
(1.91
)

$
(1.13
)Common and common equivalent shares outstanding


38,382



38,225



38,366



38,223





The accompanying notes are an integral part of these condensed consolidated
financial statements.




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ARTESYN TECHNOLOGIES, INC.





CONDENSED CONSOLIDATED BALANCE SHEETS


(Amounts in Thousands Except Share Data)





September 27, 2002


December 28, 2001(Unaudited)ASSETSCurrent AssetsCash and cash equivalents

$
89,009


$
54,083Accounts receivable, net


53,240



72,580Inventories, net


78,223



103,556Deferred income taxes, net


18,829



12,398Prepaid expenses and other current assets


2,776



2,690Total current assets


242,077



245,307Property, plant and equipment, net


87,555



103,291Goodwill, net


18,346



64,573Deferred income taxes, net


18,694



10,103Other assets


3,416



3,209$
370,088


$
426,483LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesCurrent maturities of long-term debt

$
11


$
207Accounts payable and accrued liabilities


100,547



92,324Total current liabilities


100,558



92,531Long-term debt


56,007



100,399Convertible subordinated debt


46,171



Other long-term liabilities


11,014



14,308Total liabilities


213,750



207,238Commitments and contingenciesShareholders EquityPreferred stock, par value $0.01; 1,000,000 shares authorized; none issued and outstanding






Common stock, par value $0.01; 80,000,000 shares authorized; 38,382,133 shares issued and outstanding in 2002
(38,252,770 shares issued and outstanding in 2001)


384



383Additional paid-in capital


127,887



122,041Accumulated other comprehensive loss


(15,157
)


(19,582
)Retained earnings


43,224



116,403Total shareholders equity


156,338



219,245$
370,088


$
426,483





The accompanying notes are an integral part of these condensed consolidated
financial statements.







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ARTESYN TECHNOLOGIES, INC.





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Amounts in Thousands)


(Unaudited)





Thirty-Nine Weeks EndedSeptember 27, 2002


September 28, 2001OPERATING ACTIVITIESNet loss

$
(73,178
)

$
(43,220
)Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation and amortization


20,555



25,456Provision for inventory write-down


9,149



28,459Deferred income tax benefit


(12,732
)


(11,759
)Accretion of convertible subordinated debt


1,279



(Gain) loss on foreign currency transactions


(4,335
)


15Impairment of goodwill


51,856



Other non-cash charges


5,282



7,935Changes in operating assets and liabilities, net of effects of acquisitions:Accounts receivable


20,853



42,399Inventories


19,749



(8,213
)Prepaid expenses and other current assets


4



2,399Accounts payable and accrued liabilities


(2,142
)


(53,735
)Net cash provided by (used in) operating activities


36,340



(10,264
)INVESTING ACTIVITIESPurchases of property, plant and equipment


(4,275
)


(25,658
)Proceeds from sale of property, plant and equipment


400



183Acquisitions, net of cash acquired


(3,325
)


(6,187
)Net cash used in investing activities


(7,200
)


(31,662
)FINANCING ACTIVITIESPrincipal payments on debt and capital leases


(45,837
)


(1,312
)Proceeds from revolving credit loans, net of costs






52,882Proceeds from issuance of subordinated convertible debt and warrants


50,000



Repurchases and retirement of common stock






(2,311
)Proceeds from exercises of employee stock options


742



1,024Other financing activities


(1,036
)


(1,415
)Net cash provided by financing activities


3,869



48,868Effect of exchange rate changes on cash and cash equivalents


1,917



(301
)Increase in cash and cash equivalents


34,926



6,641Cash and cash equivalents, beginning of period


54,083



34,383Cash and cash equivalents, end of period

$
89,009


$
41,024





The accompanying notes are an integral part of these condensed consolidated
financial statements.







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ARTESYN TECHNOLOGIES, INC.





CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY


AND COMPREHENSIVE LOSS


For the Thirty-Nine Weeks Ended September 27, 2002


(Amounts in Thousands)


(Unaudited)





Common Stock

Additional Paid-In Capital

Retained Earnings


Accumulated Other Comprehensive Loss


Compre-hensive LossShares

Amount



Foreign Currency Translation Adjustment


Changes in Fair Value of DerivativesBalance, December 28, 2001

38,253

$
383

$
122,041

$
116,403


$
(19,342
)

$
(240
)Issuance of common stock under stock option plans

129


1


5,846Net loss










(73,178
)









$
(73,178
)Other comprehensive losschanges in fair value of derivative financial instrument, net of tax benefit of
$89


















240



240Other comprehensive lossforeign currency translation adjustment, net of tax benefit of $1,548














4,185







4,185Comprehensive loss





















$
(68,753
)Balance, September 27, 2002

38,382

$
384

$
127,887

$
43,224


$
(15,157
)

$






The accompanying notes are an integral part of these condensed consolidated
financial statements.







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ARTESYN TECHNOLOGIES, INC.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


September 27, 2002


(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 Rule 10-01 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 items) considered necessary to present fairly the consolidated financial position, results of operations and cash flows
of Artesyn Technologies, Inc. The results of operations for the thirteen and thirty-nine weeks ended September 27, 2002 are not necessarily indicative of the results that may be expected for the entire fiscal year 2002. In addition, these Condensed
Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our 2001 Annual Report on Form 10-K.





For purposes of clarity, as used herein, the terms we, us, our, and Artesyn shall mean Artesyn Technologies, Inc. and its
subsidiaries (unless the context indicates another meaning).





Certain prior year amounts have been reclassified to
conform to the current years presentation.





2.    Inventories





The components of inventories, net are as follows ($000s):





September 27, 2002

December 28, 2001Raw materials

$
37,995

$
57,684Work-in-process


10,429


10,802Finished goods


29,799


35,070$
78,223

$
103,556




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3.    Accounts Payable and Accrued Liabilities





The components of accounts payable and accrued liabilities are as follows ($000s):





September 27, 2002

December 28, 2001Accounts payable

$
42,497

$
35,616Accrued liabilities:Compensation and benefits


12,906


12,365Income taxes payable


16,332


12,476Supplier cancellation charges


1,522


970Outside services


2,196


4,074Warranty reserve


5,176


6,197Deferred acquisition payments


5,270


2,982Restructuring reserve


8,046


5,432Commissions


400


1,088Other


6,202


11,124$
100,547

$
92,324





At September 27, 2002 and December 28, 2001, other accrued
liabilities consisted primarily of accruals for professional fees, consulting fees, subcontracting fees, interest, and other taxes.





4.    Restructuring and Related Charges





During 2001 and 2002, we
implemented a plan to restructure certain of our operations as a result of a significant reduction in actual and forecasted customer demand for our products resulting in excess manufacturing capacity and costs. Our restructuring activities are
designed to address these issues, and are comprised of the following elements:





| | 1) |  | A realignment of our commercial functions along customer/market lines in order to provide enhanced customer service.
| | -- |  | --------------------------------------------------------------------------------------------------------------------




| | 2) |  | Addressing excess capacity and cost issues by closing several operating and administrative facilities throughout the world and consolidating their functions
into other existing locations.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| | 3) |  | The elimination of a number of operational and administrative positions company-wide.
| | -- |  | -------------------------------------------------------------------------------------




Pursuant to the restructuring plan, during the first three quarters of 2002, we recorded restructuring charges totaling approximately $9.6 million. This amount
included employee and facility expenses related to the planned closure of our Kindberg, Austria manufacturing facility, as well as headcount reductions in other locations announced in May 2002. The components of this charge, along with the 2002
activity related to these and other restructuring charges, are presented in the following table ($000s):





Accrued Liability at December 28, 2001

2002 Activity


Accrued Liability at September 27, 2002Restructuring Charge

Charges to ReserveCash


Non-CashFacility closures

$
3,149

$
4,200

$
(1,804
)

$
(2,072
)

$
3,473Employee termination costs


2,283


5,374


(3,084
)






4,573$
5,432

$
9,574

$
(4,888
)

$
(2,072
)

$
8,046




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The charge for facility closures is primarily write-offs of equipment and other
fixed assets to be disposed of or abandoned at locations that are being closed. The remaining reserve represents an estimate of the future lease commitments and buyout options for those locations being closed, after considering sublease and
time-to-market expectations. We anticipate the closures of facilities and disposal of assets will be completed by the end of the first quarter of 2003. Lease payments for the closed facilities, which total approximately $2.2 million, extend into
2006. Although we are aggressively marketing these locations for subleases on acceptable terms, the ultimate time required to obtain acceptable subleases may extend beyond our estimates.





The restructuring plan included the termination and payment of related severance benefits for approximately 1,400 affected employees (800 direct labor, 400 indirect labor
and 200 administrative), of which approximately 1,200 have been terminated as of September 27, 2002. The remaining terminations and associated termination payments are expected to be made during the fourth quarter of 2002 and the first quarter of
2003.





As part of ongoing restructuring efforts, we expect to record total charges of approximately $10.5 million
in 2002, with the remaining balance of the charge related to our current plan, $1.0 million, expected to be recorded in the fourth quarter. We are committed to maintaining a proper relationship between costs and customer demand. To that end, we are
prepared to take additional actions to reduce our cost structure during 2002 should business conditions dictate.





5.    Acquisitions and Divestitures





Effective March 27, 2000, we
acquired 100% of the capital stock of Spider Software Limited (Spider). Spider supplies embedded telecommunications and protocol software to the communications marketplace within the Communications Products segment. The purchase price
included approximately $33 million of fixed cash payments, of which $28 million was paid in the first quarter of 2000. Of the remaining $5.0 million, $2.5 million was paid to the former owners of Spider on April 2, 2002, and the remaining $2.5
million will be paid March 31, 2003 and is recorded in accrued liabilities at September 27, 2002. We initially forecasted up to an additional $10 million of contingent consideration that could have been earned based on Spiders ability to
achieve certain earnings targets through March 2003. For the earn-out period ending March 30, 2001, an additional $1.2 million in purchase price was recorded based on Spiders results. Approximately $0.7 million of the earn-out was paid during
2001, with the remaining $0.5 million paid in the third quarter of 2002. No additional amount was paid related to the earnings period ended March 31, 2002. The total contingent payment that may potentially be earned in the last earn-out period was
originally forecasted to be approximately $4.5 million, although the actual amount is not subject to a cap. Given Spiders performance in 2002 and current expectations for 2003, however, we do not expect that any additional amounts will be paid
related to Spiders contingent consideration agreements.





Effective August 4, 2000, we acquired 100% of the
capital stock of AzCore Technologies, Inc. (AzCore). The purchase price consisted of a $5.8 million cash payment, net of cash acquired, made in the third quarter of 2000 and additional contingent payments of up to $8.0 million if
AzCores products meet development milestones. Of the $8.0 million in potential contingent payments, we have paid the following amounts to the former owners of AzCore as of September 27, 2002: (i) $0.7 million in the fourth quarter of 2000,
(ii) $3.3 million during calendar year 2001 and (iii) $0.5 million in the first quarter of 2002. Additional purchase price of $2.8 million was recorded in the third quarter 2002 due to the probability that additional contingent payments will be
earned. Approximately $1.1 million of this amount will be paid in the fourth quarter of 2002. The remaining contingent consideration is expected to be paid as milestones are met. AzCore has developed products and technology that we believe
complement and enhance our current product offerings.





Effective January 12, 2001, we acquired 100% of the capital
stock of Real-Time Digital, Inc. (RTD) for




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approximately $3.3 million, net of cash acquired, and up to $7.0 million in contingent consideration based on attaining product development
milestones. We made the initial earn-out payment of $3.0 million to the former owners of RTD in the fourth quarter of 2001. The remaining contingent consideration will be paid dependent upon the fulfillment of contingent milestones. RTD designs
systems to be used in the Voice Over IP market within our Communications Products segment.





During the fourth
quarter of 2001, we sold our repair and logistics business, Artesyn Solutions, Inc. to Solectron Global Services, Inc. for approximately $33.5 million. The results of operations of the acquired companies have been included in our consolidated
financial statements from the date of acquisition and, in the case of Artesyn Solutions, up to the date of the divestiture.





6.    Income Taxes





The benefit for income taxes reflects
federal, state, and foreign taxes. The following table illustrates the calculation of the effective tax rate as a percentage of the pre-tax loss as compared to the United States federal statutory tax rate:





Thirty-Nine Weeks EndedSeptember 27, 2002


September 28, 2001Benefit computed at United States federal statutory income tax rate

(35.0
)%

(35.0
)%Amortization and impairment of goodwill

14.5


0.9Foreign tax effects

8.3


7.7Effect of state income taxes

(0.4
)

(1.9
)Tax credits

(0.6
)

Other

(1.6
)

1.3Effective tax rate

(14.8
)%

(27.0
)%





7.    Comprehensive Loss





The components of our comprehensive loss are as follows ($000s):





Thirteen Weeks Ended


Thirty-Nine Weeks EndedSept 27, 2002


Sept 28, 2001


Sept 27, 2002


Sept 28, 2001Net loss

$
(55,671
)

$
(16,578
)

$
(73,178
)

$
(43,220
)Foreign currency translation adjustment


432



6,497



5,733



(3,289
)Cumulative effect of change in accounting principle-change in derivative financial instrument














1,380Effect of changes in the value of derivatives


108



10



329



(1,796
)Tax benefit


(145
)


(1,757
)


(1,637
)


997395



4,750



4,425



(2,708
)Comprehensive loss

$
(55,276
)

$
(11,828
)

$
(68,753
)

$
(45,928
)




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8.    Business Segments and Geographic Information





We are organized in two industry segments, Power Conversion and Communications Products. Power Conversion is engaged in the business of
designing and manufacturing power supplies and power conversions products for the communications, wireless, transmission and computing markets. Those same markets are serviced by the Communications Products segment, which provides WAN interfaces,
CPU boards, DSP solutions and protocol stacks. We sell products directly to Original Equipment Manufacturers and also to a network of industrial and retail distributors throughout the world. Our principal markets are in the United States, Europe and
Asia-Pacific, with the United States and Europe being the largest based on sales. Sales are transacted in U.S. dollars and certain European currencies. The Other segment below represents the results of Artesyn Solutions, Inc., which was
sold during 2001.





The table below presents information about reported segments ($000s):





Thirteen Weeks Ended


Thirty-Nine Weeks EndedSept 27, 2002


Sept 28, 2001


Sept 27, 2002


Sept 28, 2001SalesPower Conversion

$
77,678


$
83,460


$
243,549


$
305,180Communications Products


8,342



13,098



23,871



42,514Other






12,014







38,869Total

$
86,020


$
108,572


$
267,420


$
386,563Operating LossPower Conversion

$
(43,488
)

$
(20,339
)

$
(60,287
)

$
(51,814
)Communications Products


(16,935
)


(1,071
)


(20,442
)


(4,408
)Other






230







2,046Total

$
(60,423
)

$
(21,180
)

$
(80,729
)

$
(54,176
)





Sept 27, 2002

Dec 28, 2001AssetsPower Conversion

$
275,519

$
332,437Communications Products


37,764


62,698Corporate


56,805


31,348Total

$
370,088

$
426,483





Operating loss in the 2002 periods presented includes a write-off
for the impairment of goodwill of $35.0 million in Power Conversion and $16.9 million in Communications Products.





9.    Revolving Credit Agreement





On January 23, 2001, we entered into
a revolving credit agreement with a syndicate of banks for a three-year, multi-currency, $275 million credit facility. The revolving facility, which expires on March 31, 2004, replaced a previous $200 million revolving credit facility. On January
23, 2001, $91.7 million in existing loans under the previous credit agreement were repaid from borrowings under the new revolving credit facility. As of September 28, 2001, we were not in compliance with the restrictive covenants contained in the
credit facility. We obtained waivers through January 15, 2002 for the September 2001 and December 2001 financial covenant tests. On January 15, 2002, we amended our credit facility and the restrictive covenants to account for the changed business
and economic conditions. The amended restrictive




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covenants require us, among other things, to maintain a minimum level of cumulative EBITDA, to maintain a certain minimum liquidity, and limit
the purchase, transfer and distribution of certain assets. We were in compliance with the amended covenants at September 27, 2002. The aggregate amount available under the credit facility was also reduced to $85 million and is now secured by most of
our domestic current and long-term assets and a pledge of two-thirds of the capital stock of our first tier foreign subsidiaries.





The amended credit agreement provides for various interest rate options on the facility initially based on the London Interbank Offer Rates plus 2.5% and includes a fee of 0.5% on the unused balance, and a 0.25% utilization fee when
the line is more than 50% drawn. Any outstanding amounts under the credit facility are due on March 31, 2004. On September 27, 2002, the balance on the revolving credit facility was approximately $56 million.





10.    Finestar Transaction





On January 15, 2002, we received an investment by Finestar International Limited, an entity controlled by Mr. Bruce Cheng, founder and chairman of Delta Electronics, a leading global power supply,
electronic component, and video display manufacturer and one of our competitors. The transaction, for which the net proceeds were approximately $49.5 million, included the issuance of a five-year subordinated convertible note, which carries a 3%
interest rate and is convertible into common stock at the option of Finestar at $11.00 per share. Finestar was also issued a five-year warrant to purchase an additional 1.55 million shares of Artesyns common stock at an exercise price of
$11.50 per share. The common stock issuable upon conversion of the subordinated convertible note and exercise of the warrant are registered for resale pursuant to a Registration Rights Agreement entered into in connection with the transaction.
Approximately $5.1 million of the value of the transaction was assigned to the warrant and was recorded to Additional Paid-in Capital. The difference between the debt recorded and the face amount of the debt is being accreted over the term of the
debt as an adjustment to interest expense. Approximately $24 million of the net proceeds were used to reduce the outstanding balance on our senior revolving credit facility, with the remaining funds used for general corporate purposes. Both parties
have the right to redeem the note after three years.





11.    Legal Proceedings





On February 8, 2001, VLT, Inc. (VLT) and Vicor Corporation (Vicor) filed a suit against Artesyn in the United
States District Court of Massachusetts alleging that we have infringed U.S. Reissue Patent No. 36,098 entitled Optimal Resetting of The Transformers Core in Single Ended Forward Converters (the 098 patent). Vicor
has been withdrawn as a plaintiff by agreement of the parties. VLT has alleged that it is the owner of the 098 patent and that we have manufactured, used or sold electronic power converters with reset circuits that fall within the claims of
the patent. VLT seeks damages allegedly arising from sales of those converters made between February 1995 through February 2002, when the 098 patent expired. The suit requests that we pay damages measured by a reasonable royalty on those
sales, plus interest, attorneys fees and increased damages of up to three times any royalty awarded. We have challenged the validity of the patent and have denied the claims of the infringement. The parties are currently in litigation
discovery and no trial date has yet been set. We believe we have strong defenses to VLTs claims. If we were found liable to pay all of the damages requested by VLT, such a payment could have a material adverse effect on our business, operating
results and financial condition. The matter has not progressed to the point where any determination of the outcome can be reasonably estimated.





The claims against us relating to the patent in dispute involve compensation for sales recorded prior to the expiration of the patent, which occurred in early February 2002. Management believes no
sales after February 2002 related to this patent are at risk.




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12.    Impairment of Goodwill





We adopted Statement of Financial Accounting Standards No. 142 (SFAS 142) on December, 29 2001 and performed the required
transitional impairment test in the first quarter of 2002 using a two-step approach based on reportable segments and reassessed any intangible assets, including goodwill, recorded in connection with our previous acquisitions. We determined that
there was no impairment in the value of goodwill at the time.





Due to adverse business conditions in our end
markets, operating performance has been lower than expected during 2002. In addition, our stock price has fallen dramatically in the same period, indicating the implied value of the company has declined. Based on these trends, our earnings forecasts
were revised and we performed an updated assessment of impairment of goodwill. As a result of this assessment, an impairment loss was recognized in the Power Conversion reporting unit for $35.0 million and the Communications Products reporting unit
for $16.9 million during the third quarter of 2002. The fair value of each reporting unit was determined by an independent third-party using the expected present value of projected future cash flows.





The following table is a reconciliation between net loss and net loss excluding goodwill amortization and impairment charges (000s
except share data):





Thirteen Weeks Ended


Thirty-Nine Weeks EndedSept 27, 2002


Sept 28, 2001


Sept 27, 2002


Sept 28, 2001Reconciliation to Net LossNet loss

$
(55,671
)

$
(16,578
)

$
(73,178
)

$
(43,220
)Amortization of goodwill






2,048







6,006Impairment of goodwill


51,856







51,856



Tax provision


(3,537
)


(51
)


(3,537
)


(152
)Net loss excluding effect of goodwill amortization/impairment

$
(7,352
)

$
(14,581
)

$
(24,859
)

$
(37,366
)Basic and diluted loss per shareWeighted average common shares


38,382



38,225



38,366



38,223Loss per share

$
(0.19
)

$
(0.38
)

$
(0.65
)

$
(0.98
)





13.    Recent Accounting Pronouncements





In October 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of. SFAS 144 applies to all long-lived assets
(including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business. SFAS 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001, and thus was adopted, as required, on December 29, 2001. The adoption of SFAS 144 did not have an impact on our consolidated financial position, results of operations or cash
flows. We will continue to assess the value of our long-lived assets in accordance with SFAS 144 as indicated in the statement.





In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred and nullifies the guidance of EITF No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit




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an Activity (including Certain Costs Incurred in Restructuring), which recognized a liability for an exit cost at the date of an
entitys commitment to an exit plan. SFAS 146 requires that the initial measurement of a liability be at fair value. SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002 with early adoption
encouraged. We plan to adopt SFAS 146 effective December 28, 2002 and do not expect that the adoption will have a material impact on our consolidated results of operations and financial position.




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Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations





The following should be read in conjunction with the condensed consolidated financial statements and notes included in this quarterly report on Form 10-Q. With the
exception of historical information, the matters discussed below may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. We caution readers that a number
of important factors, including those identified in the section entitled Risk Factors that May Affect Future Results in our most recently filed annual report on Form 10-K, as well as factors discussed in other reports filed with the Securities and
Exchange Commission, could affect our actual results and cause them to differ materially from those expressed in the forward-looking statements.





Critical Accounting Policies





We have identified the accounting policies outlined below as
fundamental to our business operations and an understanding of our results of operations. The listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction
is specifically dictated by accounting principles generally accepted in the United States, with no need for managements judgment in their application. The impact and any associated risks related to these policies on our business operations is
discussed throughout Managements Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other
accounting policies, see Note 1 in the Notes to the Consolidated Financial Statements in Item 14 in our most recently filed annual report on Form 10-K for the year ended December 28, 2001. The preparation of this Form 10-Q requires us to make
estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting
period. We cannot assure you that actual results will be the same as our estimates.





Revenue recognition and accounts receivable





We recognize revenue and the related cost of sales as products are shipped and title is passed to the
customer or as services are provided. Provisions for estimated returns and sales allowances are established concurrently with the recognition of revenue and are based on a variety of factors including actual return and sale allowance history and
projected economic conditions. We regularly monitor customer inventory levels and make adjustments to the returns and allowances provisions when management believes actual product returns or other allowances may differ from established reserves.
While actual return and allowance rates have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same rates we have in the past. Any significant increase in returns or
sales allowances could have a material adverse impact on our operating results for the period or periods in which such increases materialize.





We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and a customers current credit worthiness, as determined by our review of their current
credit information. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified.
While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that have occurred in the past. Our accounts receivable
balance as of September 27, 2002 was $53.2 million, net of allowances of $3.7 million.





Inventories





We value our inventory at the lower of the actual cost to purchase and/or manufacture the inventory or the current estimated market value
of the inventory. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of




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product demand and production requirements for the following twelve to twenty-four months. As demonstrated during 2001 and 2002, demand for our
products can fluctuate significantly over a short period of time. A significant decrease in demand could result in an increase in the amount of excess inventory quantities on hand. Additionally, our estimates of future product demand may prove to be
inaccurate, in which case we may have understated or overstated the provision required for excess and obsolete inventory. In the future, if our inventory were determined to be overvalued, we would be required to recognize such costs in our cost of
goods sold at the time of such determination. Therefore, although we make every effort to ensure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have a
significant impact on the value of our inventory and our reported operating results.





Warranties





We offer warranties of various lengths to our customers depending upon the specific product and terms of the customer purchase agreement.
Our standard warranties require us to repair or replace defective products returned to us during such warranty period at no cost to the customer. We record an estimate for warranty related costs based on our actual historical return rates and repair
costs at the time of sale. While our warranty costs have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same warranty return rates or repair costs that we have in
the past. A significant increase in product return rates, or a significant increase in the costs to repair our products, could have a material adverse impact on our operating results for the period or periods in which such returns or additional
costs occur.





Goodwill





We adopted SFAS No. 142 Goodwill and Other Intangible Assets in the first quarter of 2002. With the adoption of SFAS 142, we assessed the goodwill impairment using a two-step approach based
on reportable segments and reassessed any intangible assets, including goodwill, recorded in connection with earlier acquisitions. Our initial impairment review in January 2002 indicated that we did not have an impairment in the value of the
goodwill we have recorded based on our estimate of future cash flows.





In the third quarter of 2002, we reassessed
our expectations for future operating performance given our performance during 2002. The new estimates of expected future cash flows indicated that an additional impairment test in 2002 would be appropriate. The result of the additional assessment
was a write-down in the value of goodwill of approximately $51.9 million, leaving a balance in Goodwill, net of approximately $18.3 million as of September 27, 2002. We will continue to assess the value of our goodwill in future periods as changes
in events and circumstances warrant.





We had recorded approximately $2.0 million of amortization of goodwill
during each of the first three quarters of 2001, and, prior to the adoptions of SFAS 142, would have recorded approximately $2.0 million of amortization in each of the first three quarters of 2002. In addition to the impairment charge, the adoption
of SFAS 142 will positively affect our operating results in future periods due to the exclusion of the amortization of goodwill.





Accounting for income taxes





As part of the process of preparing our consolidated financial
statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be
recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an
expense within the tax provision in the consolidated statement of operations.




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Significant management judgment is required in determining our provision or benefit for income taxes,
our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded a valuation allowance due to uncertainties related to our ability to utilize some of our deferred tax assets,
primarily consisting of certain net operating losses carried forward and foreign tax credits, before they expire. The valuation allowance is based on our estimates of taxable income or loss by jurisdiction in which we operate and the period over
which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates, or we adjust these estimates in future periods, we may need to establish an additional valuation allowance, which could materially
impact our financial position and results of operations. The net deferred tax asset as of September 27, 2002 was $31.6 million, net of the valuation allowance.





Results of Operations





For the Thirteen and Thirty-Nine Weeks Ended September
27, 2002 compared to the Thirteen and Thirty-Nine Weeks Ended September 28, 2001





Sales.    Sales for the thirteen weeks ended September 27, 2002 were $86.0 million compared to $108.6 million for the comparable period in 2001, a decrease of $22.6 million or 21%. Sales for the thirty-nine
weeks ended September 27, 2002 decreased $119.1 million, or 31%, to $267.4 million from $386.6 million compared to the same period in 2001. The lower revenue was the result of a significant reduction in demand that we experienced from most of our
major customers. The decreased level of demand, which adversely impacted all of our markets, continued throughout the third quarter of 2002 and, excluding the divestiture of Artesyn Solutions discussed below, is primarily responsible for the
decrease in revenue in comparison to 2001.





During the fourth quarter of 2001, we sold our repair and logistics
business, Artesyn Solutions, Inc. During the thirteen and thirty-nine weeks ended September 28, 2001, sales attributable to Artesyn Solutions were $12.1 million and $38.9 million, respectively. The exclusion of the results from 2002 accounts for the
largest portion of the decrease in sales between the periods presented.





Revenue from our Power Conversion segment
decreased approximately $8.1 million in the third quarter of 2002 in comparison to the second quarter. However, increases from our Communications Products segment of $3.2 million somewhat offset the sequential decrease in Power Conversion. We
continue to experience significant weakness in all the markets we currently serve as our customers react to decreased end-user demand. As a result, we would expect our level of revenue in the fourth quarter of 2002 to be at or slightly below the
amount recorded in the third quarter of this year.





Gross Profit.    Gross profit for
the thirteen weeks ended September 27, 2002 increased to $9.4 million (or 11.0% of sales) compared to $6.3 million (or 5.8% sales) for the comparable period in 2001, an increase of $3.1 million, or 50%. The primary reason for the increase in gross
profit was an excess and obsolete inventory charge of $6.0 million recorded in the third quarter of 2001. Without the charge, gross profit in the third quarter of 2001 would have been $12.3 million, or 11.3% of sales. The decrease in gross profit
excluding the inventory charge was due to reduced revenue ($1.2 million) and supplier cancellation fees ($1.1 million) offset by cost reductions in our manufacturing locations. The exclusion of the results from Artesyn Solutions after its sale
reduced gross profit by an additional $2.3 million.





For the thirty-nine weeks ended September 27, 2002, gross
profit decreased $7.8 million or 19% in comparison with the same period in 2001 from $40.5 million (or 10.5% of sales) to $32.7 million (or 12.2% of sales). The gross profit in 2001 included a $16.0 million charge related to excess and obsolete
inventory. Excluding the inventory charge, gross profit in 2001 would have been $56.5 million or 14.6% of sales. The decrease in gross profit excluding the inventory charge was primarily attributable to the decrease in revenue in 2002 compared to
2001 ($11.7 million). In addition, the exclusion of the results from Artesyn




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Solutions after its sale contributed $7.7 million to the decrease.





Gross profit as a percent of revenue reflected a sequential decrease from the second quarter of 2002 (13.2%) to the third quarter of 2002 (11.0%). We do not anticipate a
material improvement in gross profit as a percent of revenue unless revenue increases over the levels recorded in the second and third quarters of 2002, allowing for greater utilization of our manufacturing capacity.





During the second quarter of 2002, we announced that we would be closing our Kindberg, Austria manufacturing facility as part of our
ongoing efforts to match our level of expenses with the reduced level of demand for our products. These measures are explained in further detail in Restructuring and Related Charges below. In addition to actions in the second quarter, we
have closed several other manufacturing, engineering and administrative facilities worldwide. All functions provided by these facilities have been consolidated into other facilities throughout the world. The cost reduction initiatives implemented in
both operating segments included factory work force reductions, shortened work weeks and restrictions on discretionary spending. We are committed to aligning our cost structure with current customer demand. To that end, if we feel it is necessary to
make additional cost reductions during 2002 to enhance financial performance, we are prepared to do so.





Operating Expenses.    Selling, general and administrative expenses were $8.0 million (or 9% of sales) in the thirteen weeks ended September 27, 2002 compared to $10.9 million (or 10% of sales) for the
comparable prior year period. For the thirty-nine weeks ended September 27, 2002, selling, general and administrative expenses were $26.6 million (or 10% of sales) compared to $42.3 million (or 11% of sales) for the comparable prior year period. In
response to the significant decrease in customer demand we continue to experience, we have implemented several cost savings plans to reflect our reduced level of revenue. When it was determined that our costs and infrastructure were in excess of
requirements to support near term levels of customer demand, we took steps, which are discussed below in Restructuring and Related Charges, to reduce infrastructure and personnel to maintain, in our judgment, the proper relationship
between operating expenses and revenue. These steps included, among other actions, the closing of engineering and administrative facilities and headcount reductions. These cost saving initiatives are the primary reasons behind the dollar reductions
in selling, general and administrative expenses in 2002 in comparison to the applicable period in 2001.





In
addition to the cost savings initiatives, the effect of foreign currency exchange rates changed $1.0 million from a favorable effect of $0.5 million for the thirteen weeks ended September 28, 2001 to a favorable effect of $1.5 million in the
comparable period in 2002. For the thirty-nine weeks ended September 27, 2002, the favorable effect of exchange rates was $4.3 million compared to no effect in the same period in 2001. The effect of foreign currency translation can vary
significantly over time. We anticipate the effect will not be material in future periods. Excluding the effect of foreign currency exchange rates, the level of selling, general and administrative expenses is expected to remain consistent with the
third quarter of 2002 for the remainder of the year. In addition to the effect of foreign currency exchange rates, approximately $1.6 million and $4.8 million, respectively, of the decrease in selling, general and administrative expenses in the 2002
periods presented is attributable to the exclusion of Artesyn Solutions after its sale.





Research and development
expenses totaled $8.5 million, or 10% of sales, in the third quarter of 2002 compared to $9.6 million, or 9% of sales, for the third quarter of 2001. For the first three quarters of the year, research and development expenses totaled $25.4 million,
or 10% of sales, in 2002 and $33.3 million, or 9% of sales, in 2001. While we have reduced our research and development expenses to maintain an appropriate relationship with revenue, we maintain our commitment to invest in research and development
activities. The timely introduction of new technology and products will continue to be an integral component of our competitive strategy. We expect the level of research and development expenses to be consistent, on an actual dollar basis, with the
level recorded in the first three quarters of 2002.




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Amortization/Impairment of Goodwill.    On December
29, 2001, we adopted SFAS 142, Goodwill and Other Intangible Assets. With the adoption of SFAS 142, goodwill will no longer be subject to amortization but is subject to an annual impairment test. We have not recorded and will not record
amortization expense related to goodwill in any period after adoption.





Due to adverse business conditions in our
end markets, operating performance has been lower than expected during 2002. In addition, our stock price has fallen dramatically in the same period, indicating that the implied value of the company has declined. Based on these trends, our earnings
forecasts were revised and we performed an updated assessment of impairment of goodwill. As a result, a goodwill impairment loss was recognized in the Power Conversion reporting unit for $35.0 million and the Communications Products reporting unit
for $16.9 million during the third quarter of 2002. The total impairment charge of $51.9 million is included in operating expenses in the period. The impairment charge removes all the goodwill previously recorded in Power Conversion and reduces the
goodwill recorded in Communications Products to $18.3 million. The fair value of each reporting unit was determined by an independent third-party using the present value of projected future cash flows. We will continue to apply the standards
dictated by SFAS 142, and if market conditions continue to deteriorate, additional assessments may become necessary. At this time, however, we are not anticipating an assessment beyond our normal annual requirement.





Restructuring and Related Charges.    During 2001 and 2002, we implemented a plan to restructure certain of our
operations as a result of a significant reduction in actual and forecasted customer demand for our products resulting in excess manufacturing capacity and costs. Our restructuring activities are designed to address these issues, and are comprised of
the following elements:





1)  A realignment of our commercial functions along
customer/market lines in order to provide enhanced customer service.





2)  Addressing
excess capacity and cost issues by closing several operating and administrative facilities throughout the world and consolidating their functions into other existing locations.





3)  The elimination of a number of operational and administrative positions company-wide.





Pursuant to the restructuring plan, during the first three quarters of 2002, we recorded restructuring charges totaling approximately $9.6 million. This amount
included employee and facility expenses related to the planned closure of our Kindberg, Austria manufacturing facility, as well as headcount reductions in other locations announced in May 2002. The components of this charge, along with the 2002
activity related to these and other restructuring charges, are presented in the following table ($000s):




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Accrued Liability at December 28, 2001

2002 Activity


Accrued Liability at September 27, 2002Restructuring Charge

Charges to ReserveCash


Non-CashFacility closures

$
3,149

$
4,200

$
(1,804
)

$
(2,072
)

$
3,473Employee termination costs


2,283


5,374


(3,084
)






4,573$
5,432

$
9,574

$
(4,888
)

$
(2,072
)

$
8,046





The charge for facility closures is primarily write-offs of
equipment and other fixed assets to be disposed of or abandoned at locations that are being closed. The remaining reserve represents an estimate of the future lease commitments and buyout options for those locations being closed, after considering
sublease and time-to-market expectations. We anticipate the closure of facilities and disposal of assets will be completed by the end of the first quarter of 2003. Lease payments for the closed facilities, which total approximately $2.2 million,
extend into 2006. Although we are aggressively marketing these locations for subleases on acceptable terms, the ultimate time required to obtain acceptable subleases may extend beyond our estimates.





The restructuring plan included the termination and payment of related severance benefits for approximately 1,400 affected employees (800
direct labor, 400 indirect labor and 200 administrative), of which approximately 1,200 have been terminated as of September 27, 2002. The remaining terminations and associated termination payments are expected to be made during the fourth quarter of
2002 and the first quarter of 2003.





As part of ongoing restructuring efforts, we expect to record total charges
of approximately $10.5 million in 2002, with the remaining balance of the charge related to our current plan, $1.0 million, expected to be recorded in the fourth quarter of this year. We are committed to maintaining a proper relationship between
costs and customer demand. To that end, we are prepared to take additional actions to reduce our cost structure during 2002 should business conditions dictate.





Interest Expense, net.    Net interest expense in the thirteen weeks ended September 27, 2002 was $1.5 million, which was consistent with the amount recognized in the third
quarter of 2001. For the thirty-nine weeks ended September 27, 2002, interest expense, net increased slightly to $5.2 million from $5.0 million in the comparable 2001 period. We entered 2002 with lower outstanding borrowings on our revolving credit
agreement compared with 2001 due to the sale of Artesyn Solutions. In addition, our transaction with Finestar early in 2002 further reduced the amounts outstanding on our revolver. The reduction of outstanding debt on the revolver has reduced
interest expense in 2002 compared to 2001. However, due to interest and accretion resulting from the debt and equity instruments issued in the Finestar transaction, and the amortization of related capitalized debt issuance costs, interest expense
has remained consistent in 2002 compared to 2001.





During December 2001, we sold our repair and logistics
business, Artesyn Solutions, Inc. to Solectron Global Services, Inc. for $33.5 million. A substantial portion of the net proceeds was used to pay down outstanding debt, reducing our expected interest expense in 2002 related to our senior credit
facility.





On January 15, 2002, we received a $50.0 million investment from Finestar International Limited, an
entity controlled by Mr. Bruce Cheng, founder and chairman of Delta Electronics, a leading global power supply, electronic component and video display manufacturer and one of our competitors. The $50.0 million investment was made through the
issuance of a five-year subordinated convertible note and a five-year warrant to purchase 1.55 million shares of our common stock. A substantial portion of the cash received from the transaction with Finestar was used to pay down our senior debt.
Interest expense in future periods will include interest and accretion related to the instruments issued in connection with this transaction. Both parties have the right to redeem the note after three years.




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In the first quarter of 2002, we amended our revolving credit facility. The
amendment includes, among other things, higher interest rates for the borrowings outstanding compared to the original credit facility, and revised financial covenants. We are in compliance with all such covenants as of September 27, 2002. After
taking into account all the factors affecting interest expense, net, we believe the amount recorded in 2002 will continue to be consistent with the levels experienced in fiscal 2001.





Benefit for Income Taxes.    In the thirteen weeks ended September 27, 2002, a benefit for income taxes of 10% of the pretax loss was recorded
compared to a benefit of 27% of the pretax loss recorded in the same period in 2001. For the thirty-nine weeks ended September 27, 2002, a benefit from income taxes of 15% of the pretax loss was recorded compared with a benefit of 27% of the pretax
loss recorded in the same period in 2001. The primary reason for the differences between the periods was the non-deductibility of a portion of the goodwill impairment charge recorded in 2002. The effective tax rate is expected to remain at 15% for
the remainder of 2002 if we continue to perform at current operating levels.





Net
Loss.    Net loss for the thirteen weeks ended September 27, 2002 was $55.7 million, or $1.45 per diluted share, compared to net loss of $16.6 million, or $0.43 per diluted share, for the comparable prior year quarter. Net
loss for the thirty-nine weeks ended September 27, 2002 was $73.2 million, or $1.91 per diluted share, compared to a net loss of $43.2 million, or $1.13 per diluted share for the comparable period in 2001. The primary reason for the increased loss
in 2002 was the goodwill impairment charge (approximately $48.3 million after-tax recorded in the third quarter) partially offset by the excess and obsolete inventory charge (approximately $4.4 million after-tax for the thirteen weeks and $11.7 for
the thirty-nine weeks ended September 28, 2001) recorded in 2001 along with the other factors discussed above. In addition, there was no amortization expense recognized in 2002 related to goodwill helping to further offset the negative factors
discussed above.





Power Conversion





The continued erosion of customer demand, especially with our Telecom and Wireless customers, significantly affected financial performance for the entire Power Conversion
segment. Revenue for Power Conversion for the thirteen weeks ended September 27, 2002 was $77.7 million, a decrease of $5.8 million, or 7%, from the third quarter of 2001. For the thirty-nine weeks ended September 27, 2002, revenue from Power
Conversion was $243.5 million, a decrease of $61.6 million, or 20% from the comparable period in 2001. The level of demand experienced in 2002 has continued to deteriorate from the levels in 2001. It is our expectation that revenue for this segment
in the fourth quarter of 2002 will be at or slightly below the amount recorded in the third quarter of this year.





The operating loss recorded for our Power Conversion segment in the thirteen weeks ended September 27, 2002 was $43.5 million, an increase of $23.2 million from the comparable period in 2001 ($20.3 million). The primary reason for
this difference was the $35.0 million charge for goodwill impairment offset by the $6.0 million charge for excess and obsolete inventory recorded in 2001. In addition, we recorded amortization of goodwill in the 2001 period of approximately $0.5
million. The remaining difference is attributable to cost savings initiatives adopted during the last twelve months.





For the thirty-nine weeks ended September 27, 2002, operating loss for Power Conversion was $60.3 million compared with $51.8 million in the comparable period in 2001. The difference is attributable to the charge for goodwill
impairment of $35.0 million offset by the charge for excess and obsolete inventory recorded in 2001 ($15.5 million), a gain recorded related to the change in foreign exchange rates ($4.3 million) and the amortization of goodwill recorded in 2001
($1.5 million), with the remaining difference attributable to cost savings initiatives adopted during the last twelve months.




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Communications Products





Revenue from our Communications Products segment for the thirteen weeks ended September 27, 2002 was $8.3 million compared to $13.1
million in the third quarter of 2001, a decrease of $4.8 million or 37%. For the thirty-nine weeks ended September 27, 2002, revenue for Communications Products was $23.9 million, a decrease of $18.6 million, or 44%, from $42.5 million recorded in
the same period in 2001. The decrease in revenue is the result of the continued decrease in demand in the Telecom and Wireless market sector. It is our current expectation that the level of revenue from our Communications Products segment for the
fourth quarter of 2002 will be at or slightly below the amount recorded in the third quarter of this year.





The
operating loss recorded for our Communications Products segment in the thirteen weeks ended September 27, 2002 increased to $16.9 million from the $1.1 million operating loss recorded in the same period in 2001. The primary difference between the
operating loss recorded in the third quarter of 2002 in comparison to the third quarter of 2001 is the goodwill impairment charge of $16.9 million recorded in 2002 along with the effect of lower revenue ($2.3 million) offset by the amortization
expense recorded in 2001 ($1.5 million) and cost reductions adopted during the last twelve months.





For the
thirty-nine weeks ended September 27, 2002, we recorded an operating loss of $20.4 million in Communications Products compared to a $4.4 million loss in 2001. The changes in the thirty-nine week period are due primarily to the goodwill impairment
loss of $16.9 million and the effect of lower revenue ($9.0 million) offset by the exclusion of goodwill amortization in 2002 ($4.5 million), the excess and obsolete inventory write-down in 2001 (approximately $0.5 million) and the results of our
cost savings initiatives.





Liquidity and Capital Resources





At September 27, 2002, our cash and equivalents increased to $89.0 million from $54.1 million on December 28, 2001. This increase was primarily attributable to the issuance
of a five-year subordinated convertible note and warrant to Finestar in January 2002, cash generated from operations of $36.3 million offset by payments of long-term debt of $45.8 million.





On January 15, 2002, we received an investment by Finestar International Limited, an entity controlled by Mr. Bruce Cheng, founder and chairman of Delta Electronics, a
leading global power supply, electronic component and video display manufacturer and one of our competitors. The transaction, the net proceeds of which were approximately $49.5 million, included the issuance of a five-year subordinated convertible
note, which carried a 3% interest rate and an $11.00 conversion price, and the issuance of a five-year warrant to purchase an additional 1.55 million shares of our common stock at an exercise price of $11.50 per share. Approximately $24 million of
the net proceeds were used to pay down the balance on our senior revolving credit facility, with the remaining funds to be used for general corporate purposes. Both parties have the right to redeem the note after three years.





Cash provided by operations was $36.3 million for the thirty-nine weeks ended September 27, 2002 compared with cash used in
operations of $10.3 million in the same period in fiscal year 2001. Cash from operations was positively impacted by a decrease in inventory, which provided a source of cash of $19.7 million in the first three quarters of 2002 compared to a use of
cash of $8.2 million in the same period in 2001. Also contributing to the change was a smaller net loss after removing the effect of goodwill impairment and amortization (approximately $15.9 million). In addition, commitments to suppliers resulted
in significant use of cash in 2001 attributable to accounts payable ($53.7 million). In 2002, the change in the balance of accounts payable was a use of cash of $2.1 million.





The effects on operating cash flow discussed above were offset by a change in the effect of accounts




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receivable between the periods. During 2001, the effect of the reduction in the balance of accounts receivable was a source of cash of $42.4
million. During 2002, the effect was reduced to a source of cash of $20.9 million. This reduction is the result of the significant decrease in the level of business activity in 2001. Our levels of business activity and the resulting balance in
accounts receivable have continued to decline in 2002, but to a lesser degree. In addition to the effect of accounts receivable, the inventory provision recorded in 2002 significantly decreased in 2001 ($19.3 million).





We expect our balance in inventory will continue to decrease in the fourth quarter of 2002 as we make more efficient use of the inventory
at our disposal. The balance in accounts receivable will continue to vary based on our level of business activity.





Capital expenditures for the first three quarters of fiscal year 2002 totaled $4.3 million, primarily for the upgrade of existing manufacturing equipment. During the third quarter of 2002, capital expenditures were $1.6 million. We
expect capital expenditures in the fourth quarter of 2002 to remain consistent with the amount recorded in the third quarter due to the maintenance and technology requirements necessary for efficient production of specific key products. However, we
anticipate that the capital expenditures will continue to be significantly below the levels experienced in 2001 until business conditions improve.





A deferred payment related to the purchase of Spider was made in the second quarter of 2002 for approximately $2.4 million. This payment is considered deferred purchase price and was not contingent
upon Spiders operating performance. The final deferred payment of approximately $2.5 million related to the acquisition of Spider will be made on March 31, 2003.





Additionally, the second of Spiders contingent earnings periods ended on March 31, 2002. Based on Spiders operating results, no contingent consideration will be
paid related to this earnings period. The third and final earn-out period will end on March 31, 2003. We originally forecasted a potential earn-out payment for the third period of approximately $4.5 million based on Spiders anticipated
results, although the actual amount is not subject to a cap. Given Spiders performance in 2002 and current expectations for 2003, however, we do not expect additional amounts will be paid related to Spiders contingent consideration
agreements. For the earn-out period ended March 30, 2001, an additional $1.2 million in purchase price was recorded based on Spiders operating results, $0.7 million of which was paid in 2001, with the remaining amount paid during the third
quarter of 2002.





AzCore was acquired in August 2000 for approximately $5.8 million of fixed cash payments and up
to $8.0 million in contingent consideration based on certain milestones through fiscal years 2001 and 2002. Through the end of 2001, several of these milestones had been reached and approximately $4.0 million in contingent consideration had been
paid. In the first quarter of 2002, an additional $0.5 million contingent payment was made. During the third quarter of 2002, we recorded an additional $2.8 million in additional purchase price due to the probability that additional contingent
payments will be earned, $1.1 million of which will be paid in the fourth quarter of this year. The remaining contingent considerations will be paid as milestones are met.





RTD was acquired in January 2001 for approximately $3.3 million, net of cash acquired, of fixed cash payments and up to $7.0 million in contingent consideration based on
certain milestones. The initial earn-out payment of $3.0 million was made to the former owners of RTD in the fourth quarter of 2001. The remaining contingent consideration ($4.0 million) will be paid if the contingencies are met.





During the fourth quarter of 2001, we sold our repair and logistics business, Artesyn Solutions, Inc., to Solectron Global
Services, Inc., a subsidiary of Solectron Corporation, for approximately $33.5 million. A substantial portion of the net proceeds from the sale was used to reduce the outstanding balance on our senior revolving credit facility.





Net cash provided by financing activities was $3.9 million for the first three quarters of fiscal year 2002.




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This amount includes the net proceeds from the transaction with Finestar, offset by the amount of debt repaid related to the same transaction
and throughout the year. Payments of $7.0 million were made in the third quarter of 2002 to reduce the balance on our senior revolving credit facility to approximately $56.0 million at the end of the quarter. Further repayments were made at the
beginning of the fourth quarter of 2002 to reduce the balance on the revolving credit facility to $51.0 million.





On January 23, 2001, we entered into a revolving credit agreement with a syndicate of banks that provided a three-year, multi-currency, $275 million credit facility. The revolving credit facility, which expires on March 31, 2004,
replaced our previous $200 million revolving credit facility. On January 23, 2001, $91.7 million in existing loans under the previous credit agreement were repaid from borrowings under the new revolving credit facility. As of September 27, 2001, we
were not in compliance with the restrictive covenants contained in our revolving credit facility in effect at the time. We obtained waivers through January 15, 2002 for the September 2001 and December 2001 financial covenant tests. On January 15,
2002, we amended our credit facility and changed the restrictive covenants to account for changed business and economic conditions. The amended credit facility contains restrictive covenants that, among other things, require a minimum level of
cumulative EBITDA, require minimum liquidity provisions, and limit the purchase, transfer and distribution of certain assets. We are in compliance with these amended covenants as of September 27, 2002. The amount available under the credit facility
was also reduced to $85 million and is secured by certain assets.





Based on current expectations and business
conditions, we believe our cash and cash equivalents, available credit line, cash generated from operations and other financing activities are expected to be adequate to meet working capital requirements, capital expenditure requirements, debt and
capital lease obligations, contingent payments related to acquisitions, and operating lease commitments for the next twelve months. We currently expect that these sources will also be adequate to fulfill our long-term capital requirements. During
2004, the amounts outstanding on our current revolving credit agreement will come due. At that time, we will need to put new financing in place to satisfy the amounts outstanding. If financing cannot be arranged, we would be forced to look to
alternative sources to satisfy the amounts outstanding. We cannot be certain that such financing would be available at all or on terms favorable to us.





Recent Accounting Pronouncements





In October 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of. SFAS 144 applies to
all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business. SFAS 144 is
effective for financial statements issued for fiscal years beginning after December 15, 2001, and thus was adopted, as required, on December 29, 2001. The adoption of SFAS 144 did not have an impact on our consolidated financial position, results of
operations or cash flows. We will continue to assess the value of our long-lived assets in accordance with SFAS 144 as indicated in the standard.





In June 2002, the FASB issued SFAS 146 Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred and nullifies the guidance of EITF No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in
Restructuring), which recognized a liability for an exit cost at the date of an entitys commitment to an exit plan. SFAS 146 requires that the initial measurement of a liability be at fair value. SFAS 146 will be effective for exit or
disposal activities that are initiated after December 31, 2002 with early adoption encouraged. We plan to adopt SFAS 146 effective December 31, 2002 and do not expect that the adoption will have a material impact on its consolidated results of
operations and financial position.




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Conversion to the Euro Currency





On January 1, 1999, eleven of the fifteen member countries of the European Union adopted the euro as their common legal currency and established fixed conversion rates
between their existing sovereign currencies and the euro. The legacy currencies of the participating European Union members remained legal tender in the participating countries for the transition period from January 1, 1999 through January 1, 2002.
On January 1, 2002, the participating countries issued new euro-denominated bills and coins for use in cash transactions. Legacy currencies were no longer legal tender for any transactions beginning July 1, 2002, making conversion to the euro
complete. We have assessed and addressed the issues involved with the introduction of the euro including, converting information technology systems; reassessing currency risk; negotiating and amending licensing agreements and contracts; and
processing tax and accounting records. The introduction and use of the euro has not materially affected our foreign exchange and hedging activities or use of derivative instruments. While we will continue to evaluate the impact of the euros
introduction over time, based on currently available information, we do not believe that the introduction of the euro currency will have a material adverse impact on the financial condition or overall trends in results of operations.




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Item 3.Quantitative and Qualitative Disclosures About Market Risk





We are exposed to the impact of interest rate changes and foreign currency fluctuations. In the normal course of business, we employ established policies and procedures to manage exposure to changes in interest rates and
fluctuations in the value of foreign currencies using a variety of methods. We have managed interest rate risk on our variable rate debt instruments through use of interest rate swaps pursuant to which we exchanged our floating rate interest
obligations for fixed rates. In these cases, the fixing of the interest rates offsets our exposure to the uncertainty of floating interest rates during the term of the loans. As of September 27, 2002, we had no outstanding interest rate swap
instruments.





We have significant assets and operations in Europe and Asia and, as a result, our financial
performance could be affected by significant fluctuations in foreign exchange rates. To mitigate potential adverse trends, our operating strategy takes into account changes in exchange rates over time. Accordingly, we may enter 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 currency to be hedged is the euro. As of
September 27, 2002, we had no outstanding foreign currency forward exchange contracts.





It is our policy to enter
into foreign currency and interest rate transactions only to the extent considered necessary to meet our objectives as stated above. We do not enter into foreign currency or interest rate transactions for speculative purposes.





Item 4.Controls and Procedures





Based on
their evaluation, as of a date within ninety days of the filing of this Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14
under the Securities Exchange Act of 1934) are effective. There have been no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material weaknesses.





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 that involve certain risks and uncertainties. Readers are cautioned that these forward-looking statements may differ materially from actual future events or results, and are referred to the documents
periodically filed with the Securities and Exchange Commission, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking
statements. These factors include, but are not limited to, fluctuations in the end-market demand, integration of operations and technology, market acceptance of existing and new products, dependence on and volatility of foreign sales, the potential
for fluctuations in operating results, changes in accounting rules or principles and general technological changes which may render our existing products obsolete. Any forward-looking statements included in this Form 10-Q are made as of the date
hereof, based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements.




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PART II.    OTHER INFORMATION





Item 6.Exhibits and Reports on Form 8-K





(a)  Exhibits





99.1

Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.99.2

Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.





(b)  Reports on Form 8-K





During the quarter ended September 27, 2002, Artesyn Technologies, Inc. filed the following current reports on Form 8-K:





a)  On July 25, 2002, Artesyn announced its financial results concerning the second
quarter of 2002. (Report dated July 23, 2002)




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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.





ARTESYN TECHNOLOGIES, INC (Registrant)By:

/s/    RICHARD J.
THOMPSONRichard J. Thompson Vice
President Finance Principal Financial Officer





DATE:  November 6, 2002




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OFFICER CERTIFICATION





I, Joseph M. ODonnell, certify that:





1.  I have reviewed this quarterly report on Form 10Q of Artesyn Technologies, Inc.;





2.  Based on my knowledge, this quarterly report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;





3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;





4.  The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:





a)  designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;





b)  evaluated the
effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and





c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;





5.  The registrants other certifying officers and I
have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):





a)  all significant deficiencies in the design or operation of internal controls which could adversely affect
the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and





b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal
controls; and





6.  The registrants other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.





/s/    JOSEPH M.
ODONNELLJoseph M. ODonnell Vice Chairman and Chief Executive Officer





November 6, 2002




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OFFICER CERTIFICATION





I, Richard J. Thompson, certify that:





1.  I have reviewed this quarterly report on Form 10Q of Artesyn Technologies, Inc.;





2.  Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this quarterly report;





3.  Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly report;





4.  The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:





a.  designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;





b.  evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly report (the Evaluation Date); and





c.  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;





5.  The registrants other certifying officers and I have disclosed, based on our most recent evaluation,
to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):





a.  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and





b.  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal
controls; and





6.  The registrants other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.





/s/    RICHARD J.
THOMPSONRichard J. Thompson Chief Financial Officer





November 6, 2002




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EXHIBIT INDEX





Exhibit No.

Description99.1

Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.99.2

Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.




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