<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
----------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from ____________ to _________________.
----------------------
Commission File number I-42825
POWER - ONE, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0420182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
740 CALLE PLANO, CAMARILLO, CA 93012
(Address of principle executive offices) (Zip code)
Registrant's telephone number, including area code (805) 987-8741
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such a shorter period that the
registrant was required to file such reports, and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
----- ----
As of November 10th there were outstanding 17,059,585 shares of common stock,
$.001 par value.
1
<PAGE>
POWER - ONE, INC.
INDEX
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PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets -
December 31, 1996 and September 30, 1997 3
Consolidated Statements of Operations -
for the Three Months and Nine Months ended
September 30, 1996 and 1997 4
Consolidated Statements of Cash Flows -
for the Nine Months Ended September 30, 1996 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 11
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2
<PAGE>
PART 1 -- FINANCIAL INFORMATION
- ------ ---------------------
ITEM 1 -- FINANCIAL STATEMENTS
POWER-ONE, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
Dec. 31, Sept. 30,
1996 1997
------------ -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,684 $ 1,819
Accounts Receivable
Trade (net of allowance) 10,391 14,359
Other 397 188
Inventory 18,840 20,646
Refundable Income Taxes 29 39
Deferred Taxes - Current 834 873
Prepaid Expenses and Other Current 380 781
------------ -------------
Total Current Assets 32,555 38,705
Property & Equipment 8,884 9,139
Goodwill 29,210 27,688
Other Assets 1,574 2,196
Deferred Taxes - Non Current 482 554
------------ -------------
TOTAL ASSETS $ 72,705 $ 78,282
------------ -------------
------------ -------------
LIABILITIES & STOCKHOLDERS' EQUITY Pro forma
------------ -------------
CURRENT LIABILITIES
Revolving Credit Line $ 10,400 $ 9,600
Current Portion L/T Debt 3,929 4,162
Cash Disbursements Not Remitted For Payment 656 2,215
Accounts Payable 2,892 3,818
Accrued Payroll and Related Expenses 536 1,099
Other Accrued Expenses 4631 5,413
------------ -------------
Total current liabilities 23,044 26,307
------------ -------------
LONG TERM DEBT 26,326 23,500
------------ -------------
OTHER LIABILITIES 5,923 6,371 $ 5,595
------------ ------------- -------------
REDEEMABLE PREFERRED STOCK 16,287 17,544 238
------------ ------------- -------------
STOCKHOLDERS' EQUITY
Common Stock 10 10 11
Additional Capital 90 100 18,416
Notes from Stockholders (225) (240) (240)
Retained Earnings 1,250 4,690 4,455
------------ ------------- -------------
Total shareholders' equity 1,125 4,560 22,642
------------ ------------- -------------
TOTAL LIAB. & STOCKHOLDERS' EQUITY $ 72,705 $ 78,282 $ 78,282
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
Page 3
<PAGE>
PART 1 -- FINANCIAL INFORMATION
- ------ ---------------------
ITEM 1 -- FINANCIAL STATEMENTS
POWER-ONE, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 17,165 $ 24,466 $ 57,908 $ 64,639
COST OF GOODS SOLD 10,329 14,779 35,038 39,127
------------- ------------- ------------- -------------
GROSS PROFIT 6,836 9,687 22,870 25,512
GENERAL AND ADMINISTRATIVE
Selling 1,782 2,074 5,634 5,968
Administrative 1,686 1,725 4,919 4,659
Engineering 856 981 3,297 2,609
Quality Assurance 430 454 1,294 1,414
Amortization of Intangibles 473 508 1,425 1,522
Other 338 338
------------- ------------- ------------- -------------
5,565 5,742 16,907 16,172
INCOME FROM OPERATIONS 1,271 3,945 5,963 9,340
OTHER INCOME/EXPENSE
Interest expense (1,018) (916) (2,969) (2,925)
Interest income 5 8 21 19
Other Expense, Net (25) (51) 12
------------- ------------- ------------- -------------
(1,013) (933) (2,999) (2,894)
INCOME BEFORE TAXES 258 3,012 2,964 6,446
INCOME TAXES 27 882 310 1,748
------------- ------------- ------------- -------------
NET INCOME $ 231 $ 2,130 $ 2,654 $ 4,698
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Pro forma Information
Income before income taxes as reported $ 258 $ 3,012 $ 2,964 $ 6,446
Pro forma income tax provision $ 63 $ 882 $ 721 $ 1,748
------------- ------------- ------------- -------------
Pro forma net income $ 195 $ 2,130 $ 2,243 $ 4,698
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Pro forma net income per share $ 0.02 $ 0.18 $ 0.19 $ 0.40
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Pro forma weighted average shares outstanding 11,772 11,772 11,676 11,772
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Page 4
<PAGE>
<TABLE>
<CAPTION>
PART 1 -- FINANCIAL INFORMATION
- ------ ---------------------
ITEM 1 -- FINANCIAL STATEMENTS
POWER-ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
NINE MONTHS ENDED
-------------------------------
SEPT. 30, 1996 SEPT 30, 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $2,654 $4,698
Adjustements to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 2,929 3,060
Deferred income taxes (485) (111)
Changes in operating assets and liabilities:
Accounts receivable, net (1,544) (3,734)
Inventories 655 (1,806)
Refundable income taxes 28 (10)
Prepaid expenses and other current assets (1,440) (387)
Accounts payable (1,366) 925
Accrued expenses (42) 1,180
Other liabilities 391 573
---------------- ----------------
Net cash provided by (used in) operating activities 1,780 4,388
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (2,757) (1,783)
Other assets 124 (636)
---------------- ----------------
Net cash used in investing activities (2,633) (2,419)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on notes payable to bank 1,500
Repayments of note payable to bank (1,000) (800)
Bank overdraft 556 1,559
Proceeds from borrowings on long-term debt 2,500
Repayments of long-term debt (1,875) (2,593)
(Distribution to)reimbursement from members of Power-One LLC (552)
---------------- ----------------
Net cash (used in) provided by financing activites 1,129 (1,834)
---------------- ----------------
(DECREASE) INCREASE IN CASH 276 135
CASH, BEGINNING OF PERIOD 3,751 1,684
---------------- ----------------
CASH END OF PERIOD $4,027 $1,819
---------------- ----------------
---------------- ----------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest $1,013 $2,410
Income taxes $765 $2,680
</TABLE>
Page 5
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
POWER-ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1-- BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. In the opinion of management, adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the period ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the year. For further information, refer to the consolidated
financial statements and notes thereto for the year ended December 31, 1996,
included in the Company's 1997 Prospectus dated September 30, 1997.
The Company's reporting period coincides with the 52- to 53- week period
ending on the Sunday closest to December 31 and its fiscal quarters are the 13
and 14 week periods ending on the Sunday nearest to March 31, June 30,
September 30 and December 31. For simplicity of presentation, the Company
has described its year-ended December 29, 1996 as December 31 and the
nine-month periods ended September 29, 1996 and September 28, 1997 as
September 30.
NOTE 2-- INVENTORIES
Inventories consist of the following (in thousands):
December 31, 1996 September 30, 1997
----------------- ------------------
Raw materials $11,885 $11,812
Subassemblies-in-process 4,257 4,186
Finished goods 2,698 4,648
------- -------
$18,840 $20,646
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NOTE 3--UNAUDITED PRO FORMA INFORMATION
Prior to January 29, 1996, the Company was incorporated as a limited
liability company and accordingly the net taxable income of the Company
flowed through to the stockholders. Consequently, income taxes were the
responsibility of the stockholders. The unaudited pro forma income tax
provisions included in the statements of operations are determined as if the
Company was a taxable entity throughout 1996. For pro forma presentation
purposes, U.S. federal and state income taxes have not been provided on
earnings of its Puerto Rico subsidiary, Power Electronics, as there is no
intention to remit these earnings.
Page 6
<PAGE>
As of September 30, 1997, the pro forma consolidated balance sheet has been
presented assuming the conversion of the Company's Series A redeemable
preferred stock plus accrued dividends and a portion of the other liabilities
plus accrued interest owed to certain officers. Based on the elections of
the preferred stockholders and officers all but 202,850 shares of the
15,153,698 preferred shares outstanding, as well as $776,000 of other
liabilities owed to officers, converted into common stock of the Company at
$14.00 per share, the initial public offering price of the Company's
common stock. Accordingly, pro forma stockholders' equity reflects the
conversion of the preferred stock and other liabilities on October 6, 1997,
the closing date of the Company's initial public offering, into 1,309,585
shares of the Company's common stock.
NOTE 4-- PRO FORMA NET INCOME PER SHARE
Pro forma net income per common and common equivalent share for the
three-month and nine-month periods ended September 30, 1996 and 1997 have
been determined by dividing pro forma net income by the weighted average
common and common equivalent shares outstanding during the period, computed
in accordance with the treasury stock method. As required by rules
promulgated by the Securities and Exchange Commission, options issued at
prices below the public offering price in the twelve months prior to the
initial public offering (using the treasury stock method) and redeemable
preferred stock and other liabilities owed to certain officers converted to
common stock have been included in the calculation of weighted average common
and common equivalent shares as if outstanding for all of the periods
presented. Pro forma net income was increased for purposes of the
computation of pro forma net income per share to give effect to the reduction
in interest expense, net of income taxes, from the conversion of other
liabilities owed to certain officers into common stock. Accordingly, pro
forma net income was increased by $9,000, $10,000, $28,000 and $31,000
for the three-month and nine-month periods ended September 30, 1996 and 1997,
respectively.
NOTE 5 -- SUBSEQUENT EVENTS
Effective September 30, 1997, concurrent with the effective date of the
Company's initial public offering, the Company's amended capital stock
consists of 60 million shares of Common Stock with a par value of $.001 per
share, and 30 million shares of Preferred Stock.
On October 6, 1997, the Company completed its initial public offering of
5,000,000 shares of the Company's Common Stock. In conjunction with the
Offering the Company granted the underwriters an overallotment option to
purchase up to 750,000 additional shares of the Common Stock at the public
offering price of $14.00 per share. On October 20, 1997, the underwriters
exercised their overallotment option. All of these shares were newly issued
and sold on behalf of the Company. The net proceeds of the 5,750,000 shares
sold by the Company were approximately $74.9 million (before expenses of the
Offering paid by the Company of approximately $1.5 million).
On October 6, 1997, the Company repaid all of its outstanding Bank borrowings
totaling approximately $36.6 million at September 30, 1997. Additionally,
the Company paid approximately $6.4 million owed to certain executive
officers of the Company which were outstanding as other liabilities at
September 30, 1997.
Page 7
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
NET SALES. Net sales increased $6.7 million, or 11.6% to $64.6 million
for the nine months ended September 30, 1997 from $57.9 million for the nine
months ended September 30, 1996. Increases in standard, modified standard
and custom product sales were primarily responsible for the rise in sales for
the year to date comparison. Net sales for the three months ended September
30, 1997 increased 42.5% to $24.5 million, compared with $17.2 million for
the three months ended September, 1996. Increased demand of standard and
modified standard product caused net sales in the third quarter of 1997 to be
the highest in Company's history.
GROSS PROFIT. Gross profit increased $2.6 million, or 11.6%, to $25.5
million for the nine months ended September 30, 1997 from $22.9 million for
the same period in 1996. As a percent of net sales, gross margins remained
at 39.5% for both periods. For the nine months ended Sept. 30, 1997 sales of
custom products, which typically have lower gross margins, increased to
12.2% of total sales, up from 7.3% for the comparable period in 1996. This
was offset by lower manufacturing costs as a result of the transfer of
production from Puerto Rico to the Dominican Republic in the third quarter of
1996. Gross profits increased $2.9 million or 41.7% to $9.7 million for the
three months ended September 30, 1997 from $6.8 million for the same period
in 1996. The increase was primarily due to an increase in sales volume.
SELLING EXPENSE. Selling expenses increased $.3 million, or 5.9%, to $6.0
million for the nine months ended September 30, 1997 from $5.6 million for
the comparable period in 1996. As a percent of net sales, selling expense
decreased to 9.2% for the nine months ended September 30, 1997 from 9.7% for
the nine months ended September 30, 1996. While selling expenses increased
by $700,000 as a result of the higher sales volume, the increase was
partially offset by a $400,000 increase in reimbursements from customers for
product repairs. Selling expenses increased $.3 million or 16.4%, to $2.1
million for the three months ended September 30, 1997 from $1.8 million for
the same period in 1996. The increase is primarily a result of higher
commission expense due to the increase in sales and an increase in
advertising expenses. As a percent of net sales, selling expense decreased to
8.5% for the three months ended September 30, 1997 from 10.4% for the three
months ended September 30, 1996.
ADMINISTRATIVE EXPENSE. Administrative expenses decreased $.3 million, or
5.3%, to $4.6 million for the 1997 nine month period from $4.9 million for
the 1996 nine month period. As a percent of net sales, administrative
expense decreased to 7.2% for the 1997 nine month period from 8.5% for the
1996 nine month period. The decrease was principally related to reduced
consulting and professional fees and general costs aggregating $500,000
offset by an increase in employee cost of $200,000 as a result of increased
business volume. As a percent of net sales, administrative expenses
decreased to 7.1% for the three months ended September 30, 1997 from 9.8% for
the three months ended September 30, 1996.
ENGINEERING EXPENSE. Engineering expense declined $.7 million, or 20.8%,
to $2.6 million for the nine months ended September 30, 1997 from $3.3
million for the nine months ended September 30, 1996. As a percent of net
sales, engineering expense decreased to 4.0% for the 1997 nine month period
from 5.7% for the 1996 nine month period. Certain engineering expenses,
which had been increased in the first half of 1996 based upon anticipated
sales increases, were reduced, primarily by the reduction of personnel, in
the last half of 1996 as sales declined. The Company believes that no
strategic business was affected by this reduction. The Company began to
refill many of these positions toward the end of the second quarter in 1997
and continued into the third quarter. As a result, engineering expenses in
the third quarter increased $.1 million, or 14.6% from the comparable quarter
in 1996. As a percent of net sales, engineering expenses decreased to 4.0%
for the three months ended September 30, 1997 from 5.0% for the three months
ended September 30, 1996. However, management expects its investment in
research and development to increase.
QUALITY ASSURANCE EXPENSE. Quality Assurance expenses increased $.1
million, or 9.3%, to $1.4 million for the nine months ended September 30,
1997 from $1.3 million for the nine months ended September 30, 1996. These
increases resulted primarily from the higher sales volumes.
Page 8
<PAGE>
Quality Assurance expenses increased $25,000 or 5.6% to $455,000 for
the three months ended September 30, 1997 from $430,000 for the three months
ended September 30, 1996. As a percent of net sales, quality assurance
expenses decreased to 1.7% for the three months ended September 30, 1997 from
2.5% for the three months ended September 30, 1996. Quality Assurance
expenses increased by $25,000 to support the additional demand, created by
increased sales, on quality resources.
OTHER EXPENSE. Other expenses of $.3 million in 1996 were the result of
the costs incurred in connection with the transfer of production from Puerto
Rico to the Dominican Republic in the third quarter.
INTEREST EXPENSE. Interest expense decreased only $44,000, or 1.5%, to
$2.9 million for the nine months ended September 30, 1997 from $3.0 million
for the nine months ended September 30, 1996. This decrease was the result
of lower bank borrowings. Interest expense decreased $.1 million, or 1%, to
$900,000 for the three months ended September 30, 1997 from $1 million for
the three months ended September 30, 1996. This decrease was also the result
of lower bank borrowings.
INCOME TAXES. Proforma income taxes increased to $1.7 million for the
nine months ended September 30, 1997 from $.7 million for the nine months
ended September 30, 1996. The increase reflects an increase in the effective
tax rate to 27.1% for the nine months ended September 30, 1997 from 24.8% for
the comparable period in 1996 and the impact of the 117% increase in income
before income taxes. The increase in the effective tax rate reflects the
higher percentage of the company's operating income being generated from its
U.S. and Mexico operations. Proforma income taxes increased to $882,000 for
the three months ended September 30, 1997 from $63,000 for the three months
ended September 30, 1996. The increase is the result of higher income and
reflects an increase in the effective tax rate to 29.3% for the three months
ended September 30, 1997 from 10.5% for the comparable period in 1996. The
increase in the effective tax rate reflects the higher percentage of the
Company's operating income being generated from its U.S. operations.
LIQUIDITY AND CAPITAL RESOURCES
The company has funded its operations primarily from cash flow provided
by operations and short and long-term borrowings. At September 30, 1997, the
Company's balance of cash and cash equivalents was $1.8 million compared to
$1.7 million at December 31, 1996, a decrease of $.1 million. Net cash
provided by operating activities as of September 30, 1997 was $4.4 million
after giving effect to an increase of $3.7 million in accounts receivable,
increases in inventories of $1.8 million, an increase in accrued expenses of
$1.2 million and an increase in accounts payable of $.9 million. The increase
in accounts receivable primarily resulted from a change in billing terms with
the Company's distributors which increased days sales outstanding from its
distributors to an average of 45 days from an average of 15 days. Inventory
has increased to support anticipated growth. Depreciation and amortization
was $3.1 million for the nine months ended September 30, 1997, compared with
$2.9 million for the same period in 1996. Major cash expenditures at the end
of September 30, 1997 included the purchase of $1.8 million of capital
equipment and net repayment of $3.4 million in bank borrowings. The Company
anticipates that its capital expenditures for 1997 will be approximately $3.4
million. These capital requirements will be funded from operating income.
At September 30, 1997 the Company has a term loan with an original
balance of $32.5 million and a revolving line of credit of $17.5 million from
a syndicate of banks led by NationsBank of Texas, N.A. ("NationsBank"). Both
loans were collateralized by substantially all of the Company's assets.
Page 9
<PAGE>
Effective October 6, 1997, the Company completed its initial public
offering, and inclusive of the over-allotment option exercised by the
underwriters, sold 5,750,000 shares of its common stock at $14.00 per share
for aggregate gross proceeds of $80.5 million. The underwriting group was
managed by Stephens, Inc., BancAmerica Robertson Stephens and Montgomery
Securities. A portion of these proceeds have been used to payoff all existing
bank debt ($36.6 million) and amounts owed to certain executive officers
($6.4 million). The balance of the net proceeds of approximately $31 million
will be used to support the Company's growth strategy and fund future capital
expenditures.
The Company believes its existing working capital and borrowing capacity,
coupled with the funds generated from the Company's operations and the net
proceeds from the Offering, will be sufficient to fund its anticipated
working capital and capital expenditures for the foreseeable future.
PART II OTHER INFORMATION
- ----------------------------
Items 1 through 5 - not applicable
Item 6 (a) EXHIBITS
Exhibit 27 Financial Data Schedule
Page 10
<PAGE>
SIGNATURES
----------
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.
Dated: November 10, 1997 Power-One, Inc.
By: STEVEN J. GOLDMAN
-------------------
Steven J. Goldman
President and Chief
Executive Officer
By: EDDIE K. SCHNOPP
-------------------------
Eddie K. Schnopp
Vice President of Finance
and Logistics and Chief
Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE 9 MONTHS ENDED SEPTEMBER 30,
1997 AND IS QAULIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,819
<SECURITIES> 0
<RECEIVABLES> 13,559
<ALLOWANCES> 800
<INVENTORY> 20,646
<CURRENT-ASSETS> 38,705
<PP&E> 22,794
<DEPRECIATION> 13,655
<TOTAL-ASSETS> 78,282
<CURRENT-LIABILITIES> 26,307
<BONDS> 0
0
17,544
<COMMON> 10
<OTHER-SE> 4,550
<TOTAL-LIABILITY-AND-EQUITY> 78,282
<SALES> 64,639
<TOTAL-REVENUES> 64,639
<CGS> 39,127
<TOTAL-COSTS> 16,172
<OTHER-EXPENSES> 31
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,925
<INCOME-PRETAX> 6,446
<INCOME-TAX> 1,748
<INCOME-CONTINUING> 4,698
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,698
<EPS-PRIMARY> .40
<EPS-DILUTED> 0
</TABLE>
