<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-29454
------------------------
POWER-ONE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0420182
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
740 CALLE PLANO, CAMARILLO, CA 93012
(Address of principal executive offices) (Zip code)
(805) 987-8741
(Registrant's telephone number, including area code)
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 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 August 7th there were outstanding 17,060,235 shares of common stock,
$.001 par value.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
POWER-ONE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C> <C>
PART I--FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets--June 30, 1998 and December 31, 1997........................... 3
Consolidated Statements of Operations--for the Three Months and the
Six Months ended June 30, 1998 and 1997................................................... 4
Consolidated Statements of Cash Flows--for the Six Months Ended June 30, 1998 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........................................................... 11
SIGNATURES................................................................................................. 12
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
POWER-ONE, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents............................................................ $ 40,103 $ 32,018
Accounts Receivable:
Trade (net of allowance)........................................................... 11,202 13,268
Other.............................................................................. 12 328
Inventories.......................................................................... 18,651 22,369
Refundable Income Taxes.............................................................. 42 2,411
Deferred Taxes--Current.............................................................. 975 976
Prepaid Expenses and Other Current Assets............................................ 943 467
---------- ------------
Total Current Assets............................................................. 71,928 71,837
PROPERTY & EQUIPMENT................................................................... 17,454 11,898
INTANGIBLE ASSETS, NET................................................................. 26,167 27,181
OTHER ASSETS........................................................................... 1,617 1,721
---------- ------------
TOTAL ASSETS........................................................................... $ 117,166 $ 112,637
---------- ------------
---------- ------------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion License Obligation................................................... $ 326 $ 326
Accounts Payable..................................................................... 3,524 4,465
Accrued Payroll and Related Expenses................................................. 828 652
Other Accrued Expenses............................................................... 4,196 5,031
---------- ------------
Total Current Liabilities........................................................ 8,874 10,474
---------- ------------
LONG TERM DEBT......................................................................... -- --
---------- ------------
OTHER LIABILITIES...................................................................... 1,949 1,949
---------- ------------
STOCKHOLDERS' EQUITY
Common Stock......................................................................... 17 17
Additional Capital................................................................... 92,234 92,227
Retained Earnings.................................................................... 14,092 7,970
---------- ------------
Total Stockholders' Equity....................................................... 106,343 100,214
---------- ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY............................................... $ 117,166 $ 112,637
---------- ------------
---------- ------------
</TABLE>
3
<PAGE>
POWER-ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES............................................................. $ 23,956 $ 22,556 $ 50,336 $ 40,173
COST OF GOODS SOLD.................................................... 14,300 13,746 29,870 24,348
--------- --------- --------- ---------
GROSS PROFIT.................................................... 9,656 8,810 20,466 15,825
GENERAL AND ADMINISTRATIVE
Selling............................................................. 2,091 2,182 4,481 3,894
Administrative...................................................... 1,410 1,633 3,567 2,935
Engineering......................................................... 1,137 866 2,290 1,628
Quality Assurance................................................... 582 522 1,097 959
Amortization of Intangibles......................................... 507 507 1,014 1,014
--------- --------- --------- ---------
Total Expenses.................................................. 5,727 5,710 12,449 10,430
INCOME FROM OPERATIONS................................................ 3,929 3,100 8,017 5,395
OTHER INCOME (EXPENSE)
Interest Expense.................................................... (93) (1,022) (185) (2,009)
Interest Income..................................................... 509 -- 915 11
Other Income, Net................................................... 134 22 155 37
--------- --------- --------- ---------
Total Other Income (Expense).................................... 550 (1,000) 885 (1,961)
INCOME BEFORE TAXES................................................... 4,479 2,100 8,902 3,434
INCOME TAXES.......................................................... 1,431 530 2,781 866
--------- --------- --------- ---------
NET INCOME............................................................ 3,048 1,570 6,121 2,568
--------- --------- --------- ---------
PREFERRED STOCK DIVIDENDS AND ACCRETION............................... -- 424 -- 835
--------- --------- --------- ---------
NET INCOME ATTRIBUTABLE TO COMMON SHARES.............................. $ 3,048 $ 1,146 $ 6,121 $ 1,733
--------- --------- --------- ---------
--------- --------- --------- ---------
BASIC EARNINGS PER COMMON SHARE....................................... $ 0.18 $ 0.11 $ 0.36 $ 0.17
--------- --------- --------- ---------
--------- --------- --------- ---------
DILUTED EARNINGS PER COMMON SHARE..................................... $ 0.18 $ 0.11 $ 0.35 $ 0.17
--------- --------- --------- ---------
--------- --------- --------- ---------
BASIC SHARES OUTSTANDING.............................................. 17,060 10,000 17,060 10,000
--------- --------- --------- ---------
--------- --------- --------- ---------
DILUTED SHARES OUTSTANDING............................................ 17,323 10,268 17,334 10,265
--------- --------- --------- ---------
--------- --------- --------- ---------
PRO FORMA EARNINGS PER SHARE DATA (Note 3):
Basic Earnings per Common Share..................................... $ 0.14 $ 0.23
--------- ---------
--------- ---------
Diluted Earnings per Common Share................................... $ 0.14 $ 0.22
--------- ---------
--------- ---------
</TABLE>
4
<PAGE>
POWER-ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
JUNE 30, JUNE 30,
1998 1997
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................................................. $ 6,121 $ 2,568
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization.............................................................. 2,257 2,060
Deferred income taxes...................................................................... 1 (111)
Changes in operating assets and liabilities:
Accounts receivable, net................................................................. 2,382 (3,764)
Inventories.............................................................................. 3,718 (777)
Refundable income taxes.................................................................. 2,369 --
Prepaid expenses and other current assets................................................ (476) (330)
Accounts payable......................................................................... (941) 377
Accrued expenses......................................................................... (659) 1,357
Other liabilities........................................................................ -- 302
--------- -----------
Net cash provided by operating activities................................................ 14,772 1,682
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment...................................................... (6,791) (799)
Other assets............................................................................... 104 (141)
--------- -----------
Net cash used in investing activities...................................................... (6,687) (940)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on notes payable to bank.......................................... -- 200
Bank overdraft............................................................................. -- 1,279
Repayments of long-term debt............................................................... -- (1,843)
Increase in notes receivable from stockholders............................................. -- (10)
--------- -----------
Net cash used in financing activities...................................................... -- (374)
--------- -----------
INCREASE (DECREASE) IN CASH.................................................................. 8,085 368
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................................... 32,018 1,684
--------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................................................... $ 40,103 $ 2,052
--------- -----------
--------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest................................................................................. $ 54 $ 1,150
Income taxes............................................................................. $ 1,750 $ 1,665
</TABLE>
5
<PAGE>
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 June 30, 1998 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, 1997, included in the Company's 1997
Annual Report on Form 10-K.
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 28, 1997 as December 31 and the three-month and
six-month periods ended June 28, 1998 and June 29, 1997 as June 30.
NOTE 2--INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Raw materials........................................................ $ 8,773 $ 11,809
Subassemblies-in-process............................................. 2,040 3,343
Finished goods....................................................... 7,838 7,217
--------- ------------
$ 18,651 $ 22,369
--------- ------------
--------- ------------
</TABLE>
NOTE 3--EARNINGS PER SHARE
The following is a reconciliation of the earnings per share data (in
thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
JUNE 30, 1998 JUNE 30, 1997
------------------------------------- ------------------------
AVERAGE AVERAGE
INCOME SHARES PER SHARE INCOME SHARES
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income attributable to common stockholders........................ $ 3,048 $ 1,146
Basic EPS:
Shares outstanding.............................................. 17,060 10,000
------------------------ ------------------------
Basic EPS....................................................... 3,048 17,060 $ 0.18 1,146 10,000
-----
-----
Dilutive securities--Stock options................................ 263 268
------------------------ ------------------------
Diluted EPS....................................................... $ 3,048 17,323 $ 0.18 1,146 10,268
-------------------------------------
-------------------------------------
Pro Forma--Assumed conversion:
Preferred stock................................................. 417 1,254
Obligation to officers.......................................... 10 56
------------------------
Pro forma diluted EPS............................................. 1,573 11,578
Dilutive securities--Stock options................................ (265)
-----------
Pro forma basic EPS............................................... $ 1,573 11,313
------------------------
------------------------
<CAPTION>
PER SHARE
-----------
<S> <C>
Income attributable to common stockholders........................
Basic EPS:
Shares outstanding..............................................
Basic EPS....................................................... $ 0.11
-----
-----
Dilutive securities--Stock options................................
Diluted EPS....................................................... $ 0.11
-----
-----
Pro Forma--Assumed conversion:
Preferred stock.................................................
Obligation to officers..........................................
Pro forma diluted EPS............................................. $ 0.14
-----
-----
Dilutive securities--Stock options................................
Pro forma basic EPS............................................... $ 0.14
</TABLE>
6
<PAGE>
NOTE 3--EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------------------------------------
JUNE 30, 1998 JUNE 30, 1997
------------------------------------- ------------------------
AVERAGE AVERAGE
INCOME SHARES PER SHARE INCOME SHARES
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income attributable to common stockholders........................ $ 6,121 $ 1,733
Basic EPS:
Shares outstanding.............................................. 17,060 10,000
------------------------ ------------------------
Basic EPS....................................................... 6,121 17,060 $ 0.36 1,733 10,000
-----
-----
Dilutive securities--Stock options................................ 274 265
------------------------ ------------------------
Diluted EPS....................................................... $ 6,121 17,334 $ 0.35 1,733 10,265
-------------------------------------
-------------------------------------
Pro Forma--Assumed conversion:
Preferred stock................................................. 822 1,254
Obligation to officers.......................................... 20 56
------------------------
Pro forma diluted EPS............................................. 2,575 11,575
Dilutive securities--Stock options................................ (265)
-----------
Pro forma basic EPS............................................... $ 2,575 11,310
------------------------
------------------------
<CAPTION>
PER SHARE
-----------
<S> <C>
Income attributable to common stockholders........................
Basic EPS:
Shares outstanding..............................................
Basic EPS....................................................... $ 0.17
-----
-----
Dilutive securities--Stock options................................
Diluted EPS....................................................... $ 0.17
-----
-----
Pro Forma--Assumed conversion:
Preferred stock.................................................
Obligation to officers..........................................
Pro forma diluted EPS............................................. $ 0.22
-----
-----
Dilutive securities--Stock options................................
Pro forma basic EPS............................................... $ 0.23
</TABLE>
Pro forma earnings per share for 1997 have been determined based on assuming
the redeemable preferred stock and other liabilities owed to certain officers
was converted into common stock as of January 1, 1997. Accordingly, the
applicable portions of the accrued preferred stock dividends and net interest
costs have been added back to income attributable to common stockholders in the
computation.
7
<PAGE>
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NET SALES. Net sales increased $10.2 million, or 25.3%, to $50.3 million
for the six months ended June 30, 1998 from $40.2 million for the six months
ended June 10, 1997. The increase in net sales resulted primarily from strong
growth in unit shipments of standard and modified standard power supplies,
particularly in high-range power configurations. Specifically, approximately
$9.2 million of the increase in net sales was due to a 78% growth in the
high-range power product line combined with 44% growth, or $3.0 million, in the
low-range power product line. This increase in net sales was partially offset by
a $2.8 million decrease in custom power supplies. All other product lines
contributed $0.8 million to net sales growth. The high-range power product line
is primarily sold to original equipment manufacturers in the semiconductor test
equipment market segment, whereas the low-range power product line is primarily
sold through distributors. For the first six months of the year, sales of high
power conversion products increased primarily as a result of the Company's
expanded focus on strategic OEM customers via the Company's Strategic National
Accounts Program ("SNAP").
Net sales for the three months ended June 30, 1998 increased $1.4 million,
or 6.2%, to $24.0 million compared with $22.6 million for the three months ended
June 30, 1997. The increase in sales for the second quarter was primarily due to
volume growth in standard and modified standard power supplies of the Company's
low- and high-range power product lines. Most of the sales increase was achieved
through the distribution channel, with point-of-purchase sales to distributors
up 18.5% over last year.
The Company's backlog on June 30, 1998 was $19.5 million compared with $32.2
million on December 31, 1997, and $27.1 million on June 30, 1997.
In 1998, certain economic indicators show a softening trend in the demand
for products within the electronics industry, as well as a downturn in capital
equipment markets. The semiconductor industry is also experiencing a significant
slowing of demand which is largely influenced by weak economic conditions in
Asia. Additionally, the current soft economic conditions are exacerbated by
domestic inventory reduction initiatives at original equipment manufacturers,
including some of the Company's customers. As a result of these factors, the
Company's management expects sales for the second half of 1998 to be below the
first half. During this soft business climate management is taking steps to
position itself for increased growth in subsequent quarters with current
initiatives including aggressively pursuing acquisitions, providing for
additional investment in research and development, and actively pursuing new
business opportunities with new customers in high-growth market segments such as
data communications and telecommunications.
GROSS PROFIT. Gross profit increased $4.6 million, or 29.3%, to $20.5
million for the six months ended June 30, 1998 from $15.8 million for the six
months ended June 30, 1997. As a percent of net sales, gross profit increased to
40.7% for the first half of 1998 from 39.4% for the same period in 1997. Gross
profit for the three months ended June 30, 1998 increased $846,000, or 9.6%, to
$9.7 million from $8.8 million for the same period last year. As a percent of
net sales, gross profit increased to 40.3% for the second quarter of 1998 from
39.1% for the second quarter of 1997. The improvement in gross profit margin,
for both the year-to-date and quarterly comparisons, primarily resulted from
higher sales and, particularly, increased sales of high-range power conversion
products, which typically have higher gross margins than custom- and low-range
power configurations.
SELLING EXPENSE. Selling expense increased $587,000, or 15.1%, to $4.5
million for the six months ended June 30, 1998 from $3.9 million for the
comparable period in 1997. As a percent of net sales, selling expense decreased
to 8.9% for the first half of 1998 from 9.7% for the comparable period in 1997.
The increase of $587,000 in the first half of 1998 was primarily due to higher
employee costs of $396,000, and increased advertising, outside sales commissions
and other variable selling costs aggregating $191,000, to
8
<PAGE>
support the increase in sales volume. The entire selling expense increase in the
first half of 1998 was attributable to a $678,000 increase in the first quarter
of 1998.
Selling expense for the three months ended June 30, 1998 decreased $91,000,
or 4.2%, to $2.1 million from $2.2 million for the three months ended June 30,
1997. The decrease of $91,000 in second quarter selling expense was primarily
due to reduced advertising costs. As a percent of net sales, selling expense
decreased to 8.7% for the second quarter of 1998 from 9.7% for the same period
in 1997.
ADMINISTRATIVE EXPENSE. Administrative expense increased $632,000, or
21.5%, to $3.6 million for the six months ended June 30, 1998 from $2.9 million
for the six months ended June 30, 1997. As a percent of net sales,
administrative expense decreased to 7.1% for the first half of 1998 from 7.3%
for the comparable period in 1997. The increase of $632,000 was primarily
attributable to public company expenses of $108,000, costs due to pursuing
acquisitions-related growth opportunities of $123,000, and higher employee costs
of $154,000, as well as other operating costs aggregating $247,000, due to the
growth in business volume.
Administrative expense for the three months ended June 30, 1998 decreased
$223,000, or 13.7%, to $1.4 million from $1.6 million for the three months ended
June 30, 1997. The decrease is primarily a result of a decrease in employee
performance bonuses. As a percent of net sales, administrative expense decreased
to 5.9% for the second quarter of 1998 from 7.2% for the same period in 1997.
ENGINEERING EXPENSE. Engineering expense increased $662,000, or 40.7%, to
$2.3 million for the six months ended June 30, 1998 from $1.6 million for the
six months ended June 30, 1997. As a percent of net sales, engineering expense
increased to 4.5% for the first half of 1998 from 4.1% for the comparable period
in 1997. Certain engineering expenses, primarily those related to personnel and
consultants, were lower in the first half of 1997 due to expense reduction
measures taken in the last half of 1996 as sales declined. The Company began to
refill many of these positions during the second half of 1997, which, combined
with increased investment in research and development resources in the first
half of 1998, caused the engineering expense increase of $662,000.
Engineering expense for the three months ended June 30, 1998 increased
$271,000, or 31.3%, to $1.1 million from $866,000 for the three months ended
June 30, 1997. The increase is primarily the result of increased investment in
research and development resources and activities. As a percent of net sales,
engineering expense increased to 4.8% for the second quarter of 1998 from 3.8%
for the same period in 1997.
QUALITY ASSURANCE EXPENSE. Quality Assurance expense increased $138,000, or
14.4%, to $1.1 million for the six months ended June 30, 1998 from $959,000 for
the six months ended June 30, 1997. As a percent of net sales, quality assurance
expense decreased to 2.2% for the first half of 1998 from 2.4% for the
comparable period in 1997. Quality assurance expense for the three months ended
June 30, 1998 increased $60,000, or 11.5%, to $582,000 from $522,000 for the
three months ended June 30, 1997. As a percent of net sales, quality assurance
expense increased to 2.4% for the second quarter of 1998 from 2.3% for the same
period in 1997. These increases were primarily due to increased employee costs
related to the additional demand for quality assurance resources created by the
growth in business volume.
INCOME FROM OPERATIONS. Income from operations increased $2.6 million, or
48.6%, to $8.0 million for the six months ended June 30, 1998 from $5.4 million
for the comparable period in 1997. As a percent of net sales, income from
operations increased to 15.9% for the first half of 1998 from 13.4% for the same
period in 1997. For the three months ended June 30, 1998, income from operations
increased $829,000, or 26.7%, to $3.9 million from $3.1 million for the three
months ended June 30, 1997.
INTEREST EXPENSE. Interest expense decreased $1.8 million, or 90.8%, to
$185,000 for the six months ended June 30, 1998 from $2.0 million for the
equivalent period in 1997. For the three months ended June 30, 1998, interest
expense decreased $929,000 to $93,000 from $1.0 million for the same period last
9
<PAGE>
year. These decreases were the result of the repayment of all bank borrowings
under the Company's existing bank credit facility, with the net proceeds from
the Company's initial public offering completed in the fourth quarter of 1997.
Interest expense in 1998 is primarily comprised of bank fees related to the
revolving credit facility.
INTEREST INCOME. Interest income increased $904,000, to $915,000 for the
six months ended June 30, 1998 from $11,000 for the six months ended June 30,
1997. Interest income for the three months ended June 30, 1998 increased
$509,000 from zero in the same period last year. These increases are
attributable to the interest income derived from investment of a portion of the
net proceeds from the Company's initial public offering in short-term, interest
bearing investment-grade financial instruments.
OTHER INCOME. Other income increased $118,000, to $155,000 for the six
months ended June 30, 1998 from $37,000 for the six months ended June 30, 1997.
Other income for the three months ended June 30, 1998 increased $112,000, to
$134,000 from $22,000 in the comparable period last year.
INCOME TAXES. The provision for income taxes increased to $2.8 million for
the six months ended June 30, 1998 from $866,000 for the comparable period in
1997. The increase in income taxes reflects an increase in the effective tax
rate to 31.2% for the first half in 1998 from 25.2% for the equivalent period in
1997 and the impact of the $5.5 million, or 159.2%, increase in income before
income taxes. Income taxes for the three months ended June 30, 1998 increased to
$1.4 million from $530,000 for the same period in 1997. For the second quarter
of 1998, the effective tax rate increased to 31.9% from 25.2% last year. These
increases in the effective tax rate reflect the higher percentage of the
Company's operating income being generated from increased sales of high-range
power products, which are primarily assembled and configured in the U.S. and
Mexico, which have higher tax rates than the Company's Puerto Rico operations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's balance of cash and cash equivalents was
$40.1 million compared to $32.0 million at December 31, 1997, an increase of
$8.1 million, or 25.3%. Net cash provided by operating activities increased to
$14.8 million, or $13.1 million, for the six months ended June 30, 1998, from
$1.7 million for the six months ended June 30, 1997. This increase was primarily
due to higher net income, a decrease of $2.4 million in accounts receivable, a
$3.7 million decrease in inventory and a $1.8 million income tax refund, which
were partially offset by a $941,000 decrease in accounts payable and a $476,000
increase in prepaid expenses.
The decrease in accounts receivable is primarily attributable to a greater
focus on improved collection efforts. The decrease in inventory at June 30,
1998, is primarily due to management's initiative to reduce inventory balances
and improve inventory turnover. The decrease in accounts payable is due to the
corresponding decrease in inventory along with additional discount terms offered
by vendors. The increase in prepaid expense is due to a rent prepayment for the
Company's manufacturing facility in the Dominican Republic.
Net cash used in investing activities increased $5.7 million to $6.7 million
for the six months ended June 30, 1998, from $940,000 for the six months ended
June 30, 1997. This increase is due to cash expenditures of $3.5 million for the
new manufacturing facility in Mexico, as well as purchases of property, plant
and capital equipment consistent with supporting business growth targets.
Depreciation and amortization was $2.3 million for the six months ended June 30,
1998, compared with $2.1 million for the six months ended June 30, 1997. The
Company anticipates that its capital expenditures for 1998 will be approximately
$8.9 million, of which approximately $4.5 million represents the cost of the new
manufacturing facility in Mexico.
The Company's revolving line of credit bears interest on amounts outstanding
payable quarterly based on the Company's leverage ratio and one of the following
rates as selected by the Company: LIBOR plus 1.0% to 2.25%, or the bank's base
rate plus 0% to 1.25%. As of June 30, 1998, no amounts were
10
<PAGE>
outstanding under the credit agreement, and the Company was in compliance with
all debt covenants. Borrowings are collateralized by substantially all of the
Company's assets.
Based on current plans and business conditions, the Company believes its
existing working capital and borrowing capacity, coupled with the funds
generated from the Company's operations, will be sufficient to fund its
anticipated working capital, capital expenditures and outstanding lease
commitments for the foreseeable future. However, if the Company makes a large
acquisition, it may be necessary to raise debt or equity in the private or
public securities markets.
PART II--OTHER INFORMATION
ITEMS 1 THROUGH 5--Not applicable
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
During the three months ended June 30, 1998, the registrant did not file any
reports on Form 8-K.
11
<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.
<TABLE>
<S> <C> <C>
Dated: August 7, 1998 POWER-ONE, INC.
By: /s/ STEVEN J. GOLDMAN
----------------------------------------
Steven J. Goldman
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER AND PRESIDENT
By: /s/ EDDIE K. SCHNOPP
----------------------------------------
Eddie K. Schnopp
VICE PRESIDENT, FINANCE AND LOGISTICS,
CHIEF FINANCIAL OFFICER AND SECRETARY
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 40,103
<SECURITIES> 0
<RECEIVABLES> 12,145
<ALLOWANCES> 943
<INVENTORY> 18,651
<CURRENT-ASSETS> 71,928
<PP&E> 23,916
<DEPRECIATION> 6,462
<TOTAL-ASSETS> 117,166
<CURRENT-LIABILITIES> 8,874
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 106,326
<TOTAL-LIABILITY-AND-EQUITY> 117,166
<SALES> 50,336
<TOTAL-REVENUES> 50,336
<CGS> 29,870
<TOTAL-COSTS> 29,870
<OTHER-EXPENSES> 12,449
<LOSS-PROVISION> 118
<INTEREST-EXPENSE> 185
<INCOME-PRETAX> 8,902
<INCOME-TAX> 2,781
<INCOME-CONTINUING> 6,121
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,121
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.35
</TABLE>
