<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 29, 1999
-----------------
POWER-ONE, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-29454 77-0420182
- -------------------------------------------------------------------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File number) Identification No.)
740 CALLE PLANO, CAMARILLO, CA 93012
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 987-8741
---------------
NOT APPLICABLE
- -------------------------------------------------------------------------------
<PAGE>
This report amends the current report on Form 8-K dated January 29, 1999
of Power-One, Inc. (the "Company"), relating to the purchase by the Company
of all of the outstanding capital stock of International Power Devices, Inc.
("IPD") for approximately $31.8 million, less certain capitalized lease
obligations and other indebtedness of IPD. In addition, the Company may pay
up to $13 million earnout consideration to IPD's stockholders based upon
IPD's attaining certain defined operational performance objectives through
March 31, 2000. This report contains the financial statements and pro forma
financial information required to be provided under Item 7 of the Form 8-K.
Therefore, the Company hereby amends its Form 8-K in accordance with Rule
12b-15 under the Securities Exchange Act of 1934. Other than as set forth
herein, the information set forth in the Form 8-K has not changed.
Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits
The following financial statements and pro forma financial information are
filed as part of this report:
(a) Financial statements of businesses acquired.
Balance sheet of IPD as of December 31, 1998 and related statements of
income, stockholders' equity and cash flows for the year ended December 31,
1998.
(b) Pro forma financial information.
Pro forma consolidated balance sheet as of December 31, 1998 and
explanatory notes. Pro forma consolidated statement of operations for the year
ended December 31, 1998 and explanatory notes.
(c) Exhibits
The exhibits listed below are filed as part of, or incorporated by
reference into, this report.
2
<PAGE>
EXHIBIT NO. DESCRIPTION
2.1* Agreement and Plan of Merger, dated as of January 7,
1999, by and among Power-One, Inc., Power-One
Acquisition Corporation, and International Power
Devices, Inc.
23 Consent of Arthur Andersen LLP with respect to the
Financial Statements of International Power Devices, Inc.
- --------------------
* Previously filed as an exhibit to Form 8-K of Power-One, Inc., dated
January 29, 1999 (File No. O-29454)
The Registrant undertakes to furnish supplementally to the Commission, upon
request, a copy of any Exhibit or Schedule to the Agreement and Plan of Merger.
3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
International Power Devices, Inc.:
We have audited the accompanying balance sheet of International Power Devices,
Inc. (a Massachusetts corporation) as of December 31, 1998, and the related
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Power Devices,
Inc. as of December 31, 1998, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
Arthur Andersen, LLP
Boston, Massachusetts
February 19, 1999
F-1
<PAGE>
INTERNATIONAL POWER DEVICES, INC.
BALANCE SHEET--DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
1998
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,501
Accounts receivable, net of reserves of $85,300 as of December 31, 1998 5,027,663
Inventories 5,357,893
Deferred tax asset 330,000
Prepaid expenses 52,286
Refundable income taxes 80,000
---------------
Total current assets 10,854,343
---------------
PROPERTY AND EQUIPMENT, AT COST:
Machinery and equipment 5,355,895
Office equipment and furniture 941,011
Leasehold improvements 761,470
---------------
7,058,376
Less--Accumulated depreciation and amortization 3,711,015
---------------
3,347,361
---------------
LOANS RECEIVABLE FROM AFFILIATES -
---------------
OTHER ASSETS 276,578
---------------
$ 14,478,282
---------------
---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit with a bank $ 1,927,025
Current portion of long-term debt 695,172
Current portion of capital lease obligations 807,693
Accounts payable 728,449
Accrued expenses 1,306,305
---------------
Total current liabilities 5,464,644
---------------
LONG-TERM DEBT 1,719,657
---------------
DEFERRED TAX LIABILITY 241,000
---------------
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 1,364,333
---------------
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value-
Authorized--250,000 shares
Issued--201,509 shares 2,015
Additional paid-in capital 5,201,609
Common stock warrants 250,000
Retained earnings 411,024
Less--Treasury stock, 12,520 shares, at cost (176,000)
---------------
Total stockholders' equity 5,688,648
---------------
$ 14,478,282
---------------
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-2
<PAGE>
INTERNATIONAL POWER DEVICES, INC.
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998
<S> <C>
NET SALES $ 29,100,677
COST OF GOODS SOLD 20,237,362
---------------
Gross profit 8,863,315
---------------
OPERATING EXPENSES:
Selling and marketing 2,124,605
Research and development 2,902,707
General and administrative 2,872,784
---------------
Total operating expenses 7,900,096
---------------
Income from operations 963,219
OTHER:
Interest expense (598,673)
Equity in income of joint venture 111,041
---------------
Income before provision for income taxes 475,587
PROVISION FOR INCOME TAXES 270,000
---------------
Net income $ 205,587
---------------
---------------
NET INCOME PER SHARE:
Basic $ 1.02
---------------
---------------
Diluted $ 1.00
---------------
---------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic 201,509
---------------
---------------
Diluted 206,320
---------------
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
INTERNATIONAL POWER DEVICES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL COMMON RETAINED
NUMBER OF $.01 PAR PAID-IN STOCK EARNINGS
SHARES VALUE CAPITAL WARRANTS (DEFICIT)
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 201,509 2,015 5,004,944 250,000 205,437
Noncash compensation expense related
to the issuance of nonqualified
stock options - - 196,665 - -
Net income - - - - 205,587
----------- ------- ----------- ------------ ------------
BALANCE, DECEMBER 31, 1998 201,509 $ 2,015 $5,201,609 $250,000 $411,024
----------- ------- ----------- ------------ ------------
----------- ------- ----------- ------------ ------------
<CAPTION>
TOTAL
STOCKHOLDERS'
TREASURY STOCK EQUITY
NUMBER OF
SHARES COST
<C> <C> <C>
<S> 12,520 (176,000) 5,286,396
BALANCE, DECEMBER 31, 1997
Noncash compensation expense related
to the issuance of nonqualified - - 196,665
stock options
- - 205,587
Net income ---------- ---------- -----------
12,520 $(176,000) $5,688,648
BALANCE, DECEMBER 31, 1998 ---------- ---------- -----------
---------- ---------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
INTERNATIONAL POWER DEVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 205,587
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization 1,097,482
Noncash compensation expense related to the issuance of nonqualified stock options 196,665
Write-off of interest on loan receivable 36,237
Accretion of discount on notes payable 50,000
Equity in income of joint venture (111,041)
Changes in current assets and liabilities-
Accounts receivable (1,545,878)
Inventories (695,009)
Prepaid expenses and other current assets (3,079)
Refundable income taxes 578,602
Accounts payable (134,044)
Accrued expenses 581,055
---------------
Net cash provided by operating activities 256,577
---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (504,117)
Proceeds from repayment of loan receivable 235,588
Decrease in other assets 20,109
---------------
Net cash used in investing activities (248,420)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit 1,037,617
Repayments under long-term debt (216,029)
Proceeds from exercise of stock options -
Principal repayments of capital lease obligations (831,637)
---------------
Net cash used in financing activities (10,049)
---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,892)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,393
---------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,501
---------------
---------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 549,234
---------------
---------------
Income taxes $ -
---------------
---------------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Equipment acquired under capital lease obligation $ 420,912
---------------
---------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
INTERNATIONAL POWER DEVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) OPERATIONS
International Power Devices, Inc. (the Company) was incorporated in
December 1984 to design and manufacture high quality, high reliability
DC/DC converters. The Company's end-user customers are located throughout
North America, Europe and Asia.
(2) SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of certain
accounting policies described below and elsewhere in these notes to
financial statements.
(a) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reported period. Actual results could differ
from those estimates.
(b) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of less than 90 days to be cash equivalents.
(c) REVENUE RECOGNITION
The Company recognizes revenue upon product shipment. Provisions for
estimated warranty costs are recorded at the time of sale, based on
historical experience.
(d) NET INCOME PER COMMON SHARE
Basic net income per common share was computed by dividing net income
by the basic weighted average number of common shares outstanding
during the period. Diluted net income per common share was computed by
dividing net income by diluted weighted average number of common
shares outstanding during the year. The weighted average number of
common equivalent shares outstanding has been determined in accordance
with the treasury-stock method. Common stock equivalents consist of
common stock issuable on the exercise of outstanding options and
warrants to purchase common stock.
F-6
<PAGE>
Calculations of basic and diluted weighted average per common shares
and potential common share are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
<S> <C>
Net income $ 205,587
--------------
--------------
Weighted average number of common shares outstanding 201,509
Potential common shares pursuant to stock options 1,394
Potential common shares pursuant to conversion of warrants 3,417
--------------
Diluted weighted average shares $ 206,320
--------------
--------------
Basic net income per share $ 1.02
Diluted net income per common and potential share $ 1.00
</TABLE>
There were no antidilutive shares at December 31, 1998.
(e) INVENTORIES
Inventories are stated at the lower of cost or market, on the
first-in, first-out basis and consist of the following at December 31,
1998:
<TABLE>
<CAPTION>
1998
<S> <C>
Raw materials $ 2,722,624
Work-in-process 1,175,372
Finished goods 1,459,897
---------------
$ 5,357,893
---------------
---------------
</TABLE>
F-7
<PAGE>
(f) DEPRECIATION AND AMORTIZATION
The Company provides for depreciation and amortization of property and
equipment by charges to operations in amounts that allocate the cost
of the assets using the straight-line method over their estimated
useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
<S> <C>
Machinery and equipment 5 years
Office equipment and furniture 5 years
Leasehold improvements Life of lease
</TABLE>
(g) INVESTMENT IN JOINT VENTURE
In October 1995, the Company entered into an Equity Joint Venture
Agreement with Shenzhen SEZ Industry Company (Shenzhen) to form a
limited liability company governed by the laws of the People's
Republic of China. Shenzhen has the nonexclusive right to distribute
the Company's products within the People's Republic of China. The
Company invested $145,000 in cash and $100,000 in technology in 1995,
which represents a 49% equity interest in the joint venture. The
Company accounts for these investments using the equity method. For
the year ended December 31, 1998, the Company recorded $111,041, of
equity in income of joint venture. The net investment is included in
other assets in the accompanying balance sheet.
The joint venture has the following selected financial results for
the year ended December 31, 1998:
<TABLE>
<CAPTION>
1998
<S> <C>
Total assets $ 3,232,015
---------------
---------------
Total revenue $ 4,186,768
---------------
---------------
Net income $ 226,614
---------------
---------------
</TABLE>
(h) CONCENTRATION OF CREDIT RISK
Statement of Financial Accounting Standards (SFAS) No. 105, DISCLOSURE
OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK, requires
disclosures of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet risk
relating to foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company has two customers located in
China who represent 46% of accounts receivable at December 31, 1998.
These two customers also account for approximately 25% of sales for
the year end December 31, 1998.
The Company additionally has two significant customers who account for
approximately 14% and 13%, respectively, of sales for the year ended
December 31, 1998. These customers also account for approximately 6%
and 8%, respectively, of outstanding accounts receivable at December
31, 1998.
(i) FINANCIAL INSTRUMENTS
SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
requires disclosure about fair value of financial instruments.
Financial instruments consist of cash and cash equivalents, accounts
receivable, accounts payable and long-term debt. The estimated fair
value of these financial instruments approximates their carrying
value.
(3) LOANS RECEIVABLE FROM AFFILIATES
At December 31, 1997, the Company held three notes receivable bearing
interest at 6% per annum from affiliated companies owned by certain
stockholders of the Company. These notes were paid in 1998.
(4) DEBT
F-8
<PAGE>
(a) LINE OF CREDIT
The Company has a revolving line of credit with a bank that extends
through March 1999 and is subject to renewal in April 1999. Borrowings
are limited to the lesser of $4,500,000 or 80% of the Company's
eligible accounts receivable, as defined. Borrowings under this line
of credit are secured by the Company's accounts receivable, inventory
and personal guarantees of officers and stockholders. The agreement
provides for several restrictive covenants, including restrictions on
dividends. At December 31, 1998, the Company was not in compliance
with all such covenants. Subsequent to December 31, 1998, the Company
paid the entire outstanding balance of the revolving line of credit,
as discussed in Note 11.
At December 31, 1998, the qualified borrowing base was $3,412,987. The
line bears interest at the bank's prime rate (7.75% at December 31,
1998) plus .75%. At December 31, 1998, the total unused portion
available and borrowings outstanding under the line of credit was
$1,485,962 and $1,927,025, respectively.
F-9
<PAGE>
(b) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1998:
<TABLE>
<CAPTION>
1998
<S> <C>
Subordinated notes payable $ 1,880,000
Related party notes payable 327,032
Promissory note payable 207,797
---------------
2,414,829
Less--Current maturities 695,172
---------------
$ 1,719,657
---------------
---------------
</TABLE>
(c) SUBORDINATED NOTES PAYABLE
In March 1996, the Company entered into a subordinated note and
warrant purchase agreement (the Subordinated Note Agreement) with an
institution. The Company received $2,000,000 in connection with the
issuance of the subordinated notes. The subordinated notes bear
interest at 10%, payable quarterly in arrears. The Company is required
to make sixteen quarterly principal payments of $125,000 beginning on
June 30, 1999. The subordinated notes are subordinate to all amounts
due under the line of credit, but senior to all other outstanding
debt. The subordinated notes also require the Company to meet certain
financial covenants, as defined. The Company was in compliance with
these covenants as of December 31, 1998.
As part of the Subordinated Note Agreement, the Company also issued
warrants to acquire up to 10,000 shares of common stock at an exercise
price of $117 per share (the exercise price is subject to adjustment,
as defined). Based on the relative value of the subordinated notes and
warrants at the time of the agreement, the Company allocated $250,000
of proceeds to the warrants. The Company is amortizing the related
discount on the subordinated notes using the effective-interest-rate
method through the maturity date. During 1998, the Company recorded
$50,000 in interest expense relating to the amortization of the
discount on the subordinated notes. As of December 31, 1998,
cumulative amortization of the discount was $130,000.
(d) RELATED PARTY NOTES PAYABLE
In 1994, 1995 and 1996, the Company issued notes payable to a
stockholder of the Company in amounts of $100,000, $150,000 and
$200,000, respectively. All notes are personally guaranteed by two
stockholders of the Company and are subordinated to the revolving line
of credit and the subordinated notes payable. All notes bear interest
at a rate of 12%. The principal installments are payable in equal
monthly installments of $2,224, $3,950 and $5,267,
F-10
<PAGE>
respectively, and expire in November 1999, September 2000 and April
2001, respectively. The outstanding balance of these notes at December
31, 1998 was $21,069, $73,805 and $124,084, respectively.
Additionally, in 1994, the Company borrowed $130,000 from a
stockholder to increase the working capital of the Company in order to
expand the business. This loan bears interest at the bank's prime rate
plus 4.25%, not to exceed 15%. The loan is payable in equal monthly
installments of $2,113 plus interest through November 1999. The
outstanding balance of this loan at December 31, 1998 is $108,074.
(e) PROMISSORY NOTE PAYABLE
In November 1995, the Company issued a promissory note to an
institution in the amount of $500,000. The note is personally
guaranteed by three stockholders of the Company and is subordinate to
the committed line of credit and the subordinated notes payable. The
note is collateralized by substantially all assets of the Company and
bears an interest rate equal to the bank's prime rate plus 2.5%. The
note is payable in equal monthly installments of $8,333 plus interest
through November 2000.
(f) OTHER NOTE PAYABLE--AFFILIATE
In 1995, the Company entered into a loan agreement with an affiliate
for proceeds of $285,000. This loan was paid in full in September
1997.
(g) MATURITIES OF LONG-TERM DEBT
Maturities of long-term debt as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 695,172
2000 691,371
2001 523,286
2002 500,000
2003 125,000
---------------
$ 2,534,829
---------------
Less--Unamortized discount 120,000
---------------
$ 2,414,829
---------------
---------------
</TABLE>
F-11
<PAGE>
(5) COMMITMENTS
(a) LEASES
The Company leases its current facility from a related party under a
10-year operating lease that includes taxes, operating expenses and
escalation adjustments, expiring in July 2005. The escalation
adjustment shall be equal to the product of the base rent times the
Consumer Price Index. The Company also leases certain equipment under
capital leases with expiration dates through 2003. Rent expense
amounted to approximately $840,000 for the year ended December 31,
1998.
Future minimum lease payments under operating and capital leases
consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASE
<S> <C> <C>
1999 $ 961,715 $ 841,900
2000 801,429 841,900
2001 456,893 841,900
2002 208,413 841,900
2003 40,907 841,900
Thereafter - 1,262,850
-------------- --------------
Total future minimum lease payments 2,469,357 $ 5,472,350
--------------
--------------
Less--Amount representing interest 297,331
--------------
Present value of future minimum lease
payments 2,172,026
Less--Current portion of capital leases 807,693
--------------
Total $ 1,364,333
--------------
--------------
</TABLE>
(b) LITIGATION
The Company is involved in various litigation arising in the ordinary
course of business. Each of these matters is subject to various
uncertainties and some of these matters may be resolved unfavorably to
the Company. In the opinion of management, the ultimate liability, if
any, resulting from the aforementioned actions is not anticipated to
have a material adverse effect upon the Company's financial position
or results of operations.
(6) INCOME TAXES
Under SFAS No. 109, ACCOUNTING FOR INCOME TAXES, deferred tax assets
or liabilities are computed based on the differences between the
financial statement and income tax bases of assets and liabilities
using the enacted marginal tax rate. Deferred income tax expenses or
credits are based on changes in the asset or liability from period to
period.
The components of the tax provision are as follows:
<TABLE>
<CAPTION>
1998
<S> <C>
Current-
Federal $ 270,000
State -
---------------
270,000
Deferred-
</TABLE>
F-12
<PAGE>
<TABLE>
<S> <C>
Federal -
State -
Provision for income taxes $ 270,000
---------------
---------------
</TABLE>
A reconciliation of the federal statutory rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
<S> <C>
Income tax provision at federal statutory rate 34.0%
Increase (decrease) in tax resulting from-
State tax provision, net of federal provision 6.0
Noncash compensation expense related to the
issuance of nonqualified stock options 14.1
Accretion of discount on notes payable 3.6
Other permanent items (0.9)
------
Provision for income taxes 56.8%
------
------
</TABLE>
F-13
<PAGE>
Deferred income taxes as of December 31, 1998 related to the following
state net operating loss and credit carryforwards and temporary
differences:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
<S> <C>
Deferred tax assets-
Accrued expenses and reserves $ 397,000
State NOL and credit carryforwards 113,000
Valuation allowance (180,000)
---------------
Total deferred tax assets $ 330,000
---------------
---------------
Deferred tax liability-
Depreciation $ (241,000)
---------------
---------------
</TABLE>
Under SFAS No. 109, the Company recognizes a deferred tax asset for the
future benefit of its temporary differences if it concludes that it is
more likely than not that the deferred tax asset will be recognized.
(7) COMMON STOCK
(a) WARRANTS
In connection with the issuance of the subordinated note payable (see
Note 4(c)), the Company issued warrants to purchase 10,000 shares of
common stock at an exercise price of $117 per share. The warrants are
exercisable immediately and expire on the later of March 31, 2003 or
at such time as all principal and interest on the subordinated note
payable is paid in full.
(b) COMMON STOCK AND OPTION PURCHASE AGREEMENT
In July 1996, in connection with a Common Stock and Option Purchase
Agreement, the Company issued 17,094 shares of common stock and 10,000
options to purchase the Company's common stock at an exercise price of
$117 per share (the exercise price is subject to adjustment, as
defined). These options vest immediately upon the grant date and
expire on June 30, 2003. As of December 31, 1998, all 10,000 options
were still outstanding.
(c) DIRECTORS STOCK OPTION PLAN
The Company's Directors Stock Option Plan (the Plan) is administered
by the Board of Directors and authorizes the issuance of common stock
for the exercise of options. The Plan provides for the grant of 300
options per year to each qualified director of the Company. Options
granted under the Plan vest immediately upon grant date and expire 30
days after the stockholder ceases to be a Director of the Company. At
December 31, 1998, there were 1,500 outstanding options under the
Plan.
In accordance with APB No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, the Company records compensation expense when options are
granted with an exercise price per share that is less than the fair
market value of the common stock at the date of grant. Compensation
expense is recorded in an amount equal to the excess of the fair
market value per share over the exercise price, times the number of
options granted. The compensation expense charged to operations was
approximately $196,665 and $138,000 for the years ended December 31,
1998 and 1997, respectively.
The following is a summary of stock option activity under the Plan:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE EXERCISE PRICE
<S> <C> <C> <C>
</TABLE>
F-14
<PAGE>
<TABLE>
<S> <C> <C> <C>
Outstanding at December 31, 1997 - $ - $ -
Granted 1,500 10 10
-------------- -------------
Outstanding at December 31, 1998 1,500 $ 10 $ 10
-------------- ------------- --------------
-------------- ------------- --------------
Exercisable at December 31, 1998 1,500 $ 10 $ 10
-------------- ------------- --------------
-------------- ------------- --------------
</TABLE>
(d) STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB)
issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which
requires the measurement of the fair value of stock options to be
included in the statement of operations or disclosed in the notes to
the financial statements. The Company has determined that it will
continue to account for stock-based compensation for employees under
Accounting Principles Board Opinion No. 25 and elect the
disclosure-only alternative under SFAS No. 123 for stock options
granted in 1998 using the Black-Scholes option pricing model
prescribed by SFAS No. 123. The assumptions used are as follows:
<TABLE>
<CAPTION>
1998
<S> <C>
Risk-free interest rate 5.42%
Expected dividend yield -
Expected lives 5 years
Expected volatility -
</TABLE>
F-15
<PAGE>
The fair value of grants, using the Black-Scholes option pricing model
prescribed by SFAS No. 123, during 1998 was $200,226. Noncash
compensation expense related to the issuance of nonqualified stock
options accounted for under APB No. 25 was $196,665 in 1998.
Therefore, the pro forma effects of applying SFAS No. 123, if the
Company elected to do so, are as follows for the year ended December
31, 1998:
<TABLE>
<CAPTION>
1998
<S> <C>
Net income-
As reported $ 205,587
Pro forma 202,026
</TABLE>
(8) SEGMENT AND GEOGRAPHIC INFORMATION
The Company has adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, in the fiscal year ended December 31,
1998. SFAS No. 131 establishes standards for reporting information
regarding operating segments in annual financial statements and requires
selected information for those segments to be presented in interim
financial reports issued to stockholders. SFAS No. 131 also establishes
standards for related disclosures about products and services and
geographic areas. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available
for evaluation by the chief operating decision maker, or decision making
group, in making decisions how to allocate resources and assess
performance. The Company's chief decision maker, as defined under SFAS No.
131, is the Chief Executive Officer. To date, the Company has viewed its
operations and manages its business as principally one segment: DC/DC
converter manufacturing and sales. As a result, the financial information
disclosed herein represents all of the material financial information
related to the Company's principal operating segment.
Total revenues from international sources were $10,191,443 in 1998,
respectively. The Company's revenues from international sources were
primarily generated from customers located in China. The following table
represents amounts relating to geographic locations for the year ended
December 31, 1998.
<TABLE>
<CAPTION>
1998
<S> <C>
Total revenues (1)
United States $ 18,909,234
China 7,236,780
Other foreign countries 2,954,663
---------------
$ 29,100,677
---------------
---------------
</TABLE>
(1) Revenues are attributed to geographic regions based on location of
customer.
F-16
<PAGE>
(9) RELATED PARTY GUARANTEE
The Company, along with several of its stockholders, has guaranteed the
debt on the 14-20 Linden Street Trust, a related party. The trust is owned
by several of the Company's stockholders and rents the building to the
Company and others. The debt is secured by the building. At December 31,
1998, the outstanding debt was $1,921,198 and the net book value of the
building was $2,837,697.
(10) RETIREMENT PLAN
In 1996, the Company adopted a defined contribution retirement plan (the
Retirement Plan). The Retirement Plan qualifies under Section 401(k) of the
Internal Revenue Code and covers substantially all employees. Under the
Retirement Plan, a participant may elect to defer receipt of a stated
percentage of his or her compensation, subject to limitation under the
Internal Revenue Code, which would otherwise be payable to the participant
for any plan year. The Company may make matching contributions equal to 25%
of pretax employee contributions up to a maximum of 4% of an employee's
salary. During 1998, the Company made matching contributions of
approximately $33,000.
(11) SUBSEQUENT EVENT
On January 29, 1999, the Company reached an agreement to sell 100% of the
outstanding shares of common stock to Power-One, Inc. In connection with
the sale, the shareholders received $31.75 million less the outstanding
balances as of January 29, 1999 of the subordinated notes payable, the
capital leases and the revolving line of credit. In addition, $3.6 million
was placed in escrow, subject to certain adjustments, as defined. The
agreement also calls for future contingent payments of up to $13 million
based upon earnout provisions, as defined.
F-17
<PAGE>
POWER-ONE, INC.
Pro Forma Financial Information:
On January 29, 1999, the Company completed its acquisition of IPD
for $31.8 million less certain capitalized lease obligations and other
indebtedness of IPD. In addition, the Company may pay up to $13 million
earnout consideration to IPD's stockholders based upon IPD's attaining
certain defined operational performance objectives through March 31, 2000. In
a separate transaction, the Company has agreed to acquire IPD's manufacturing
facility from a separate partnership for its appraised value, which is
anticipated to be approximately $4-$5 million. The purchase price was
negotiated at arms-length with IPD, which had no prior relationship with the
Company. The source of funds for the acquisition was a combination of the
Company's available cash, as well as advances totaling approximately $28
million under its existing credit facility.
IPD, a Boston-based company, is a leading supplier of over 1,000
high-density and general-purpose DC/DC converters and ring generators which
it distributes primarily throughout North America. IPD's major customers
include Cisco, Bay Networks, Nortel and Hewlett-Packard. As part of the
acquisition, the Company acquired IPD's 49% ownership position in Shenzhen
SED-IPD International Electronic Device Co., Ltd., a joint venture based in
Shenzhen, China.
The acquisition was accounted for using the purchase method of
accounting. The net purchase price, plus transaction costs, was allocated to
tangible assets and intangible assets. The excess of the aggregate purchase
price over the estimated fair market values of the net assets acquired was
recognized as goodwill and other identifiable intangible assets, and is being
amortized over periods ranging from five to 15 years.
The following unaudited pro forma statement of operations gives effect to the
acquisition as if it had occurred at the beginning of the period, while the
unaudited pro forma balance sheet gives effect to the acquisition as if it
had occurred as of December 31, 1998. Pro forma adjustments include only the
effects of events directly attributable to the transaction that are expected
to have a continuing impact and that are factually supportable. The notes to
the pro forma financial information describe the pro forma amounts and
adjustments presented below. The pro forma financial information does not
necessarily reflect the operating results that would have occurred had the
acquisition been consummated as of the above dates, nor is such information
indicative of future operating results.
F-18
<PAGE>
POWER-ONE, INC.
PRO FORMA FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------------
POWER-ONE IPD ADJUSTMENTS REFERENCE PRO FORMA
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 10,781 $6 $- $ 10,787
Trade accounts receivable, net 17,865 5,028 - 22,893
Other receivables 2,184 - - 2,184
Inventories 32,396 5,358 1,030 (B, C) 38,784
Other current assets 3,211 462 - 3,673
-------------------------------------- ---------
Total current assets 66,437 10,854 1,030 78,321
Fixed assets, net 34,608 3,347 158 (B, C) 38,113
Intangible assets, net 51,019 - 18,720 (B, C, G) 69,739
Other assets 1,915 277 - 2,192
-------------------------------------- ---------
Total assets $153,979 $14,478 $19,908 $188,365
-------------------------------------- ---------
-------------------------------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Credit facility $ 14,680 $ 1,927 $28,303 (B) $ 44,910
Current portion of long-term debt and capital leases 3,026 1,503 - 4,529
Accounts payable 6,273 728 - 7,001
Accrued expenses and other liabilities 10,188 1,306 1,606 (D, E) 13,100
-------------------------------------- ---------
Total current liabilities 34,167 5,464 29,909 69,540
Long-term debt, less current portion 7,645 1,720 - 9,365
Other liabilities 3,905 1,605 - 5,510
-------------------------------------- ---------
Total non-current liabilities 11,550 3,325 - 14,875
STOCKHOLDER'S EQUITY
Common stock 17 2 (2) (B) 17
Additional paid in capital 92,368 5,202 (5,202) (B) 92,368
Common stock warrants - 250 (250) (B) -
Accumulated other comprehensive income 2,177 - - 2,177
Retained earnings 13,700 411 (4,723) (B, F, G) 9,388
Less-Treasury stock - (176) 176 (B) -
-------------------------------------- ---------
Total stockholders' equity 108,262 5,689 (10,001) 103,950
-------------------------------------- ---------
Total liabilities and stockholders' equity $153,979 $14,478 $19,908 $188,365
-------------------------------------- ---------
-------------------------------------- ---------
</TABLE>
F-19
<PAGE>
POWER-ONE, INC.
PRO FORMA FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(Dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
------------------------------------------------------------------------
POWER-ONE IPD ADJUSTMENTS REFERENCE PRO FORMA
------------------------------------------------------------------------
<S> <C>
Net sales $102,519 $ 29,101 $ - $ 131,620
Cost of goods sold 63,446 20,237 1,062 (B, C) 84,745
------------------------------------------ ----------
Gross profit 39,073 8,864 (1,062) 46,875
Selling, general and
administrative expense 20,082 4,997 - 25,079
Engineering and quality assurance 8,264 2,903 - 11,167
In process research and development - - 3,300 (F) 3,300
Amortization of intangibles 2,625 - 2,960 (A, G) 5,585
------------------------------------------ ----------
Total expenses 30,971 7,900 6,260 45,131
Income from operations 8,102 964 (7,322) 1,744
Interest income (expense), net 581 (599) (1,876) (D) (1,894)
Other income (expense), net (627) 111 - (516)
------------------------------------------ ----------
Income (loss) before income taxes 8,056 476 (9,198) (666)
Income taxes 2,326 270 (1,184) (E) 1,412
------------------------------------------ ----------
Net income (loss) $5,730 $206 $ (8,014) $ (2,078)
------------------------------------------ ----------
------------------------------------------ ----------
Basic earnings (loss) per common share $0.34 $0.01 $(0.47) $(0.12)
------------------------------------------ ----------
------------------------------------------ ----------
Diluted earnings (loss) per common share $0.33 $0.01 $(0.46) $(0.12)
------------------------------------------ ----------
------------------------------------------ ----------
Basic shares 17,073 17,073 17,073 17,073
------------------------------------------ ----------
------------------------------------------ ----------
Diluted shares 17,325 17,325 17,325 17,325
------------------------------------------ ----------
------------------------------------------ ----------
</TABLE>
F-20
<PAGE>
Notes to Pro Forma Consolidated Balance Sheet:
A) The Company is undertaking studies to establish the fair market value of
the acquired IPD assets. Final results of these studies, not available at
the time of this filing on Form 8-K/A, will be used to establish the
opening balance sheet carrying values for IPD's net assets.
B) Record the purchase of all of the outstanding capital stock of IPD. The
purchase price of approximately $31.8 million less certain capitalized
lease obligations and other indebtedness of IPD was financed with advances
totaling approximately $28 million under Power One's existing credit
facility, as well as the Company's available cash.
C) Record the fair market value of certain assets acquired from IPD, based on
the preliminary estimates made by management. These amounts are subject to
reclassification and adjustments.
D) Record liabilities for professional fees and expenses related to the
acquisition of $1.1 million.
E) Record the change in deferred taxes based on preliminary tax values of the
assets acquired and liabilities assumed.
F) Record a one-time charge of $3.3 million for purchased in-process
technology that had not reached technological feasibility and had no
alternative future use.
G) Record a $1.0 million write-off for the unamortized balance of a license
agreement for technology substantially similar to the product lines
acquired as a result of the IPD acquisition.
Notes to Pro Forma Consolidated Statement of Operations:
A) Record annual amortization of goodwill and other identified intangible
assets, assuming amortization periods from 5 to 15 years. The estimated
useful lives are based on periods of economic benefit.
B) Record depreciation expense related to the fair market value adjustment of
fixed assets.
C) Record additional cost of sales arising from fair market value inventory
adjustment recorded upon the purchase of IPD.
D) Record interest expense related to assumed additional borrowing of
approximately $28 million to finance the IPD acquisition, assumed interest
rate of 6.63%.
E) Record income taxes related to the above adjustments, excluding the
goodwill amortization, in process research and development and license
agreement write-off entries.
F) Record a one-time charge of $3.3 million for purchased in-process
technology that had not reached technological feasibility and had no
alternative future use.
G) Record a $1.0 million write-off for the unamortized balance of a license
agreement for technology substantially similar to the product lines
acquired as a result of the IPD acquisition.
H) Additional sales and cost savings benefits from synergies derived from the
acquisition are expected but are not reflected in the Pro Forma Statements
of Income.
F-21
<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 hereunto duly authorized.
Dated: April 14, 1999 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
Sr. Vice President, Finance,
Chief Financial Officer and Secretary
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 19, 1999 included in this Form 8-K/A of Power One, Inc. filed
April 14, 1999.
/s/ ARTHUR ANDERSEN LLP
------------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 14, 1999
