<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 1999
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-29454
------------------------
POWER-ONE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
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 8, 1999 there were outstanding 22,119,176 shares of common
stock, $.001 par value.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
POWER-ONE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets -- September 30, 1999 and
December 31, 1998......................................... 3
Consolidated Statements of Operations -- for the Three
Months and the Nine Months ended September 30, 1999 and
1998...................................................... 4
Consolidated Statements of Comprehensive Income (Loss) --
for the Three Months and the Nine Months ended September
30, 1999 and 1998......................................... 5
Consolidated Statements of Cash Flows -- for the Nine Months
Ended September 30, 1999 and 1998......................... 6
Notes to Consolidated Financial Statements.................. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 18
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 20
SIGNATURES..................................................................................... 21
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
POWER-ONE, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 43,241 $ 10,781
Accounts receivable:
Trade, less allowance for doubtful accounts:
$2,096--1999; $1,402--1998............................ 45,382 17,865
Other................................................... 1,714 2,184
Inventories............................................... 48,528 32,396
Deferred income tax assets--current....................... 2,748 1,845
Prepaid expenses and other current assets................. 1,632 1,366
-------- --------
Total current assets.................................. 143,245 66,437
PROPERTY & EQUIPMENT, net of accumulated depreciation and
amortization: $16,948--1999; $8,045--1998................. 50,291 34,608
INTANGIBLE ASSETS, NET...................................... 62,338 51,019
OTHER ASSETS................................................ 2,832 1,915
-------- --------
TOTAL ASSETS................................................ $258,706 $153,979
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Credit facilities......................................... $ 3,830 $ 14,680
Current portion of long-term debt......................... 4,160 2,912
Current portion of capital leases......................... 897 114
Bank overdraft............................................ 3,111 --
Accounts payable.......................................... 15,170 6,273
Accrued payroll and related expenses...................... 2,327 1,297
Other accrued expenses.................................... 15,424 7,582
Deferred income tax liability............................. 1,213 1,309
-------- --------
Total current liabilities............................. 46,132 34,167
-------- --------
LONG TERM DEBT, less current portion........................ 4,659 7,645
-------- --------
LONG TERM CAPITAL LEASES, less current portion.............. 1,059 206
-------- --------
DEFERRED INCOME TAX LIABILITY, noncurrent................... 3,532 3,585
-------- --------
OTHER LIABILITIES........................................... 109 114
-------- --------
STOCKHOLDERS' EQUITY
Common Stock, par value $0.001, 60,000,000 shares
authorized; 21,139,351 and 17,093,227 issued and
outstanding at September 30, 1999 and December 31, 1998,
respectively............................................ 21 17
Additional paid-in capital................................ 187,934 92,368
Accumulated other comprehensive (loss) income............. (1,424) 2,177
Retained earnings......................................... 16,684 13,700
-------- --------
Total stockholders' equity............................ 203,215 108,262
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY.................... $258,706 $153,979
======== ========
</TABLE>
See accompanying notes
3
<PAGE>
POWER-ONE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES.............................................. $61,241 $23,101 $142,643 $74,147
COST OF GOODS SOLD..................................... 36,694 14,960 85,027 44,830
------- ------- -------- -------
GROSS PROFIT..................................... 24,547 8,141 57,616 29,317
GENERAL AND ADMINISTRATIVE
Selling.............................................. 5,697 3,255 15,996 8,249
Administrative....................................... 4,268 2,097 11,043 5,664
Engineering.......................................... 3,782 1,305 10,165 3,704
Quality assurance.................................... 1,081 479 2,735 1,664
Amortization of intangibles.......................... 1,354 677 4,914 1,691
In process research and development.................. -- -- 3,300 --
------- ------- -------- -------
Total expenses................................... 16,182 7,813 48,153 20,972
INCOME FROM OPERATIONS................................. 8,365 328 9,463 8,345
OTHER INCOME (EXPENSE)
Interest income...................................... 26 343 63 1,258
Interest expense..................................... (1,098) (332) (2,808) (517)
Other income (expense), net.......................... (151) (187) 125 (32)
------- ------- -------- -------
Total other income (expense)..................... (1,223) (176) (2,620) 709
INCOME BEFORE TAXES.................................... 7,142 152 6,843 9,054
INCOME TAXES (BENEFIT)................................. 2,620 (135) 3,859 2,646
------- ------- -------- -------
NET INCOME............................................. $ 4,522 $ 287 $ 2,984 $ 6,408
======= ======= ======== =======
BASIC EARNINGS PER COMMON SHARE........................ $ 0.26 $ 0.02 $ 0.17 $ 0.38
======= ======= ======== =======
DILUTED EARNINGS PER COMMON SHARE...................... $ 0.25 $ 0.02 $ 0.17 $ 0.37
======= ======= ======== =======
BASIC SHARES OUTSTANDING............................... 17,392 17,085 17,196 17,068
======= ======= ======== =======
DILUTED SHARES OUTSTANDING............................. 18,167 17,314 17,738 17,327
======= ======= ======== =======
</TABLE>
See accompanying notes
4
<PAGE>
POWER-ONE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET INCOME............................................. $ 4,522 $ 287 $ 2,984 $ 6,408
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment.............. 1,506 571 (3,601) 571
------- ------- -------- -------
COMPREHENSIVE INCOME (LOSS)............................ $ 6,028 $ 858 $ (617) $ 6,979
======= ======= ======== =======
</TABLE>
See accompanying notes
5
<PAGE>
POWER-ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,984 $ 6,408
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization........................... 10,350 3,878
Purchased in process technology......................... 3,300 --
Loss on disposal of fixed assets........................ 60 --
Deferred income taxes................................... (522) (286)
Changes in operating assets and liabilities:
Accounts receivable, net................................ (23,019) 1,867
Inventories............................................. (10,764) 7,270
Refundable income taxes................................. 796 2,105
Prepaid expenses and other current assets............... (165) 129
Accounts payable........................................ 10,185 (863)
Accrued expenses........................................ 3,583 (664)
Other liabilities....................................... 33 26
-------- --------
Net cash (used in) provided by operating activities....... (3,179) 19,870
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment..................... (19,509) (8,564)
Proceeds from sale of fixed assets........................ 112 --
Investment in Melcher, net of cash acquired............... -- (40,678)
Investment in IPD, net of cash acquired (Note 4).......... (28,739) --
Other assets.............................................. (896) (104)
-------- --------
Net cash used in investing activities..................... (49,032) (49,346)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on credit facilities............. 53,235 10,000
Repayments of borrowings on credit facilities............. (64,688) --
Bank overdraft............................................ 3,111 --
Proceeds from borrowings on long-term debt................ 526 16
Repayments of long-term debt.............................. (2,209)
Repayments of short-term debt............................. -- (1,060)
Principal payments under capital lease obligations........ (673) (6)
Sale and issuance of common stock......................... 95,570 --
-------- --------
Net cash provided by financing activities................. 84,872 8,950
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (201) 119
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 32,460 (20,407)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 10,781 32,018
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 43,241 $ 11,611
======== ========
</TABLE>
See accompanying notes
6
<PAGE>
POWER-ONE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest................................................ $ 2,453 $ 156
Income taxes............................................ $ 712 $ 1,156
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
On January 29, 1999, we purchased all of the capital stock of International Power
Devices, Inc. ("IPD") for $29.5 million (See Note 4). In connection with the
acquisition, liabilities were assumed as follows:
Fair value of tangible assets acquired.................. $ 20,529
Fair value of goodwill and other identifiable intangible
assets................................................ 18,173
Cash paid for capital stock............................. (29,500)
--------
Liabilities assumed..................................... $ 9,202
========
On August 31, 1998, we purchased all of the capital stock of Melcher Holding AG
("Melcher") for $43.4 million. In connection with the acquisition, liabilities
were assumed as follows:
Fair value of tangible assets acquired.................. $ 45,159
Fair value of goodwill and other identifiable intangible
assets................................................ 25,210
Cash paid for capital stock............................. (43,421)
--------
Liabilities assumed..................................... $ 26,948
========
A capital lease obligation of $242,000 was incurred in the first quarter of 1999
when we entered into a lease for new equipment.
</TABLE>
See accompanying notes
7
<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 September 30, 1999 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, 1998 included in our 1998 Annual Report
on Form 10-K.
Our reporting period coincides with the 52- to 53-week period ending on the
Sunday closest to December 31, and our 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, we have described our year ended
December 27, 1998 as December 31 and the three month and nine month periods
ended September 26, 1999 and September 27, 1998 as September 30.
Certain reclassifications have been made to the amounts in the Consolidated
Statement of Operations for the three month and the nine month periods ended
September 30, 1998 to conform to the classifications in the three month and the
nine month periods ended September 30, 1999.
NOTE 2--INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Raw materials...................................... $27,981 $16,036
Subassemblies-in-process........................... 8,628 5,001
Finished goods..................................... 11,919 11,359
------- -------
$48,528 $32,396
======= =======
</TABLE>
NOTE 3--EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average common shares outstanding for the period, while diluted earnings per
share also includes the dilutive impact of
8
<PAGE>
POWER-ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 3--EARNINGS PER SHARE (CONTINUED)
stock options. Basic and diluted earnings per share for the three month and the
nine month periods ended September 30 are calculated as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------------ ------------------------------
AVERAGE PER AVERAGE PER
INCOME SHARES SHARE INCOME SHARES SHARE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income..................................... $4,522 $ 287
Basic earnings per share:
Shares outstanding........................... 17,392 17,085
------ ------ ------ ------
Basic earnings per share..................... 4,522 17,392 $.26 287 17,085 $.02
==== ====
Dilutive securities--
Stock options................................ 775 229
------ ------ ------ ------
Diluted earnings per share:.................... $4,522 18,167 $.25 $ 287 17,314 $.02
====== ====== ==== ====== ====== ====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------------ ------------------------------
AVERAGE PER AVERAGE PER
INCOME SHARES SHARE INCOME SHARES SHARE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income..................................... $2,984 $6,408
Basic earnings per share:
Shares outstanding........................... 17,196 17,068
------ ------ ------ ------
Basic earnings per share..................... 2,984 17,196 $.17 6,408 17,068 $.38
==== ====
Dilutive securities--
Stock options................................ 542 259
------ ------ ------ ------
Diluted earnings per share:.................... $2,984 17,738 $.17 $6,408 17,327 $.37
====== ====== ==== ====== ====== ====
</TABLE>
NOTE 4--ACQUISITIONS
On January 29, 1999, we completed our purchase of IPD for $31.8 million,
including capitalized lease obligations and other indebtedness of IPD. The total
cash consideration paid was $28.3 million, plus approximately $1.2 million of
transaction related costs. In addition, we 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. The purchase price
was negotiated at arms length with IPD, with which we had no prior relationship.
The source of funds for the acquisition was a combination of our available cash,
as well as advances totaling approximately $28 million under our existing credit
facility. In a separate transaction, we agreed to acquire IPD's manufacturing
facility from a separate partnership for its appraised value. The purchase of
the manufacturing facility was completed in the second quarter of 1999 for
approximately $4.3 million and was funded by additional borrowings from credit
facilities.
9
<PAGE>
POWER-ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 4--ACQUISITIONS (CONTINUED)
IPD, a Boston-based company supplies high-density DC/DC power supplies,
which it sells primarily in North America. High density DC/DC power technology
is preferred in applications using high speed / low-voltage logic, including the
fast growing voice and data communications industries. IPD sells over 90 models
of high-density DC/DC products to leading OEMs, including Cisco, Nortel and
Newbridge Networks. As part of the acquisition, we also 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, were 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 fair market value of IPD's assets and
liabilities has been included in our balance sheet as of September 30, 1999. The
consolidated statements of operations, comprehensive income and of cash flows
for the nine months ended September 30, 1999, include eight months of IPD's
operations.
In connection with the IPD acquisition, we amended our credit agreement with
lenders to waive certain requirements and amend certain provisions.
The product lines acquired as a result of the IPD acquisition were
substantially similar to purchased technology related to a technology and
license agreement with a company entered into on April 2, 1996 (the "Agreement")
for which an intangible asset was recorded and was being amortized over the term
of the licensing agreement (see Note 5). Consequently, we recorded a charge of
approximately $1.0 million for the unamortized balance of the intangible asset
value related to the Agreement in the three month period ended March 31, 1999.
The following unaudited pro forma financial information combines the
consolidated results of operations as if the acquisitions of Melcher and IPD had
occurred as of the beginning of the periods presented. 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
pro forma amounts contained in the table below include adjustments for
amortization of intangibles, depreciation expense, assumed interest expense,
assumed decrease in interest earned and related tax effect. The pro forma
amounts exclude non-recurring items totaling $4.4 million for the 1999 period
and $0.8 million for the 1998 period.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net sales................................................... $144,872 $126,194
Net income.................................................. $ 5,160 $ 5,843
Basic earnings per common share............................. $ 0.30 $ 0.34
Diluted earnings per common share........................... $ 0.29 $ 0.34
</TABLE>
10
<PAGE>
POWER-ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 4--ACQUISITIONS (CONTINUED)
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.
The allocation of the purchase price is based on preliminary data and could
change when final valuation information is obtained.
NOTE 5--INTANGIBLE ASSETS
Intangible assets include cost in excess of net assets acquired in
connection with the acquisition of the Company in 1995, of Melcher in 1998 and
of IPD in the first quarter of 1999 (see Note 4) which have been allocated among
certain intangible items determined by management to have value, such as the
company name, distribution network and product lines. Provision for amortization
has been made based upon the estimated useful lives of the intangible asset
categories, which range from five to 25 years, using the straight-line method.
At September 30, 1999 and December 31, 1998 accumulated amortization related to
these intangible assets totaled $10,582,000 and $6,743,000, respectively.
Intangible assets at December 31, 1998 also included purchased technology
related to the Agreement. The Agreement called for total cash payments of
$1,500,000 over approximately two years in return for exclusive rights to
specified technical information. The obligation and asset were recorded at
present value using an implicit interest rate of 8.5%. The asset was being
amortized over the ten year term of the Agreement using the straight-line
method. Since the technology acquired as a result of the Agreement was
substantially similar to the product lines acquired as a result of the IPD
acquisition, we recorded a charge of approximately $1.0 million for the
unamortized balance of the intangible asset value related to the Agreement in
the three month period ended March 31, 1999. Accumulated amortization on the
Agreement was $384,000 at December 31, 1998.
Increase in intangible assets from December 31, 1998 to September 30, 1999
relates to the intangible assets recorded in connection with the IPD
acquisition. Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Goodwill and trade name..................................... $41,828 $39,121
Distribution network........................................ 5,207 5,207
Sales force................................................. 722 790
Product technology.......................................... 19,663 11,632
Assembled workforce......................................... 800 --
Customer relationships...................................... 4,700 --
License agreement........................................... -- 1,396
------- -------
72,920 58,146
------- -------
Less accumulated amortization............................... 10,582 7,127
------- -------
$62,338 $51,019
======= =======
</TABLE>
11
<PAGE>
POWER-ONE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
NOTE 6--COMMON STOCK
On September 20, 1999, we completed our secondary public stock offering of
6,500,000 shares of our Common Stock at an offering price of $25.00. We sold
4,000,000 of these shares. The remaining 2,500,000 shares were sold by certain
stockholders, and we did not receive any proceeds from the sale of these shares.
The gross proceeds of the 4,000,000 shares were $100,000,000. We incurred
approximately $4,920,000 in costs in connection with the offering consisting of
underwriter commissions and expenses, printing costs, legal, accounting and
other fees. After offering costs, our net proceeds from the 4,000,000 shares
were approximately $95,080,000. In connection with the offering, we granted the
underwriters an overallotment option to purchase up to an additional 975,000
shares of the Common Stock at the public offering price of $25.00 per share. On
October 14, 1999, after the end of our third quarter, the underwriters exercised
their overallotment option. The gross proceeds of the 975,000 shares were
$24,375,000 and net proceeds after underwriter commissions were $23,283,000. Our
total gross and net proceeds from the sale of the 4,975,000 shares were
$124,375,000 and $118,363,000, respectively.
We used $54,150,000 of the net proceeds to repay outstanding amounts under
our credit agreement with Bank of America, N.A. We expect to use the remaining
net proceeds for general corporate purposes, including acquisitions, additions
to working capital and capital expenditures. We do not have any agreements or
understandings with respect to an acquisition. In addition, we may use up to
$13.0 million of the net proceeds to pay earn-out consideration to former
stockholders of IPD if IPD achieves the performance objectives set forth in the
IPD acquisition agreement.
NOTE 7--CREDIT AGREEMENT
On August 12, 1999, we entered into a Second Amended and Restated Credit
Agreement with Bank of America, N.A. which increased our revolving line of
credit from $50 million to $65 million. The line of credit bears interest on
amounts outstanding payable quarterly based on our leverage ratio and one of the
following rates as selected by us: LIBOR plus 1.25% to 2.50%, or the bank's base
rate plus 0% to 1.25%. The credit agreement (a) provides for restrictions on
additional borrowings, leases and capital expenditures; (b) prohibits us,
without prior approval, from paying dividends, liquidating, merging,
consolidating or selling our assets or business; and (c) requires us to maintain
a specified net worth, minimum working capital and certain ratios of current
liabilities and total debt to net worth. At September 30, 1999, there were no
amounts outstanding under this line of credit. Borrowings under this line of
credit are collateralized by substantially all of our assets.
12
<PAGE>
ITEM 2-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL. In August 1998 we increased our international presence and our
product offerings by acquiring Melcher Holding AG, or Melcher, for $53 million,
including debt assumed. In January 1999 we further broadened our portfolio of
DC/DC products by acquiring International Power Devices, Inc., or IPD, for
$32 million, including certain capitalized lease obligations and other
indebtedness of IPD. All references to operating data for the three and nine
months ended September 30, 1998, include one month of Melcher's operations. All
references to operating data for the nine months ended September 30, 1999
include eight months of IPD's operations.
NET SALES. Our net sales increased $68.5 million, or 92.4%, to
$142.6 million for the nine months ended September 30, 1999 from $74.1 million
for the same period last year. Included in net sales for the first nine months
of 1999 are $34.3 million from Melcher, and $39.1 million from IPD. The main
contributors to the $68.5 million increase in net sales were DC/DC power
supplies which contributed $63.7 million, low-range power supplies, which
contributed $8.4 million, and custom power supplies, which contributed
$3.3 million. These increases were partially offset by declines in sales of our
high-range power supplies of $2.8 million and linear power supplies of
$4.5 million. Most of the growth in the DC/DC business was derived from the
communications market. On the AC/DC side, the automatic/semiconductor test
equipment market continued to expand during the nine months ended September 30,
1999. We also experienced growth in other key markets such as industrial and
medical equipment.
Sales to OEMs in the first nine months of 1999 were $112.2 million, or 78.7%
of net sales, up from $42.2 million, or 56.9% of net sales, over the comparable
period in 1998. Sales to Cisco, one of our primary OEM customers, represented
14.4% of net sales. Cisco was the only customer that exceeded 10% of net sales
in the nine month period ended September 30, 1999. Sales in the first nine
months of 1999 through distributors were $30.4 million, or 21.3% of net sales,
down $1.5 million from $32.0 million, or 43.1% of net sales, in the same period
last year. The lower percentage of net sales through distributors in the first
nine months of 1999 is primarily due to the change in the mix of our customer
base which, compared to last year, has shifted more toward OEM customers who
order DC/ DC power supplies.
Net sales for the three months ended September 30, 1999 increased
$38.1 million, or 165.1%, to $61.2 million compared with $23.1 million for the
three months ended September 30, 1998. Included in net sales for the third
quarter of 1999 are $12.2 million from Melcher and $20.6 million from IPD. The
increase in sales for the third quarter was primarily due to an increase in
sales of DC/DC power supplies, which contributed $26.5 million, high-range power
supplies, which contributed $7.0 million, and low-range power supplies, which
contributed $4.5 million. All three of our operating divisions achieved record
sales in the third quarter of 1999, primarily due to strong growth in unit
shipments to the communications and automatic/semiconductor test equipment
markets. Excluding Melcher and IPD, our net sales increased $11.1 million, or
64.6%, to $28.4 million in the third quarter of 1999 from $17.2 million in the
comparable period in 1998. This increase was primarily due to strong growth in
the automatic/semiconductor test equipment market.
Sales to OEMs in the third quarter of 1999 were $50.1 million, or 81.8% of
net sales, up from $13.0 million over the comparable period in 1998, or 56.3% of
net sales. Sales to Cisco and Teradyne represented 19.0% and 10.3% of net sales,
respectively. Cisco and Teradyne were the only customers that exceeded 10% of
net sales in the third quarter of 1999. Sales through distributors were
$11.1 million in the third quarter of 1999, up $1.0 million from $10.1 million
over the same period last year. As a percent of net sales, sales through
distributors were 18.2% in the third quarter of 1999, down from 43.7% last year.
This decrease is mainly due to the change in mix of customer base and increase
in net sales over the prior year period.
13
<PAGE>
Our recent acquisition of IPD has significantly broadened our customer base
by increasing sales to key OEMs and adding new OEMs in the communications
market.
Sales by markets for the nine months ended September 30, 1999 and
September 30, 1998 were:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
Communications..................................... 46.9% 17.0%
Industrial......................................... 16.8% 23.8%
Automatic/Semiconductor test equipment............. 9.6% 20.8%
Transportation..................................... 7.1% 2.0%
Medical equipment.................................. 7.6% 14.3%
Computer, Retail and Other......................... 12.0% 22.1%
----- -----
TOTAL.......................................... 100.0% 100.0%
===== =====
</TABLE>
The changes in the percentages of our sales by market are primarily due to a
significantly larger concentration of sales to the communications and
transportation markets. For example, although the percentage of net sales to the
industrial and medical equipment markets declined compared to last year, the
dollar volume of sales to these markets grew 35.6% and 2.1%, respectively.
During the third quarter, as well as the first nine months of 1999, demand
for our products increased significantly. Our combined backlog on September 30,
1999 was $57.9 million, an increase of 124.4% compared to backlog of
$25.8 million on December 31, 1998, but a decrease of $4.6 million, or 7.4%
compared to backlog of $62.5 million on June 30, 1999. Pro forma backlog, which
assumes IPD's backlog was in place at December 31, 1998, increased 90.4% at the
end of September 1999 as compared to year-end 1998. By comparison, our backlog
on September 30, 1998 was $29.1 million. During the third quarter of 1999 we
realized a strong bookings trend with approximately $56 million in new orders
taken. Much of this growth comes from strong demand in the communications
market, as well as increased demand for our high-power product line, which are
typically sold to the automatic/semiconductor test equipment market.
GROSS PROFIT. Gross profit increased $28.3 million, or 96.5%, to
$57.6 million for the nine months ended September 30, 1999 from $29.3 million
for the nine months ended September 30, 1998. As a percent of net sales, our
gross profit margin increased to 40.4% for the first nine months of 1999 from
39.5% for the same period in 1998. The increase in gross profit margin primarily
resulted from the inventory write-up related purchase accounting adjustments due
to the Melcher acquisition which negatively impacted the prior year period.
Excluding the non-recurring adjustments related to our acquisitions of IPD in
1999 and Melcher in 1998, our gross profit margin would have been approximately
41% for the nine months ended September 30, 1999 and 1998.
Gross profit for the three months ended September 30, 1999 increased
$16.4 million, or 201.5%, to $24.5 million from $8.1 million for the same period
last year. As a percent of net sales, gross profit increased to 40.1% for the
third quarter of 1999 from 35.2% for the third quarter of 1998, again, primarily
due to the one-time purchase accounting charges related to the Melcher
acquisition which negatively impacted the third quarter of 1998. Excluding these
adjustments, gross profit margin was 40.1% in the third quarter of 1999 compared
to 39.8% last year.
SELLING EXPENSE. Selling expense increased $7.7 million, or 93.9%, to
$16.0 million for the nine months ended September 30, 1999 from $8.2 million for
the comparable period in 1998. As a percent of net sales, selling expense of
11.2% was approximately the same as last year. The increase in 1999 was
primarily due to additional selling expense related to Melcher and IPD of
$4.5 million and $2.4 million, respectively. Excluding Melcher and IPD,
Power-One's core selling expense increased
14
<PAGE>
$766,000 primarily due to higher employee costs of $226,000, and increased
freight and travel expense aggregating $510,000, to support the increase in
business growth during 1999.
Selling expense for the three months ended September 30, 1999 increased
$2.4 million, or 75.0%, to $5.7 million from $3.3 million for the three months
ended September 30, 1998. The increase in third quarter selling expense was
primarily due to additional selling expense related to Melcher and IPD of
$0.7 million and $1.0 million, respectively, with the balance of the increase
due to higher sales and higher employee costs of $313,000. As a percent of net
sales, selling expense decreased to 9.3% for the third quarter of 1999 from
14.1% for the same year-ago period which is primarily due to improved fixed
expense coverage related to the higher sales volume in 1999.
ADMINISTRATIVE EXPENSE. Administrative expense increased $5.4 million, or
95.0%, to $11.0 million for the nine months ended September 30, 1999 from
$5.7 million for the nine months ended September 30, 1998. As a percent of net
sales, administrative expense of 7.7% was essentially flat compared to the prior
year. The increase of $5.4 million was primarily attributable to additional
administrative expense related to Melcher and IPD of $1.8 million and
$1.6 million, respectively, as well as an increase of $1.9 million in our core
administrative expense. The increase in our core administrative expense was
primarily due to higher employee costs of $862,000 related to an increase in
staff, employee performance bonuses and temporary help, higher professional fees
of $388,000 and increased depreciation expense of $421,000 primarily related to
the Oracle ERP project and other capital expenditures in our manufacturing
facilities.
Administrative expense for the three months ended September 30, 1999
increased $2.2 million, or 103.5%, to $4.3 million from $2.1 million for the
three months ended September 30, 1998. The increase is primarily due to the
additional administrative expense of $460,000 and $662,000 related to Melcher
and IPD, respectively, as well as an increase of $1.0 million in our core
administrative expense due to higher employee costs related to an increase in
staff and employee performance bonuses and increased depreciation expense. As a
percent of net sales, administrative expense decreased to 7.0% for the third
quarter of 1999 from 9.1% for the same period in 1998.
ENGINEERING EXPENSE. Engineering expense increased $6.5 million, or 174.4%,
to $10.2 million for the nine months ended September 30, 1999 from $3.7 million
for the nine months ended September 30, 1998. As a percent of net sales,
engineering expense increased to 7.1% for the first nine months of 1999 from
5.0% for the comparable period in 1998. The increase of $6.5 million was
primarily due to additional engineering expense of $3.3 million and
$2.2 million related to Melcher and IPD, respectively, as well as an increase in
our core engineering expense of $924,000 which is primarily due to the addition
of R & D resources to support the increase in business volume.
Engineering expense for the three months ended September 30, 1999 increased
$2.5 million, or 189.8%, to $3.8 million from $1.3 million for the three months
ended September 30, 1998. This increase was primarily due to Melcher's and IPD's
additional engineering expense of $0.9 million and $0.9 million, respectively.
As a percent of net sales, engineering expense increased to 6.2% for the third
quarter of 1999 from 5.6% for the same period in 1998. This increase is related
to our commitment to make strategic investments to support our future growth.
QUALITY ASSURANCE EXPENSE. Quality Assurance expense increased
$1.1 million, or 64.4%, to $2.7 million for the nine months ended September 30,
1999 from $1.7 million for the nine months ended September 30, 1998. As a
percent of net sales, quality assurance expense decreased to 1.9% for the first
nine months of 1999 from 2.2% for the comparable period in 1998. The increase of
$1.1 million was primarily due to higher quality assurance expense related to
Melcher and IPD.
Quality assurance expense for the three months ended September 30, 1999
increased $602,000, or 125.7%, to $1.1 million from $479,000 for the three
months ended September 30, 1998. Similar to the year to date increase, the
increase in engineering expense in the comparable three month periods is
primarily related to Melcher and IPD. As a percent of net sales, quality
assurance expense decreased to 1.8% for the third quarter of 1999 from 2.1% for
the same year-ago quarter.
15
<PAGE>
AMORTIZATION EXPENSE. Amortization of intangibles increased $3.2 million,
or 190.6%, to $4.9 million for the nine months ended September 30, 1999 from
$1.7 million for the same period in 1998. The increase is partially attributable
to a $1.0 million charge taken to write-off the unamortized balance of the
intangible asset value of a technology and license agreement related to
substantially similar product technology acquired as a result of the IPD
acquisition. The balance of the increase is due to eight months of amortization
of the intangibles initially recorded upon the acquisition of IPD on
January 29, 1999 totaling approximately $1.2 million, as well as $1.3 million of
amortization of intangibles related to the Melcher acquisition. For the three
months ended September 30, 1999, amortization of intangibles expense increased
$677,000, or 100.0%, to $1.4 million from $677,000 for the comparable period
last year.
IN PROCESS RESEARCH & DEVELOPMENT. As a result of the IPD acquisition, we
recorded a one-time charge of $3.3 million during the nine months ended
September 30, 1999 for purchased in-process technology that had not reached
technological feasibility and had no alternative future use.
INCOME FROM OPERATIONS. As a result of the items discussed above, income
from operations increased $1.1 million, or 13.4%, to $9.5 million, or 6.6% of
net sales, for the nine months ended September 30, 1999 from $8.3 million, or
11.3% of net sales, for the comparable period in 1998. Excluding non-recurring
items totaling approximately $5.1 million in 1999 and $1.1 million in 1998,
income from operations would have been $14.5 million for the nine month period
ended September 30, 1999, or 10.2% of sales, and $9.4 million, or 12.7% of net
sales, for the same year-ago period. For the three months ended September 30,
1999, income from operations increased $8.0 million to $8.4 million from
$328,000 for the comparable period in 1998 which included non-recurring items of
$1.1 million.
INTEREST INCOME. Interest income decreased $1.2 million, or 95.0% to
$63,000 for the nine months ended September 30, 1999 from $1.3 million for the
nine months ended September 30, 1998. Interest income for the three months ended
September 30, 1999 decreased $317,000 to $26,000. The decrease is primarily
related to the reduction in short-term, interest bearing financial instruments
as a result of available cash used for the Melcher acquisition in the third
quarter of 1998.
INTEREST EXPENSE. Interest expense increased $2.3 million, or 443.1%, to
$2.8 million for the nine months ended September 30, 1999 from $517,000 for the
comparable period in 1998. For the three months ended September 30, 1999,
interest expense increased $766,000 to $1.1 million from $332,000 for the same
period last year. The increase is primarily due to advances under our credit
facilities to finance the IPD acquisition, as well as additional investments in
facilities and capital equipment to increase our capacity to support the rapid
growth of our business.
OTHER INCOME (EXPENSE), NET. Other income, net, increased $157,000, to
$125,000 for the nine months ended September 30, 1999 from other expense, net,
of $32,000 for the nine months ended September 30, 1998. Other income, net,
increased primarily due to gains on foreign currency transactions partly offset
by net losses on disposals of fixed assets.
Other expense, net, for the third quarter of 1999 decreased $36,000 to
$151,000 compared to other expense, net, of $187,000 in the comparable period
last year. This expense was primarily due to foreign currency exchange losses
from our European operations.
INCOME TAXES. The provision for income taxes increased $1.2 million to
$3.9 million for the nine months ended September 30, 1999 from $2.6 million
income tax for the comparable period in 1998. The effective tax rate of 56.4% in
the first nine months of 1999 is significantly higher than the 29.2% achieved
during the same period in 1998. This is primarily attributable to the
$3.3 million charge for in-process research and development and $1.2 million
amortization of goodwill related to the IPD acquisition, both of which were
nondeductible for tax purposes. The income tax provision for the three months
ended September 30, 1999 increased to $2.6 million from an income tax benefit of
$135,000 for the same period last year primarily due to the increase in pre-tax
income which was $7.1 million this year compared to $152,000 in 1998.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents balance increased $32.5 million, or 301.1%
from $10.8 million at December 31, 1998 to $43.2 million at September 30, 1999.
Prior to the sale of 4,000,000 shares of our Common Stock in September 1999
which raised net proceeds of $95.1 million, our primary source of cash for the
first nine months of 1999 consisted of borrowings from credit facilities of
$53.2 million. The primary uses of cash for the first nine months of 1999
consisted of $64.7 million for repayment of borrowings from our credit
facilities, of which $54.1 million was for the repayment of the outstanding
balance on our credit agreement with Bank of America, N.A., $28.3 million for
the purchase of IPD and $1.2 million of related transaction costs,
$19.5 million for the acquisition of property and equipment, and $3.2 million
for operating activities.
The $3.2 million used for operating activities was primarily attributable to
cash earnings from operations of $16.6 million (net income plus depreciation,
amortization and in-process research and development charge) offset by $19.9
million used in working capital. The $19.9 million use of working capital was
primarily due to an increase in accounts receivable and inventories of $23.0
million and $10.8 million, respectively, offset by an increase in accounts
payable and accrued expenses of $10.2 million and $3.6 million, respectively.
The $19.5 million for acquisition of property and equipment included
approximately $4.3 million for the purchase of IPD's manufacturing facility,
$4.4 million for hardware, software and implementation support related to our
Oracle ERP system conversion, $2.8 million for surface mount technology
equipment and the balance reflected additional property, plant and capital
equipment expenditures to support our growth plans. We currently anticipate that
our total remaining capital expenditures for 1999 will be approximately $6.0
million, of which approximately $1.0 million represents costs related to our
Oracle ERP system implementation, $3.6 million represents investments in surface
mount automation, and the remaining amount relates primarily to investments in
manufacturing improvements. The amount of these anticipated capital expenditures
will frequently change based on future changes in business plans, our financial
condition and general economic conditions.
We have a $65 million revolving line of credit, which bears interest on
amounts outstanding payable quarterly based on our leverage ratio and one of the
following rates as selected by us: LIBOR plus 1.25% to 2.50%, or the bank's base
rate plus 0% to 1.25%. The credit agreement (a) provides for restrictions on
additional borrowings, leases and capital expenditures; (b) prohibits us,
without prior approval, from paying dividends, liquidating, merging,
consolidating or selling our assets or business; and (c) requires us to maintain
a specified net worth, minimum working capital and certain ratios of current
liabilities and total debt to net worth. At September 30, 1999, there were no
amounts outstanding under this line of credit.
As a result of the Melcher acquisition, we have various credit facilities
with banks in Switzerland and Germany which can be drawn upon in the form of
term loans. The aggregate credit limit for all such credit facilities is
approximately $12.7 million. Melcher's credit facilities in Switzerland bear
interest on amounts outstanding at various time intervals and market rates based
on Swiss LIBOR plus a margin ranging from 1.25% to 2.00%. Some of Melcher's
credit agreements require Melcher to maintain certain financial covenants and to
provide certain financial reports to the lenders, none of which materially
restricts Melcher. At September 30, 1999, short-term and long-term amounts
outstanding under Melcher's credit facilities were $7.3 million and
$4.7 million, respectively, and Melcher was in compliance with all debt
covenants.
As a result of the IPD acquisition, we have an additional line of credit in
the U.S., which bears interest at the bank's prime rate plus 0.75%. Borrowings
are limited to the lesser of $4.5 million or 80% of IPD's eligible accounts
receivable, as defined. At September 30, 1999, amounts outstanding under IPD's
line of credit were $0.7 million.
17
<PAGE>
At September 30, 1999, short-term and long-term amounts outstanding under
all credit facilities with banks were $8.0 million and $4.7 million,
respectively. Borrowings under all our credit facilities are collateralized by
substantially all of our assets.
Based on current plans and business conditions, we believe our existing
working capital, borrowing capacity and net proceeds from our secondary stock
offering, coupled with the funds generated from our operations, will be
sufficient to fund our anticipated working capital, capital expenditures and
debt payment requirements for the foreseeable future. However, if we make a
large acquisition, it may be necessary to raise debt or equity in the private or
public securities markets.
YEAR 2000 ISSUE
Many existing computer systems and software programs are coded to accept two
digit entries rather than four to define the applicable year. These systems may,
for example, recognize the year "00" as 1900 instead of 2000. If the problem is
not corrected, many systems and computer applications could fail or create
erroneous results.
Our business faces risk from unforeseen problems with our own information
systems and systems of our third party suppliers and customers. To address these
risks, we established a task force in early 1998, and since then have been
actively engaged in ensuring that our systems are Year 2000 compliant.
We have completed an extensive review to ensure the internal readiness of
our computer systems and the embedded systems commonly found in manufacturing
equipment such as microcontrollers. We have assessed our products, and they are
not date sensitive.
We have also assessed the readiness of our key suppliers, subcontractors and
customers for the Year 2000 calendar change. To date we have received survey
responses from all of our most important suppliers, which indicate that they are
aware of the Year 2000 compliance issue and state that they are fully Year 2000
compliant.
In April 1999, we significantly reduced our exposure to the Year 2000
compliance issue by partially implementing a new Oracle ERP system, which is
Year 2000 compliant, in our California and Mexico facilities. However, we may
experience difficulties in completing implementation in California and Mexico
and in installing it in our remaining operations. If we do, it could adversely
affect our business and our operating results.
We have also substantially modified or replaced, as necessary, other third
party software applications in order to ensure that they are Year 2000
compliant. Overall, we have substantially completed the remediation of our
computer systems in California, Mexico and the Dominican Republic, and we
believe that these systems are now Year 2000 compliant. Melcher has also
assessed its products and determined that they are not date sensitive. Melcher
has also substantially completed remediation and testing of its computer
systems, as well as embedded systems in manufacturing, office and
telecommunications equipment, and believes that its most important systems are
Year 2000 compliant. Melcher has received survey responses from all of its key
suppliers which indicate that they are aware of the Year 2000 compliance issue
and state that they are Year 2000 compliant.
We do not expect the overall costs related to our Year 2000 project to be
material. We believe that the most significant adverse effect on our business
related to Year 2000 compliance would be that some of our smaller and less
relied-upon suppliers may not have systems that are Year 2000 compliant,
delaying our receipt of materials from them and our fulfillment of customers'
orders.
ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in
interest rates and changes in foreign currency exchange rates. Our exposure to
interest rate risk results from the financial debt instruments which arise from
transactions entered into during the normal course of business. We may enter
into derivative financial instrument transactions, such as swaps, in order to
manage or reduce our
18
<PAGE>
exposure to interest rate changes related to our portfolio of borrowings. Under
no circumstances do we enter into derivative or other financial instrument
transactions for speculative purposes.
DEBT. We are exposed to cash flow risk due to changes in market interest
rates related to our outstanding debt. For example, in Europe our credit
facilities bear interest on borrowings outstanding at various time intervals and
market rates based on Swiss LIBOR, an offshore rate that is similar to the
London Interbank Offered Rate ("LIBOR") plus a margin ranging from 1.25% to
2.00%. Our principal risk with respect to our long-term debt is to changes in
these market rates. Short-term borrowings under credit facilities do not give
rise to significant interest rate risk because these borrowings generally have
maturities of less than one year.
The table below presents principal cash flows and related weighted average
interest rates for our credit facilities and Swiss franc denominated long-term
debt obligations at September 30, 1999 by expected maturity dates. The
information is presented in U.S. dollar equivalents, our reporting currency, and
parenthetically in Swiss francs, where applicable. Additionally, the U.S. dollar
equivalent carrying value of Swiss franc denominated debt is sensitive to
foreign currency exchange rates. However, a 10% change in the U.S. dollar
exchange rate against the Swiss franc would not have a significant effect on the
future earnings of the Company.
<TABLE>
<CAPTION>
THERE- FAIR
1999 2000 2001 2002 2003 AFTER TOTAL VALUE
-------- -------- -------- -------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS EXCEPT FOR PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Credit facility:
Variable Rate ($US)..................... 721 721 721
Average Interest Rate................. 8.1% 8.1%
Fixed Rate (CHF 4,672).................... 3,109 3,109 3,109
Average Interest Rate................... 3.1% 3.1%
Long-term Debt:
Fixed Rate (CHF 13,250)................. 1,331 4,161 2,331 996 8,819 8,819
Average Interest Rate................. 7.0% 3.9% 4.0% 5.0% 4.5%
</TABLE>
FOREIGN CURRENCY. A significant portion of our business operations are
conducted in various countries in Europe. As a result, we have a certain degree
of market risk with respect to our cash flows due to changes in foreign currency
exchange rates when transactions are denominated in currencies other than our
functional currency. Historically, we have not actively engaged in substantial
exchange rate hedging activities, and at September 30, 1999, we had not entered
into any significant foreign exchange contracts.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains statements which, to the extent that they do not
recite historical fact, constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934. The words "believe," "expect," "estimate," "may," "will,"
"could," "plan" or "continue" and similar expressions are intended to identify
forward-looking statements. Such forward-looking information involves important
risks and uncertainties that could materially alter results in the future from
those expressed in any forward-looking statements made by, or on behalf of, us.
These risks and uncertainties include, but are not limited to, our ability to:
manage our growth; complete implementation of our Oracle ERP system; maintain
existing and form new relationships with customers; and successfully integrate
the businesses of companies that we acquire, including Melcher and IPD. Other
risks and uncertainties include uncertainties relating to general domestic and
international economic conditions, including interest rate and currency exchange
rate fluctuations, electronics industry market conditions and growth rates,
acquisitions, the cyclical nature of our business, technological developments
and changes in the competitive environment in which we operate. We caution you
that such forward-looking statements are only predictions and that actual events
or results may differ materially. In evaluating such statements, you should
specifically consider the various factors which could cause actual events or
results to differ materially from those indicated by such forward-looking
statements, including the factors that we discuss in this report and other
reports that we file with the Securities and Exchange Commission.
19
<PAGE>
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 September 30, 1999, the registrant did not
file any reports on Form 8-K.
20
<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, 1999
<TABLE>
<S> <C> <C>
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
</TABLE>
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED BALANCE SHEET AND UNAUDITED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE PERIOD ENDING SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 43,241
<SECURITIES> 0
<RECEIVABLES> 47,478
<ALLOWANCES> 2,096
<INVENTORY> 48,528
<CURRENT-ASSETS> 143,245
<PP&E> 67,239
<DEPRECIATION> 16,948
<TOTAL-ASSETS> 258,706
<CURRENT-LIABILITIES> 46,132
<BONDS> 5,827
0
0
<COMMON> 21
<OTHER-SE> 203,194
<TOTAL-LIABILITY-AND-EQUITY> 258,706
<SALES> 142,643
<TOTAL-REVENUES> 142,643
<CGS> 85,027
<TOTAL-COSTS> 85,027
<OTHER-EXPENSES> 48,153
<LOSS-PROVISION> 172
<INTEREST-EXPENSE> 2,808
<INCOME-PRETAX> 6,843
<INCOME-TAX> 3,859
<INCOME-CONTINUING> 2,984
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,984
<EPS-BASIC> .17
<EPS-DILUTED> .17
</TABLE>
