UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995 Commission File Number 0-18106
EXIDE ELECTRONICS GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 23-2231834
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
8609 Six Forks Road, Raleigh, North Carolina 27615
(Address of principal executive offices and zip code)
(919) 872-3020
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01
par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
The aggregate market value of voting Common Stock held by non-affiliates of the
registrant as of December 22, 1995 was approximately $94,120,615.
As of December 22, 1995, there were 9,092,504 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Document of the Registrant Form 10-K Reference Locations
1995 Proxy Statement - to be filed within PART III
120 days of the end of the fiscal year ended
September 30, 1995
EXIDE ELECTRONICS GROUP, INC.
1995 REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1 Description of Business
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders
PART II
Item 5 Market for Registrant's Common Equity and Related Shareholder
Matters
Item 6 Selected Financial Data
Item 7 Management's Discussion and Analysis of Results of Operations and
Financial Condition
Item 8 Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management
Item 13 Certain Relationships and Related Transactions
PART IV
Item 14 Exhibits, Financial Statements and Schedules, and Reports on Form
8-K
SIGNATURES
PART I
Item 1. Description of Business
Exide Electronics Group, Inc. ("Exide Electronics" or the "Company")
designs, manufactures, markets, and services a broad line of uninterruptible
power systems ("UPS"), related equipment, and power management and facilities
monitoring software. UPS products protect computers and other sensitive
electronic equipment against electrical power distortions and interruptions by
providing temporary backup power from batteries in the event of an outage. More
sophisticated UPS products also provide additional protection by continuously
cleaning and conditioning electrical power. The Company's broad range of UPS
products include small systems for use with personal computers, workstations,
client/server platforms, local and wide area networks ("LANs" and "WANs"), and
large standard or customized systems for use with mainframe computers, data
centers, and similar applications. The Company's power management software
products monitor, track, and communicate electrical power data and other related
environmental events in an enterprise's power, network, and computer systems
infrastructure that can threaten performance of information technology ("IT")
systems, thereby giving network and facilities managers the ability to control
their IT and power systems more effectively.
Growth in the UPS industry is being driven by the rapid proliferation of
computers and related electronic systems in the manufacturing, financial
services, utility, telecommunications, transportation, and other industries, all
of which benefit from the protection offered by UPS products. The operations of
such systems can be affected by a variety of distortions in electrical power,
including under-voltages ("sags"), over-voltages ("surges") and transients
("spikes"). In many international markets, there is an acute need for constant
conditioning of electrical power because of the poor quality of the public power
supply which can cause temporary power reductions ("brownouts") and complete
power interruptions ("blackouts"). Any of these power distortions can cause
sensitive electronic equipment to malfunction or "crash," increasing the
likelihood of costly system downtime, information loss, or damage to equipment
or software.
The majority of UPS products sold by the Company consist of on-line
systems, which continuously clean and condition electric power in addition to
providing a back-up power source. A typical on-line UPS product contains a
rechargeable battery which stores energy to be used in the case of alternating
current ("AC") input failure; a rectifier which converts incoming AC power to
direct current ("DC"); an inverter which converts DC power from the rectifier or
battery back to AC power suitable for the end-use application; a battery
charger; surge suppressors and noise filters for protection from power
fluctuations; and sensors, control circuits, and indicators to ensure that
operations follow a proper sequence and provide status information to the user.
The UPS unit continuously isolates the end-use equipment from voltage
fluctuations, frequency variations, and electrical noise inherent in
utility-supplied electrical power and, if this electrical power is interrupted,
the UPS provides clean, stable back-up AC power. The back-up power lasts for a
sufficient period of time (typically five to fifteen minutes) to permit an
orderly shutdown of the affected equipment or continued operation pending the
substitution of an auxiliary power source such as a generator or restoration of
utility-supplied electrical power.
In recent years, the Company introduced various models of standby UPS
products for power ranges up to 1.25 kilovolt amperes(1) to satisfy the power
protection requirements of less critical applications. Standby systems, which
generally are less expensive, monitor incoming power and switch to battery power
in the event of power distortions or interruptions that exceed certain
parameters, but do not continuously condition incoming power.
The Company's products and services and its product marketing, research and
development, and manufacturing functions are organized into three business
units: the Small Systems Group ("SSG") for all products below 50 kVA; the Large
Systems Group ("LSG") for products of 50 kVA and above; and the Worldwide
Services Group ("WSG") for all services provided by the Company. In the fourth
quarter of fiscal 1995, the Company announced the formation of the Emerging
Technologies Group ("ETG"). The Company formed this group to more aggressively
position itself in newly emerging high-growth technology markets. Certain
financial information relating to the Company's three principal business units
is included in Management's Discussion and Analysis of Results of Operations and
Financial Condition included under Part II, Item 7 of this Form 10-K.
The Company manufactures substantially all of its products at its
manufacturing facilities in Raleigh and Wilmington, North Carolina and Dallas,
Texas. The Company's large systems are generally sold through a direct
salesforce, while the Company's small products are generally sold through
Value-Added Resellers ("VARs"), Original Equipment Manufacturers ("OEMs") and
distributors.
The Company's business began in 1962 as part of Electric Storage Battery,
Inc., which was acquired in 1974 by Inco Limited ("Inco"). In 1982, Inco sold
the business to the Company, which (although incorporated in Delaware in 1979)
commenced operations at that time. The Company has three principal subsidiaries,
Exide Electronics Corporation, Exide Electronics International Corp., and
International Power Machines Corporation ("IPM"), all Delaware corporations, and
various subsidiaries relating to its domestic and international operations.
References to the Company herein also refer to the Company's subsidiaries,
except where the context indicates otherwise. The Company's principal executive
offices are located at 8609 Six Forks Road, Raleigh, North Carolina 27615, and
its telephone number at that location is (919) 872-3020.
During fiscal 1995, the Company acquired IPM, a manufacturer of UPS
products headquartered in Dallas, Texas. IPM is compatible with the Company in
terms of products and services provided and channels of distribution. In
accordance with the merger agreement, the Company acquired all of the capital
stock of IPM for approximately 1,510,000 newly registered shares of the
Company's common stock. The acquisition was accounted for as a
pooling-of-interests. Accordingly, the Selected Financial Data included in Part
II, Item 6, Management's Discussion and Analysis of Results of Operations and
Financial Condition included under Part II, Item 7, the consolidated financial
statements and notes thereto included in Part II, Item 8, and the schedule and
exhibits included in Part IV, Item 14 have been restated to reflect the merger
with IPM for all periods presented.
- ------------
(1) A kilovolt ampere (kVA) is a commonly-used unit of measure for electricity
supplied using alternating current.
In August 1995, the Company completed the acquisition of Lectro Products,
Inc. ("Lectro"). Lectro is a broadband industry leader specializing in power
protection and other transmission enhancement devices for the cable television
and telecommunications markets. While the results of Lectro did not have a
material effect on the Company's results of operations for fiscal 1995, the
acquisition gives the Company a significant position in powering the broadband
communications market.
Pending Acquisition
In November 1995, the Company executed a definitive agreement to acquire
Deltec Power Systems, Inc. and its subsidiaries ("Deltec") from Fiskars OY AB
("Fiskars") and an affiliated company, for a purchase price of approximately
$195 million, subject to certain post-closing adjustments. Under the purchase
agreement, Fiskars will receive approximately $157.5 million in cash and
1,875,000 shares of the Company's common stock valued at $37.5 million at a
fixed price of $20 per share, in exchange for all of the issued and outstanding
common stock of Deltec. Deltec has two principal operating subsidiaries: Deltec
Electronic Corp., which is headquartered in San Diego, California; and FPS Power
Systems, which is based near Helsinki, Finland. Deltec is one of the world's
largest manufacturers and marketers of off-line and line-interactive small UPS
systems. Off-line and line-interactive systems are generally smaller and less
expensive than larger on-line systems, and are suitable for applications where
system downtime may be less costly, such as personal or small business uses. The
combination will strengthen the product line offerings of the Company and
enhance its global service capabilities. It is expected that the acquisition
will close during the first calendar quarter of 1996, after completion of due
diligence reviews by the Company and attainment of all required governmental and
other regulatory approvals.
Business Strategy
The Company's business strategy, which it calls Strategic Power
Management(TM), is to provide a full range of product and service solutions to
satisfy the power management needs of its customers. Under this strategy, the
Company's goal is to provide value to its customers by offering premium
performance solutions at competitive prices, as compared to some industry
participants who compete primarily on price but generally offer
lower-performance products. Through strategic acquisitions, including IPM and
Lectro, the Company has expanded its line of UPS products to include a wide
range of off-line and on-line products operating across a broad spectrum of kVA
power ratings and applications. These acquisitions have also enabled the Company
to provide a broad line of service options, supported by a large staff of field
service technicians; a large installed base of products that gives the Company
extensive experience; a well-established research and development process
executed by an experienced team of engineers; and a large and strategically
located global distribution network. To further its strategic goals, the Company
intends to implement the following business strategies:
Increasing presence in small systems segment.
As a result of the continuing trend in the computer industry towards
distributed processing and the proliferation of personal computers,
workstations, client/server platforms, networks, and other
microprocessor-based electronic equipment, the market for smaller UPS
systems has experienced significant growth. The Company is taking steps to
increase its small systems business, such as frequent introduction of new
products that incorporate new technologies, development of new distribution
channels and marketing programs, providing new support services, and
strategic acquisitions. Many of the technologies underlying small UPS
products have been evolving rapidly, incorporating faster switching speeds
and reductions in the number of discrete component parts. These new
technologies improve reliability and allow reductions in product size,
cost, and manufacturing time. The Company intends to introduce new models
over the next several years with enhanced performance features based upon
recent technological developments. Software that monitors and manages
complex networks is becoming a critical success factor within the
distributed client/server marketplace, and the Company will continue to
develop applications to meet this demand. The Company believes that these
developments will enable the new models to address the needs of small
systems users and will make its products more attractive to potential
customers for small systems.
Expanding international sales.
The Company believes that the international market offers it significant
growth potential due to the poor quality of electric power in many foreign
countries. Accordingly, the Company continues to develop products designed
specifically to meet the unique power protection needs of select
international markets and establish joint ventures and other strategic
partnerships to manufacture, design, sell, and service UPS products in new
under-served markets. The Company believes that its global distribution and
service networks, which were expanded through the acquisition of IPM,
coupled with its broad line of high performance products, will position the
Company to take a leading role in the international UPS market.
Expanding its market share through segmentation.
The Company intends to increase its market share in the rapidly growing
worldwide UPS market by focusing its Strategic Power Management approach on
specific industry segments. In addition to its historical segmentation of
the market based on specific kVA ratings, the Company intends to
manufacture and market power management products and solutions tailored to
specific industries, including transportation, industrial process control,
broadband cable television, and telecommunications.
Expanding its WSG business.
The Company's WSG is one of the leading service organizations in the global
UPS market. The Company plans to increase its service revenues through the
introduction of new service offerings that complement its Strategic Power
Management focus, including offering support services for non-UPS power
equipment such as generators, switchgear, breakers, and power distribution
systems, as well as providing power quality analysis and remote systems
monitoring. In addition, the Company is developing programs to provide
service support for OEMs and the Federal government, which have
historically provided their own service and product support but are
increasingly looking to out source such services.
Redefining its LSG focus.
The Company believes that the market for large UPS products is relatively
mature, and that the demand for such systems will not grow significantly
over the next several years. Historically, large UPS systems were used to
support the power requirements of large mainframe computers and data
centers. With the movement away from mainframe systems towards smaller data
centers and office environments, there has been a need for mid-range UPS
systems operating in the 50kVA to 150kVA power range. To meet these
changing needs, the Company has redesigned its product lines and introduced
new combinations of large UPS products, ancillary equipment, and services.
The Company is pursuing commercial applications for its LSG products in
several markets including large medical facilities and industrial process
control, as well as continuing to pursue sales of large systems to the
Federal government.
Establishing a leading market position in emerging technologies.
In response to rapid growth in a number of new technologies that use
electrical power, the Company created ETG to aggressively seek out
opportunities to develop new small system UPS products utilizing new
technologies or serving new applications. ETG's initial efforts focus on
low-end rectifiers and power supplies for the broadband cable television
and telecommunications industries, product lines acquired as part of the
acquisition of Lectro. The Company plans to utilize these product lines as
a platform to enter the rapidly expanding wireless and personal
communication services markets.
UPS Market Trends
One of the most important trends over the last decade behind the expansion
of the domestic demand for UPS products has been the focus by businesses on
trimming costs, including costs associated with power outages and poor power
quality. Businesses have become more aware of the dangers of transient surges
and other utility line problems and their effect on sensitive electronic
equipment. Moreover, businesses are more aware of losses caused by downed
computers and lost data from surges, brownouts, and blackouts.
A significant trend driving the growth of the UPS market, and the most
important trend affecting the selection of UPS product type, is the migration
from mainframe, mid-range and minicomputers to distributed computing. This trend
has resulted in the proliferation of PCs, workstations, client/server platforms,
networks and other microprocessor-based equipment, leading to rapid growth for
smaller UPS systems and more modest growth for larger systems. The shift to UPS
products for LAN/WAN file servers and PC/workstations is expected to generate an
increasing demand for lower cost UPS products. While computer systems are
evolving from mainframes to file servers, the concept of computer rooms is
undergoing a corresponding evolution to data centers that incorporate large
numbers of servers in computer room settings. Accordingly, the Company is
designing its LSG products for use with the new computer technology.
Another market trend involves increasing demand for UPS products in
high-growth industries that are becoming more dependent on highly reliable
computers and electronic systems. Industrial process control,
telecommunications, and medical applications are expected to show future growth
in both the large and small system UPS product markets.
Improvements in the design of UPS products have led to declines in
manufacturing costs, which have produced lower sales prices for UPS products.
This trend has expanded the market for UPS products to applications where UPS
solutions were previously cost-prohibitive.
Products
The Company offers a broad range of power protection and management systems
for computers ranging from personal computers with power requirements starting
at 0.2 kVA to the world's largest data centers with aggregate power requirements
of thousands of kVA. The Company's product offerings consist primarily of the
following product families:
Product Family Product Characteristics Representative Applications
- -------------------------- ------------------------------------ ------------------------------------
Small Systems:
Powerware Prestige and On-line, from 650VA to 36kVA Workstations and networks,
Powerware Plus generally UNIX or Novell-based
ONE-UPS Standby, 200VA to 1250VA Client/server computing
IPM BalancedPower On-line, 600 VA to 30kVA LANs and WANs
Advantage, Plus and II
Minicomputers
Ethernet and Connect UPS
adapters (SNMP) Vertical applications including
point-of-sale, medical,
OnliNet shutdown and telecommunications, financial
monitoring software services
ZTT Zero transfer time, 6 amps to 15 Broadband power applications
amps
Large Systems:
Powerware Plus On-line, 50kVA to 375kVA Large, mainframe-oriented data
centers and systems
Series 3000 On-line, up to 1000kVA
Single-Module UPS Computer rooms: small mainframes,
minicomputers, centralized or
Series 3000 Multi-Module On-line, can be paralleled for clustered servers
UPS redundancy or capacity to very
high power ratings Medical equipment: MRI, CAT
scanners
Hot-Tie Systems
Mission-critical customized
IPM BalancedPower Plus On-line, 40kVA to 300kVA applications
DataFrame monitoring
software
PowerVision monitoring
software
Small Systems
Small systems offer comprehensive power conditioning and power backup
capabilities for personal computers, workstations, client/server platforms,
networks, and minicomputers, as well as other critical applications such as
telecommunications, medical, and laboratory equipment. They are much
smaller, lighter, and less expensive than large systems, and are generally
easy to install and use. Small computers are especially vulnerable to power
fluctuations, particularly in UNIX(R) and other sophisticated operating
environments. The Company's sales of SSG products constituted approximately
38% of its total revenues in fiscal 1995.
A number of the technologies underlying small UPS products have been
evolving rapidly. These technologies have resulted in faster switching
speeds, reductions in the number of discrete components, more sophisticated
control architectures using microprocessors and microcontrollers, and
enhanced communications capabilities that allow for transmission of data on
a continuous basis concerning various parameters monitored by the UPS
systems. These technologies have enabled small UPS products to be reduced
in size and cost, manufactured in less time, and made more reliable. The
Company's Powerware Plus products use the Company's proprietary advanced
switching technology, which yields better isolation from damaging
electrical noise, and application specific integrated circuit ("ASICs")
control architecture.
Several different models of small systems UPS products are currently
offered, which differ principally in the amount of power that can be
supplied, ranging from 0.25 kVA to 36 kVA. Each of the models offers
various options relating to the length of time for which battery power can
be supplied, the level of networking capability, and other features.
Separate models have been developed for sales to international customers
because of different standard voltages and frequencies in use in other
countries and other technical factors.
The most notable of SSG's products is the Powerware Prestige line. Its
technology and design give the Prestige relatively small dimensions and
weight for its power ratings. The Prestige has a broad selection of
software-configurable options, self-diagnostic capabilities, and tolerance
of a wide input-voltage range that extends battery life. The Prestige is
one of the first UPS products in its power range to incorporate all power
components onto a printed circuit board, which improves quality and
reliability while reducing costs. During fiscal 1994, the Prestige
generated the highest level of first-year sales for an introductory product
family in the Company's history. The Prestige continued as SSG's best
selling product line in fiscal 1995. The Prestige is currently offered in
nine models ranging from 650 VA to 6 kVA. This product line replaced the
Powerware Personal and certain models of the Powerware Plus product lines.
The combination of small system UPS products and state-of-the-art network
monitoring software has become a significant feature of the Company's SSG
product line. The Company's proprietary power management software,
OnliNet(TM), and related connectivity products can monitor power
conditions, environmental events, and UPS performance, and initiate
automatic shutdown of computers in a controlled sequence in the event of a
prolonged power outage. OnliNet is compatible with most commercial
operating systems.
In response to increased demand for low-end products, the Company offers
five models of its ONE-UPS standby ("off-line") UPS products for use at
lower power ranges (up to 1.25 kVA). Standby products generally offer less
power protection than on-line products, but at a lower cost, so they are
generally used for less critical applications. Historically, the Company
has not offered line-interactive products, a hybrid UPS technology that
typically falls between standby and on-line UPS products in terms of price
and the degree of power protection provided. However, the Company has plans
to introduce its first line-interactive products in fiscal 1996.
Large Systems
The Company has produced large UPS products for over twenty years. The
Company presently offers a number of models of its large UPS products,
supporting power capacities from 50 kVA to 1,000 kVA in a single module.
Single modules can be combined in systems for increased capacity and/or
redundancy. A majority of these large systems, including almost all systems
for large mainframe computers and data centers, are customized by the
Company's applications and product engineers to meet customers' specific
requirements. The Company's sales of LSG products constituted approximately
31% of its total revenues in fiscal 1995.
During the 1980s, the Company introduced the initial model of its Powerware
Systems series of products as part of its strategy to develop a standard
large system product line serving the needs of a broad range of computer
applications. In fiscal 1994, the Company introduced the Powerware Plus 80,
the first of a new generation of LSG products. The Powerware Plus 80
continued a migration of elements of the Company's advanced switching
technology to higher power ranges. Its design provides quality and
reliability enhancements as well as lighter weight, with excellent
performance in non-linear load conditions and emergency generator
operations (which typically supply erratic, low-quality electricity). The
Powerware Systems and Powerware Plus products are designed to meet the
power protection requirements of computer room and office environments and
to operate with most combinations of central processing units, peripherals,
and communication devices without significant customization. The Company
also offers specialized products designed for medical imaging applications
such as Magnetic Resonance Imaging and Computer-Assisted Tomography
scanning equipment, transportation applications, including airlines and
subways, and process control applications for manufacturing businesses.
The Company's largest UPS product line is the Series 3000, which is
designed to meet the power protection requirements of large data centers,
and is usually custom-engineered to meet customers' specific power
protection needs. The Company's Series 3000 products are typically
integrated with a significant amount of batteries, switchgear, and other
ancillary equipment that the Company purchases from its suppliers. In
addition, the Company's Hot-Tie(R) technology enables Series 3000 systems
to be linked together to support very large power requirements and provide
redundancy. The largest current installation is an 18,000 kVA parallel
redundant series of systems for a major telecommunications company. As a
result of the size of these systems and the inclusion of batteries,
switchgear and other equipment, customized Series 3000 systems may exceed
$1,000,000 per installation. In fiscal years 1995, 1994, and 1993,
significant sales of Series 3000 systems and ancillary equipment were made
to the Federal government in connection with the Federal Aviation
Administration ("FAA") program described below under the caption "Federal
Government Contracts."
The Company acquired DataTrax Systems Corporation ("DataTrax") in fiscal
1993 to expand its ability to provide fully-integrated power management
solutions. DataTrax gave the Company an innovative software product that
monitors critical power, environmental, and security systems for customers
with high systems-availability requirements. DataTrax products are designed
to interface with other manufacturers' UPS products, air conditioners,
generators, and other equipment. The Company believes that facilities
monitoring products, such as those offered by DataTrax, have significant
market growth potential.
IPM products
The acquisition of IPM in February 1995 provided the Company with a
complementary product line. IPM has a broad line of on-line UPS products in
power ranges from 600VA to 300kVA, including BalancedPower Plus,
BalancedPower Advantage, and BalancedPower II. IPM's product line has
enabled the Company to compete more effectively in the international
markets, and provided the Company with an enhanced international presence,
particularly in China. IPM also provided the Company with a stronger market
presence in the transportation and telecommunications industries.
Emerging technologies
In August 1995, the Company formed ETG to aggressively enter and serve
emerging markets for power protection and management systems, primarily the
cable television and telecommunications industries. The acquisition of
Lectro served as the catalyst for the formation of ETG, and provided the
Company with new technology designed for use in harsh operating
environments. These UPS products are currently sold primarily to the cable
television industry. ETG also sells rectifiers and inverters to the rapidly
expanding wireless and personal communication markets, as well as other
segments of the telecommunications industry.
New products
The Company plans to introduce additional new small systems products over
the next several years, including enhanced products at the higher end of
the power range for small to mid-range applications, a new generation of
off-line products, and, in 1996, its first line-interactive product family.
The Company also intends to introduce new models of existing products
containing new features, such as more user-friendly software and expanded
international language capabilities. Because of the rapid evolution of new
technologies, SSG products are expected to have relatively shorter life
cycles than LSG products. The market for large UPS products, however, is
relatively mature, and the products have relatively long life cycles. The
Company therefore expects to direct its improvement efforts at reducing
cost, improving quality, reducing total cycle time, and incorporating new
features, rather than redesigning entire LSG product lines. The Company
also intends to introduce new combinations of large UPS products, ancillary
equipment, and services. ETG expects to complete development of a new
product to maximize the Company's position in the cable television
industry. There can be no assurance that the Company will be able to
develop these new products or that these products will achieve market
acceptance.
Services
WSG offers a wide range of service programs, including preventive,
corrective, and contract maintenance services offered under the PowerCare(R)
name, and emergency services, training, and spare parts. Most of the Company's
service revenues relate to large system UPS products, which often require a
higher level of service, including post-sales applications support, systems
implementation and integration, installation and startup support, and
comprehensive maintenance services. The Company also provides, in connection
with certain significant sales of large UPS products and ancillary equipment to
the Federal government, site-specific engineering, construction, installation,
systems implementation and integration, training, documentation, and overall
program management services.
The Company has implemented a comprehensive global service strategy. The
Company recently expanded its UPS product services to include battery monitoring
services, site services, and services for OEMs, and expects to continue
expanding its service business with high sustained rates of growth in
maintenance contracts and battery monitoring services. In addition, the Company
is developing programs to provide service support for OEMs and the Federal
government, which historically have provided their own service and product
support, but are increasingly seeking to out source services and support.
Recent acquisitions have contributed to growth in the Company's service
business. The Company is in the process of integrating IPM's service business,
which expanded the Company's North American commercial service operating base by
nearly 25%. The Company has also experienced international service growth as a
result of the Company's acquisitions in 1994 of a company in the United Kingdom
and two companies in Canada.
Services in the United States are provided from service centers, which
generally are located with sales offices, and individual field service engineers
located throughout the country. The Company maintains inventories of spare parts
at its service centers and sales offices. Telephone support is provided 24 hours
per day. The Company also provides various factory and extended warranty
services as part of the purchase of UPS products, and guarantees on-site support
within 24 hours in the contiguous United States and 48 hours anywhere in the
world. International services are provided through the Company's affiliates and
distributors. The Company provides spare parts, training, and technical support
for its international distributors in countries where the Company does not
provide service support to ensure a consistent ability to provide worldwide
customer service.
Sales and Distribution
Organizational Approach
The Company's principal sales efforts are organized geographically into two
groups: the Americas Group, which covers the United States, Canada, and Latin
America; and the International Group, which covers all other geographic areas.
The Americas Group is further organized into five functional groups or areas:
Commercial Sales, Partner Marketing, the Federal Systems Division, Canada, and
Latin America. The International Group is divided into three geographic areas:
Europe, Middle East, Africa; Japan; and the Far East. At the present time, the
Company maintains separate distribution channels for IPM and Lectro products.
The Americas Group
Commercial Sales
The Company conducts its commercial sales using manufacturers'
representatives, Value-Added Distributors ("VADs"), and a Corporate
Accounts sales group. The Company works closely with its manufacturers'
representatives and provides support to their marketing efforts through
ongoing sales and product training programs, advertising and promotional
campaigns, and participation in major trade shows. The Company has
approximately 50 manufacturers' representative firms, which offer sales,
technical service, and customer support to commercial accounts throughout
the U.S. These manufacturers' representatives are the Company's primary
sales channel for LSG systems, and have recently begun marketing the
Company's SSG product lines as well. Commercial Sales also includes VADs,
which are local or regional distributors who access the market directly to
end users and on a resale basis by selling to VARs. The Company's Corporate
Accounts sales group is responsible for coordinating direct sales efforts
for all of its products to select major customers nationwide. Corporate
Accounts may purchase products for their own use or for resale.
Partner Marketing
The Company's sales effort in Partner Marketing are conducted through OEMs,
resellers, distributors, and VARs. The Company has OEM and reseller
relationships with numerous companies, including IBM, AT&T, Digital
Equipment Company, Data General and Unisys, some of which sell the
Company's UPS products on a private-label basis. The Company's OEM/reseller
sales relate primarily to its SSG products. OEMs/resellers market the
Company's products separately, as part of a combined product offering with
the OEMs' equipment, or through the OEMs' service organizations. The
Company has also developed a network of distributors and VARs for the sale
of SSG products. The Company supports the distributor effort with various
VAR marketing programs, and expects to continue expanding its relationships
with distributors and VARs.
Federal Systems Division
The Federal Systems Division coordinates the Company's selling efforts to
military and civilian agencies of the Federal government and focuses the
Company's efforts in order to maximize sales under government contracts.
Historically, the majority of sales to the Federal government has consisted
of LSG products and related services. Sales of SSG products are currently
made to the Federal government through distributors, VARs, and systems
integrators. The Company also offers certain of its UPS products in the 36
to 375 kVA range through a General Services Administration ("GSA")
schedule. See the Federal Government Contracts section below for a
discussion of sales to the Federal government and certain government
contracts.
Canada
The Company's wholly-owned Canadian subsidiary distributes, services, and
performs limited modification of its UPS products in Canada. The subsidiary
uses manufacturers' representatives, VARs and direct sales for
distribution.
Latin America
The Company maintains a sales office in Miami to support the Company's
sales and marketing effort in Latin America, which are generally conducted
by distributors and OEM's. The Company's network of distributors in Latin
America are factory trained to provide service for all products sold. In
December 1995, the Company announced plans to form a joint venture in
Brazil to better serve this market.
The International Group
The International Group is organized into three geographic regions designed
to maximize its participation in certain major international regions using
approaches tailored to each geographic area based upon the market's size, growth
potential, and local governmental requirements. International sales efforts are
focused primarily on SSG products and services. The Company also has introduced
several products to meet the specific voltage and frequency requirements of
international customers.
Europe, Middle East, and Africa
The Company markets and sells its products and services in Europe through
subsidiaries in France, the United Kingdom, and Germany. In European
countries where the Company does not have a local affiliate, as well as in
the Middle East and Africa, the Company markets and sells its UPS products
through local distributors and manufacturers' representatives. The Company
maintains a sales office in London to help support those sales.
Japan
In Japan, the Company has a joint venture with Japan Storage Battery Co.,
Ltd. ("JSB") that sells, markets, and distributes UPS products through a
direct sales and service organization, as well as through distributors and
VARs.
Far East
In Pacific Rim countries where the Company does not have a local affiliate,
the Company markets and sells its UPS products through local distributors.
The Company maintains sales offices in Singapore and Beijing, China to help
support those sales. In December 1995, the Company announced plans to form
a joint venture in India to better serve this market.
IPM Distribution Channels
The Company continues to maintain most of IPM's distribution channels to
market its IPM product lines. In North America, IPM markets its products
primarily through independent manufacturers' representatives, OEM Resellers,
national accounts, and directly to the Federal government. IPM sells its systems
internationally primarily through distributors and manufacturers'
representatives. Additionally, the Company is involved in direct sales
activities from its Hong Kong office and in China, Germany, and Canada. Over
time, the Company intends to integrate IPM's products into its sales and
distribution organization.
Customers
The principal end users of the Company's products and services include a
broad range of commercial users, from large multinational corporations to small
businesses, and various military and civilian agencies of the Federal
government. The Company's customer base has expanded significantly in recent
years with the broadening of its product line, especially for small UPS
products. The Company also has been increasing its customer base
internationally; sales to international customers accounted for approximately
31%, 25%, and 22% of the Company's total revenues in fiscal years 1995, 1994,
and 1993, respectively, and accounted for approximately 43%, 37%, and 33% of
total commercial revenues for these periods. While the Federal government is the
Company's largest single customer (see the caption "Federal Government
Contracts" which follows), no single commercial customer accounted for 10% or
more of the Company's total revenues in fiscal 1995.
Research and Development
The Company believes that it must continue developing new products and
enhancing existing ones to maintain its position as an innovative leader in the
power protection and management industry. The Company's research and development
efforts with respect to SSG relate primarily to the incorporation of new
technological developments, while efforts with respect to LSG are aimed at
reducing cost and total cycle time and improving quality. The Company has also
been expanding its product line to include specialized offerings for particular
applications, such as medical, cable television, and telecommunications
equipment, in addition to models that meet international voltage and frequency
requirements. The Company has replaced most of its product line as well as
expanding its product offerings over the last five years and is currently
involved in the development of additional new products and further advances in
its product line. In recent years, as software has become increasingly important
in the design and operation of the Company's UPS products, the Company has
expanded its software development capability to produce products that improve
customers' ability to manage their information technology and power networks.
The Company believes that its relationships with suppliers of
semiconductors, batteries, and other primary components give the Company access
to emerging technologies and applications. The Company's relationships with OEMs
also provide it with the opportunity to integrate power and user requirements of
products under development by those OEMs into its research and development
efforts.
During fiscal 1995, 1994 and 1993, the Company spent approximately $9.9
million, $10.1 million, and $9.6 million, respectively, on research and
development. The Company's research and development expenditures as a percentage
of revenue were 2.5%, 2.8% and 3.0%, respectively, for fiscal 1995, 1994 and
1993. The Company expects that research and development expenditures will
continue at substantially the same level in relation to sales for the
foreseeable future as the Company takes advantage of synergies produced by its
acquisitions of IPM and Lectro.
Manufacturing
The Company manufactures substantially all of its UPS products at three
locations: Raleigh and Wilmington, North Carolina, and Dallas, Texas. In
addition, the Company's international distributors and affiliates can customize
products to the extent required for various international markets.
Most of the Company's SSG systems are produced at a manufacturing facility
near Wilmington, North Carolina, which became operational during fiscal 1991 and
was expanded in fiscal 1995. IPM also manufactures a portion of its small
systems product line at the Dallas, Texas plant. The Company's manufacturing
operations for small systems consist primarily of product assembly, wiring
harness fabrication, quality control, and product testing. The SSG manufacturing
process involves production of high volumes of various models of products, which
are significantly easier to assemble than LSG products because of standard
production runs and fewer discrete components. The Company has historically
out sourced production of some of its low-end products in Taiwan. Although the
Company does not manufacture these products directly, they are built to the
Company's design specifications.
The Company's LSG products are manufactured in Raleigh, North Carolina and
Dallas, Texas. Manufacturing operations for large systems consist primarily of
transformer fabrication, wiring harness fabrication, product assembly, painting,
quality control, and product testing. LSG manufacturing involves production of
lower volumes of products and requires a higher level of manufacturing expertise
due to a higher number of components and, in many cases, the need for
customization.
Although the Company generally uses standard parts and components that are
available from a variety of sources, certain electronic components currently are
available only from single sources. While the Company has generally been able to
obtain adequate supplies of these components, recently UPS manufacturers,
including the Company, have experienced temporary shortages in some components,
such as certain microprocessors, printed circuit boards and capacitors. These
shortages affected the delivery schedule on some products and resulted in lower
margins on some sales as the Company incurred higher costs in purchasing
components from alternative sources. Generally, any inability to obtain supplies
of sole-source components will temporarily disrupt production as alternatives
are located or developed. In addition, the availability of certain specialized
components used with large UPS products, such as switchgear, batteries and other
ancillary equipment that are not inventoried by the Company, can affect the
timing of delivery of the Company's integrated power protection systems,
including its LSG products.
In October 1992, the Company, based upon an audit of its United States
operations, was certified and recognized as a Registered Firm conforming to ISO
9001 quality criteria for the design, manufacture and servicing of its products.
ISO 9001 certification is becoming increasingly important in the marketing and
selling of products worldwide.
Backlog
The Company's backlog as of September 30, 1995 was approximately $107
million as compared with $146 million as of September 30, 1994. Approximately
$20 million of the backlog as of September 30, 1995 is not expected to be
delivered within the next 12 months. Backlog reflects firm customer orders for
products and services scheduled for shipment within 12 months, or firm, funded
government orders. A significant portion of the backlog at September 30, 1995 is
attributable to orders from the Federal government, particularly for the FAA
modernization program. The FAA program is discussed below in the "Federal
Government Contracts" section.
The level of backlog at any particular time is not necessarily indicative
of future operating performance of the Company. Delivery schedules may be
extended, particularly in the case of LSG products, and orders may be canceled
at any time subject to certain cancellation penalties. In addition, since small
systems generally can be shipped shortly after firm customer orders are
received, backlog levels for SSG as of any particular date may reflect a
temporary surge or lull in orders, and may not be indicative of business trends
for subsequent periods.
Competition
The Company believes that it is one of three global companies providing a
full range of UPS products and services worldwide. The Company competes with a
large number of firms with respect to small UPS products, and believes that its
principal competitors in the United States include American Power Conversion
Corporation, the leading manufacturer and seller of small UPS products; a
business unit of General Signal Corp.; and Trippe Manufacturing Company. Since
recent growth in the UPS industry has been in small UPS products and since
distribution channels for small UPS products are rapidly evolving, the Company
believes that it is likely to face significant competition in the sale of small
UPS products over the next several years.
The Company believes that its primary competitors in the large UPS product
market include business units of Emerson Electric Co. and Groupe Schneider, S.A.
Both of these companies are much larger than the Company and have greater
financial and other resources. The Company believes that Federal government
procurements will be highly competitive, such as the recent procurement process
related to the new ALC contract discussed below under "Federal Government
Contracts."
Many other companies compete successfully in certain countries or
geographic regions and in individual UPS product or application niches. Some of
the Company's competitors have greater financial and other resources than the
Company. The Company believes that product reliability and quality, performance,
service, support, and price are the most important factors with respect to sales
of its UPS products. Marketing and brand recognition also play a role in
competing for the sale of UPS products.
Federal Government Contracts
Sales to the Federal government accounted for approximately 27%, 33%, and
35% of the Company's revenues for the fiscal years ended September 30, 1995,
1994, and 1993, respectively. A major portion of the Company's sales to the
Federal government consists of large, customized UPS products and ancillary
equipment under multi-year programs with complex manufacturing, system design,
delivery, and installation schedules. In connection with these programs, the
Company supplies significant services, including site-specific engineering,
integration, systems implementation and startup, training, orientation,
documentation, and program management. The Company also sells its products and
services to the Federal government through its GSA schedule and frequently
through miscellaneous competitively-awarded and sole-source procurement actions.
Most of these contracts are subject to termination at the convenience of the
government pursuant to the terms of the contracts.
A significant portion of the Company's sales to the Federal government in
recent years has been under a five-year contract with the Air Force Air
Logistics Command ("ALC") awarded to the Company in May 1988 following a
competitive procurement and, to a much lesser extent, under a five-year contract
with the United States Navy awarded to the Company in June 1991 following a
competitive procurement. In April 1992, the Company was awarded a second
five-year contract with the United States Navy for a different range of UPS
products.
A significant portion of orders received by the Company under the ALC
contract has been for the FAA Air Route Traffic Control Center Modernization
Program. To date, the Company has received approximately $355 million in orders
under this program, which relate to approximately 25 FAA locations. As of
September 30, 1995, approximately $60 million of the Company's backlog relates
to firm, funded orders received under this contract for the FAA. The period
during which orders could be placed under this contract expired in May 1993.
Expiration of the ALC contract does not affect orders received prior to
expiration, and delivery on the remainder of such orders, which consist
primarily of site implementation services for the FAA, is currently planned
through fiscal 1997.
In June 1995, the Company was awarded a follow-on ALC contract. This is a
three-year requirements contract, which permits extension of the ordering period
for up to two additional one-year periods at the option of the Government.
Actual revenues under this contract will depend on the specific purchases, if
any, by the Air Force and other governmental agencies which can use the contract
during the contract period. Following the award of the contract, certain
competitors filed protests with the General Accounting Office ("GAO"). In
December 1995, the GAO notified the Company that all of the protests had been
dismissed, except the protest of the Air Force's evaluation of certain discounts
offered by the Company in the contract. In sustaining this protest on the basis
that it did, the GAO did not recommend termination of the contract or any other
remedy adverse to the interests of the Company at this time. As a result, the
Company retains the contract for the present and the Government can place orders
under the contract. The GAO has, however, recommended that the Air Force amend a
portion of the request for proposal that led to the contract award. The GAO
further recommended that the Air Force allow the protesting companies and the
Company to submit new proposals regarding such portion, and that the Air Force
re-evaluate the award to the Company based upon these new proposals. The Company
has not been advised by the Air Force whether it will contest or accept the
GAO's recommendations. Similarly, the Air Force has not advised the Company of
its plans regarding the issuance of additional orders under the contract, or an
amended request for proposal. No assurances can be given that the Company
ultimately will retain the contract.
The Company's government contracts require the Company to supply UPS
products and services at the Company's contract prices. A principal benefit of
these types of contracts is that military or civilian agencies may purchase
products from the Company by procuring those products through the contracting
agency. The Company's Federal Systems Division therefore seeks to identify
applications useful to other Department of Defense and civilian agencies within
the Federal government.
The Company's Federal government business is performed under firm
fixed-price type contracts, time-and-materials type contracts, and at times a
combination of both. Under firm fixed-price contracts, the Company agrees to
deliver products and perform work for a fixed price. Accordingly, the Company
realizes all of the benefit or detriment resulting from decreased or increased
costs of performing under a firm fixed-price contract. Under time-and-materials
contracts, the Company receives an agreed hourly rate for each employee working
under the contract and is reimbursed for the cost of materials and certain
administrative overhead.
The Company's compliance with government contract regulations is audited or
reviewed from time to time by government auditors, who have the right to audit
the Company's records and the records of its subcontractors during and after
completion of contract performance. Under Federal government regulations,
certain costs are not costs for which the government will reimburse the Company.
Government auditors may recommend that certain charges be treated as unallowable
and reimbursement be made to the government. In addition, as part of the
Company's internal control practices, the Company performs regular internal
reviews of its charges to the government. In connection with such reviews, the
Company may make voluntary refunds to the government for certain unallowable or
inadvertent charges, that are brought to the government's attention by the
Company. The Company provides for estimated unallowable charges and voluntary
refunds in its financial statements, and believes that its provisions are
adequate as of September 30, 1995.
The Company recognizes that, in the current Federal government contracting
environment, many other contractors are the subject of various investigations
for breach of government contract rules and procedures. The Company is not aware
of any such investigations relating to the Company. However, if the Company were
charged with wrongdoing in connection with its Federal government contracts, the
Company could be subject to civil and criminal damages and penalties, and could
be suspended from bidding on or receiving awards of new Federal government
contracts pending the completion of legal proceedings. Any Federal government
contracts found to be tainted by illegality can be voided by the government and
the contractor can be subject to fine or debarment from new Federal government
contracts, and its export licenses could be terminated.
In addition to the right of the Federal government to terminate contracts,
Federal government contracts are conditioned upon the continuing availability of
budget appropriations. Funds are appropriated on a fiscal-year basis even though
contract performance may take more than one year. Consequently, contracts
usually are partially funded at the outset of multi-year programs; additional
funds normally are committed to contracts by the procuring agency only as
appropriations are made for future fiscal years.
Patents, Licenses, and Trademarks
The Company currently holds various domestic and international patents
(which expire at differing times from 2000 through 2011) and various patent
applications are pending. Although the Company believes that the pending
applications relate to patentable devices or concepts, there can be no assurance
that patents will be issued or that any patent issued can be defended
successfully. The Company's present policy is to pursue patents for products or
processes that it believes are patentable, but there can be no assurance that
any patents held by the Company will not be challenged or circumvented, or that
such patent rights, once granted, will provide competitive advantages to the
Company. Although the Company believes that obtaining patents wherever possible
is in its best interests, it also believes that the legal protections afforded
by such patents is of no greater importance in the UPS industry than such
factors as rapid development cycles, technological expertise, marketing skill,
and customer support. The Company does not believe that its patents or its
patent applications are essential to the success of the Company.
The Company has a perpetual, exclusive, royalty-free license for the use of
the name Exide as part of its corporate name and trade name for the manufacture,
sale, and service of UPS products. The Company holds certain licenses required
by Federal government agencies for the export from the United States of many of
the Company's products.
The Company has numerous trademarks effective in the United States and in
several foreign countries. Powerware(R), OnliNet(R), PowerVision(R), Hot-Tie(R),
Strategic Power Management(R) and Cell Saver(R) are registered trademarks of the
Company, and PowerCare(R) is a registered service mark. Applications for
registered trademarks are pending for ONE-UPS(TM) and DataFrame(TM). Management
considers its various trademarks to be valuable assets but believes that the
loss of any one trademark would not have a material adverse effect on the
Company's operations.
Employees
As of September 30, 1995, the Company employed approximately 1,700 persons.
Approximately 650 are employed in manufacturing and the balance are in customer
support, research and development, sales and marketing, and administration. In
addition, the Company uses temporary personnel on an as-needed basis, which it
believes affords operating flexibility. The Company believes that its continued
success depends on its ability to attract and retain highly qualified personnel.
None of the Company`s employees is represented by a collective bargaining
agreement The Company has not experienced any work stoppages and believes that
its employee relations are good.
Item 2. Properties
The Company's principal facilities are as follows:
Location Square Feet Operations
- -------------------------------------------- -------------- ------------------------------------------
Raleigh, NC:
Worldwide Headquarters 93,000 Corporate offices; sales and marketing;
customer service
LSG Manufacturing Facility 170,000 Manufacturing
Advanced Technology Center 28,000 Research and development
Federal Systems Division 18,000 Federal program management; engineering
Training and Support Center 22,000 Technical training and support
Emerging Technologies Group and 185,000 Distribution; manufacturing; repair;
Worldwide Logistics Center administrative offices
Wilmington, NC 168,000 SSG manufacturing
Louisville, CO 9,000 DataTrax operations
Dallas, TX 133,000 IPM manufacturing; sales; distribution;
administrative offices
Toronto, Canada 40,000 Distribution; sales; customer support;
administrative offices
Paris, France 7,000 Distribution; sales; customer support;
administrative offices
London, England 15,000 Distribution; sales; customer support;
administrative offices
--------------
Total 888,000
All of the Company's principal facilities are occupied under long-term
leases, except for the facility in Wilmington, North Carolina, which is owned.
The Company also leases various sales and service offices worldwide. The Company
believes that its facilities are adequate to meet its current requirements.
Item 3. Legal Proceedings
In January 1989, a case was filed by a former manufacturer's representative
of the Company, alleging that the Company failed to pay commissions owed to him
on certain sales. In April 1990, a jury awarded the plaintiff damages of
approximately $14.9 million. The Company appealed the decision, and in September
1992, the appellate court reversed the judgment against the Company. In response
to various motions filed by the plaintiff, a new trial was granted, and in March
1994, the jury in the new trial awarded damages of $3.75 million payable by the
Company to the plaintiff. While the Company continued to believe that it should
have no liability in this matter, it recorded a one time charge in the second
quarter of fiscal 1994 of $5.0 million ($2.9 million after tax) for the jury
verdict and costs of the trial.
On July 20, 1994, the Company announced that this litigation had been
settled. Following agreement among the parties to settle, the court vacated the
jury award of $3.75 million previously entered and determined that the vacated
judgment cannot be used against the Company in the future. To avoid further
litigation including post-trial motions and appeals, the Company settled the
case by making payments to the plaintiff and his attorneys. The parties
thereafter stipulated that the entire action was dismissed with prejudice. Since
the total value of the settlement payments was less than the one-time charge for
the jury verdict recorded by the Company in the second quarter of fiscal 1994,
no further charges were necessary in this matter. By agreement with the
plaintiff, the terms of the confidential settlement were not disclosed.
In May 1990, the Company was served with a complaint in the Delaware Court
of Chancery and in May 1991, a related case was filed in Federal Court in New
York. These complaints alleged, among other things, that the Company's
description of the case involving the manufacturer's representative in its
prospectus dated December 21, 1989 was false and misleading. In April 1995, the
Company announced that it had settled both the Delaware and New York suits. The
Delaware action had been dismissed once for failure to state a claim, but was
reinstated following an appeal and was in the discovery process prior to the
settlement. The Company recorded a pretax charge of $700,000 ($424,000 after
tax) for the settlement of the two related lawsuits in the quarter ended March
31, 1995. Court approval of the settlement agreement, after notice to affected
shareholders, was granted in August 1995. While the Company believed that
neither suit had merit, it decided to settle as the suits were taking valuable
corporate time and attention and would have involved significant legal costs to
pursue further.
The Company is involved in various litigation proceedings incidental to its
business. The defense of most of these matters is handled by the Company's
insurance carriers. The Company believes that the outcome of such other pending
litigation in the aggregate will not have a material adverse effect on its
financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the security holders during the fourth quarter
of the fiscal year ended September 30, 1995.
PART II
Item 5. Market For the Registrant's Common Equity and Related Shareholder
Matters
The Company's common stock trades on the NASDAQ stock market under the
symbol "XUPS." The following table sets forth the range of high and low closing
prices of the Company's common shares for the periods indicated:
- -------------------- ------------------------- --------------------------
1995 1994
- -------------------- ------------------------- --------------------------
- -------------------- ------------ ------------ ------------- ------------
High Low High Low
- -------------------- ------------ ------------ ------------- ------------
First Quarter $21.50 $14.63 $23.50 $15.00
Second Quarter 20.00 15.75 20.75 15.25
Third Quarter 23.00 15.50 24.50 14.50
Fourth Quarter 25.25 18.75 25.75 19.25
- -------------------- ------------ ------------ ------------- ------------
As of December 22, 1995, there were approximately 4,000 shareholders based
on the number of holders of record and an estimate of the number of individual
participants represented by security position listings.
As discussed in Note 6 of the notes to consolidated financial statements
included in this document at Item 8, the Company's existing credit facilities
restrict payment of cash or property dividends if such payment would cause a
default. The Company currently intends to retain all of its earnings for use in
its business and, therefore, does not anticipate paying cash dividends on its
common stock in the foreseeable future.
Item 6. Selected Financial Data
(in thousands, except per share amounts)
- --------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
Results of Operations
Products $271,482 $259,403 $220,143 $186,579 $175,487
Services 119,496 104,580 97,799 60,524 45,912
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues $390,978 $363,983 $317,942 $247,103 $221,399
- --------------------------------------------------------------------------------------------------------------------------------
Gross profit $103,865 $ 98,695 $ 85,495 $ 68,695 $ 51,465
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations $ 16,270 (1) $ 18,462 (3) $ 20,397 $ 12,844 $ (2,899)
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and the
cumulative effect of accounting change $ 12,077 (1) $ 13,459 (3) $ 16,046 $ 9,159 $ (7,596)
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before the cumulative effect of
accounting change $ 7,385 (1) $ 9,175 (3) $ 9,832 $ 6,056 $ (6,698)
Cumulative effect of accounting change - - 1,000 - 1,014
- ---------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 7,385 (1) $ 9,175 (3) $ 10,832 $ 6,056 $ (5,684)
- --------------------------------------------------------------------------------------------------------------------------------
Preferred stock dividends 592 790 1,071 484 301
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common shareholders $ 6,793 (1) $ 8,385 (3) $ 9,761 $ 5,572 $ (5,985)
- --------------------------------------------------------------------------------------------------------------------------------
Per Share Amounts
Primary
Income (loss) before the cumulative effect of
accounting change $ 0.84 (1) $ 1.07 (3) $ 1.21 $ 0.79 $ (0.96)
Cumulative effect of accounting change - - 0.13 - 0.14
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.84 $ 1.07 $ 1.34 $ 0.79 $ (0.82)
- --------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common and equivalent
shares outstanding 8,054 7,814 7,270 7,039 6,948
- --------------------------------------------------------------------------------------------------------------------------------
Fully diluted
Income (loss) before the cumulative effect of
accounting change $ 0.84 (1) $ 1.03 (3) $ 1.10 $ 0.79 $ (0.96)
Cumulative effect of accounting change - - 0.11 - 0.14
--------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.84 $ 1.03 $ 1.21 $ 0.79 $ (0.82)
- --------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common and equivalent
shares outstanding 9,673 9,393 9,316 7,651 6,948
- --------------------------------------------------------------------------------------------------------------------------------
Financial Condition
Working capital $105,543 $ 93,337 $ 87,029 $ 61,714 $ 49,073
Total assets 256,451 224,676 203,233 151,178 137,918
Long-term debt 80,258 (2) 58,400 56,805 40,299 34,995
Redeemable preferred stock - 10,000 10,000 10,100 5,000
Common shareholders' equity 83,767 67,462 58,017 44,501 39,745
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
The above data should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and
Financial Condition" (MD&A) included at Item 7 and with the consolidated financial statements and accompanying
notes included at Item 8 of this Form 10-K.
(1) Results of operations and per share amounts for fiscal 1995 include one-time merger, acquisition, and litigation
charges of $7,700 ($5,597 after tax). See the MD&A for additional information.
(2) Long-term debt includes $15,000 of convertible subordinated notes. The holder converted these notes into the company's
common stock in October 1995.
(3) Results of operations and per share amounts for fiscal 1994 include a one-time litigation charge of $4,997 ($2,936 after
tax). See the MD&A for additional information.
</FN>
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following discussion provides an assessment of the consolidated results
of operations and liquidity and capital resources of the Company and should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto included at Item 8 of this Form 10-K.
Overview
Over the last three years, several factors have had a significant impact on
the Company's results of operations, including the growth in revenues of small
UPS products; the overall strong growth in international sales; the effect of
Federal government product and service revenues; the settlement of certain
litigation; and the acquisition of International Power Machines ("IPM").
The Company's products and services and its product marketing,
manufacturing, and research and development functions are organized into three
business units: the Small Systems Group ("SSG"), which the Company defines as
all products below 50 kVA(2); the Large Systems Group ("LSG") for products of 50
kVA and above; and the Worldwide Services Group ("WSG") for all services
provided by the Company. In the fourth quarter of fiscal 1995, the Company
announced the formation of the Emerging Technologies Group ("ETG"). The Company
formed this group to more aggressively position itself in newly emerging
high-growth technology markets. Initially, ETG will focus primarily on
converging interactive communications markets, such as cable television. ETG
results have been included in SSG results for fiscal 1995.
As a result of the continuing trend in the computer industry towards
client-server computing and the proliferation of personal computers,
workstations, client/server platforms, networks, and other microprocessor-based
electronic equipment, the Company's product mix has shifted toward its lower kVA
product lines and away from its traditional large systems products. Sales of SSG
products have increased significantly during the past two fiscal years, while
commercial sales of the Company's larger products have generally declined or
experienced only modest growth. This direction reflects the general downsizing
trend in the computer industry, which has resulted in declines in the commercial
mainframe computer and data center market segments. Small UPS products are
characterized generally by higher unit volumes, lower average prices and higher
unit margins than large UPS products, and are sold through different
distribution channels. The majority of the Company's UPS products are sold to
customers to support computers or similar electronics products. The electronics
market, including the networking, client/server, workstation, personal computer,
and small UPS markets, is increasingly characterized by intense competition,
rapidly changing technology, and evolving industry standards, frequently
resulting in shorter product life cycles and declines in selling prices. The
Company has responded with reductions in manufacturing costs and purchased
components, and has aggressively introduced new hardware and software products
with lower costs and higher performance levels.
- --------
(2) A kilovolt ampere is a commonly-used unit of measure for electricity
supplied using alternating current.
International sales accounted for approximately 31%, 25%, and 22% of the
Company's total revenues for fiscal years 1995, 1994, and 1993, respectively,
and accounted for approximately 43%, 37%, and 33% of total commercial revenues
for those fiscal years. The Company has focused on the expanding international
market by developing versions of its products to meet international voltage and
frequency requirements; by establishing subsidiaries in selected European
countries and Hong Kong; by adding distributors and making small acquisitions in
other international regions; and by developing strategic relationships for
distribution in Japan, Brazil, and India. The Company continues to expand its
international operations with an agreement to acquire Deltec Power Systems, Inc.
("Deltec"), a multinational supplier of UPS products and services with a strong
presence in both the United States and Europe. The Deltec acquisition is
discussed further in the "Pending Acquisition" section. Sales to Latin America
increased to $36.6 million in fiscal 1995 from $31.4 million in fiscal 1994, but
decreased as a percentage of total international sales to 30% from 35% for those
fiscal years due to increased sales to Europe and the Far East. Sales to Latin
America have also been affected by economic conditions, which have not always
been stable. Continuing unfavorable economic conditions could result in revenue
and operating profit declines in this region.
Sales to the Federal government accounted for approximately 27%, 33%, and
35% of total revenues for fiscal years 1995, 1994, and 1993, respectively.
Despite the large proportion of sales to the federal government, these sales
actually declined by about 12% in fiscal 1995 versus fiscal 1994, reflecting the
scheduled decline in LSG sales due to the completion of most product shipments
under the multi-year Federal Aviation Administration ("FAA") program. While the
work yet to be performed under this contract is scheduled through fiscal 1997,
sales to the Federal government in fiscal 1996 are expected to decline by
approximately 30-35% as compared to fiscal 1995. The Company's contracts with
the Federal government have no significant minimum purchase commitments, and the
government may cease purchases under these contracts at any time for any reason.
These contracts are subject to termination at the convenience of the government
pursuant to the terms of the contracts.
During fiscal 1995, the Company was awarded a follow-on contract with the
Air Force Air Logistics Command. This is a three-year requirements contract
which permits extension of the ordering period for up to two additional one-year
periods at the Government's option. Actual revenues under this contract will
depend on the specific purchases, if any, by the Air Force and other
governmental agencies which can use the contract during the contract period.
Following the award of the contract, certain competitors filed protests with the
General Accounting Office ("GAO"). In December 1995, the GAO notified the
Company that all of the protests had been dismissed, except the protest of the
Air Force's evaluation of certain discounts offered by the Company in the
contract. In sustaining this protest on the basis that it did, the GAO did not
recommend termination of the contract or any other remedy adverse to the
interests of the Company at this time. As a result, the Company retains the
contract for the present and the Government can place orders under the contract.
The GAO has, however, recommended that the Air Force amend a portion of the
request for proposal that led to the contract award. The GAO further recommended
that the Air Force allow the protesting companies and the Company to submit new
proposals regarding such portion, and that the Air Force re-evaluate the award
to the Company based upon these new proposals. The Company has not been advised
by the Air Force whether it will contest or accept the GAO's recommendations.
Similarly, the Air Force has not advised the Company of its plans regarding the
issuance of additional orders under the contract, or an amended request for
proposal. No assurances can be given that the Company ultimately will retain the
contract.
The Company's corporate development strategy is to invest in acquisitions,
joint ventures, or strategic alliances that coincide with or supplement its
strategic plan and can create earnings growth through the addition of
complementary companies, products, distribution channels, or service
capabilities. The Company plans to continue its corporate development strategy
in fiscal 1996.
The Company completed the acquisition of IPM during the second quarter of
fiscal 1995. IPM is a manufacturer of UPS products headquartered in Dallas,
Texas and is compatible with Exide Electronics in terms of products and services
provided and its channels of distribution. In accordance with the merger
agreement, the Company acquired all of the capital stock of IPM for
approximately 1,510,000 newly registered shares of the Company's common stock.
The acquisition was accounted for as a pooling-of-interests. Accordingly, the
consolidated financial statements and notes thereto included in Part II, Item 8,
and the schedule and exhibits included in Part IV, Item 14 of this Form 10-K
have been restated to reflect the merger with IPM for all periods presented.
In August 1995, the Company acquired Lectro Products, Inc. ("Lectro"), a
company specializing in power protection and other transmission enhancement
devices for the cable television and telecommunications markets. This
acquisition was accounted for as a purchase and is more fully described in Note
14 of the notes to consolidated financial statements. While the results of
Lectro did not have a material effect on the Company's results of operations for
fiscal 1995, the Company believes that the acquisition gives the Company a
significant position in powering the broadband communications market.
Pending Acquisition
In November 1995, the Company executed a definitive agreement to acquire
Deltec Power Systems, Inc. ("Deltec") from Fiskars OY AB ("Fiskars") and an
affiliated company (the "Deltec Acquisition"), for a purchase price of $195
million, subject to post-closing adjustment. Under the agreement, Fiskars will
receive approximately $157.5 million in cash and 1,875,000 shares of the
Company's' common stock valued at $37.5 million at a fixed price of $20 per
share, in exchange for all of the issued and outstanding common stock of Deltec.
The combination will strengthen the product line offerings of the Company's
Small Systems and Large Systems Groups, and will enhance the number and scope of
markets served by the Company. See further discussion in Item 1, "Description of
Business." Financing for this transaction is discussed in the "Liquidity and
Financial Condition" section below. See Note 16 of notes to consolidated
financial statements.
Results of Operations
The following table presents, for the periods shown, revenues, gross
profit, selling, general and administrative expense, research and development
expense, litigation, merger and acquisition expense, and income from operations,
in millions of dollars, and certain income statement captions as a percentage of
total revenues:
--------------------------------------------
Fiscal Year Ended September 30,
--------------------------------------------
(in millions) 1995 1994 1993
--------------------------------------------
Revenues
Small Systems Products $ 148.1 $ 115.2 $ 89.1
Large Systems Products 123.4 144.2 131.0
--------------------------------------------
Total Products $ 271.5 $ 259.4 $ 220.1
Worldwide Services Group 119.5 104.6 97.8
--------------------------------------------
Total Revenues $ 391.0 $ 364.0 $ 317.9
--------------------------------------------
Gross Profit
Products $ 66.8 $ 65.8 $ 54.4
Services 37.1 32.9 31.1
--------------------------------------------
Total Gross Profit $ 103.9 $ 98.7 $ 85.5
--------------------------------------------
Selling, general and administrative expense 70.0 65.1 55.5
Research and development expense 9.9 10.1 9.6
Litigation expense .7 5.0 -
Merger and acquisition expense 7.0 - -
--------------------------------------------
Income from operations 16.3 18.5 20.4
Net income $ 7.4 $ 9.2 $ 10.8
--------------------------------------------
Revenue Growth:
Small Systems Products 28.6% 29.3% -
Large Systems Products (14.4) 10.1 -
--------------------------------------------
Total Products 4.7 17.8 -
Worldwide Services Group 14.3 6.9 -
--------------------------------------------
Total Revenues 7.4% 14.5% -
--------------------------------------------
Margin Data (as a percent of revenues):
Gross Profit
Products 24.6% 25.4% 24.7%
Services 31.0 31.4 31.8
--------------------------------------------
Total Gross Profit 26.6 27.1 26.9
--------------------------------------------
Selling, general and administrative expense 17.9 17.8 17.5
Research and development expense 2.5 2.8 3.0
Litigation expense 0.2 1.4 -
Merger and acquisition expense 1.8 - -
--------------------------------------------
Income from operations 4.2 5.0 6.4
Net income 1.9% 2.5% 3.4%
---------------------------------------------
Fiscal Year 1995 versus 1994
Revenues
Total revenues increased by 7.4% to $391.0 million in fiscal 1995 from
$364.0 million in fiscal 1994, due to a 4.7% increase in product sales and a
14.3% increase in service revenues.
SSG revenues for fiscal 1995 increased by $32.9 million or 28.6% over the
prior fiscal year. The majority of this increase was in international sales
channels, which experienced growth in excess of 40%. This growth was primarily
the result of strong sales by the Company's affiliates in Europe and Canada, and
product sales to the Company's joint venture in Japan. Domestic revenues were
approximately 13% higher than in the prior year. Excluding SSG sales generated
by Lectro, domestic revenues increased by about 7% over fiscal 1994. Growth in
SSG product revenues resulted primarily from continued strong sales of Powerware
Prestige products. Prestige sales were approximately $42.1 million higher than
in the prior year, while products being phased out declined by about $24.2
million, for a net increase of $17.9 million. In fiscal 1995, the Prestige
product line was expanded with the addition of new models, introduction of
additional accessories, and incorporation of new versions of software and
network communications products. The number of SSG units sold increased by
approximately 30% as compared to fiscal 1994. Average selling prices were
slightly lower than in the prior year, reflecting the industry trend of
declining UPS prices.
LSG revenues for fiscal 1995 were $20.8 million or 14.4% lower than in
fiscal 1994, due primarily to the scheduled decline in sales under the FAA
program. Product revenues under the FAA program have been declining because the
Company has completed the shipment of most of the systems and related ancillary
products to the various FAA sites. The Company had previously disclosed that
total LSG sales would decline by 15-20% from fiscal 1994 levels due to the
completion of the FAA shipments. Excluding the effect of this scheduled decline,
LSG revenues decreased 3.7% year over year, due primarily to the nonrecurrence
of one significant custom job in excess of $6 million for a major data center in
fiscal 1994. International revenues were flat, primarily due to an increase in
sales by the Company's European subsidiaries, offset by a decline in sales by
the Company's Canadian subsidiary. The number of LSG UPS systems sold increased
by about 6% compared to the same period in the prior year. The average sales
price per system decreased, as sales of the smaller kVA models, which are
generally lower-priced than the larger kVA models, represented a larger
percentage of total LSG revenues than in the prior year. LSG revenues are
expected to decline by approximately 10-15% in fiscal 1996, due to the scheduled
decrease in FAA shipments.
WSG revenues for fiscal 1995 increased by $14.9 million or 14.3% over the
prior fiscal year. WSG's commercial domestic revenues grew by about 9%, with
strong growth occurring in most service categories. International revenues were
up about 47%, which was primarily attributable to the three sales and service
acquisitions in the fourth quarter of fiscal 1994 in Canada and Europe. Federal
service revenues increased over the prior year by approximately 13%, mainly
attributable to growth in the Company's Federal site implementation business.
During fiscal 1995, the Company installed systems at an average of 12 FAA sites
throughout the year versus an average of 10 FAA sites in fiscal 1994. At
September 30, 1995, the Company was installing systems at nine FAA sites and was
providing design services at an additional four sites. As described below under
the "Government Contract Matters" section, delivery on the remainder of the FAA
orders is currently scheduled through fiscal 1997. While the level of FAA site
service revenues will vary depending on site construction schedules and the
types of services required, these revenues are expected to decline by over $15
million in fiscal 1996. As a result, WSG revenues are expected to decline
overall in the range of 10% for fiscal 1996. WSG revenue increases in fiscal
1995 resulted principally from a higher quantity of services provided as opposed
to increased prices.
The Company expects that the declines in LSG and WSG revenues in fiscal
1996 versus fiscal 1995 resulting from the scheduled decline in Federal revenues
will be offset by a corresponding increase in SSG sales and commercial LSG sales
and service. However, annual revenues depend upon the state of the overall
economy, industry conditions, the competitive environment, the timing of product
shipments, the success and timing of new product introductions, and a variety of
other factors which are beyond the Company's control.
Gross Profit
Gross profit increased by $5.2 million over fiscal 1994 to $103.9 million.
Gross profit as a percentage of total revenues decreased slightly to 26.6% in
fiscal 1995 from 27.1% in fiscal 1994. Product gross profit margins declined to
24.6% in fiscal 1995 from 25.4% in fiscal 1994, while service margins declined
to 31.0% from 31.4% during that same period. Product gross profit margins
declined from the prior year mainly as a result of sales of certain discontinued
SSG product lines at lower than normal margins, and a higher proportion of sales
in channels with lower margins. The Company also incurred higher than normal
costs related to increased production volumes for its new Powerware Prestige
product lines, and varying sales price reductions depending upon model and
distribution channel. The Company continues its efforts toward cost reductions
and operational efficiencies to maintain competitiveness and improve margins in
response to the industry trend of declining UPS prices. Service margins
decreased slightly as compared to the prior fiscal year, reflecting a higher
proportion of lower margin government service revenues and the costs of
integrating IPM's service business into the Company's service organization.
Selling, General and Administrative Expense
Selling, general and administrative expense increased $4.9 million, from
$65.1 million in fiscal 1994 to $70.0 million in fiscal 1995, but remained at
about 18% percent of revenues. Selling and marketing expenses rose to support
the Company's higher commercial sales level and the continued expansion of its
worldwide marketing, distribution, and support capabilities, especially in
international markets. New selling and marketing programs for fiscal 1995
included the realignment of the North American sales and support operation along
customer groups, the launching of an integrated marketing campaign introducing
the concept of Strategic Power Management, and the opening of an area sales
office in Miami, Florida to service markets in Latin America. General and
administrative expense declined from the prior year due primarily to lower legal
expenses as a result of the settlement of certain litigation and synergies
achieved in the integration of IPM.
Research and Development Expense
Research and development expense decreased by approximately $221,000, to
$9.9 million in fiscal 1995 from $10.1 million in fiscal 1994, and decreased as
a percentage of revenue to 2.5% in fiscal 1995 from 2.8% in fiscal 1994. The
decrease was related to a variety of factors, including the ability of the
Company to charge certain custom engineering costs to specific job orders in
SSG, cost control efforts by the Company, and lower research and development
expenses at IPM, as significant expenses were incurred in fiscal 1994 in the
development of a new product line that were not required in fiscal 1995. The
Company expects research and development expenditures to remain at this
approximate level as a percentage of revenues as the Company takes advantage of
synergies with IPM and Lectro in the development of new products.
Litigation Expense
The Company recorded a $700,000 charge ($424,000 after tax) for the
settlement of two related lawsuits in fiscal 1995. Although the Company believed
that neither suit had merit, it decided to settle as the suits were consuming
significant corporate resources and would have involved substantial legal costs
to pursue further. In fiscal 1994, the Company recorded a charge of $5.0 million
($2.9 million net of tax) for the settlement of litigation. See Item 3, "Legal
Proceedings," and Note 15 of the notes to consolidated financial statements.
Merger and Acquisition Expense
The Company incurred $7.0 million of merger and acquisition charges ($5.2
million after tax) in fiscal 1995. In connection with the acquisition of IPM in
the second quarter of fiscal 1995, the Company recorded a nonrecurring pretax
charge of $5.5 million. This charge included approximately $3.0 million for
legal, accounting, financial advisory, and other costs related to the merger.
The Company also expensed approximately $2.5 million for the estimated costs of
closing a duplicate operating facility and discontinuing certain duplicate
product lines manufactured at that facility. In the fourth quarter of fiscal
1995, the Company recorded a pre-tax charge for acquisition expenses of about
$1.5 million after negotiations and due diligence efforts to acquire the UPS
business of Group Schneider S.A. were terminated.
Income from Operations
For the reasons discussed above, income from operations declined $2.2
million to $16.3 million for fiscal 1995, from $18.5 in fiscal 1994. This
decrease reflects the nonrecurring litigation, merger and acquisition expenses
discussed above. Excluding these charges, income from operations would have been
$24.0 million in fiscal 1995, an increase of $500,000 from $23.5 million in
fiscal 1994. As a percentage of revenues, pro forma income from operations would
have been 6.1% in fiscal 1995 versus 6.4% in fiscal 1994. This decrease was
primarily attributable to the decrease in gross profit margins, as discussed
above under the Gross Profit section.
Interest/Other
Interest expense increased to $5.5 million in fiscal 1995 from $5.4 million
in fiscal 1994. The Company expensed $233,000 of remaining debt issuance costs
and a redemption premium related to the payoff of its Industrial Revenue Bonds
("IRBs") in the first quarter of fiscal 1995, and incurred $204,000 in
incremental interest expense related to the increased level of borrowings used
to finance the acquisition of Lectro. Excluding these two items, interest
expense would have been about 5% lower than in fiscal 1994. Other (income)
expense improved by approximately $971,000. The increase was primarily due to
favorable changes in foreign exchange rates, improved results for the Company's
Japanese joint venture, an increase in royalty income, and a gain on the sale of
certain fixed assets in fiscal 1995.
Provision for Income Taxes
The fiscal 1995 provision for income taxes reflects a consolidated
effective rate of approximately 39% as compared to approximately 32% in fiscal
1994. The higher rate in fiscal 1995 was due primarily to certain non-deductible
acquisition costs, which were partially offset by increased utilization of net
operating losses in certain of the Company's subsidiaries. The fiscal 1994 rate
was lower than usual due to the higher recognition of tax benefits for net
operating losses as certain of the Company's subsidiaries turned profitable, and
the utilization of certain state tax credits. The Company anticipates that its
effective tax rate for fiscal 1996 will be in the range of 38-40%.
Net Income and Pro forma Net Income
Net income for fiscal 1995 was $7.4 million, or $.84 per fully diluted
share, as compared to net income of $9.2 million, or $1.03 per fully diluted
share, for fiscal 1994. Excluding the previously discussed litigation and merger
charges in the second quarter of fiscal years 1995 and 1994, and the acquisition
charges in the fourth quarter of fiscal 1995, net income would have been $13.0
million or $1.42 per fully diluted share for fiscal 1995, and $12.1 million or
$1.34 per fully diluted share in fiscal 1994.
Fiscal Year 1994 versus 1993
Revenues
Total revenues increased 14.5% to $364.0 million in fiscal 1994 from $317.9
million in fiscal 1993. Product sales grew by 17.8% to $259.4 million in fiscal
1994, including increases of $26.1 million (29.3%) for the Company's SSG
products and $13.2 million (10.1%) for the Company's LSG products. Service
revenues increased by $6.8 million (6.9%) over this period.
The revenue growth in SSG products occurred primarily in the Company's
international distribution channels, with particularly strong growth in export
sales to Latin America. In the United States, most of the sales growth was
experienced through the manufacturer's representatives channel. The majority of
the growth in SSG revenue was attributable to sales of its newer products such
as Powerware Prestige and ONE-UPS lines, and to increased sales of Powerware
Plus products as new applications and methods of distribution were established.
The growth in international export sales was due primarily to the success of
product models designed for the international markets and to expanded
international marketing efforts. SSG revenue included approximately $16.0
million in sales of new products, which were partially offset by declines of
$7.8 million in sales of discontinued products. For fiscal 1994, total unit
sales for SSG were approximately 50% higher than the prior fiscal year,
resulting mainly from higher unit sales of lower kVA models. Higher unit sales
were partially offset by a decrease in the average selling price per unit, as
lower kVA models are generally lower-priced than larger UPS products, and also
by price reductions in the approximate range of 5-10% from the prior fiscal
year.
LSG revenues increased by $13.2 million to $144.2 million in fiscal 1994
from $131.0 million in fiscal 1993, due to growth in both commercial and
government markets. Commercial growth occurred primarily in the manufacturer's
representatives channel due primarily to one significant custom job in excess of
$6 million for a major data center, and from increased sales of facilities
monitoring software. Federal government sales growth came from an increase in
product engineering for the FAA and sales under the Company's multi-year
contracts with the U.S. Navy. The commercial and government revenue increases
were partially offset by declines in international channels. The reduction in
international sales was due to the non-recurrence of certain large sales in the
prior year and to increased competition in certain regions. The total number of
LSG modules sold decreased moderately from fiscal 1993, but the average sales
price per system increased in fiscal 1994, primarily due to favorable model mix
and increased sales of custom engineering, ancillary equipment, and spare parts.
The $6.8 million increase in WSG revenues for fiscal 1994 resulted
primarily from increases in maintenance contract and other field service
revenues, due to the increased marketing of battery services and from increased
product sales with accompanying services. This growth occurred both domestically
and internationally. Federal service revenues remained relatively constant with
fiscal 1993 levels, although fiscal 1993 service revenues were 62% higher than
in fiscal 1992, primarily because of the significant increase in fiscal 1993 of
FAA site services. As of September 30, 1994, the Company was installing systems
at ten FAA sites and had thirteen sites in the engineering design stage, as
compared to ten sites in construction and six sites in engineering design at
September 30, 1993. WSG revenue increases resulted principally from a higher
quantity of services provided as opposed to increases in pricing.
Gross Profit
Gross profit increased to $98.7 million in fiscal 1994 from $85.5 million
in fiscal 1993. Gross profit as a percentage of total revenues increased
slightly to 27.1% in 1994 from 26.9% in 1993. Gross profit from product sales
was higher by $11.4 million, as a result of higher revenues and improved gross
profit margins for product sales, which increased to 25.4% in fiscal 1994 as
compared to 24.7% in fiscal 1993. This improvement occurred primarily from
increased sales of SSG products, which generally have higher gross profit
margins than LSG products, and continued cost reduction efforts. These increases
were partially offset by higher LSG ancillary equipment sales, which generally
have lower margins than UPS equipment, sales of certain discontinued SSG product
lines at lower than normal margins, and start-up costs for the new Powerware
Prestige product line. Prices for all power ranges of UPS equipment have
generally declined from the prior fiscal year in the approximate range of 5-10%.
Service margins decreased slightly to 31.4% in fiscal 1994 from 31.8% in fiscal
1993, due principally to increased battery services which have lower gross
margins, a decrease in margins on systems implementation services for the FAA,
and a decrease in international service margins due to changes in the mix of
services provided.
Selling, General and Administrative Expense
Selling, general and administrative expense for fiscal 1994 increased to
$65.1 million from $55.5 million, and increased as a percentage of revenue to
17.8% from 17.5%. Selling and marketing expense accounted for most of this
increase, reflecting the Company's growth strategy of investing in its
distribution channels and promotional activities to improve its market position
on a worldwide basis. The increase in selling and marketing expense supports a
higher level of commercial sales volume and the continued investment in market
support and distribution development programs, particularly for the Company's
SSG products. These programs included the launch of new promotional campaigns,
primarily in the United States, Latin America, China and Europe; expanded
customer support capabilities; participation in several major trade shows; and
the introduction of several new products such as the Powerware Prestige. The
Company also improved its distribution capacity worldwide, mainly through the
addition of several leading distributors in various geographic markets.
Research and Development Expense
Research and development expense increased in fiscal 1994 to $10.1 million,
or 2.8% of revenue, from $9.6 million, or 3.0% of revenue, in fiscal 1993. The
increase was due primarily to the ongoing development of facilities monitoring
software as a result of the acquisition of DataTrax in fiscal 1993, and to the
introduction of several models of the new Powerware Prestige and Balanced Power
II product lines. Consistent with the Company's strategy to expand its worldwide
market position, many of the Prestige products were developed for international
voltages and frequencies prior to their introduction in the United States. Other
research and development activities in fiscal 1994 included the development of
the new Powerware Plus 80 and the Series 3000M for LSG, both of which have
improved performance at a lower cost than previous models, and to the ongoing
development of other products and models, as well as additional product software
and other product enhancements.
Litigation Expense
In March 1994, a trial jury awarded damages payable by the Company in the
amount of $3.75 million to the plaintiff in the retrial of certain litigation.
While the Company continued to believe that it should have no liability in this
matter and announced its intention to appeal, it recorded a one-time charge in
the second quarter of fiscal 1994 of $5.0 million, or $2.9 million net of tax,
for the jury verdict and the costs of the trial. In July 1994, the Company
announced that a settlement agreement had been reached between the parties.
Following agreement among the parties to settle, the court vacated the jury
award of $3.75 million. To avoid further litigation, including anticipated
post-trial motions and appeals, the Company settled the case by making payments
to the plaintiff and his attorneys. Since the total value of the settlement
payments was less than the one-time charge for the jury verdict, no further
charges were necessary in this matter. See Item 3, "Legal Proceedings," and Note
15 of the notes to consolidated financial statements.
Income from Operations
For the reasons discussed above, income from operations was $18.5 million
in fiscal 1994, a decrease from $20.4 million in fiscal 1993. This decrease
reflected the litigation charge discussed above. Excluding this nonrecurring
charge, income from operations would have been $23.5 million, an increase of
$3.1 million over 1993, constant at 6.4% of revenues.
Interest/Other
Interest expense increased by $1.0 million to $5.4 million in fiscal 1994
from $4.4 million in the prior year. Approximately $700,000 was due to higher
average debt balances used to finance increased levels of working capital. The
remainder of the rise in interest expense was related to an increase in the
average interest rate, the write-off of certain deferred financing costs
associated with the refinancing of the Company's credit facility, and the
partial prepayment of the Company's IRBs. Other expense improved by
approximately $322,000 during fiscal 1994, primarily as a result of favorable
changes in foreign exchange rates and the loss on disposal of certain fixed
assets in fiscal 1993.
Provision for Income Taxes
The fiscal 1994 provision for income taxes reflected a consolidated
effective tax rate of approximately 32% as compared to 39% in fiscal 1993. The
decrease in the effective rate was due primarily to the higher recognition of
tax benefits for net operating losses in fiscal 1994 than in fiscal 1993 as
certain of the Company's subsidiaries became profitable, and the utilization of
certain state tax credits in fiscal 1994.
Net Income
For fiscal 1994, income before the cumulative effect of an accounting
change was $9.2 million, including the one-time charge in the second quarter of
$5.0 million ($2.9 million after tax) for the previously discussed settlement of
litigation, as compared to income before the cumulative effect of an accounting
change of $9.8 million in fiscal 1993. The Company recorded a cumulative effect
adjustment of $1.0 million for a change in its method of accounting for income
taxes in fiscal 1993, which had no impact on operating results or cash flows.
Fully diluted earnings per share before the cumulative effect of the accounting
change were $1.03 for fiscal 1994 versus $1.10 in fiscal 1993. Excluding the
one-time charge for litigation in fiscal 1994 and the cumulative effect of the
accounting change in fiscal 1993, net income for fiscal 1994 would have been
$12.1 million, up $2.3 million or 23.5% from the prior fiscal year. Fully
diluted earnings per share would have been $1.34 versus $1.10 a year ago, up
22%.
Quarterly Operating Results
The company's quarterly operating results have fluctuated significantly.
Quarterly results depend upon the timing of product shipments and major systems
implementation services, which can be influenced by a number of factors. Some of
these factors are beyond the company's control, particularly for large,
customized systems. The fourth quarter typically has produced the largest
portion of the company's revenues and income. The company believes that the
fourth quarter results reflect increased shipments resulting from management
incentives that are tied to annual sales performance, and increased sales
prompted by weather-related power disturbances during the spring and summer
months. The first quarter has typically produced the smallest portion of the
company's revenues and income, so that there has been a historical reduction in
the company's first quarter results as compared to the previous fiscal year's
fourth quarter. During fiscal years 1995, 1994 and 1993, revenues generally
increased for each quarter within the applicable year, but revenues for the
first quarter were lower than revenues for the fourth quarter of the prior year.
Selling, general and administrative, and research and development
expenditures are incurred to support projected annual sales. These expenses do
not necessarily vary proportionately with revenues on a quarterly basis. As a
result, variations in quarterly revenues may not be accompanied by an equivalent
change in expenses; therefore, operating margins may vary significantly between
quarters.
Liquidity and Financial Condition
At September 30, 1995, the Company had $105.5 million of working capital,
as compared to $93.3 million at September 30, 1994. The increase of
approximately $12.2 million in working capital at the end of fiscal 1995 versus
1994 was primarily the result of higher levels of inventory to support the
increased levels of revenues and the introduction of new product lines. Accounts
receivable balances, which are typically at their highest level at year-end due
to the higher level of fourth quarter sales, were level with the prior year.
Commercial receivable balances were higher than the prior year, but were more
than offset by a decline in receivables from the United States government.
Accounts payable, short term debt, and other accrued liability balances were
slightly higher than the prior year. The increased levels of working capital
have been financed primarily using the Company's revolving credit facilities.
Cash provided by operations was a positive $1.1 million in fiscal 1995, as
compared to $8.5 million in fiscal 1994, and cash used in operations of $3.3
million in fiscal 1993.
At September 30, 1995, the Company had $145 million of committed domestic
unsecured bank credit facilities comprised of a $95 million revolving credit
facility for working capital and general corporate purposes, including a
sublimit of $30 million which may be used in support of its international
subsidiaries, and a $50 million revolving credit facility to be used for
financing certain acquisitions and refinancing specified existing obligations.
See Note 6 of the notes to consolidated financial statements.
The Company has received a commitment to refinance these facilities,
concurrent with the closing of the Deltec Acquisition (the "New Credit
Facility"). The New Credit Facility will consist of a five-year senior bank
package of up to $225 million, comprised of a $150 million revolving credit
facility and a $75 million term loan. Amounts outstanding under the New Credit
Facility would be secured by substantially all the inventory and accounts
receivable of the Company and would initially bear interest at LIBOR plus 200
basis points, or the bank's base rate plus 100 basis points, as defined. Under
the terms of the New Credit Facility, the Company will be subject to certain
customary financial covenants and other restrictions. The closing of the New
Credit Facility, which is expected to occur during the first calendar quarter of
1996, is subject to completion of due diligence by the lenders, preparation of
definitive loan agreements, and the closing of the Deltec Acquisition. The
Company plans to fund a portion of the cash purchase price for Deltec through
draws under the New Credit Facility. The Company anticipates that the balance of
the cash purchase price will be funded through $75-$100 million of additional
subordinated indebtedness. The Company is evaluating potential sources for such
additional funding, which could include a variety of lending sources and/or the
issuance of debt securities. See Note 16 of the notes to consolidated financial
statements.
During fiscal 1995, the Company invested approximately $12.5 million in
capital expenditures, as compared to approximately $8.7 million in fiscal 1994
and $8.3 million during fiscal 1993. Capital expenditures were higher in fiscal
1995 due primarily to expansion of SSG's manufacturing facility in Wilmington,
NC, fit-up of the Company's new Worldwide Logistics Center, new facilities for
ETG, and the relocation of Lectro. The Company also invested approximately $13.2
million for the acquisition of Lectro in fiscal 1995. Capital expenditures for
fiscal 1996 are expected to approximate $13-14 million, including $2-3 million
relating to the fit-up of the Company's headquarters and for the consolidation
and integration of IPM and Lectro.
The Company expects to finance its capital requirements in the future
through existing cash balances, cash generated from operations, and borrowings
under its credit facilities. Based on the current level of operations and
anticipated growth, management believes that cash flow from operations, together
with available borrowings under its credit facilities and other sources of
liquidity, will be adequate to meet the Company's anticipated future
requirements for working capital, capital expenditures, and scheduled payments
of principal of and interest on its indebtedness. There can be no assurance,
however, that the Company's business will generate sufficient cash flow from
operations or that future working capital borrowings will be available in an
amount sufficient to enable the Company to service its indebtedness, or make
necessary capital expenditures.
On July 1, 1995, the Company signed an agreement with Japan Storage Battery
Co., Ltd. ("JSB"), whereby JSB converted its shares of the Company's Series D
and Series E Convertible Preferred Stock into 595,273 shares of the Company's
common stock. This conversion increased the Company's common equity by
approximately $10 million and will reduce its annual cash dividend payments by
approximately $790,000. See Note 8 of the notes to consolidated financial
statements.
In September 1995, the Board of Directors reaffirmed the authorized
repurchase program which permits the Company to repurchase up to 5% of the
Company's outstanding stock. Under this plan, which was initially approved in
November 1994, the Company plans to continue repurchasing its outstanding stock,
depending on current market conditions and other factors. As of December 22,
1995, the Company had repurchased approximately 4.7% of its common stock.
In October 1995, the holder of the Company's $15.0 million subordinated
convertible notes converted the notes into 1,146,789 shares of the Company's
common stock under the terms of the agreement. Such conversion will save
approximately $1.3 million per year in interest expense. These notes and the
conversion are discussed further in Note 6 of the notes to consolidated
financial statements.
Litigation
During fiscal years 1994 and 1995, the Company settled certain litigation.
See the Litigation Expense section above, Item 3, Legal Proceedings, and Note 15
of the notes to consolidated financial statements.
Contingencies
Government Contract Matters
Sales to the United States Federal government accounted for approximately
27%, 33% and 35% of total revenues for fiscal years 1995, 1994 and 1993,
respectively. The Company's contracts with the Federal government have no
significant minimum purchase commitments, and the government may cease purchases
under these contracts at any time for any reason. These contracts are subject to
termination at the convenience of the government pursuant to the terms of the
contracts. The Company's compliance with government contract regulations is
audited or reviewed from time to time by government auditors, who have the right
to audit the Company's records and the records of its subcontractors during and
after completion of contract performance, and may recommend that certain charges
be treated as unallowable and reimbursement be made to the government. The
Company provides for estimated unallowable charges and voluntary refunds in its
financial statements, and believes that its provisions are adequate as of
September 30, 1995.
Foreign Currency Exposures
International sales accounted for approximately 31%, 25%, and 22% of total
revenues for fiscal years 1995, 1994 and 1993, respectively. A significant
portion of the Company's international sales are denominated in foreign
currencies. As of September 30, 1995, approximately 17% of the Company's total
assets were located outside the United States, primarily in Canada and Europe.
Significant fluctuations in foreign currency exchange rates can result in gains
or losses on foreign currency transactions, which are recorded in the
consolidated statement of operations. Fluctuations in the recorded value of the
Company's net investment in its international subsidiaries resulting from
changes in foreign exchange rates are recorded in the cumulative translation
adjustments component of common shareholders' equity. The Company hedges these
risks using a combination of natural hedges such as foreign currency denominated
borrowings and, from time to time, foreign currency financial instruments.
European, Canadian, and Japanese currencies have been especially volatile over
the last two years. As of September 30, 1995, the Company had accounts
receivable and accounts payable totaling approximately $8.8 million that were
exposed to fluctuations in exchange rates, and had one foreign currency
financial instrument, which is described below, covering approximately 23% of
these balances. These balances are spread among various currencies, primarily
the French franc.
As of September 30, 1995, the Company had one outstanding foreign currency
contract consisting of a foreign currency option which gave the Company the
right to sell approximately 10 million French francs at predetermined exchange
rates. This contract expired in December 1995, and had no material effect on the
Company's results of operations.
During fiscal 1995, the Company had foreign exchange transaction losses of
approximately $218,000, and the change in the cumulative translation adjustments
account increased the recorded value of common shareholders' equity by $353,000
from September 30, 1994 to September 30, 1995. During fiscal 1994, the Company
had foreign exchange transaction losses of approximately $257,000, as compared
to losses of approximately $221,000 in 1993, and the change in the cumulative
translation adjustments account increased the recorded value of common
shareholders' equity by $154,000 from September 30, 1993 to September 30, 1994.
Environmental Matters
The Company's operations are subject to federal, state, local, and foreign
environmental laws and regulations relating to the storage, handling, and
disposal of hazardous or toxic materials and discharge into the environment of
regulated pollutants. The Company believes that its operations are in material
compliance with the terms of all applicable environmental laws and regulations
as currently interpreted. In the last three fiscal years, the Company's capital
expenditures for environmental compliance have not been significant. The Company
currently has not budgeted for additional capital environmental expenditures but
the Company cannot predict with any certainty that such expenditures will not be
required because of changing compliance standards and techniques. To the best of
the Company's knowledge, there are no existing or potential environmental claims
against the Company that are likely to have a material adverse effect on the
Company's business or financial condition or its financial statements taken as a
whole.
Item 8. Financial Statements and Supplementary Data
Report of Independent Public Accountants
To Exide Electronics Group, Inc.:
We have audited the accompanying consolidated balance sheet of Exide
Electronics Group, Inc. (a Delaware corporation) and subsidiaries as of
September 30, 1995 and 1994, and the related consolidated statements of
operations, changes in common shareholders' equity and cash flows (restated for
the pooling-of-interest transaction as discussed in Note 2) for each of the
three years in the period ended September 30, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits 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 audits provide 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 Exide Electronics Group,
Inc. and subsidiaries as of September 30, 1995 and 1994 and the results of their
operations and their cash flows (restated for the pooling-of-interest
transaction as discussed in Note 2) for each of the three years in the period
ended September 30, 1995 in conformity with generally accepted accounting
principles.
As explained in Note 12, in 1993 the Company changed its method of
accounting for income taxes.
/s/ARTHUR ANDERSEN LLP
Raleigh, North Carolina,
October 25, 1995(except with respect to the matters
discussed in Note 16, as to which the date is December 13, 1995).
Exide Electronics Group, Inc.
Consolidated Statement of Operations
Year Ended September 30,
-----------------------------------
(in thousands, except per share amounts) 1995 1994 1993
---- ---- ----
Revenues
Products $ 271,482 $ 259,403 $ 220,143
Services 119,496 104,580 97,799
------- ------- ------
Total revenues 390,978 363,983 317,942
------- ------- -------
Cost of revenues
Products 204,683 193,572 165,700
Services 82,430 71,716 66,747
------ ------ ------
Total cost of revenues 287,113 265,288 232,447
------- ------- -------
Gross profit 103,865 98,695 85,495
Selling, general and administrative expense 69,966 65,086 55,506
Research and development expense 9,929 10,150 9,592
Litigation expense 700 4,997 -
Merger and acquisition expense 7,000 - -
----- ---- ----
Income from operations 16,270 18,462 20,397
Interest expense 5,575 5,417 4,421
Interest income (485) (488) (466)
Other (income) expense (897) 74 396
---- -- ---
Income before income taxes and the cumulative effect of accounting change 12,077 13,459 16,046
------ ------ ------
Provision for income taxes 4,692 4,284 6,214
----- ----- -----
Income before the cumulative effect of accounting change 7,385 9,175 9,832
Cumulative effect of accounting change - - 1,000
---- ---- ---------
Net income $ 7,385 $ 9,175 $ 10,832
========= ========= =========
Preferred stock dividends 592 790 1,071
--- --- -----
Net income applicable to common shareholders $ 6,793 $ 8,385 $ 9,761
========= ========= =========
Primary earnings per share
Income before the cumulative effect of accounting change $ 0.84 $ 1.07 $ 1.21
Cumulative effect of accounting change - - 0.13
---- ---- ----
Net income $ 0.84 $ 1.07 $ 1.34
========= ========= =========
Weighted average number of common and equivalent shares outstanding 8,054 7,814 7,270
===== ===== =====
Fully diluted earnings per share
Income before the cumulative effect of accounting change $ 0.84 $ 1.03 $ 1.10
Cumulative effect of accounting change - - 0.11
---- ---- ---------
Net income $ 0.84 $ 1.03 $ 1.21
========= ========= =========
Weighted average number of common and equivalent shares outstanding 9,673 9,393 9,316
===== ===== =====
<FN>
The accompanying notes are an integral part of these financial statements, which have been restated to reflect the merger
with International Power Machines on a pooling-of-interests basis.
</FN>
Exide Electronics Group, Inc.
Consolidated Balance Sheet
September 30,
---------------------
(dollars in thousands) 1995 1994
---- ----
Assets
Current assets
Cash and cash equivalents $ 2,787 $ 5,886
Accounts receivable 105,524 105,712
Inventories 72,890 55,529
Deferred tax assets 9,672 7,532
Other current assets 3,705 4,549
----- -----
Total current assets 194,578 179,208
------- -------
Property, plant, and equipment
Land, buildings, and leasehold improvements 9,931 8,809
Machinery and equipment 61,519 51,653
------ ------
71,450 60,462
Accumulated depreciation 36,393 32,250
------ ------
35,057 28,212
Goodwill 18,738 8,947
Other assets 8,078 8,309
----- -----
$ 256,451 $ 224,676
========= =========
Liabilities, Redeemable Preferred Stock, & Common Shareholders' Equity
Current liabilities
Short-term debt $ 7,655 $ 5,802
Accounts payable 46,041 44,958
Deferred revenues 15,602 16,577
Accrued compensation 7,945 8,153
Other accrued liabilities 11,792 10,381
------ ------
Total current liabilities 89,035 85,871
------ ------
Long-term debt 65,258 43,400
------ ------
Convertible subordinated notes 15,000 15,000
------ ------
Deferred liabilities 3,391 2,943
----- -----
Redeemable preferred stock - 10,000
----- ------
Commitments and contingencies (Notes 6,7, and 15)
Common shareholders' equity
Common stock, $0.01 par value, 30,000,000 shares authorized;
shares issued: 8,376,341 in 1995 and 7,735,165 in 1994 84 77
Additional paid-in capital 58,190 48,223
Retained earnings 32,437 26,870
Cumulative translation adjustments (1,404) (1,757)
------ ------
89,307 73,413
------ ------
Less: Notes receivable from shareholders (5,520) (5,951)
Treasury stock (20) -
--- ---
83,767 67,462
------ ------
$ 256,451 $ 224,676
========= =========
<FN>
The accompanying notes are an integral part of these financial statements, which have been restated to
reflect the merger with International Power Machines on a pooling-of-interests basis.
</FN>
Exide Electronics Group, Inc.
Consolidated Statement of Changes in Common Shareholders' Equity
Notes
Additional Cumulative Receivable
Common Paid-in Retained Translation From Treasury
(in thousands) Stock Capital Earnings Adjustments Shareholders Stock Total
------- -------- -------- ------- --------- ------ --------
Balance at September 30, 1992,
as restated for merger $70 $ 40,578 $ 10,215 $ (515) $(5,847) $ - 44,501
---- ------ ------ ---- ------ ---- ------
Issuance of common stock 1 597 - - - - 598
Conversion of Series C
preferred stock 5 4,995 - - - - 5,000
IPM preferred stock dividends - - (400) - - - (400)
Exide Electronics preferred stock
dividends - - (1,071) - - - (1,071)
Accrued interest income on notes
receivable from shareholders - - - - (262) - (262)
Other, net - 55 - (1,396) 160 - (1,181)
Net income - - 10,832 - - - 10,832
---- ---- ------ ---- ---- ---- ------
Balance at September 30, 1993 76 46,225 19,576 (1,911) (5,949) - 58,017
---- ------ ------ ------ ------ ---- ------
Adjustment to conform fiscal year
of IPM - - (591) - - - (591)
Issuance of common stock 1 1,998 - - - - 1,999
IPM preferred stock dividends - - (500) - - - (500)
Exide Electronics preferred stock
dividends - - (790) - - - (790)
Accrued interest income on notes
receivable from shareholders - - - - (278) - (278)
Other, net - - - 154 276 - 430
Net income - - 9,175 - - - 9,175
---- ---- ----- ---- ---- ---- -----
Balance at September 30, 1994 77 48,223 26,870 (1,757) (5,951) - 67,462
--- ------ ------ ------ ------ ---- ------
Issuance of common stock 1 (3) - - - 1,288 1,286
Conversion of Series D and Series E
preferred stock 6 9,994 - - - - 10,000
Purchases of treasury stock - - - - 605 (1,308) (703)
IPM preferred stock dividends - - (1,226) - - - (1,226)
Exide Electronics preferred stock
dividends - - (592) - - - (592)
Accrued interest income on notes
receivable from shareholders - - - - (310) - (310)
Other, net - (24) - 353 136 - 465
Net income - - 7,385 - - - 7,385
---- ---- ----- ---- ---- ---- -----
Balance at September 30, 1995 $84 $ 58,190 $ 32,437 $(1,404) $(5,520) $ (20) $ 83,767
==== ======== ======== ======= ======= ==== ========
<FN>
The accompanying notes are an integral part of these financial statements, which have been restated to reflect
the merger with International Power Machines on a pooling-of-interests basis.
</FN>
Exide Electronics Group, Inc.
Consolidated Statement of Cash Flows
Year Ended September 30,
------------------------------
(in thousands) 1995 1994 1993
---- ---- ----
Cash flows from operating activities
Net income $ 7,385 $ 9,175 $ 10,832
Adjustment to conform fiscal year of IPM - 49 -
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation expense 6,683 6,105 5,304
Amortization expense 2,762 2,325 1,646
(Increase) decrease in accounts receivable 2,251 (7,351) (25,867)
Increase in inventories (17,131) (4,943) (14,795)
(Increase) decrease in other current assets (360) (2,549) 437
Increase (decrease) in accounts payable (77) 2,657 14,935
Increase (decrease) in other current liabilities (681) 1,946 5,869
Cumulative effect of accounting change - - (1,000)
Other, net 276 1,064 (682)
--- ----- ----
Net cash provided by (used in) operating activities 1,108 8,478 (3,321)
----- ----- ------
Cash flows from investing activities
Acquisitions of property, plant, and equipment (12,497) (8,735) (8,255)
Acquisitions, net of cash acquired (13,151) (3,580) (1,983)
Other, net (50) (1,576) (1,282)
--- ------ ------
Net cash used in investing activities (25,698) (13,891) (11,520)
------- ------- -------
Cash flows from financing activities
Proceeds from bank credit facilities 143,713 91,938 78,527
Payments of bank credit facilities (116,274) (83,629) (63,703)
Payments of industrial revenue bonds (4,600) (3,500) (900)
(Increase) decrease in funds held in trust for future construction - 2,600 (64)
Issuance of common stock 1,342 1,055 598
Purchases of treasury stock (703) - -
Issuance of redeemable preferred stock - - 4,900
Preferred stock dividends of Exide Electronics (789) (839) (1,006)
Preferred stock dividends of IPM (1,226) (500) (400)
Payments of notes receivable from shareholders 136 276 160
Other, net (108) (567) (879)
---- ---- ----
Net cash provided by financing activities 21,491 6,834 17,233
------ ----- ------
Net increase (decrease) in cash and cash equivalents (3,099) 1,421 2,392
Cash and cash equivalents, beginning of period 5,886 4,465 2,073
----- ----- -----
Cash and cash equivalents, end of period $ 2,787 $ 5,886 $ 4,465
========= ======== ========
<FN>
The accompanying notes are an integral part of these financial statements, which have been restated to reflect the merger
with International Power Machines on a pooling-of-interests basis.
</FN>
Notes To Consolidated Financial Statements
NOTE 1: Significant Accounting Policies
Basis of Presentation- The consolidated financial statements include the
accounts of Exide Electronics Group, Inc. (the "Company") and its wholly-owned
subsidiaries. The Company designs, manufactures, markets, and services a broad
line of uninterruptible power systems ("UPS") products that protect computers
and other sensitive electronic equipment against electrical power distortions
and interruptions. The Company's products are used principally for financial,
medical, industrial, telecommunications, military, and aerospace applications
throughout the world. The Company's investment in a joint venture is accounted
for using the equity method. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain amounts in the prior
years' financial statements have been reclassified to conform to the current
year presentation. These reclassifications are not material.
On February 8, 1995, the Company completed the merger of International
Power Machines Corporation ("IPM") with and into a newly formed subsidiary of
the Company. The merger was structured as a tax-free exchange and was accounted
for as a pooling-of-interests. Accordingly, the accompanying consolidated
financial statements and related notes include the accounts and results of
operations of IPM for all periods presented (see Note 2).
Revenues- Revenues from product sales are recognized at the time of
shipment to customers. Service revenues are recognized as services are
performed. Maintenance contract revenues, net of directly associated costs, are
deferred and recognized on a straight-line basis over the terms of the
contracts. All revenues are shown net of provisions for customer returns and
adjustments.
Advertising Costs- Advertising costs are reported in selling, general, and
administrative expenses in the accompanying consolidated statement of operations
and include costs of advertising, public relations, trade shows, direct
mailings, customer seminars, and other activities designed to enhance demand for
the Company's products. Advertising costs were $7,344,000 in 1995, $5,972,000 in
1994, and $4,356,000 in 1993. There are no capitalized advertising costs in the
accompanying consolidated balance sheet.
Per Share Data- Primary net income per common and equivalent share is
computed using net income after preferred stock dividends and the weighted
average number of shares of common stock and dilutive common stock equivalents.
Fully diluted net income per share is similarly computed but includes the
effect, when dilutive, of assumed conversion of the Company's convertible
subordinated notes, and prior to its conversion, the Company's redeemable
preferred stock (see Note 8).
Inventories- Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out ("LIFO") method for certain domestic
inventories and by the first-in, first-out ("FIFO") method for the remaining
inventories.
Property, Plant, and Equipment- Property, plant, and equipment is stated at
original cost. Depreciation and amortization is calculated using primarily the
straight-line method for financial reporting purposes and primarily accelerated
methods for tax purposes. For financial reporting purposes, equipment is
depreciated over three to ten years and buildings are depreciated over thirty
years. Leasehold improvements are amortized over the shorter of the useful life
of the asset or the term of the lease.
Software Development Costs- Costs of developing new software products and
enhancements to existing software products are capitalized after technological
feasibility is established. The costs of capitalized software are amortized over
the estimated useful lives of the related products, generally one to five years.
The accompanying consolidated balance sheet at September 30, 1995 and 1994
includes unamortized software development costs of $2,072,000 and $2,128,000,
respectively. Related amortization expense was $1,035,000 in 1995, $683,000 in
1994, and $277,000 in 1993.
Goodwill- Goodwill is amortized over periods ranging from ten to forty
years.
Translation of Foreign Currencies- Certain of the Company's non-U.S.
subsidiaries use their local currency as their functional currency. Their asset
and liability accounts are translated into U.S. dollars at the exchange rates in
effect at the balance sheet date, while revenues and expenses are translated
using average exchange rates during the period. Translation adjustments are
recorded directly to the cumulative translation adjustments component of common
shareholders' equity and do not affect the results of operations. Losses on
foreign currency transactions were $218,000 in 1995, $257,000 in 1994, and
$221,000 in 1993.
Use of 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 the reported amounts of revenues and expenses. Actual results
may differ from those estimates.
Recent Accounting Pronouncements- The Financial Accounting Standards Board
recently issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of." This statement requires
long-lived assets to be evaluated for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company will adopt SFAS No. 121 in fiscal 1996 and does not
expect its provisions to have a material effect on the Company's consolidated
results of operations.
The Financial Accounting Standards Board also recently issued SFAS No.
123, "Accounting for Stock-Based Compensation." This statement introduces a
fair-value based method of accounting for stock-based compensation. It
encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options, and other equity instruments to employees
based on the new fair value accounting rules. However, if the Company chooses
not to recognize compensation expense in accordance with the provisions of this
statement, pro forma disclosures are required in the notes to consolidated
financial statements. The Company will adopt the disclosure provisions of SFAS
No. 123 by fiscal 1997.
NOTE 2: Merger with IPM
On February 8, 1995, the Company completed the merger of IPM with and into
a newly-formed subsidiary of the Company. IPM develops, manufactures, sells, and
services UPS products, and is compatible with Exide Electronics in terms of the
products and services provided and its channels of distribution. Under the terms
of the agreement, the Company issued approximately 1,510,000 newly registered
shares of Exide Electronics' common stock for all of the outstanding shares of
IPM's common and preferred stock. The merger was structured as a tax-free
exchange and was accounted for as a pooling-of-interests. Accordingly, the
accompanying consolidated financial statements and related notes have been
restated to include the accounts and results of operations of IPM for all
periods presented.
Historically, IPM prepared its financial statements using a December 31
fiscal year end. As of September 30, 1994, IPM's fiscal year end has been
changed to conform to Exide Electronics' September 30 year end. The consolidated
statement of operations for the year ended September 30, 1994 combines Exide
Electronics' historical consolidated statement of operations for the fiscal year
ended September 30, 1994 with IPM's consolidated statement of operations for the
year ended September 30, 1994. In accordance with the accounting rules
prescribed or permitted for pooling-of-interests, the restated financial
statements for the fiscal year ended September 30, 1993 combine the historical
consolidated results of operations of Exide Electronics for the year then ended
with IPM's historical consolidated results of operations for the calendar year
ended December 31, 1993. As a result, IPM's operations for the quarter ended
December 31, 1993 are included in the consolidated statements of income, changes
in shareholders' equity, and cash flows for both of the fiscal years ended
September 30, 1994 and 1993. IPM's revenues were $9,486,000 and net income was
$688,000 for the quarter ended December 31, 1993.
The restated balance sheet as of September 30, 1994 combines Exide
Electronics' historical consolidated balance sheet as of September 30, 1994 with
IPM's consolidated balance sheet as of that date. The restated balance sheet as
of September 30, 1993 combines Exide Electronics' historical consolidated
balance sheet as of September 30, 1993 with IPM's consolidated historical
balance sheet as of December 31, 1993. An adjustment to conform IPM's fiscal
year is shown in the accompanying consolidated statement of changes in
shareholders' equity. An adjustment is also shown in the accompanying
consolidated statement of cash flows for the year ended September 30, 1994 to
account for IPM's change in cash for the quarter ended December 31, 1993.
Combined and separate results of Exide Electronics and IPM during the periods
preceding the merger were as follows (in thousands):
Exide
Electronics IPM Adjustments Combined
----------- -------- ----------- ---------
Quarter ended December 31, 1994
Revenues $ 81,264 $10,802 $ - $ 92,066
Net income $ 1,746 $ 538 $ (35) $ 2,249
Year ended September 30, 1994
Revenues $326,583 $37,400 $ - $363,983
Net income $ 7,731 $ 1,566 $(122) $ 9,175
Year ended September 30, 1993
Revenues $281,949 $35,993 $ - $317,942
Net income $ 9,251 $ 1,814 $(233) $ 10,832
The combined financial results presented above and the accompanying
consolidated financial statements include adjustments to conform the accounting
methodology of IPM for reserving for excess and obsolete service inventories to
the accounting methodology used by Exide Electronics. There were no intercompany
transactions during the periods presented.
In connection with the merger, the Company recorded a nonrecurring charge
of $5.5 million ($4.4 million after tax) in the second quarter of fiscal 1995.
This charge included approximately $3.0 million for legal, accounting, financial
advisory, and other costs. The Company also expensed approximately $2.5 million
for the estimated costs of closing a duplicate operating facility and
discontinuing certain duplicate product lines manufactured at that facility. As
of September 30, 1995, all operations at the duplicate facility have ceased, and
the Company has entered into negotiations to sell the remaining fixed assets at
the facility. The Company is also in the process of disposing of excess
inventories related to the duplicate product lines. Other than amounts
sufficient to cover remaining lease payments on the duplicate facilities and
disposal of excess inventory, there are no significant accrued costs related to
the merger included in the consolidated balance sheet at September 30, 1995.
NOTE 3: Accounts Receivable
Accounts receivable consisted of the following (in thousands):
September 30,
-----------------
1995 1994
------- -------
Accounts Receivable:
Commercial $ 86,936 $ 73,913
United States government 21,105 33,947
------ ------
108,041 107,860
Less: Allowance for doubtful
accounts, customer returns and
adjustments 2,517 2,148
----- -----
$105,524 $105,712
======== ========
Accounts receivable at September 30, 1995 and 1994 included unbilled
receivables of $7,371,000 and $12,808,000, and retainage receivables of
$1,452,000 and $755,500, respectively. Unbilled receivables relate primarily to
one United States government contract with multiple installation sites and are
generally billable in the month following contract performance. Retainage
receivables generally relate to larger customer contracts and become payable at
specified dates after installation and customer acceptance.
Commercial accounts receivable are generally not concentrated in any
geographic region or industry. Collateral is usually not required except for
certain international transactions for which the Company requires letters of
credit to secure payment.
NOTE 4: Inventories
Inventories, which include materials, labor, and manufacturing overhead,
consisted of the following (in thousands):
September 30,
-----------------
1995 1994
------- -------
Raw materials and supplies $27,989 $20,149
Work in process 6,064 7,288
Finished goods 24,054 14,805
Service parts 14,783 13,287
------- -------
$72,890 $55,529
======= =======
Domestic inventories of approximately $52,167,000 and $37,900,000 were
valued using the LIFO method at September 30, 1995 and 1994, respectively. The
LIFO value exceeded the FIFO value of these inventories by approximately
$1,941,000 at September 30, 1995 and $693,000 at September 30, 1994. There was
no liquidation of prior years' LIFO layers in 1995, and the effect of such
liquidation in 1994 was not significant.
NOTE 5: Short-Term Debt
Certain of the Company's subsidiaries maintain various lines of credit.
These lines, which had interest rates ranging from 7.25% to 8.50% at September
30, 1995, are primarily due on demand and are generally secured by guaranties of
payment by the Company. Approximately $7,130,000 and $4,902,000 were outstanding
under these facilities at September 30, 1995 and 1994, respectively. The
remaining availability under these facilities at September 30, 1995 was
approximately $6,900,000.
The weighted average interest rate incurred on the Company's short-term
debt was 8.5% in 1995 and 8.1% in 1994. The short-term debt balance outstanding
at September 30, 1995 approximated fair value for loans with similar terms.
NOTE 6: Long-Term Debt and Convertible Subordinated Notes
Long-term debt consisted of the following (in thousands):
September 30,
------------------
1995 1994
------- -------
Domestic bank credit facility $65,000 $39,700
Industrial revenue bonds - 4,600
Other long-term debt 783 -
------- -------
65,783 44,300
Less current portion 525 900
------- -------
$65,258 $43,400
======= =======
Convertible subordinated notes $15,000 $15,000
======= =======
The Company has a $145 million unsecured bank package comprised of a $95
million revolving credit facility ("Facility A") for working capital and general
corporate purposes, which may include letters of credit, and a $50 million
revolving credit facility ("Facility B") for financing certain acquisitions and
refinancing specified existing obligations. Facility A includes a sublimit of
$30 million which may be used in support of the Company's international
subsidiaries.
Amounts outstanding at September 30, 1995 under both facilities bear
interest at either the agent bank's base rate or, at the Company's option, the
LIBOR rate plus .60%. The weighted average interest rate on these facilities was
6.5% for the year ended September 30, 1995. The average daily unutilized
commitment incurs a commitment fee of .20% per annum, and letters of credit bear
a fee of .60% per annum. These rates and fees may be adjusted based on a senior
debt to cash flow ratio, as defined. Balances outstanding on these facilities at
September 30, 1995 and 1994 approximated their fair value. Amounts outstanding
under Facility A are due and payable on September 30, 1997. Amounts outstanding
under Facility B will convert to a term loan on September 30, 1996, with
quarterly principal payments thereafter of 5% of the amount outstanding on
conversion, with the remaining balance due September 30, 1999.
The credit agreement contains certain financial covenants, including a
senior debt to cash flow ratio, a fixed charge coverage ratio, a leverage ratio,
and a minimum net worth requirement. As of September 30, 1995, the Company was
in compliance with all financial covenants, as amended. The agreement also
imposes certain restrictions on mergers, acquisitions, investments in other
companies and liquidations; additional senior indebtedness; disposition of
assets; related party transactions; and prohibits payments of dividends on
common stock if the Company would be in default before or after such dividend
payment.
In fiscal 1990, Industrial Revenue Bonds (the "IRBs") in the aggregate
amount of $9 million were issued to finance a portion of the cost of
constructing a manufacturing facility near Wilmington, North Carolina. The
average interest rate on the IRBs was 7.24%. On June 1, 1994, the Company
executed a partial redemption in the amount of $2.6 million using the excess
project funds held in trust. On December 1, 1994, the Company exercised its
option to redeem the remaining bonds outstanding at a redemption price of 102%.
In September 1992, the Company sold $15 million of convertible
subordinated notes (the "Notes"). The Notes bore interest at 8.375% per annum,
payable semi-annually. The Notes were convertible into common stock of the
Company at any time for an initial conversion price of $13.08 per share, subject
to adjustment for certain events. On October 23, 1995, the holder of the Notes
exercised its option to convert the Notes into 1,146,789 shares of the Company's
common stock. The market value of the Notes if they had been converted into the
Company's common stock was approximately $21.5 million and $24.9 million at
September 30, 1995 and 1994, respectively.
Future maturities of long-term debt at September 30, 1995, giving effect
to the October 1995 conversion of the Notes into the Company's common stock,
were (in thousands):
1996 $ 525
1997 53,469
1998 2,969
1999 8,769
2000 51
Thereafter -
-------
$65,783
=======
NOTE 7: Lease Commitments
The Company leases buildings, equipment and machinery under various
operating leases. Future minimum payments at September 30, 1995 under
noncancellable operating leases were (in thousands):
1996 $ 6,410
1997 6,175
1998 5,249
1999 4,815
2000 3,909
Thereafter 19,265
-------
$45,823
=======
Rental expense related to operating leases was $8,109,000 in 1995,
$7,780,000 in 1994, and $7,165,000 in 1993.
NOTE 8: Redeemable Preferred Stock
Authorized preferred stock consists of 2,000,000 shares of $0.01 par value
preferred stock, of which 6,000 shares have been designated as Series D
Preferred Stock, 6,000 shares as Series E Preferred Stock, and 200,000 shares as
Series F Junior Participating Preferred Stock.
In August 1991, the Company issued 5,000 shares of Series C Preferred
Stock ("the Series C shares") at a purchase price of $1,000 per share. The
Series C shares were convertible at the option of the holder into the Company's
common stock at a conversion price per share of $9.5062. The holder exercised
this option in August 1993 and converted the Series C shares into 525,972 shares
of the Company's common stock. In February 1995, authorization for Series C
Preferred Stock was removed from the Company's Certificate of Incorporation.
In July 1992, the Company issued to Japan Storage Battery Co., Ltd.
("JSB") 5,100 shares of the Company's Series D Preferred Stock ("the Series D
shares") at a purchase price of $1,000 per share. JSB had the right to convert
some or all of the Series D shares into the Company's common stock at a
conversion price per share of $13.08, subject to adjustment upon the occurrence
of certain events. In December 1992, JSB exercised an option to purchase 4,900
shares of Series E Preferred Stock ("the Series E shares") at a purchase price
of $1,000 per share. The Series E shares were convertible at the option of JSB
into the Company's common stock at a conversion price per share of $23.86,
subject to adjustment upon the occurrence of certain events. On July 1, 1995,
JSB exercised these options and converted all of the Series D and Series E
shares into 595,273 shares of the Company's common stock.
The Company owns 50% of a joint venture with JSB for distribution of
products in Japan. The carrying value of the Company's investment in the joint
venture at September 30, 1995 was $399,000. Total sales to the joint venture by
the Company were approximately $9.1 million in 1995, $4.1 million in 1994, and
$3.6 million in 1993. Accounts receivable from the joint venture were
approximately $2,806,000 and $938,000 at September 30, 1995 and 1994,
respectively.
NOTE 9: Common Shareholders' Equity
As of September 30, 1995, the Company had notes receivable of $5,520,000
(including accrued interest of $1,917,000) related to the sale of 537,852 shares
of common stock to certain employees. The notes generally bear simple interest
at prime and are payable ten years from the date of issuance or earlier upon
sales of the shares or upon termination of employment. The market value of these
notes receivable was approximately $4,956,000 and $5,120,000 at September 30,
1995 and 1994, respectively.
In November 1992, the Board of Directors adopted a shareholders' rights
plan to deter coercive takeover tactics and to prevent a potential acquirer from
gaining control of the Company without offering a fair price to all of the
Company's shareholders. The Board declared a dividend distribution of one right
for each share of common stock outstanding on or issued after December 7, 1992
(the "Right" or "Rights"). Each Right, when exercisable, entitles the registered
holder to purchase from the Company one one-hundredth of a share of Series F
Junior Participating Preferred Stock at a purchase price of $80 per one
one-hundredth share, subject to certain adjustments. The Rights will become
exercisable only upon the occurrence of a person or group acquiring beneficial
ownership of 15% or more of the Company's then outstanding common stock, and
will expire in December 2002 unless previously redeemed or exchanged by the
Company.
In the event that a person becomes the beneficial owner of 15% or more of
the Company's then outstanding shares of common stock, except pursuant to an
offer for all outstanding shares of common stock which the outside directors
determine to be fair to and otherwise in the best interests of the Company and
its shareholders, each holder of a Right, other than the person triggering the
Rights, will have the right to receive common stock (or in certain
circumstances, cash, property or other securities of the Company) having a value
equal to two times the exercise price of the Right. Similarly, if the Company is
acquired in a merger or other similar business combination without the consent
of the Company's Board of Directors, each holder of a Right, except the person
triggering the Rights, will have the right to receive common stock of the
acquiring Company having a value equal to two times the exercise price of the
Right.
In November 1994, the Board of Directors authorized the repurchase of up to
5% of the Company's outstanding common stock. Purchases may be made from time to
time as management considers appropriate. In October 1995, the Company
repurchased approximately 131,000 shares of its common stock.
NOTE 10: Stock and Benefit Plans
1995 Employee Stock Option and Restricted Stock Plan- This plan provides
for the grant to selected employees of up to 750,000 shares of the Company's
common stock. The purchase price for stock options under this plan shall be no
less than fair market value of the common stock at the date of grant.
1995 Directors Plan- This plan provides for the grant of up to 150,000
shares of the Company's common stock. Each of the Company's non-employee
directors receives an option to purchase 3,000 shares of common stock on the
date of commencement of service as a director and annually thereafter for as
long as the director remains on the board. The purchase price for stock options
under this plan shall be no less than fair market value of the common stock at
the date of grant.
1989 Stock Option Plan- This plan provides for the grant to selected
employees of options for up to 550,000 shares of the Company's common stock. The
purchase price for stock options under this plan shall be no less than fair
market value of the common stock at the date of grant.
Non-Employee Directors Stock Option Plan- This plan provided for the grant
of 87,500 shares of the Company's common stock. All options available under this
plan have been granted. The purchase price for stock options granted under this
plan was no less than the fair market value of the common stock at the date of
grant.
The following table summarizes the activity under these plans:
Shares Exercise
Available Options Price
for Grant Outstanding Range
--------- ---------- ----------
Balances at September 30, 1992 201,270 434,980 2.99-18.00
Granted (48,000) 48,000 15.00-20.13
Exercised - (23,375) 6.50-15.00
Forfeited 17,250 (17,250) 6.50-15.00
------ ------- -----------
Balances at September 30, 1993 170,520 442,355 $2.99-$20.13
------- ------- -----------
Granted (64,000) 64,000 16.13-23.50
Exercised - (49,059) 2.99-17.38
Forfeited 26,285 (26,285) 6.50-15.00
------ ------- ------------
Balances at September 30, 1994 132,805 431,011 $6.50-$23.50
------- ------- ------------
1995 Director and Employee Plans 900,000 - -
Granted (291,987) 291,987 16.38-16.75
Exercised - (42,590) 6.50-17.38
Forfeited 29,250 (29,250) 15.00-23.50
------ ------- ------------
Balances at September 30, 1995 770,068 651,158 $6.50-$23.50
======= ======= ============
As of September 30, 1995, outstanding options to purchase 342,404 common
shares were exercisable. The majority of these options expire ten years after
the grant date if not exercised.
Employee Stock Purchase Plan- This plan provides for the grant to employees
of rights to purchase shares of the Company's common stock. Shares are purchased
at the end of an offering period, with a purchase price for the shares equal to
the lower of 85% of the fair market value of the common stock at the beginning
or the end of the offering period. A maximum of 600,000 shares have been
authorized under this plan, and through September 30, 1995, 234,242 shares have
been issued under this plan. Under the current offering, which expires December
31, 1995, the offering price at the beginning of the offering period was $13.84.
Benefit Plans- The Company and its subsidiaries have defined contribution
plans that cover substantially all employees. The plans allow for the matching
of voluntary employee contributions, and the Company may elect to make
additional contributions at the discretion of the Board of Directors. Total
expenses related to these plans were $1,917,000 in 1995, $2,303,000 in 1994, and
$2,097,000 in 1993.
NOTE 11: Geographic Operations
(in thousands) 1995 1994 1993
---- ---- ----
Revenues
United States -
Unaffiliated customers
United States $ 268,289 $ 273,087 $ 248,452
Latin America 36,590 31,392 19,962
Far East 23,353 13,138 11,958
Other 452 8,669 6,986
Intercompany 37,338 22,030 18,171
Outside the United States -
Unaffiliated customers
Europe 34,975 19,193 13,538
Canada 18,523 14,779 13,768
Other 8,796 3,725 3,278
Intercompany 6,541 3,360 2,341
Intercompany eliminations (43,879) (25,390) (20,512)
------- ------- -------
Total revenues $ 390,978 $ 363,983 $ 317,942
========= ========= =========
Income (loss) before income taxes
and the cumulative effect of
accounting change
United States $ 9,035 $ 13,333 $ 17,560
Europe 2,097 (218) (2,630)
Canada 419 120 1,068
Other 526 224 48
--- --- ---
Total income before income
taxes and the cumulative
effect of accounting change $ 12,077 $ 13,459 $ 16,046
========= ========= =========
Identifiable Assets
United States $ 213,541 $ 190,515 $ 179,482
Europe 24,935 18,842 11,011
Canada 15,179 14,019 11,767
Other 2,796 1,300 973
----- ----- ---
Total assets $ 256,451 $ 224,676 $ 203,233
========= ========= =========
Revenues include sales to unaffiliated customers and the Company's joint
venture (see Note 8). Intercompany sales are made at transfer prices intended to
provide a profit for the purchasing entities after coverage of their selling,
general and administrative expenses. Identifiable assets are those assets
identified with operations in each geographic area.
NOTE 12: Income Taxes
As of the beginning of fiscal 1993, the Company adopted Financial
Accounting Standards Board Statement No. 109, "Accounting for Income Taxes,"
which superseded Statement No. 96, the method of accounting for income taxes
previously used by the Company. Statement No. 109 requires recognition of future
tax benefits, to the extent that realization of such benefits is more likely
than not, attributable to deductible temporary differences between the financial
statement and income tax basis of assets and liabilities and to tax net
operating loss carryforwards ("NOLs"). The Company elected to adopt Statement
No. 109 using the prospective adoption method. Under this method, the Company
recognized an increase in net income of $1.0 million in fiscal year 1993 for the
cumulative effect of the change in accounting principle. The increase resulted
from recording the net benefit of approximately $850,000 in net deferred tax
assets for temporary differences and state income tax NOLs which could not
previously be recognized under Statement No. 96, and approximately $150,000 for
the net benefit of NOLs for certain of the Company's foreign subsidiaries.
Components of the tax provision are shown below (in thousands):
1995 1994 1993
---- ---- ----
Provision for (benefit from) income taxes:
Federal
Current $ 4,691 $ 4,784 $ 6,770
Deferred (731) (1,020) (1,736)
---- ------ ------
Total federal 3,960 3,764 5,034
----- ----- -----
State
Current 653 619 1,328
Deferred - (275) (363)
---- ---- ----
Total state 653 344 965
--- --- ---
Foreign
Current 269 228 420
Deferred (190) (52) (205)
---- --- ----
Total foreign 79 176 215
--- --- ---
Total $ 4,692 $ 4,284 $ 6,214
======= ======= =======
Deferred income tax provision (benefit) has been provided for temporary
differences resulting from the recognition of taxable income for tax and
financial statement purposes. The provision (benefit) of the significant
differences consisted of the following (in thousands):
1995 1994 1993
---- ---- ----
Deferred income, net $ (352) $(775) $(427)
Provisions for uncollectible accounts (204) 365 (406)
Inventory provisions (1,310) (208) (616)
Foreign currency gains and losses (104) 5 (231)
Depreciation 515 127 (46)
The effective income tax provision differs from the amount computed by
applying the federal statutory rate of 35% to income before income taxes due to
the following (in thousands):
1995 1994 1993
---- ---- ----
Income tax expense computed at the
federal statutory rate $ 4,227 $ 4,710 $ 5,616
State taxes, net of federal tax benefit 424 253 648
Effect of permanent differences 1,413 442 132
Operating losses by foreign subsidiaries
with no tax benefit 26 100 692
Benefit of Foreign Sales Corporation (315) (206) (189)
Change in valuation allowance (995) (534) (603)
Other (88) (481) (82)
--- ---- ---
Provision for income taxes $ 4,692 $ 4,284 $ 6,214
------- ------- -------
The components of the Company's net deferred tax assets (liabilities) were
as follows (in thousands):
September 30,
1995 1994
---- ----
Current:
Service revenue deferred for
financial reporting purposes $ 4,842 $ 4,189
Non-deductible accruals 6,491 4,569
Accelerated expenses recognized
for tax purposes (1,548) (1,366)
Valuation allowance (867) (702)
Other 754 842
--- ---
9,672 7,532
----- -----
Noncurrent:
NOLs of foreign subsidiaries 1,234 2,215
Accelerated depreciation for tax purposes (1,979) (1,464)
Accelerated expenses for tax purposes (955) (932)
Valuation allowance (370) (1,731)
Other 212 223
--- ---
(1,858) (1,689)
------ ------
Net deferred tax assets $ 7,814 $ 5,843
======= =======
The Company's foreign subsidiaries have tax NOLs of approximately $3.4
million, of which $1.3 million expires in fiscal 1998, and $2.1 million has no
expiration date. If the NOLs are fully utilized at current statutory tax rates
of the respective countries, the total asset is estimated to be approximately
$1.2 million. Although the Company anticipates future operating income in these
subsidiaries, because of prior operating losses in these subsidiaries, as well
as general economic conditions, competition, and other factors beyond the
Company's control, there can be no guarantee that these NOLs will be utilized. A
valuation reserve has been established which reduces the deferred tax asset of
the NOLs to an amount which the Company believes is more likely than not to be
realized.
The Company has not provided for potential U.S. taxes on undistributed
earnings of its foreign subsidiaries of approximately $7.6 million at September
30, 1995, as it does not currently intend to repatriate such earnings.
Calculation of the potential unrecognized deferred tax liability related to
these earnings is not practicable; however, credits for foreign income taxes
already paid may partially offset potential U.S. income taxes.
NOTE 13: Supplemental Cash Flow Information
Cash and cash equivalents consist of cash and short-term investments with
original maturities of three months or less. Cash equivalents are carried at
cost, which approximates market.
Cash flow disclosures, including non-cash investing and financing
activities for the three years ended September 30, 1995, are as follows (in
thousands):
1995 1994 1993
---- ---- ----
Income taxes paid $ 4,665 $9,616 $5,048
Interest paid 4,775 4,990 4,718
Liabilities assumed in exchange for
certain assets in acquisitions of
subsidiaries (see Note 14) 450 2,505 758
Conversion of preferred stock to common
stock (see Note 8) 10,000 - 5,000
Issuance of common stock in the acquisition
of a subsidiary (see Note 14) - 944 -
Note receivable repaid with proceeds from
treasury stock purchases 605 - -
Note 14: Acquisitions
During the fourth quarter of fiscal 1995, the Company acquired Lectro
Products, Inc. ("Lectro"), a broadband industry leader specializing in power
protection and other transmission enhancement devices for the converging cable
television and telecommunications networks, for approximately $12.4 million plus
the assumption of certain liabilities. The acquisition was accounted for using
the purchase method of accounting. In connection with the acquisition, the
Company recorded goodwill of approximately $10.2 million, which is being
amortized over 20 years. The Company is evaluating the final purchase price
allocation, which may impact currently recorded goodwill. Lectro's results of
operations are included in the Company's results of operations beginning in July
1995. If Lectro had been consolidated at the beginning of the fiscal year, the
effect on the Company's operations or financial condition would not have been
significant.
During the fourth quarter of fiscal 1994, the Company acquired two
companies in Canada and one in the United Kingdom. These companies are involved
in the sales and service of UPS products. The acquisitions were accounted for
using the purchase method of accounting. Goodwill totaling approximately $4.0
million was recorded and is being amortized over periods ranging from ten to
twenty years. The results of operations of these companies were included in the
Company's consolidated financial statements at various dates beginning in the
fourth quarter of fiscal 1994. If these companies had been consolidated at the
beginning of fiscal 1994, the effect on the Company's operations or financial
condition would not have been significant.
During the fiscal year ended September 30, 1993, the Company completed the
acquisition of DataTrax Systems Corporation ("DataTrax"). DataTrax is a
developer of power, environmental, and security monitoring systems for computer
rooms and other mission-critical applications, and is based in Colorado. The
acquisition was accounted for using the purchase method of accounting. Goodwill
of approximately $1.0 million was recorded and is being amortized over 15 years.
The results of operations of DataTrax were included in the Company's
consolidated financial statements beginning in September 1993. If DataTrax had
been consolidated at the beginning of fiscal 1993, the effect on the Company's
operations or financial condition would not have been significant.
In September 1995, the Company wrote off approximately $1.5 million
($813,000 after tax) of costs related to a proposed acquisition that was not
consummated. Such costs were incurred during fiscal 1995, and consisted
primarily of legal, accounting, and other financial advisory services.
Note 15: Contingencies
Litigation In January 1989, a case was filed by a former manufacturer's
representative of the Company, alleging that the Company failed to pay
commissions owed to him on certain sales. In April 1990, a jury awarded the
plaintiff damages of approximately $14.9 million. The Company appealed the
decision, and in September 1992, the appellate court reversed the judgment
against the Company. In response to various motions filed by the plaintiff, a
new trial was granted, and in March 1994, the jury in the new trial awarded
damages of $3.75 million to the plaintiff. While the Company continued to
believe that it should have no liability in this matter and announced its
intention to appeal, it recorded a one-time charge in the second quarter of
fiscal 1994 of $4,997,000 ($2,936,000 after tax) for the jury verdict and for
the costs of the trial.
In July 1994, the Company announced that this litigation had been settled.
Following agreement among the parties to settle, the court vacated the jury
award of $3.75 million previously entered and determined that the vacated
judgment cannot be used against the Company in the future. To avoid further
litigation including post-trial motions and appeals, the Company settled the
case by making payments to the plaintiff and his attorneys. The parties
thereafter stipulated that the entire action was dismissed with prejudice. Since
the total value of the settlement payments was less than the one-time charge for
the jury verdict recorded by the Company in the second quarter of fiscal 1994,
no further charges were necessary in this matter. By agreement with the
plaintiff, the terms of the confidential settlement were not disclosed.
In May 1990, the Company was served with a complaint in the Delaware Court
of Chancery and in May 1991, a related case was filed in Federal Court in New
York. These complaints alleged, among other things, that the Company's
description of the case involving the manufacturer's representative in its
prospectus dated December 21, 1989 was false and misleading. In April 1995, the
Company announced that it had settled both the Delaware and New York suits. The
Delaware action had been dismissed once for failure to state a claim, but was
reinstated following an appeal and was in the discovery process prior to the
settlement. The Company recorded a charge of $700,000 ($424,000 after tax) for
the settlement of the two related lawsuits in the quarter ended March 31, 1995.
Court approval of the settlement agreement, after notice to affected
shareholders, was granted in August 1995. While the Company believed that
neither suit had merit, it decided to settle as the suits were taking valuable
corporate time and attention and would have involved significant legal costs to
pursue further.
The Company is involved in various litigation proceedings incidental to
its business. The defense of most of these matters is handled by the Company's
insurance carriers. The Company believes that the outcome of such other pending
litigation in the aggregate will not have a material adverse effect on its
financial statements.
Government Contract Matters Sales to the United States Federal government
accounted for approximately 27%, 33%, and 35% of total revenues for the years
ended September 30, 1995, 1994, and 1993, respectively. The Company's Federal
government business is currently performed under firm fixed-price type contracts
and time-and-materials type contracts, and at times a combination of both
contract types. The Company's compliance with government contract regulations is
audited or reviewed from time to time by government auditors, who have the right
to audit the Company's records and the records of its subcontractors during and
after completion of contract performance. Under Federal government regulations,
certain costs are not allowable as costs for which the government will reimburse
the Company. Government auditors may recommend that certain charges be treated
as unallowable and reimbursement be made to the government. The Company provides
for estimated unallowable charges and voluntary refunds in its financial
statements, and believes that its provisions are adequate as of September 30,
1995.
During fiscal 1993, the Company engaged in discussions with the Federal
government regarding contract interpretation matters relating to certain
time-and-materials charges by the Company under its principal government
contract. In August 1993, the Company reached an agreement with the Federal
government under which these matters were resolved to the satisfaction of the
Company. Under this agreement, there were no adjustments relating to the
Company's past time-and-materials charges, and accordingly there was no effect
on the Company's financial statements for prior periods relating to this matter.
The agreement provided for adjustments to certain hourly labor rates and limited
the recovery of certain general and administrative costs prospectively from
August 1993.
In June 1995, the Company was awarded a follow-on ALC contract. This is a
three-year requirements contract, which permits extension of the ordering period
for up to two additional one-year periods at the option of the Government.
Actual revenues under this contract will depend on the specific purchases, if
any, by the Air Force and other governmental agencies which can use the contract
during the contract period. Following the award of the contract, certain
competitors filed protests with the General Accounting Office ("GAO"). In
December 1995, the GAO notified the Company that all of the protests had been
dismissed, except the protest of the Air Force's evaluation of certain discounts
offered by the Company in the contract. In sustaining this protest on the basis
that it did, the GAO did not recommend termination of the contract or any other
remedy adverse to the interests of the Company at this time. As a result, the
Company retains the contract for the present and the Government can place orders
under the contract. The GAO has, however, recommended that the Air Force amend
a portion of the request for proposal that led to the contract award. The GAO
further recommended that the Air Force allow the protesting companies and the
Company to submit new proposals regarding such portion, and that the Air Force
re-evaluate the award to the Company based upon these new proposals. The Company
has not been advised by the Air Force whether it will contest or accept the
GAO's recommendations. Similarly, the Air Force has not advised the Company of
its plans regarding the issuance of additional orders under the contract, or an
amended request for proposal. No assurances can be given that the Company
ultimately will retain the contract.
Note 16: Subsequent Events
In November 1995, the Company executed a definitive agreement to acquire
Deltec Power Systems, Inc. and its subsidiaries ("Deltec") from Fiskars OY AB
("Fiskars") and an affiliated company, for a purchase price of approximately
$195 million, subject to certain post-closing adjustments. Under the purchase
agreement, which will be accounted for as a purchase, Fiskars will receive
approximately $157.5 million in cash and 1,875,000 shares of the Company's
common stock valued at $37.5 million at a fixed price of $20 per share, in
exchange for all of the issued and outstanding common stock of Deltec. Deltec
had unaudited revenues of $86.9 million and net income of $1.8 million for the
nine months ended September 30, 1995, and unaudited revenues of $97.2 million
and net income of $2.2 million for the year ended December 31, 1994. Deltec has
two principal operating subsidiaries: Deltec Electronic Corp., which is
headquartered in San Diego, California; and FPS Power Systems, which is based
near Helsinki, Finland. Deltec is one of the world's largest manufacturers and
marketers of off-line and line-interactive small UPS systems. Off-line and
line-interactive systems are smaller and less expensive than larger on-line
systems, and are suitable for applications where system downtime may be less
costly, such as personal or small business uses. The combination will strengthen
the product line offerings of the Company and enhance its global service
capabilities. It is expected that the acquisition will close during the first
calendar quarter of 1996, and is subject to completion of due diligence reviews
by the Company, and attainment of all required governmental and other regulatory
approvals.
In December 1995, the Company received a commitment from several banks to
establish a five-year senior bank package (the "Facilities") of up to $225
million comprised of a $75 million term loan (the "Term Loan") and a $150
million revolving credit facility (the "Revolver"). The Term Loan would be used
for the Deltec acquisition and to refinance a portion of the Company's existing
debt, while the Revolver would be used for working capital, letters of credit,
and general corporate purposes. Amounts outstanding under the Facilities would
be secured by substantially all the inventory and accounts receivable of the
Company and would initially bear interest at LIBOR plus 200 basis points, or the
bank's base rate plus 100 basis points, as defined. This commitment is subject
to consummation of the Deltec acquisition by February 28, 1996, and issuance of
at least $75 million of subordinated debt, or equivalent bridge financing.
NOTE 17: Summarized Quarterly Financial Data
(unaudited, in thousands except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- ------- ------- -------- --------
1995
Total revenues $92,066 $ 91,268 $98,846 $108,798 $390,978
Gross profit 23,684 23,903 27,418 28,860 103,865
Net income (loss) 2,249 (2,574) 4,093 3,617 7,385
Per share amounts
Primary $ 0.26 $ (0.36) $ 0.49 $ 0.42 $ 0.84
======= ======== ======= ======== ========
Fully diluted $ 0.25 $ (0.36) $ 0.44 $ 0.39 $ 0.84
======= ======== ======= ======== ========
1994
Total revenues $79,675 $ 88,013 $91,764 $104,531 $363,983
Gross profit 22,241 25,359 24,804 26,291 98,695
Net income 1,887 522 3,176 3,590 9,175
Per share amounts
Primary $ 0.22 $ 0.04 $ 0.38 $ 0.43 $ 1.07
======= ======== ======= ======== ========
Fully diluted $ 0.21 $ 0.04 $ 0.35 $ 0.40 $ 1.03
======= ======== ======= ======== ========
The Company completed its merger with IPM during the second quarter of
1995. This merger has been accounted for as a pooling-of-interests, as discussed
in Note 2. Accordingly, the results for all quarterly periods presented include
the results of IPM. Per share amounts have been recalculated after adding the
shares of Exide Electronics common stock issued to effect the merger to weighted
average share amounts.
In connection with the merger, the Company recorded a nonrecurring charge
of $5.5 million ($4.4 million after tax) in the second quarter of fiscal 1995.
This charge included approximately $3.0 million for legal, accounting, financial
advisory, and other costs related to the merger. The Company also expensed
approximately $2.5 million for the estimated costs of closing a duplicate
operating facility and discontinuing certain duplicate product lines
manufactured at that facility.
The Company incurred additional nonrecurring charges in the second quarter
of fiscal 1995 for litigation, and in the fourth quarter of fiscal 1995 for
expenses related to a potential acquisition. The amount of these charges was
$700,000, or $424,000 after tax (see Note 15), and $1,500,000, or $813,000 after
tax (see Note 14), respectively.
The Company recorded a one-time litigation charge in the second quarter of
fiscal 1994 of $4,997,000 ($2,936,000 after tax), which is described in Note 15.
The sum of quarterly per share amounts does not necessarily equal the
annual net income per share due to the rounding effect of the weighted average
common shares outstanding for the individual periods, and for the fully diluted
calculation, to the inclusion of the dilutive effect of convertible securities.
The effective tax rate for the fourth quarter of fiscal 1995 was lower
than the rate for the previous quarters in fiscal 1995. The lower rate reflected
the use in the fourth quarter of foreign NOL's due to a different mix of foreign
versus domestic taxable earnings for the full year than was anticipated in prior
quarters.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required hereunder relating to directors and executive
officers of the Company is incorporated by reference herein from the Company's
definitive proxy statement in connection with its Annual Meeting of Shareholders
to be held on February 27, 1996, which proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the close of
the Company's fiscal year ended September 30, 1995.
Item 11. Executive Compensation
The information required hereunder relating to compensation of directors
and executive officers and other transactions involving management is
incorporated by reference herein from the Company's definitive proxy statement
in connection with its Annual Meeting of Shareholders to be held on February 27,
1996, which proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the Company's fiscal year
ended September 30, 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required hereunder relating to security ownership of
certain beneficial owners and management is incorporated by reference herein
from the Company's definitive proxy statement in connection with its Annual
Meeting of Shareholders to be held on February 27, 1996, which proxy statement
will be filed with the Securities and Exchange Commission not later than 120
days after the close of the Company's fiscal year ended September 30, 1995.
Item 13. Certain Relationships and Related Transactions
The information required hereunder relating to certain relationships and
related transactions is incorporated by reference herein from the Company's
definitive proxy statement in connection with its Annual Meeting of Shareholders
to be held on February 27, 1996, which proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days after the close of
the Company's fiscal year ended September 30, 1995.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as a part of this report:
1. Financial Statements
Report of Independent Public Accountants
Consolidated Statement of Operations for the three years ended
September 30, 1995
Consolidated Balance Sheet as of September 30, 1995 and 1994 Consolidated
Statement of Changes in Common Shareholders' Equity for
the three years ended September 30, 1995
Consolidated Statement of Cash Flows for the three years ended
September 30, 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following consolidated financial statement schedule is included in Item
14(d):
II -- Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted since they are
either not required or the information required is included in the consolidated
financial statements or the notes thereto.
3. Exhibits
Exhibit
Number Exhibit
2(a) Agreement and Plan of Reorganization ("the Reorganization Agreement")
among Exide Electronics, Exide Electronics Acquisition, Inc., and
International Power Machines Corporation dated August 25, 1994,
including the First Amendment to the Reorganization Agreement dated
December 14, 1994 and the Second Amendment to the Reorganization
Agreement dated January 4, 1995 (filed as Exhibit 2.1 to Exide
Electronics' Registration Statement on Form S-4, File No. 33-88324,
and incorporated by reference herein).
2(b) Form of Certificate of Merger to be executed upon approval of the
Merger by the stockholders of Exide Electronics and IPM (filed as
Exhibit 2.2 to Exide Electronics' Registration Statement on Form S-4,
File No. 33-88324, and incorporated by reference herein).
2(c) Form of Affiliate Agreement to be executed in connection with the
Reorganization Agreement (filed as Exhibit 2.3 to Exide Electronics'
Registration Statement on Form S-4, File No. 33-88324, and
incorporated by reference herein).
2(d) Stock Purchase Agreement among Exide Electronics, Fiskars OY AB, and
Fiskars Holdings, Inc., related to the purchase of Deltec Power
Systems, Inc. (filed as Exhibit 10 to the Company's Current Report on
Form 8-K, File No. 0-18106, for the event dated November 17, 1995, and
incorporated by reference herein).
3(a) Certificate of Incorporation of the Registrant, as amended (filed as
Exhibit 3 to the Company's Quarterly Report on Form 10-Q, for the
quarter ended March 31, 1995, and incorporated by reference herein).
3(b) Article 11 of Exide Electronics' Certificate of Incorporation (filed
as Exhibit 99b to Exide Electronics' Registration Statement on Form
S-3, File No. 33-64818, and incorporated by reference herein).
3(c) Certificate of Designation of Series D Preferred Stock (filed as
Exhibit 4b to the Company's Current Report on Form 8-K, File No.
0-18106, for the event on July 10, 1992, and incorporated by reference
herein).
3(d) Certificate of Designation of Series E Preferred Stock (filed as
Exhibit 3c to the Company's Annual Report on Form 10-K, File No.
0-18106, for the fiscal year ended September 30, 1992, and
incorporated by reference herein).
3(e) The Registrant's By-laws, as amended (filed as Exhibit 3b to the
Company's Annual Report on Form 10-K, File No. 0-18106, for the fiscal
year ended September 30, 1990, and incorporated by reference herein).
3(f) Article 10 of Exide Electronics' Bylaws (filed as Exhibit 99c to Exide
Electronics' Registration Statement on Form S-3, File No. 33-64818,
and incorporated by reference herein).
4(a) Rights Agreement dated as of November 25, 1992 by and between Exide
Electronics Group, Inc. and First Union National Bank of North
Carolina (filed as Exhibit 1 to the Company's Current Report on Form
8-K, File No. 0-18106, for the event on November 25, 1992, and
incorporated by reference herein).
4(b) Stockholder Agreement between Exide Electronics and Duquesne
Enterprises, Inc., dated August 25, 1994, including amendments by a
letter agreement dated December 14, 1994 and a letter agreement dated
January 4, 1995 (filed as Exhibit 2.4 to Exide Electronics'
Registration Statement on Form S-4, File No. 33-88324, and
incorporated by reference herein).
4(c) Stockholder Agreement between Exide Electronics and Shenkman Capital
Management, Inc., dated August 25, 1994, including an Amendment
Agreement dated December 14, 1994 and an Amendment Agreement dated
January 4, 1995 (filed as Exhibit 2.5 to Exide Electronics'
Registration Statement on Form S-4, File No. 33-88324, and
incorporated by reference herein).
4(d) Registration Rights Agreement between Exide Electronics Group, Inc.
and Gilbert Stuart Goodchild, dated September 29, 1994 (filed as
Exhibit 4.1 to Exide Electronics' Registration Statement on Form S-3,
File No. 33-63969, and incorporated by reference herein).
4(e) Registration Rights Agreement between Exide Electronics Group, Inc.
and Carol Elizabeth Amans, dated September 29, 1994 (filed as Exhibit
4.2 to Exide Electronics' Registration Statement on Form S-3, File No.
33-63969, and incorporated by reference herein).
4(f) Registration Rights Agreement between Exide Electronics Group, Inc.
and Tony Peter Stuart Goodchild, dated September 29, 1994 (filed as
Exhibit 4.3 to Exide Electronics' Registration Statement on Form S-3,
File No. 33-63969, and incorporated by reference herein).
4(g) Registration Rights Agreement by and among Exide Electronics, Duquesne
and Shenkman Investment Partners L. P., dated as of January 5, 1995
(filed as Exhibit 4.7 to Exide Electronics' Registration Statement on
Form S-3, File No. 33-88466, and incorporated by reference herein).
4(h) Note Agreement by and among Massachusetts Mutual Life Insurance
Company, MassMutual Corporate Investors, MassMutual Participation
Investors, and Exide Electronics Group, Inc., dated September 2, 1992,
relating to the 8.375% Guaranteed Convertible Subordinated Notes due
June 30, 2000 (filed as Exhibit 4m to the Company's Annual Report on
Form 10-K, File No. 0-18106, for the fiscal year ended September 30,
1992, and incorporated by reference herein).
10(a)Lease Agreement, dated August 15, 1994 between E.L.E. Properties and
Exide Electronics Corporation relating to Registrant's manufacturing
facility in Raleigh, North Carolina (filed as Exhibit 10a to the
Company's Annual Report on Form 10-K, File No. 0-18106, for the fiscal
year ended September 30, 1994, and incorporated by reference herein).
10(b)Lease Agreement, dated June 20, 1985, between Corporate Property
Associates 5 and Exide Electronics Corporation and First Amendment
thereto, relating to Registrant's engineering facility in Raleigh,
North Carolina (filed as Exhibit 10c to Registration Statement No.
33-31872 on Form S-1 and incorporated by reference herein).
10(c)Lease Agreement, dated May 12, 1994, between Forum Office Partners
Three and Exide Electronics Group, Inc., relating to Registrant's
corporate headquarters (filed as Exhibit 10 to the Company's Quarterly
Report on Form 10-Q, File No. 0-18106, for the quarter ended March 31,
1994, and incorporated by reference herein).
10(d)Contract, dated May 6, 1988, between the Directorate of Contracting
and Manufacturing, Sacramento Air Logistics Center and Exide
Electronics Corporation, and Amendment/Modification Nos. P00001
through P00008 (filed as Exhibit 10c to Registration Statement No.
33-31872 on Form S-1 and incorporated by reference herein).
10(e)Amendment/Modification Nos. P00009 through P00012, between the
Directorate of Contracting and Manufacturing, Sacramento Air Logistics
Center and Exide Electronics Corporation (filed as Exhibits 10g-j to
the Company's Annual Report on Form 10-K, File No. 0-18106, for the
fiscal year ended September 30, 1990, and incorporated by reference
herein).
10(f)Amendment/Modification Nos. P000013 through P000023 between the
Directorate of Contracting and Manufacturing, Sacramento Air Logistics
Center and Exide Electronics Corporation (filed as Exhibit 10h to the
Company's Annual Report on Form 10-K, File No. 0-18106, for the fiscal
year ended September 30, 1992, and incorporated by reference herein).
10(g)Amendment/Modification Nos. P000024 through P000028 between the
Directorate of Contracting and Manufacturing, Sacramento Air Logistics
Center and Exide Electronics Corporation (filed as Exhibit 10g to the
Company's Annual Report on Form 10-K, File No. 0-18106, for the fiscal
year ended September 30, 1993, and incorporated by reference herein).
10(h)Amendment/Modification No. P000029 between the Directorate of
Contracting and Manufacturing, Sacramento Air Logistics Center and
Exide Electronics Corporation.
10(i)Contract dated June 20, 1991 between the United States Navy and Exide
Electronics Corporation, and Modifications Nos. P00001 through P00003
(filed as Exhibit 10i to the Company's Annual Report on Form 10-K,
File No. 0-18106, for the fiscal year ended September 30, 1992, and
incorporated by reference herein).
10(j)Modifications Nos. P00004 through P00005 to the contract dated June
20, 1991 between the United States Navy and Exide Electronics
Corporation (filed as Exhibit 10a to the Company's Quarterly Report on
Form 10-Q, File No. 0-18106, for the quarter ended June 30, 1994, and
incorporated by reference herein).
10(k)Modification No. P00006 to the contract dated June 20, 1991 between
the United States Navy and Exide Electronics Corporation (filed as
Exhibit 10k to the Company's Annual Report on Form 10-K, File No.
0-18106, for the fiscal year ended September 30, 1994, and
incorporated by reference herein).
10(l)Contract dated April 13, 1992 between the United States Navy and Exide
Electronics Corporation, and Amendments Nos. 0001 through 0006 and
Modification No. P00001 (filed as Exhibit 10j to the Company's Annual
Report on Form 10-K, File No. 0-18106, for the fiscal year ended
September 30, 1992, and incorporated by reference herein).
10(m)Modifications Nos. P00002, P00003, P00006, and P00007 to the contract
dated April 13, 1992 between the United States Navy and Exide
Electronics Corporation (filed as Exhibit 10m to the Company's Annual
Report on Form 10-K, File No. 0-18106, for the fiscal year ended
September 30, 1994, and incorporated by reference herein).
10(n)Modifications Nos. P00004 through P00005 to the contract dated April
13, 1992 between the United States Navy and Exide Electronics
Corporation (filed as Exhibit 10b to the Company's Quarterly Report on
Form 10-Q, File No. 0-18106, for the quarter ended June 30, 1994, and
incorporated by reference herein).
10(o)Loan Agreement among Exide Electronics Corporation, Exide Electronics
International Corp., Exide Electronics Acquisition, Inc., First Union
National Bank of North Carolina and BA Securities, Inc. as co-agents,
and certain other lenders, dated September 30, 1994 (filed as Exhibit
10o to the Company's Annual Report on Form 10-K, File No. 0-18106, for
the fiscal year ended September 30, 1994, and incorporated by
reference herein).
10(p)Agreement, dated as of July 1, 1982, between Exide Corporation and
Exide Electronics Corporation relating to the use of the name Exide
(filed as Exhibit 10f to Registration Statement No. 33-31872 on Form
S-1 and incorporated by reference herein).
10(q)Exide Electronics Group, Inc. 1989 Stock Option Plan (filed as Exhibit
10g to Registration Statement No. 33-31872 on Form S-1 and
incorporated by reference herein).
10(r)Employment Agreement, dated February 3, 1995, with Warren J. Johnson
(filed as Exhibit 10 to to the Company's Quarterly Report on Form
10-Q, File No. 0-18106, for the quarter ended December 31, 1994, and
incorporated by reference herein).
10(s)Employment Agreement, dated September 30, 1989, with James A. Risher
(filed as Exhibit 10o to the Company's Annual Report on Form 10-K,
File No. 0-18106, for the fiscal year ended September 30, 1990, and
incorporated by reference herein).
10(t)Employment Agreement, dated March 15, 1990, with William J. Raddi
(filed as Exhibit 10p to the Company's Annual Report on Form 10-K,
File No. 0-18106, for the fiscal year ended September 30, 1990, and
incorporated by reference herein).
10(u)Severance Compensation Plan After Change of Control (filed as Exhibit
10o to Amendment No. 1 of Registration Statement No. 33-31872 on Form
S-1 and incorporated by reference herein).
10(v) Revised form of Stock Purchase Agreement for fiscal 1989 Common Stock
sales to the Registrant's employees (filed as Exhibit 10l to Amendment
No. 3 of Registration Statement No. 33-31872 on Form S-1 and
incorporated by reference herein).
10(w) 1989 Stock Option Plan, as amended on August 11, 1992 (filed as
Exhibit 10t to the Company's Annual Report on Form 10-K, File No.
0-18106, for the fiscal year ended September 30, 1992, and
incorporated by reference herein).
10(x) Non-employee Directors' Stock Option Plan, as amended on August 11,
1992 (filed as Exhibit 10u to the Company's Annual Report on Form
10-K, File No. 0-18106, for the fiscal year ended September 30, 1992,
and incorporated by reference herein).
10(y) Contract, dated June 5, 1995, between the United States Air Force
Sacramento Air Logistics Command and Exide Electronics Corporation
(filed as Exhibit P to the Company's Quarterly Report on Form 10-Q,
File No. 0-18106, for the quarter ended June 30, 1995, and
incorporated by reference herein).
10(z) Exide Electronics Group, Inc. 1995 Directors Stock Option Plan (filed
as Appendix B to the Company's Proxy Statement dated January 30, 1995,
issued in connection with the Company's Annual Meeting of Stockholders
held on February 28, 1995, and incorporated by reference herein).
10(aa) Exide Electronics Group, Inc. 1995 Employee Stock Option and
Restricted Stock Plan (filed as Appendix A to the Company's Proxy
Statement dated January 30, 1995, issued in connection with the
Company's Annual Meeting of Stockholders held on February 28, 1995,
and incorporated by reference herein).
10(bb) Exide Electronics Corporation 401 (k) Retirement Benefit Plan
Summary Plan Description (filed as Exhibit 4c to Registration
Statement No. 33-64121 on Form S-8 and incorporated by reference
herein).
10(cc)Commercial Lease Agreement dated June 23, 1987 between Northgate V
Business Park Associates and the registrant, as amended November 11,
1987, and as supplemented by Supplemental Lease Agreement dated
December 9, 1992 (filed as Exhibit 10.1 to International Power
Machines Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, and incorporated by reference herein).
10(dd)Agreement dated February 20, 1987 between William L. Zang and the
registrant (filed as Exhibit 10.10 to International Power Machines
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, and incorporated by reference herein).
10(ee)Company Employee Capital Accumulation and Savings Plan (filed as
Exhibit 10.12 to International Power Machines Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992, and
incorporated by reference herein).
10(ff)Lease Agreement, dated June 8, 1995, between Banks D. Kerr and Exide
Electronics Corporation relating to the registrant's offices in
Raleigh, North Carolina.
10(gg)Summary Description of 1995 Management Incentive Plan.
11 Statement of Computation of Earnings Per Share.
21 Subsidiaries of Exide Electronics Group, Inc.
23 Consent of Arthur Andersen LLP.
(b) Reports on Form 8-K:
On October 20, 1995, the Company filed a report on Form 8-K under Item 5, Other
Events, related to the acquisition of International Power Machines Corporation,
which was first reported on February 8, 1995. The IPM combination was accounted
for as a pooling-of-interests. Accordingly, the Company filed management's
discussion and analysis, audited consolidated financial statements, and the
related notes as of and for the three year period ended September 30, 1994
restated to include the results of IPM for all periods presented.
On October 20, 1995, an additional Item 5 was reported under the same Form 8-K
to report that the holders of the Company's 8.375% Guaranteed Convertible
Subordinated Notes due June 30, 2000, in aggregate principal amount of
$15,000,000 ("the Notes"), gave notice of their intent to convert the Notes into
1,146,789 shares of the Company's common stock on October 23, 1995.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Exide Electronics Group, Inc.
We have audited, in accordance with generally accepted auditing standards,
the financial statements included in Exide Electronics Group, Inc.'s Form 10-K
and have issued our report thereon dated October 25, 1995 (except with respect
to the matters discussed in Note 16, as to which the date is December 13, 1995).
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The information contained on Schedule II is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ARTHUR ANDERSEN LLP
Raleigh, North Carolina,
October 25, 1995.
Schedule II - Valuation and Qualifying Accounts
Allowance for Doubtful Accounts and Customer Returns and Adjustments
(in thousands)
- --------------------------------------------------------------------------------
Balance Balance
Fiscal Beginning End
Year of Period Additions Deductions of Period
- --------------------------------------------------------------------------------
1993 $1,745 $1,714 $ (599) $2,860
1994 $2,860 $1,475 $(2,187) $2,148
1995 $2,148 $1,495 $(1,126) $2,517
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
EXIDE ELECTRONICS GROUP, INC.
BY: /s/ JAMES A. RISHER
James A. Risher
President and Chief
Executive Officer
Dated: December 29, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ JAMES A. RISHER President, Chief Executive December 29, 1995
James A. Risher Officer, and Director
(principal executive officer)
/s/ MARTY R. KITTRELL Vice President, Chief December 29, 1995
Marty R. Kittrell Financial Officer, and
Treasurer(principal
financial and accounting officer)
/s/ CONRAD A. PLIMPTON Chairman of the Board December 29, 1995
Conrad A. Plimpton and Director
/s/ LANCE L. KNOX Vice-Chairman of the Board December 29, 1995
Lance L. Knox and Director
/s/ WAYNE L. CLEVENGER Director December 29, 1995
Wayne L. Clevenger
/s/ RON E. DOGGETT Director December 29, 1995
Ron E. Doggett
/s/ JAMES E. FOWLER Director December 29, 1995
James E. Fowler
/s/ DAVID J. MCLAUGHLIN Director December 29, 1995
David J. McLaughlin
/s/ CHIAKI TANAKA Director December 29, 1995
Chiaki Tanaka
Exide Electronics Group, Inc.
Index to Exhibits to 1995 Annual Report on Form 10-K
Exhibit
Number Exhibit
10(h) Amendment/Modification No. P000029 between the
Directorate of Contracting and Manufacturing, Sacramento
Air Logistics Center and Exide Electronics Corporation.
10(ff) Lease Agreement, dated June 8, 1995, between Banks D. Kerr and Exide
Electronics Corporation relating to the registrant's offices in
Raleigh, North Carolina.
10(gg) Summary Description of 1995 Management Incentive Plan.
11 Statement of Computation of Earnings Per Share.
21 Subsidiaries of Exide Electronics Group, Inc.
23 Consent of Arthur Andersen LLP.