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, 1996 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 30, 1996 was approximately $108,013,801.
As of December 30, 1996, there were 9,983,837 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Document of the Registrant Form 10-K Reference Locations
1996 Proxy Statement - to be filed within PART III
120 days of the end of the fiscal year ended
September 30, 1996
EXIDE ELECTRONICS GROUP, INC.
1996 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, telecommunications hardware, servers/intranets,
hubs/routers, 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, cable TV, 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.
A large portion 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.
The Company has expanded its product offerings through acquisitions and
internal development to include the full spectrum of off-line, line interactive
and on-line UPS products. Off-line UPS products are offered for power ranges up
to 1.25 kilovolt amperes (1) to satisfy the power protection requirements of
less critical applications. Off-line products, 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. Line interactive products are a hybrid
UPS technology that typically falls between off-line and on-line UPS products in
terms of price and the degree of power protection provided.
The Company's products and services and its marketing, research and
development, and manufacturing functions are organized into several business
units: the Small Systems Group ("SSG") which the Company defines as all
single-phase products; the Large Systems Group ("LSG") for all three-phase
products and the Worldwide Services Group ("WSG") for all the service needs of
the Company's customers. In the fourth quarter of fiscal 1995, the Company
announced the formation of the Emerging Technologies Group ("ETG") to more
aggressively position itself in emerging high-growth technology markets.
Currently, ETG is focusing on the converging interactive communications markets,
such as cable television. Certain financial information relating to the
Company's 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 acquired Deltec Power Systems, Inc. ("Deltec"), one of the
world's largest manufacturers and marketers of off-line and line-interactive
small UPS, from Fiskars Oy Ab ("Fiskars") on March 13, 1996. The acquisition of
Deltec completed the Company's line of UPS solutions to encompass all leading
UPS topologies, and expanded its distribution channels and service organization.
This acquisition is discussed more fully in Management's Discussion and Analysis
of Results of Operations and Financial Condition included under Part II, Item 7
of this Form 10-K, and in Note 2 of notes to consolidated financial statements
included under Part II, Item 8 of this Form 10-K.
The Company manufactures substantially all of its products at its
manufacturing facilities in Raleigh and Wilmington, North Carolina; San Diego,
California; Helsinki, Finland and Tijuana, Mexico. The Company's large systems
are generally sold through a direct sales force and manufacturers'
representatives, while the Company's small products are generally sold through
Value-Added Resellers ("VARs"), Original Equipment Manufacturers ("OEMs"),
distributors, and direct sales forces in select foreign countries.
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 Corporation (both
Delaware corporations), and Deltec Power Systems, Inc. (a Wisconsin
corporation). The Company has various other 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.
- ------------
(1) A kilovolt ampere (kVA) is a commonly-used unit of measure for electricity
supplied using alternating current.
Business Strategy
The Company's strategy, which it calls VISION 2000, is to provide power
protection solutions for customers worldwide in order to create enterprise value
and achieve the common goals of superior financial performance, customer
satisfaction, associate satisfaction, and quality. The Company provides 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. For further discussion of the
Company's strategy, see the Company's Annual Report to shareholders for the year
ended September 30, 1996.
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 processing. This
trend has resulted in the proliferation of client/server platforms, networks,
internetworking and web technologies, leading to rapid growth for smaller UPS
and more modest growth for larger UPS. 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 that have led to declines in
manufacturing costs may result in 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 200VA 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: Applications:
- ---------------------------------------------------------------------------------------------------------------------
Small Systems:
On-line (600VA to 15kVA) UPS for high performance power Power Protection and Power Management For
protection and management: Network/Internetworking Systems:
- - Powerware Prestige/Plus - Servers/Intranets
- - BalancedPower Advantage, Plus and II - Hubs/Routers
- - PowerWorks RS and ET, 90S and 8000A/9000A Series - PBX Systems
Line-interactive UPS (450VA to 3000VA) for broadbased Standalone Systems:
network applications: - PCs
- - NetUPS - Workstations
- - PowerRite Pro and PowerRite Max Vertical Market Applications:
- - Rackmount and stackable monitoring UPSs via Internet - Medical
Standby UPS (200VA to 1250VA)for basic power protection: - Financial
- - OneUPS - Point-of-Sale Computer Rooms
- - PowerRite Plus
Power Management Software:
- - OnliNet Lite, Centro and Vista for advanced monitoring and
control of enterprise-wide UPS
- - LanSafe III and FailSafe III for monitoring and graceful
system shutdown.
- - PowerWeb software for monitoring UPS via Internet
- ---------------------------------------------------------------------------------------------------------------------
Emerging Technologies:
Telecom DC Rectifiers and Ferro UPS for rugged communications - Cable TV network systems
applications: - Broadband Hybrid Fiber/Coax nodes
- - LecTro UPS - Telecom central office and cable TV head ends
- - LorTec Inverters - Wireless/PCS substations and microcells
- - Powerware DC Rectifiers - Switching centers, hubs, remote switches
- ---------------------------------------------------------------------------------------------------------------------
Large Systems:
On-line UPS (18kVA-1000kVA):
- - Powerware Plus/Systems single and multi-module Facility-Level or Centralized Information Systems:
- - Paralleling technology - Data Centers
- - Series 3000 single- and multi-module - Centralized client-servers: clustered servers, mainframes,
- - Hot-Tie Systems minicomputers
- - IPM BalancedPower Plus II and BalancedPower III Vertical Systems:
- - Deltec/FPS 8000A/9000A Series - Medical diagnostic equipment
- - OnliNet Software Family - Radar equipment
LanSafe III and FailSafe III DataTrax Software - Defense systems
Family-comprehensive enterprise-wide - Process control systems
monitoring systems: - Telecommunications
- - FORESEER - Internet Services
- - PowerVision - Semiconductor Manufacturing
- ---------------------------------------------------------------------------------------------------------------------
Worldwide Services:
- - Remote Monitoring Services - Services for UPS that support electronic/computer equipment
- - DataTrax Installation Services with high systems availability and reliability requirements
- - Gold Plan service for small UPS - Enterprises requiring power analysis and consulting
- - Technical Training - New sites or installations requiring seamless start-up and
- - Battery maintenance/replacement switch-over
Preventive Maintenance and Emergency Response Services:
- - PowerCare Services
- - Technology upgrades
- ---------------------------------------------------------------------------------------------------------------------
Small Systems Group
Small systems offer comprehensive power conditioning and power backup
capabilities for client/server platforms, networks, internetworking and web
technologies, 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 44% of its total revenues in fiscal 1996.
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 UPS products are currently offered, which
differ principally in the amount of power that can be supplied, ranging from
0.2 kVA to 15 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
cost. 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
family continued as SSG's best selling product line in fiscal 1995 and fiscal
1996. The Prestige is currently offered in eleven models ranging from 650VA to
6kVA.
The Company's SSG product line was expanded in early 1996 to include its
first line interactive product offerings, the Deltec PowerRite Pro and NetUPS.
Line interactive products fulfill the power protection and power management
needs of broadbased network applications. In response to increased demand for
low-end products, the Company offers five models of its One-UPS off-line UPS
products for use at lower power ranges (up to 1.25kVA). Off-line products
generally offer less power protection than on-line products, but at a lower
cost, so they are generally used for less critical applications.
The combination of small system UPS products and network monitoring
software has become a significant feature of the Company's SSG product line. The
Company's proprietary power management software, OnliNet(TM), Centro(TM),
Vista(TM), LanSafe(TM), FailSafe(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.
Large Systems Group
The Company has produced large UPS products for over thirty years. The
Company presently offers a number of models of its large UPS products,
supporting power capacities from 18kVA to 1,000kVA 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 30% of its total
revenues in fiscal 1996.
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. In 1995 and 1996, the Company expanded the Powerware
Plus product line to include the 40kVA to 160kVA power range and added the
ability to uniquely combine the systems in parallel for extremely high
reliability applications. The Powerware Plus products represent a migration of
elements of the Company's advanced switching technology to higher power ranges.
The 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 various 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 and 1994,
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."
Emerging Technologies Group
In August 1995, the Company formed ETG to aggressively pursue opportunities
in emerging markets for power protection and management systems, primarily the
cable television and telecommunications industries. The acquisition of Lectro in
fiscal 1995 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. In 1996, ETG introduced a new centralized power
node for advanced cable network systems, the Powernode product line.
Worldwide Services Group
WSG offers a wide range of service programs, including preventive,
corrective, and contract maintenance services offered under the PowerCare(R)
name, as well as emergency services, training, and spare parts. Most of the
Company's service revenues relate to large system UPS products, 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 has 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 outsource services and support.
Recent acquisitions have contributed to growth in the Company's service
business. The acquisition of Deltec expanded the Company's service organization
significantly, especially in Europe. The Company has also experienced
international service growth as a result of the Company's acquisitions of
International Power Machines, Inc. ("IPM") in fiscal 1995, and one company in
the United Kingdom and two companies in Canada in fiscal 1994.
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.
New products
The Company introduced several new products and expanded certain product
lines during fiscal 1996. New product introductions included the NetUPS and
PowerRite Max (to service server and Intranet applications), BalancedPower III
product lines, LecTro Powernode (for centralized powering of CATV applications),
24/48 VDC telecom rectifier (for emerging wireless, wireline, and PCS markets),
and FORESEER (a WINDOWS 95/NT client-server application for enterprise-wide
monitoring). The Company introduced new Prestige models, expanding its most
popular product family, and a new version of the OneUPS product line. WSG
introduced the BTM battery monitoring system that enables customers to better
anticipate battery failures. 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 and a new
generation of off-line products. 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 is
relatively mature, and the products have relatively long life cycles. The
Company therefore expects to direct its improvement efforts in LSG at reducing
cost, improving quality, reducing total cycle time, and incorporating new
features, rather than redesigning entire product lines. The Company also intends
to introduce new combinations of large UPS products, ancillary equipment, and
services. The Company's Emerging Technologies Group is evolving the
industry-leading Lectro ZTT family of products and other telecom products to
meet the needs of the converging telecom and CATV markets. There can be no
assurance that the Company will be able to develop these new products or that
these products will achieve market acceptance.
Sales and Distribution
Organizational Approach
At the present time, the Company maintains separate distribution channels
for its LecTro and Deltec product lines. The Company's principal sales efforts
for its other products 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.
The Americas Group
Commercial Sales
The Company conducts its commercial sales using manufacturers'
representatives, Value-Added Distributors ("VADs"), and a direct sales effort
handled by regional areas. 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 80
manufacturers' representative firms, which offer sales, technical service, and
customer support to commercial accounts throughout the U.S. These manufacturers'
representatives represent a significant share of the Company's sales for LSG
systems, and also market the Company's SSG product line. 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
regional direct sales organization is responsible for coordinating direct sales
efforts for all of its products to select major customers nationwide, who may
purchase products for their own use or for resale.
Partner Marketing
The Company's sales effort in Partner Marketing is conducted through OEMs,
resellers, distributors, and VARs. The Company has OEM and reseller
relationships with numerous companies, including IBM, Lucent Technology, Compaq,
Digital Equipment Company, Data General and Unisys, some of which sell the
Company's UPS products on a private-label basis. 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.
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 650VA 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, OEMs and direct sales for distribution.
The Canadian subsidiary also has a dedicated service organization.
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. During fiscal
1996, the Company formed a 51% owned subsidiary to sell and service the
Company's products in Brazil. The Company also maintains a wholly-owned sales
and service subsidiary in Mexico.
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. 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 Finland, Sweden, Norway, Denmark, 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 regional headquarters and sales office
in London to support European operations.
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 has a subsidiary in Hong Kong and maintains sales offices in Singapore,
Beijing, Shanghai and Guangzhou to help support those sales. In fiscal 1996, the
Company formed a 51% owned subsidiary in India to better serve this market.
Deltec Distribution Channels
The Company continues to maintain Deltec's distribution channels to market
its Deltec and Fiskars Power Systems ("FPS") product lines. Deltec's product
marketing is divided geographically according to brand name and sales channel
strength. FPS trademarks are well known in Europe while Deltec Electronics, the
Company's San Diego based subsidiary, is strong in North America, South America
and the Far East. Deltec Electronics markets its products in North America
through a combination of distributors and VARs; regional and specialty
distributors; OEMs and resellers; and direct sales. FPS maintains direct sales
offices in several European countries in addition to employing distributors,
VARs, OEMs and resellers and retail computer supermarkets for marketing its
products. In countries of the former Soviet Bloc where FPS does not have sales
offices, it operates through "franchised" companies. FPS provides training and
maintains close contacts with these franchises and believes that this
arrangement gives them a unique marketing position in the Eastern European
market.
ETG Distribution Channels
The Company markets its LecTro and other ETG products using a direct sales
force domestically and the limited use of distributors worldwide. The Company
does not plan to use distributors domestically in fiscal 1997 and plans to
expand its direct sales force to include international territories.
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
37%, 31%, and 25% of the Company's total revenues in fiscal years 1996, 1995,
and 1994, respectively, and accounted for approximately 42%, 43%, and 37% 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 1996.
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 and cost reduction, 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,
internetworking 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 1996, 1995 and 1994, the Company spent approximately $12.6
million, $9.9 million, and $10.1 million, respectively, on research and
development. The Company's research and development expenditures as a percentage
of revenue were 2.7%., 2.5%, and 2.8%, respectively, for fiscal 1996, 1995 and
1994. 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 Deltec, IPM and Lectro.
Manufacturing
The Company manufactures substantially all of its UPS products at several
locations: Raleigh and Wilmington, North Carolina; San Diego, California;
Tijuana, Mexico; and Helsinki, Finland. In addition, the Company's international
distributors and affiliates can customize products to the extent required for
various international markets.
The Company's SSG systems are produced at its Wilmington, San Diego,
Tijuana and Helsinki facilities. 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 now internally
produces several components in its Tijuana manufacturing facility (obtained in
the acquisition of Deltec) that were previously outsourced.
The Company's LSG products are manufactured in Raleigh and Helsinki.
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 only temporarily disrupt production until
alternative suppliers 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.
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 will continue 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
and services markets include a business unit of Emerson Electric Co. and the
recently formed MGE UPS Systems (the result of a management buyout of the UPS
business from Groupe Schneider, S.A.). Emerson is much larger than the Company
and has 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 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 13%, 27% and
33% of total revenues for fiscal years 1996, 1995 and 1994, 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 Center ("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 $360 million in orders
under this program, which relate to approximately 25 FAA locations. The period
during which new 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 September 1996, the Company was awarded a follow-on contract with the
Air Force Air Logistics Center (the "ALC II contract"). The ALC II contract was
awarded under a new bid process undertaken by the Air Force following the
protest of an award of a contract by the Air Force to the Company in June 1995.
The Air Force has since terminated for convenience the protested contract
awarded in June 1995. The authorized limit available to the Air Force for the
ALC II contract is $375 million for the first three years and $125 million for
each of two option years for a total of $625 million, subject to available
funding and requirements. Actual revenues under the ALC II contract will
ultimately depend on actual requirements and purchases, if any, pursuant to the
contract by the Air Force and other agencies which utilize the contract.
In October 1996, the Company was notified by the Air Force that a
competitor had filed a protest with the General Accounting Office ("GAO")
contesting the award of the ALC II contract to Exide Electronics. As required by
the rules governing government contract protests, work under the ALC II contract
was automatically suspended as of the protest date. In January 1997, the
Company was notified by the Air Force that the GAO had advised the Air Force
that all claims in the protest had been denied. This permits the Company to
immediately begin performance on the contract. The Company has not yet received
the GAO's formal written decision, and it is unknown whether further appeals
will be made by the competitor who filed the protest. There have been no
material sales to date under the ALC II contract. There can be no assurance that
the ALC II contract will remain in effect for any definite period or that the
Air Force will place any orders with the Company against such 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 contracts, time-and-materials 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, 1996.
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
frequently are partially funded at the outset of multi-year programs; in such
situations, additional funds 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),
NetUPS(R), ConectUPS(R), PowerPass(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) , NET-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, 1996, the Company employed approximately 2,500
permanent associates. Approximately 1,000 are employed in manufacturing while
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.
The metal workers, office and technical staff at the Company's Helsinki,
Finland plant are represented by a collective bargaining agreement. None of the
Company's other 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
Emerging Technologies Group and
Worldwide Logistics Center 185,000 Manufacturing; distribution; administrative offices
LSG Manufacturing Facility 170,000 Manufacturing
Advanced Technology Center 28,000 Research and development
Training and Support Center 22,000 Technical training and support
Wilmington, NC 168,000 Manufacturing
San Diego, CA 89,000 Deltec sales; marketing; manufacturing; research and
development; administrative offices
Helsinki, Finland 78,000 Manufacturing; research and development; distribution;
sales; customer support; administrative offices
Tijuana, Mexico 97,000 Manufacturing
Toronto, Canada 40,000 Distribution; sales; customer support; administrative offices
London, England 15,000 Distribution; European sales and service; customer support;
administrative offices
------------
Total 985,000
============
All of the Company's principal facilities are occupied under long-term leases,
except for the Wilmington facility, 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
On August 21, 1995, a case entitled National Broadcasting Company, Inc. and
CNBC, Inc. vs. International Power Machines/Lortec Systems Inc. et al, was filed
against IPM in the Supreme Court of New York, New York County. The plaintiffs
allege that IPM negligently manufactured and installed a UPS product that caused
them property and compensatory damages when the equipment malfunctioned during
the installation of the product by third-party contractors. The plaintiffs have
filed seven causes of action, each of which seeks damages in the amount of $1.1
million. Three of those causes of action also seek $3 million in punitive
damages. Claims of this nature are generally covered by the Company's insurance
and its insurer has accepted general defense of the matter. The insurer has
notified the Company that while claims based on IPM's negligent manufacture or
design are covered by the insurance policy, damages, if any, caused by IPM's
intentional or careless decision to install a known defective and dangerous
product would be subject to certain exclusions under the policy. While discovery
is at an early stage, the Company believes at this time, based on the advice of
of its defense counsel, that no evidence has yet been presented that supports
any allegation of intentional or careless conduct. IPM also believes that it has
meritorious defenses and counter-claims against the third-party co-defendants,
who the Company alleges defectively installed the UPS product. The Company
believes that the final outcome of this matter will not have a material adverse
effect on the business or the financial statements of the Company and its
subsidiaries taken as a whole.
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 March 1994, a jury 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 could not 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
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 the suits which were taking valuable corporate time and attention and
would have involved significant legal costs to pursue further.
The Company is involved in various other 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, 1996.
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:
- -------------------- ------------------------- --------------------------
1996 1995
- -------------------- ------------------------- --------------------------
- -------------------- ------------ ------------ ------------- ------------
High Low High Low
- -------------------- ------------ ------------ ------------- ------------
First Quarter $20.75 $14.00 $21.50 $14.63
Second Quarter 15.25 11.75 20.00 15.75
Third Quarter 17.13 9.50 23.00 15.50
Fourth Quarter 12.63 8.75 25.25 18.75
- -------------------- ------------ ------------ ------------- ------------
As of December 20, 1996 there were approximately 4,800 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)
- --------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
Results of Operations
Products $339,723 $271,482 $259,403 $220,143 $186,579
Services 120,213 119,496 104,580 97,799 60,524
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues $459,936 $390,978 $363,983 $317,942 $247,103
- --------------------------------------------------------------------------------------------------------------------------------
Gross profit $133,905 $103,865 $ 98,695 $ 85,495 $ 68,695
- --------------------------------------------------------------------------------------------------------------------------------
Income from operations $ 7,574 (1) $ 16,270 (2) $ 18,462 (3) $ 20,397 $ 12,844
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and the
cumulative effect of accounting change $(14,705)(1) $ 12,077 (2) $ 13,459 (3) $ 16,046 $ 9,159
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before the cumulative effect of
accounting change $(10,314)(1) $ 7,385 (2) $ 9,175 (3) $ 9,832 $ 6,056
Cumulative effect of accounting change - - - 1,000 -
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $(10,314)(1) $ 7,385 (2) $ 9,175 (3) $ 10,832 $ 6,056
- --------------------------------------------------------------------------------------------------------------------------------
Preferred stock dividends 751 592 790 1,071 484
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common shareholders $(11,065)(1) $ 6,793 (2) $ 8,385 (3) $ 9,761 $ 5,572
- --------------------------------------------------------------------------------------------------------------------------------
Per Share Amounts
Primary
Income (loss) before the cumulative effect of
accounting change $ (1.15)(1) $ 0.84 (2) $ 1.07 (3) $ 1.21 $ 0.79
Cumulative effect of accounting change - - - 0.13 -
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (1.15)(1) $ 0.84 (2) $ 1.07 (3) $ 1.34 $ 0.79
- --------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common and equivalent
shares outstanding 9,592 8,054 7,814 7,270 7,039
- --------------------------------------------------------------------------------------------------------------------------------
Fully diluted
Income (loss) before the cumulative effect of
accounting change $ (1.15)(1) $ 0.84 (2) $ 1.03 (3) $ 1.10 $ 0.79
Cumulative effect of accounting change - - - 0.11 -
-------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (1.15)(1) $ 0.84 (2) $ 1.03 (3) $ 1.21 $ 0.79
- --------------------------------------------------------------------------------------------------------------------------------
Weighted average number of common and equivalent
shares outstanding 9,592 9,673 9,393 9,316 7,651
- --------------------------------------------------------------------------------------------------------------------------------
Financial Condition
Working capital $115,867 $105,543 $ 93,337 $ 87,029 $ 61,714
Total assets 489,474 256,451 224,676 203,233 151,178
Long-term debt 232,267 80,258 58,400 56,805 40,299
Redeemable preferred stock 18,312 - 10,000 10,000 10,100
Common shareholders' equity 96,339 83,767 67,462 58,017 44,501
- --------------------------------------------------------------------------------------------------------------------------------
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 include one-time acquisition,
restructuring, purchase accounting and interest charges charges of $24,565
($15,502 after tax). See the MD&A for additional information.
(2) Results of operations and per share amounts include one-time merger,
acquisition, and litigation charges of $7,700 ($5,597 after tax). See the MD&A
for additional information.
<FN>
(3) Results of operations and per share amounts 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
Overview
Exide Electronics (the "Company") provides Strategic Power Management
solutions to a broad range of businesses and institutions worldwide. The
Company's products are used for networking, financial, medical, industrial,
telecommunications, military, cable television, and aerospace applications --
wherever continuous power is essential to daily operations. The Company has
designed and sold large customized uninterruptible power systems (UPS) for data
centers since the early 1960s. During the 1980s, the Company broadened its
product offerings by introducing Powerware (R) Systems, standardized UPS to
support mainframe and large minicomputer installations. Personal computers
proliferated in the late 1980s, and the Company responded with product families
that support personal computers, workstations and local area networks (LANs),
including the Powerware Prestige product line that was introduced in 1993. The
Company has expanded its product offering through acquisitions and internal
development to include the full spectrum of off-line, line-interactive and
on-line UPS products, as well as a worldwide service organization.
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 and accompanying
notes.
The Company's products and services and its marketing, manufacturing, and
research and development functions are organized into several business units:
the Small Systems Group ("SSG"), which the Company defines as all single-phase
products; the Large Systems Group ("LSG") for all three-phase products; and the
Worldwide Services Group ("WSG") for all the service needs of the Company's
customers. In the fourth quarter of fiscal 1995, the Company announced the
formation of the Emerging Technologies Group ("ETG") to more aggressively
position itself in emerging high-growth technology markets. Currently, ETG is
focusing on the converging interactive communications markets, such as cable
television. ETG results have been included in SSG results for fiscal years 1996
and 1995.
Over the last three years, several factors have had a significant impact on
the Company's results of operations, including the acquisition of Deltec Power
Systems, Inc. ("Deltec") and International Power Machines ("IPM"); the
recognition of certain nonrecurring acquisition and restructuring charges during
fiscal 1996 and 1995; the growth in revenues of small UPS products; the overall
strong growth in international markets; the effect of Federal government product
and service revenues; and the settlement of certain litigation in fiscal 1995
and 1994. The impact of these and other factors are discussed below in more
detail.
On March 13, 1996, the Company completed its acquisition of Deltec, one of
the world's largest manufacturers and marketers of off-line and line-interactive
small UPS, from Fiskars Oy Ab ("Fiskars") and an affiliated company. The
purchase price of approximately $197.6 million (excluding transaction costs of
approximately $4.2 million) was comprised of $168.0 million in cash, 825,000
shares of the Company's common stock valued at $14 per share, and 1,000,000
shares of the Company's Series G redeemable convertible preferred stock valued
at $18 per share. In addition, under the terms of the acquisition agreement, the
Company paid $4.0 million to Fiskars in payment of certain interest carrying
costs associated with Fiskars' agreement to extend the time for closing the
acquisition. In connection with the acquisition, the Company established a
restructuring reserve to cover anticipated costs of consolidating sales and
service operations and eliminating certain duplicate product lines. This reserve
included $1.6 million for asset valuation allowances (primarily inventory and
fixed assets) and $1.3 million for other related charges. See "Liquidity and
Financial Condition" for a discussion of the financing of this transaction. The
financial results of Deltec are consolidated from March 13, 1996 to September
30, 1996. See Note 2 of notes to consolidated financial statements.
In connection with the acquisition of Deltec and subsequent restructuring
activities, the Company recorded approximately $14.6 million of nonrecurring
expenses in fiscal 1996. These costs included $4.7 million to write off
purchased in-process research and development costs, $1.0 million of expenses
reimbursed to Fiskars in connection with the acquisition, and $8.9 million for
reserves primarily related to the closing of the Company's Dallas, Texas
manufacturing facility and other activities required to integrate the operations
of Deltec and IPM into Exide Electronics. The reserves included $1.5 million in
termination benefits for approximately 275 employees, primarily consisting of
workers at the Dallas facility and manufacturing personnel at the Company's
facility in Wilmington, North Carolina. During fiscal 1996, approximately $0.5
million was paid and charged to the restructuring reserve. Also included in the
charge were $6.3 million for asset valuation allowances primarily related to
fixed assets, long-term intangible assets and inventory, and $1.1 million of
costs to shut down the facility in Dallas. The Dallas facility shutdown was
completed in October 1996.
As a result of the continuing trend in the computer industry towards
distributed processing and the proliferation of client/server platforms,
networks, internetworking and web technologies, the Company's product mix has
shifted to lower kVA(1) product lines and away from traditional large systems
products. Sales of SSG products have increased significantly during the past
three fiscal years, while commercial sales of the Company's large custom
products have generally declined or experienced only modest growth. This
direction reflects the general downsizing trend in the computer industry, which
has resulted in dynamic changes in the commercial mainframe and data center
market segments. Small UPS products are characterized generally by higher unit
sales volumes, lower average prices and higher unit margins than large custom
UPS products, and are sold through different distribution channels. The majority
of the Company's UPS products are sold to customers to protect 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 by reducing
manufacturing costs and purchased components, and aggressively introducing new
hardware and software products with lower costs and higher performance levels.
International sales accounted for approximately 37%, 31%, and 25% of the
Company's total revenues for fiscal 1996, 1995, and 1994, respectively, and
accounted for approximately 42%, 43%, and 37% of total commercial revenues for
those fiscal years, respectively. This reflects focused product development to
meet international voltage and frequency requirements; the expansion of
distribution networks which include subsidiaries in selected European countries,
Brazil, Hong Kong, and India; distributors in other international regions; and a
strategic relationship for distribution in Japan. The Company's international
operations were further expanded in fiscal 1996 with the acquisition of Deltec,
which has a strong presence in Europe through its subsidiary, Fiskars Power
Systems. Sales to Latin America remained flat in fiscal 1996 but decreased as a
percentage of total international sales to 22% in fiscal 1996 from 30% in fiscal
1995 due to increased sales to Europe and the Far East. Sales to Latin America
have been affected by unstable economic conditions in recent years. Continuing
unstable economic conditions could result in revenue and operating profit
fluctuations in this region.
_____________
1 A kilovolt ampere is a commonly-used unit of measure for electricity supplied
using alternating current.
Sales to the Federal government accounted for approximately 13%, 27%, and
33% of total revenues for fiscal years 1996, 1995, and 1994, respectively. The
decline in sales to the Federal government reflects the scheduled completion of
most product shipments and decreasing service revenues under the multi-year
Federal Aviation Administration ("FAA") program. The FAA program is scheduled
for completion in fiscal 1997, and sales to the Federal government are expected
to decline 40 to 50% or approximately $23 to $29 million in fiscal 1997. 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.
In September 1996, the Company was awarded a follow-on contract with the
Air Force Air Logistics Center (the "ALC II contract"). The ALC II contract was
awarded under a new bid process undertaken by the Air Force following the
protest of an award of a contract by the Air Force to the Company in June 1995.
The Air Force has since terminated for convenience the protested contract
awarded in June 1995. The authorized limit available to the Air Force for the
ALC II contract is $375 million for the first three years and $125 million for
each of two option years for a total of $625 million, subject to available
funding and requirements. Actual revenues under the ALC II contract will
ultimately depend on actual requirements and purchases, if any, pursuant to the
contract by the Air Force and other agencies which utilize the contract.
In October 1996, the Company was notified by the Air Force that a
competitor had filed a protest with the General Accounting Office ("GAO")
contesting the award of the ALC II contract to Exide Electronics. As required by
the rules governing government contract protests, work under the ALC II contract
had been automatically suspended. In January 1997, the Company was notified by
the Air Force that the GAO had advised the Air Force that all claims in the
protest had been denied. This permits the Company to immediately begin
performance on the contract. The Company has not yet received the GAO's formal
written decision, and it is unknown whether further appeals will be made by the
competitor who filed the protest. There have been no material sales to date
under the ALC II contract. There can be no assurance that the ALC II contract
will remain in effect for any definite period or that the Air Force will place
any orders with the Company against such contract.
The Company acquired IPM during the second quarter of fiscal 1995 in a
transaction accounted for as a pooling of interests. Accordingly, the amounts
presented in this annual report, including the consolidated financial statements
and notes thereto, pertaining to periods prior to the acquisition date have been
restated to reflect the merger with IPM for all periods presented.
Results of Operations
The following table presents, for the periods shown, revenues; gross
profit; selling, general and administrative expense; research and development
expense; acquisition, restructuring and litigation expense; income from
operations; and net income (loss), in millions of dollars, and certain income
statement captions as a percentage of related revenues or of total revenues.
--------------------------------------------
Fiscal Year Ended September 30,
--------------------------------------------
(in millions) 1996 1995 1994
--------------------------------------------
Revenues
Small Systems Products (1) $200.3 $ 123.3 $ 97.8
Large Systems Products (1) 139.4 148.2 161.6
--------------------------------------------
Total Products 339.7 271.5 259.4
Worldwide Services Group 120.2 119.5 104.6
--------------------------------------------
Total Revenues 459.9 391.0 364.0
--------------------------------------------
Gross Profit
Products 94.5 66.8 65.8
Services 39.4 37.1 32.9
--------------------------------------------
Total Gross Profit 133.9 103.9 98.7
--------------------------------------------
Selling, general and administrative expense 99.1 70.0 65.1
Research and development expense 12.6 9.9 10.1
Acquisition, restructuring and litigation expense 14.6 7.7 5.0
--------------------------------------------
Income from operations 7.6 16.3 18.5
Net income (loss) $(10.3) $ 7.4 $ 9.2
--------------------------------------------
Revenue Growth:
Small Systems Products 62.5% 26.1% -
Large Systems Products (6.0) (8.3) -
--------------------------------------------
Total Products 25.1 4.7 -
Worldwide Services Group 0.6 14.3 -
--------------------------------------------
Total Revenues 17.6% 7.4% -
--------------------------------------------
Margin Data (as a percentage of revenues):
Gross Profit
Products 27.8% 24.6% 25.4%
Services 32.8 31.0 31.4
--------------------------------------------
Total Gross Profit 29.1 26.6 27.1
--------------------------------------------
Selling, general and administrative expense 21.5 17.9 17.9
Research and development expense 2.7 2.5 2.8
Acquisition, restructuring and litigation expense 3.2 2.0 1.4
============================================
Income from operations 1.7% 4.2% 5.0%
============================================
_____________
(1) In the Company's third fiscal quarter of 1996, certain product lines
(18-36kVA) were reclassified from SSG to LSG; all periods have been restated.
Fiscal Year 1996 versus 1995
Revenues
Total revenues increased by 17.6% to $459.9 million in fiscal year 1996
from $391.0 million in fiscal year 1995, due to a 25.1% increase in product
revenues and a 0.6% increase in service revenues.
SSG revenues for fiscal 1996 increased by $77.0 million or 62.5% over
fiscal 1995. Approximately $52.5 million of the increase was due to revenues
generated by the acquisition of Deltec. Excluding the effect of Deltec, revenues
grew by 20.3% primarily as a result of the acquisition of Lectro Products, Inc.
("Lectro") in August 1995. International SSG revenues for fiscal 1996 were
approximately $98.3 million, an increase of approximately 32.6% over fiscal
1995. Deltec contributed approximately $26.1 million in international revenues,
primarily in Europe. SSG revenues in historical international channels declined
slightly, as increased revenues in Europe were more than offset by declines in
Latin America. Sales to Latin America have been affected by the economic
conditions in that region but improved in the last two quarters of fiscal 1996,
aided by the Company's new subsidiary in Brazil. Sales of the Prestige product
family increased approximately 32% in fiscal 1996 compared to the same period in
fiscal 1995. Increased revenues were generally due to higher unit sales rather
than increased unit prices.
LSG revenues for fiscal 1996 were 6.0% lower than fiscal 1995, 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 systems and related ancillary products to the
various FAA sites. Excluding sales under the FAA program, LSG revenues increased
$17.1 million or 15.6%, reflecting strong commercial sales of Powerware Plus
products in both domestic and international markets and $10.6 million of
revenues from the Deltec acquisition.
WSG revenues for fiscal 1996 remained flat compared to fiscal 1995,
attributable to incremental revenues of $13.3 million from the Deltec
acquisition and an increase in commercial services of $4.6 million, offset by a
$17.2 million decrease in Federal service revenues. WSG's commercial revenues in
the United States ("U.S.") grew by about 18.9% in fiscal 1996, due primarily to
$6.0 million of revenues from the Deltec acquisition and increased field service
revenues of $2.3 million, mostly from battery service sales. International
service revenues increased 51.8%, because of higher sales in Europe, including
$6.9 million of incremental revenues generated by the Deltec acquisition. As
expected, Federal service revenues decreased over the prior year by
approximately 32.9%, mainly due to the decline in FAA site service revenues.
Gross Profit
Gross profit increased by $30.0 million in fiscal 1996 over fiscal 1995 to
$133.9 million. Gross profit as a percentage of total revenues increased to
29.1% in fiscal 1996 from 26.6% in fiscal 1995. Product gross profit margins
rose to 27.8% in fiscal 1996 from 24.6% in fiscal 1995, while service margins
increased to 32.8% from 31.0% during that same period. Increased sales of new,
higher margin products (Prestige, Powerware Plus and Deltec UPS) contributed to
product gross margin gains. In addition, the Company continued to implement cost
reductions and operational efficiencies to maintain competitiveness and improve
margins in response to the industry trend of declining UPS prices. Service
margins increased for the year primarily due to a higher proportion of
commercial revenues at higher margins and higher margins on revenues from the
Deltec acquisition.
Selling, General and Administrative Expense
Selling, general and administrative expense increased $29.1 million to
$99.1 million in fiscal 1996 (21.5% percent of revenues) from $70.0 million in
fiscal 1995 (17.9% of revenues). Selling and marketing expenses increased due to
incremental costs related to the consolidation of Deltec and the Emerging
Technologies Group, the launching of a new global advertising campaign, and
higher commissions and incentives related to higher commercial revenues. Total
commissions and incentives spending, and such costs as a percentage of sales,
rose in fiscal 1996 versus 1995 due to a higher mix of commercial revenues to
total revenues in 1996 over 1995. Variable selling expenses are generally higher
for commercial revenues than for Federal revenues. General and administrative
expenses rose from the prior year due primarily to amortization of goodwill and
intangible assets totaling $7.9 million generated by recent acquisitions.
Research and Development Expense
Research and development expense increased $2.7 million to $12.6 million in
fiscal 1996 (2.7% of revenues) from $9.9 million in fiscal 1995 (2.5% of
revenues). This increase was attributable to the newly formed Emerging
Technologies Group, incremental costs for the consolidation of Deltec, and the
cost of developing certain products for OEM partners.
Acquisition, Restructuring and Litigation Expense
During the second quarter of fiscal 1996, the Company completed its
acquisition of Deltec. In connection with the acquisition, the Company recorded
approximately $14.6 million of nonrecurring expenses in fiscal 1996. These costs
included $4.7 million to write off purchased in-process research and development
costs, $1.0 million of expenses reimbursed to Fiskars in connection with the
acquisition, and $8.9 million for reserves primarily related to the closing of
the Company's Dallas, Texas manufacturing facility and other activities required
to integrate the operations of Deltec and IPM into Exide Electronics. The
reserves included $1.5 million in termination benefits for approximately 275
employees, primarily consisting of workers at the Dallas, Texas facility and
manufacturing personnel at the Company's facility in Wilmington, North Carolina.
During fiscal 1996, approximately $0.5 million was paid and charged against the
restructuring reserve. Also included in the charge were $6.3 million for asset
valuation allowances primarily related to fixed assets, long-term intangible
assets and inventory, and $1.1 million of costs to shutdown the facility in
Dallas. The Dallas facility shut down was completed in October 1996.
During the second quarter of fiscal 1995, the Company completed its
acquisition of IPM. With the consummation of the acquisition, which was
accounted for as a pooling of interests, the Company recorded a nonrecurring
pretax charge of $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
addition, the Company recorded a $0.7 million pretax charge for the settlement
of two related lawsuits.
In the fourth quarter of fiscal 1995, the Company wrote off approximately
$1.5 million 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.
Income from Operations
The Company generated income from operations of $7.6 million for fiscal
1996, versus $16.3 million in fiscal 1995. Excluding the nonrecurring items in
both fiscal 1996 and 1995 discussed under "Acquisition, Restructuring and
Litigation Expense" and $5.5 million of certain nonrecurring purchase accounting
adjustments in fiscal 1996, pro forma operating income increased 15.4% to $27.7
million in fiscal 1996, from $24.0 million in fiscal 1995. This increase was due
primarily to higher revenues and improved gross margins in 1996, offset by
higher selling and administrative costs.
Interest
Interest expense increased $17.6 million to $23.2 million in fiscal 1996
from $5.6 million in fiscal 1995. During the second quarter of fiscal 1996, the
Company recorded a one-time charge of $4.4 million for interest paid to Fiskars,
the former parent of Deltec, and for the write-off of remaining debt issuance
costs on the Company's previous credit facility. See "Liquidity and Financial
Condition." Approximately $12.4 million of interest expense was also incurred
during fiscal 1996 related to increased borrowings to finance the acquisition of
Deltec, including interest on $125 million of senior subordinated notes issued
in March 1996. The remaining increase is due to increased borrowings to finance
working capital and higher interest rates on the Company's new credit facility.
Benefit/Provision for Income Taxes
The benefit from income taxes for fiscal 1996 reflects a consolidated
effective tax rate of approximately 33.5% as compared to a provision of
approximately 38.9% for fiscal 1995. The effective rate in fiscal 1996 was
affected by permanent differences, including goodwill related to the acquisition
of Deltec. The effective rate in fiscal 1995 was affected by certain
non-deductible costs recorded in the year related to the merger of IPM. See Note
12 of notes to consolidated financial statements.
Net Income (Loss)
Net loss for fiscal 1996 was $10.3 million, or $1.15 per fully diluted
share, as compared to net income of $7.4 million, or $0.84 per fully diluted
share, for fiscal 1995. Excluding nonrecurring charges (discussed above under
"Acquisition, Restructuring and Litigation Expense" and "Interest") and $5.5
million of nonrecurring purchase accounting adjustments, net income would have
been $5.2 million or $0.46 per fully diluted share in fiscal 1996, compared to
$13.0 million or $1.42 per fully diluted share in fiscal 1995.
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 increases in product revenues of 4.7% and
service revenues of 14.3%.
SSG revenues for fiscal 1995 increased by $25.5 million or 26.1% over the
prior fiscal year. Much of this increase occurred in international sales
channels, which experienced growth in excess of 40%. This growth reflects strong
sales by the Company's affiliates in Europe, Japan, and Canada, which accounted
for over 80% of the total growth in international sales. U.S. revenues were
approximately 13% higher than in the prior year. Excluding SSG sales of Lectro
products, U.S. 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, additional accessories were introduced, and new
versions of software and network communications products were launched. 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 $161.6 million or 8.3% 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 most
product shipments to the various FAA sites have been completed. Excluding the
effect of the scheduled decline in FAA shipments, LSG revenues decreased 3.9%
year over year, due to the nonrecurrence of one significant custom job in excess
of $6 million for a major data center. 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 products sold increased by about 6% in fiscal 1995 compared to the prior
fiscal 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 fiscal
year.
WSG revenues for fiscal 1995 increased by $14.9 million or 14.3% over the
prior fiscal year. WSG's commercial U.S. revenues grew by about 9%, with strong
growth occurring in most service categories. The acquisition of three sales and
service organizations (in Canada and Europe) in the fourth quarter of fiscal
1994 contributed to a 47% increase in international revenues. Federal service
revenues increased over the prior year by approximately 13%, mainly attributable
to growth in the Company's Federal site implementation business. WSG revenue
increases in fiscal 1995 resulted principally from a higher volume of services
rather than increased prices.
Gross Profit
Gross profit increased by $5.2 million in fiscal 1995 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 selected sales price reductions.
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 (approximately 18%
of revenues). Selling and marketing expenses rose to support a 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 by the integration of IPM.
Research and Development Expense
Research and development expense decreased by approximately $0.2 million,
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 that were not required in fiscal 1995.
Acquisition, Restructuring and Litigation Expense
The Company incurred $7.0 million of merger and acquisition charges 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. Approximately $2.5 million was
also expensed 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 pretax 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.
The Company recorded a $0.7 million charge 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 for the
settlement of litigation. This litigation is discussed further in Note 15 of the
notes to consolidated financial statements.
Income from Operations
Income from operations declined $2.2 million to $16.3 million for fiscal
1995, from $18.5 million in fiscal 1994. This decrease reflects the nonrecurring
acquisition, restructuring and litigation expenses discussed above. Excluding
these charges, income from operations would have been $24.0 million, compared to
$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 "Gross Profit".
Interest/Other
Interest expense increased to $5.6 million in fiscal 1995 from $5.4 million
in fiscal 1994. The Company expensed $0.2 million in the write-off of remaining
debt issuance costs and a redemption premium related to the redemption of its
Industrial Revenue Bonds ("IRBs") in the first quarter of fiscal 1995, and
incurred $0.2 million in incremental interest expense related to the increased
level of borrowings used to finance the acquisition of Lectro. Excluding these
two charges, interest expense would have been about 5% lower than in fiscal
1994. Other (income) expense improved by approximately $1.0 million. 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 38.9% as compared to approximately 31.8% 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.
Net Income
Net income for fiscal 1995 was $7.4 million, or $0.84 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 acquisition,
restructuring and litigation charges in fiscal years 1995 and 1994, 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.
Liquidity and Financial Condition
At September 30, 1996, the Company had $115.9 million of working capital,
as compared to $105.5 million at September 30, 1995 and $135.5 million at March
31, 1996 (immediately after the Deltec acquisition). The decrease in working
capital since March 31, 1996 is primarily a result of lower inventory balances
due to improved logistics management, and a decrease in other short-term assets,
reflecting amortization of certain short-lived intangible assets recognized in
the Deltec acquisition. Working capital at September 30, 1996 also included
higher levels of short-term debt, accounts payable and other current
liabilities. Working capital has been used to reduce the Company's long-term
debt balance, which decreased $27.3 million from March 31, 1996. Cash provided
by operations was $22.3 million in fiscal 1996, compared to $1.1 million in
fiscal 1995 and $8.5 million in fiscal 1994.
During fiscal 1996, the Company invested approximately $11.7 million in
capital expenditures, as compared to approximately $12.5 million in fiscal 1995
and $8.7 million during fiscal 1994. Capital expenditures for fiscal 1996
included costs relating to the integration of IPM and Lectro and consolidation
of the Company's headquarters. The Company also invested approximately $167.0
million for the acquisition of Deltec in fiscal 1996. Capital expenditures were
higher in fiscal 1995 than 1994 due primarily to expansion of SSG's
manufacturing facility in Wilmington, NC, fit-up of the Company's new Worldwide
Logistics Center, and new facilities for ETG. The Company also invested
approximately $13.2 million for the acquisition of Lectro in fiscal 1995.
Capital expenditures for fiscal 1997 are expected to approximate $12 to $13
million.
In March 1996, the Company refinanced its domestic bank credit facilities
with a $175 million senior secured bank package (the "New Credit Facility")
comprised of a $125 million revolving credit facility and a $50 million term
loan. Borrowings under the revolving credit facility are limited to specified
amounts of eligible accounts receivable and inventories. Outstanding borrowings
are secured by substantially all the inventories and accounts receivable of the
Company, and the pledge of all of the capital stock of all of the Company's
material domestic subsidiaries and 66% of the capital stock of its foreign
subsidiaries.
The Company is subject to certain financial covenants, including
maintaining specified fixed charge coverage and leverage ratios, and minimum net
worth and earnings before interest, taxes, depreciation and amortization
("EBITDA"), as defined. The Company was in compliance with all applicable
financial covenants as of September 30, 1996, as amended. The EBITDA covenant
for the six months ended September 30, 1996 was $31.0 million. The Company's
actual EBITDA for the six months ended September 30, 1996 was $31.2 million. At
September 30, 1996, the Company had borrowings of $115.5 million outstanding
under the New Credit Facility, and a remaining borrowing capacity of $5.3
million.
In March 1996, the Company issued 125,000 units (the "Units") comprised of
$125 million of 11.5% senior subordinated notes (the "Notes") and warrants (the
"Warrants") to purchase 643,750 shares of the Company's common stock. Each Unit
consisted of one $1,000 Note and one detachable Warrant to acquire 5.15 shares
of the Company's common stock at an exercise price of $13.475 per share, subject
to adjustment in certain events. Interest on the Notes is payable semi-annually
on March 15 and September 15, commencing on September 15, 1996. The Notes are
callable at the option of the Company, in whole or in part, on or after March
15, 2001, at predetermined redemption prices. The Notes are due and the Warrants
expire on March 15, 2006. The holders of the Warrants have no voting rights, no
right to receive dividends, and no liquidation rights in the event of a
liquidation, dissolution, or winding-up of the Company.
The New Credit Facility and the Notes contain restrictive covenants which,
among other things, limit the Company's ability to incur additional debt, pay
dividends, consummate certain acquisitions, make certain asset sales, and permit
certain liens. For further discussion of the New Credit Facility, the Notes and
certain interest rate protection agreements, see Note 6 of notes to consolidated
financial statements.
The Company expects to finance its capital requirements in the future
through existing cash balances, cash generated from operations, and borrowings
under its existing 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 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. As a result of the Deltec acquisition, revenues
generated and assets located outside the U.S. have increased significantly. The
Company may be limited in its ability to repatriate offshore profits without
incurring a substantial tax liability. Therefore, while legally available to
meet the Company's cash requirements, such funds may not be economically
available. See Notes 11 and 12 of the notes to consolidated financial
statements.
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. These notes and the conversion
are discussed further in Note 6 of the notes to consolidated financial
statements.
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. Historically, the fourth quarter 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 1996, 1995, and 1994, 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. Operating margins may, therefore, vary significantly between
quarters.
Contingencies
Litigation
On August 21, 1995, a case entitled National Broadcasting Company, Inc. and
CNBC, Inc. vs. International Power Machines/LorTec Systems Inc. et al, was filed
against IPM in the Supreme Court of New York, New York County. The plaintiffs
allege that IPM negligently manufactured and installed a UPS product that caused
them property and compensatory damages when the equipment malfunctioned during
the installation of the product by third-party contractors. The plaintiffs have
filed seven causes of action, each of which seeks damages in the amount of $1.1
million. Three of those causes of action also seek $3.0 million in punitive
damages. Claims of this nature are generally covered by the Company's insurance
and its insurer has accepted general defense in this matter. The insurer has
notified the Company that while claims based on IPM's negligent manufacture or
design are covered by the insurance policy, damages, if any, caused by IPM's
intentional or careless decision to install a known defective and dangerous
product would be subject to certain exclusions under the policy. While discovery
is at an early stage, the Company believes at this time, based on the advice of
its defense counsel, that no evidence has yet been presented that supports any
allegation of intentional or careless conduct. IPM also believes that it has
meritorious defenses and counter-claims against the third-party co-defendants,
who the Company alleges defectively installed the UPS product. The Company
believes that the final outcome of this matter will not have a material adverse
effect on the business or the financial statements of the Company and its
subsidiaries taken as a whole.
During fiscal years 1995 and 1994, the Company settled certain litigation
which is discussed in "Acquisition, Restructuring and Litigation Expense" above
and in Note 15 of the notes to consolidated financial statements.
Government Contract Matters
Sales to the United States Federal government accounted for approximately
13%, 27%, and 33% of total revenues for fiscal years 1996, 1995, and 1994,
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, 1996.
Foreign Currency Exposures
International sales accounted for approximately 37%, 31%, and 25% of total
revenues for fiscal years 1996, 1995, and 1994, respectively. A significant
portion of the Company's international sales are denominated in foreign
currencies. As of September 30, 1996, approximately 30% of the Company's total
assets were located outside the United States, primarily in 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,
Japanese and Latin American currencies have been especially volatile over the
last two years. As of September 30, 1996, the Company had accounts receivable
and accounts payable totaling approximately $8.0 million that were exposed to
fluctuations in exchange rates. These balances are spread among various
currencies, primarily the French franc. As of September 30, 1996, the Company
had no material foreign currency hedge contracts outstanding.
During fiscal 1996, the Company had foreign exchange transaction losses of
approximately $0.2 million, and the change in the cumulative translation
adjustments account increased the recorded value of common shareholders' equity
by $0.4 million from September 30, 1995 to September 30, 1996. During fiscal
1995, the Company had foreign exchange transaction losses of approximately $0.2
million, the same as in fiscal 1994, and the change in the cumulative
translation adjustments account increased the recorded value of common
shareholders' equity by $0.3 million from September 30, 1994 to September 30,
1995.
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. In the last three fiscal years, the Company's capital
expenditures for environmental compliance have not been significant. 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 and the financial statements of the Company and its
subsidiaries taken as a whole.
Disclosure Regarding Forward-Looking Statements
The disclosures included in this Form 10-K, including documents
incorporated by reference herein and therein, contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
are identified by words such as "expect,""anticipate,""should" and words of
similar import. Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of which
might not even by anticipated. Future events and actual results, financial and
otherwise, may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in this Form 10-K and other matters
detailed from time-to-time in the Company's Securities and Exchange Commission
filings, including the Company's Forms 10-Q and 10-K.
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, 1996 and 1995, and the related consolidated statements of
operations, changes in common shareholders' equity and cash flows for each of
the three years in the period ended September 30, 1996. 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, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996 in conformity with generally accepted accounting principles.
/s/ARTHUR ANDERSEN LLP
Raleigh, North Carolina,
October 28, 1996 (except with respect to the January 1997
notification related to the government contract matter discussed
in Note 15, as to which the date is January 9, 1997)
Exide Electronics Group, Inc.
Consolidated Statement of Operations
Year Ended September 30,
-----------------------------------
(in thousands, except per share amounts) 1996 1995 1994
---- ---- ----
Revenues
Products $ 339,723 $ 271,482 $ 259,403
Services 120,213 119,496 104,580
------- ------- -------
Total revenues 459,936 390,978 363,983
------- ------- -------
Cost of revenues
Products 245,239 204,683 193,572
Services 80,792 82,430 71,716
------ ------ ------
Total cost of revenues 326,031 287,113 265,288
------- ------- -------
Gross profit 133,905 103,865 98,695
Selling, general and administrative expense 99,055 69,966 65,086
Research and development expense 12,655 9,929 10,150
Acquisition, restructuring and litigation expense 14,621 7,700 4,997
----- ----- ----
Income from operations 7,574 16,270 18,462
Interest expense 23,194 5,575 5,417
Interest income (469) (485) (488)
Other (income) expense (446) (897) 74
----- ----- -----
Income (loss) before income taxes (14,705) 12,077 13,459
Provision for (benefit from) income taxes (4,926) 4,692 4,284
Minority interests in net income of subsidiaries 535 - -
---- ---- ----
Net income (loss) $ (10,314) $ 7,385 $ 9,175
========= ========= =========
Preferred stock dividends and accretion 751 592 790
--- --- ---
Net income (loss) applicable to common shareholders $ (11,065) $ 6,793 $ 8,385
========= ========= =========
Primary earnings per share
Net income (loss) $ (1.15) $ 0.84 $ 1.07
========= ========= =========
Weighted average number of common and equivalent shares outstanding 9,592 8,054 7,814
===== ===== =====
Fully diluted earnings per share
Net income (loss) $ (1.15) $ 0.84 $ 1.03
========= ========= =========
Weighted average number of common and equivalent shares outstanding 9,592 9,673 9,393
===== ===== =====
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
Exide Electronics Group, Inc.
Consolidated Balance Sheet
September 30,
---------------------
(in thousands) 1996 1995
---- ----
Assets
Current assets
Cash and cash equivalents $ 7,848 $ 2,787
Accounts receivable 129,423 105,524
Inventories 90,069 72,890
Deferred tax assets 13,997 9,672
Other current assets 6,412 3,705
----- -----
Total current assets 247,749 194,578
------- -------
Property, plant, and equipment
Land, buildings, and leasehold improvements 17,539 9,931
Machinery and equipment 75,768 61,519
------ ------
93,307 71,450
Accumulated depreciation 44,386 36,393
------ ------
48,921 35,057
Goodwill 154,373 18,738
Other intangible assets 28,665 2,214
Other assets 9,766 5,864
----- -----
$ 489,474 $ 256,451
========= =========
Liabilities, Redeemable Preferred Stock, & Common Shareholders' Equity
Current liabilities
Short-term debt $ 14,568 $ 7,655
Accounts payable 71,046 46,041
Deferred revenues 21,913 15,602
Accrued compensation 11,900 7,945
Other accrued liabilities 12,455 11,792
------ ------
Total current liabilities 131,882 89,035
------ ------
Long-term debt 110,347 65,258
------ ------
Subordinated notes 121,920 15,000
------ ------
Deferred liabilities 9,912 3,391
----- -----
Redeemable preferred stock 18,312 -
------ -----
Minority interest 762 -
------ -----
Commitments and contingencies (Notes 6,7, and 15)
Common shareholders' equity
Common stock, $0.01 par value, 30,000,000 shares authorized;
shares issued: 10,370,505 in 1996 and 8,376,341 in 1995 104 84
Additional paid-in capital 87,491 58,190
Retained earnings 21,372 32,437
Cumulative translation adjustments (975) (1,404)
------ ------
107,992 89,307
------ ------
Less: Notes receivable from shareholders (5,304) (5,520)
Treasury stock at cost, 386,668 shares in 1996
and 926 shares in 1995 (6,349) (20)
--- ---
96,339 83,767
------ ------
$ 489,474 $ 256,451
========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</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, 1993, as
restated for IPM merger $ 76 $ 46,225 $ 18,985 $(1,911) $ (5,949) $ - $57,426
---- ------ ------ ------ ------ ---- ------
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
---- ------ ------ ------ ------ ---- ------
Issuance of common stock 1 (109) - - - 1,113 1,005
Issuance of common stock in
Deltec acquisition 8 11,542 - - - - 11,550
Issuance of common stock warrants - 3,259 - - - - 3,259
Conversion of convertible subordinated
notes into common stock 11 14,989 - - - - 15,000
Purchases of treasury stock - - - - - (6,926) (6,926)
Preferred stock dividends and accretion - - (751) - - - (751)
Accrued interest income on notes
receivable from shareholders - - - - (259) - (259)
Other, net - (380) - 429 475 (516) 8
Net loss - - (10,314) - - - (10,314)
---- ---- ----- ---- ---- ---- -----
Balance at September 30, 1996 $104 $ 87,491 $ 21,372 $ (975) $(5,304) $ (6,349) $ 96,339
==== ======== ======== ======= ======= ==== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
Exide Electronics Group, Inc.
Consolidated Statement of Cash Flows
Year Ended September 30,
------------------------------
(in thousands) 1996 1995 1994
---- ---- ----
Cash flows from operating activities
Net income (loss) $ (10,314) $ 7,385 $ 9,175
Adjustment to conform fiscal year of IPM - - 49
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Depreciation expense 8,702 6,683 6,105
Amortization expense 13,473 2,762 2,325
Write-off of in-process research and development 4,733 - -
Restructuring provisions 7,826 - -
(Increase) decrease in accounts receivable (634) 2,251 (7,351)
(Increase) decrease in inventories 4,316 (17,131) (4,943)
(Increase) decrease in other current assets (374) 1,780 (1,079)
Increase in deferred taxes (4,786) (2,019) (767)
Increase (decrease) in accounts payable 15,095 (77) 2,657
Increase (decrease) in other current liabilities (9,884) (691) 1,911
Other, net (5,875) 165 396
--- --- -----
Net cash provided by operating activities 22,278 1,108 8,478
----- ----- -----
Cash flows from investing activities
Acquisitions of property, plant, and equipment (11,731) (12,497) (8,735)
Acquisitions, net of cash acquired (167,004) (13,151) (3,580)
Other, net 1,345 (50) (1,576)
--- --- ------
Net cash used in investing activities (177,390) (25,698) (13,891)
------- ------- -------
Cash flows from financing activities
Proceeds from bank credit facilities 253,755 143,713 91,938
Payments of bank credit facilities (202,769) (116,274) (83,629)
Payments of industrial revenue bonds - (4,600) (3,500)
Decrease in funds held in trust for future construction - - 2,600
Payments for debt issue costs (9,654) - -
Issuance of subordinated debt 121,741 - -
Issuance of common stock 1,005 1,342 1,055
Issuance of common stock warrants 3,259 - -
Purchases of treasury stock (6,926) (703) -
Preferred stock dividends of Exide Electronics - (789) (839)
Preferred stock dividends of IPM - (1,226) (500)
Payments of notes receivable from shareholders 215 136 276
Other, net (453) (108) (567)
---- ---- ----
Net cash provided by financing activities 160,173 21,491 6,834
------ ------ -----
Net increase (decrease) in cash and cash equivalents 5,061 (3,099) 1,421
Cash and cash equivalents, beginning of period 2,787 5,886 4,465
----- ----- -----
Cash and cash equivalents, end of period $ 7,848 $ 2,787 $ 5,886
========= ========= ========
<FN>
The accompanying notes are an integral part of these financial statements.
</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 subsidiaries.
The Company designs, manufactures, markets, and services a broad line of
uninterruptible power systems ("UPS") that protect computers and other sensitive
electronic equipment against electrical power distortions and interruptions. The
Company's products are used principally for networking, financial, medical,
industrial, telecommunications, cable television, military, and aerospace
applications throughout the world. The Company's 50% investment in a joint
venture in Japan is accounted for using the equity method. All significant
intercompany accounts and transactions have been eliminated in consolidation.
On March 13, 1996, the Company completed its acquisition of Deltec Power
Systems, Inc. ("Deltec"). The acquisition was accounted for using the purchase
method of accounting. Accordingly, the accompanying consolidated financial
statements and related notes include the accounts and results of operations of
Deltec from March 13, 1996, forward (see Note 2).
Minority Interest- During fiscal 1996, the Company entered into agreements
with unaffiliated parties in Brazil and India for the distribution and marketing
of UPS products in those regions. The Company acquired a 51% interest in both
subsidiaries and, accordingly, both subsidiaries' accounts and results of
operations are included in the accompanying consolidated financial statements.
The minority stockholders' interests are shown separately on the face of the
accompanying consolidated financial statements.
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 expense 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 $10,494,000 in 1996, $7,344,000
in 1995, and $5,972,000 in 1994. There are no capitalized advertising costs in
the accompanying consolidated balance sheet.
Per Share Data- Primary net income (loss) per common and equivalent share
is computed using net income (loss) applicable to common shareholders and the
weighted average number of shares of common stock and dilutive common stock
equivalents, including common stock options and warrants. Fully diluted net
income (loss) per share is similarly computed but includes the effect, when
dilutive, of assumed conversion of the Company's redeemable preferred stock and,
prior to its conversion, the Company's convertible subordinated debt (see Note
6).
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, 1996 and 1995
includes unamortized software development costs of $2,428,000 and $2,072,000,
respectively, which is included in other assets. Related amortization expense
was $767,000 in 1996, $1,035,000 in 1995, and $683,000 in 1994.
Goodwill and Intangible Assets- Goodwill is amortized using the
straight-line method over periods ranging from four to forty years. Intangible
assets are amortized using the straight-line method over their estimated
economic lives of one to thirteen years. Amortization expense for goodwill and
long-term intangible assets in fiscal 1996 was $3,136,000 and $3,597,000,
respectively. Accumulated amortization on goodwill and intangible assets at
September 30, 1996 was $5,415,000 and $4,137,000, respectively. The Company
reviews the carrying value of goodwill and intangible assets for impairment
whenever events or changes in circumstance indicate that the carrying value may
not be recoverable. Measurement of any impairment would include a comparison of
estimated future operating cash flows anticipated to be generated during the
remaining life to the net carrying value of the asset.
Translation of Foreign Currencies- 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 $160,000 in 1996, $218,000 in 1995, and $257,000 in 1994.
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, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those estimates.
Recent Accounting Pronouncements- The Financial Accounting Standards Board
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. The
Company has elected not to recognize compensation expense as encouraged by this
statement. As a result of this election, SFAS No. 123 requires that the Company
provide pro forma disclosures for the two most recent fiscal years presented as
if compensation expense had been recorded. The Company will adopt the disclosure
provisions of this statement in fiscal 1997.
NOTE 2: Acquisition of Deltec
On March 13, 1996, the Company completed its acquisition of Deltec, one of
the world's largest manufacturers and marketers of off-line and line-interactive
small UPS, from Fiskars Oy Ab ("Fiskars") and an affiliated company. The
purchase price of approximately $197.6 million (excluding transaction costs of
approximately $4.2 million) was comprised of $168.0 million in cash, 825,000
shares of the Company's common stock valued at $14 per share, and 1,000,000
shares of the Company's Series G redeemable convertible preferred stock (the
"Series G Preferred Stock") valued at $18 per share. See Note 8 for a
description of the Series G Preferred Stock. In addition, under the terms of the
acquisition agreement, the Company paid $4.0 million to Fiskars in payment of
certain interest carrying costs associated with Fiskars' agreement to extend the
time for closing the Deltec acquisition, and reimbursed Fiskars $1.0 million for
certain expenses incurred by Fiskars. The $4.0 million charge was included in
interest expense, and the $1.0 million expense reimbursement was included in
acquisition, restructuring and litigation expenses, both in the second quarter
of fiscal 1996.
The Company financed the cash portion of the purchase price from the net
proceeds of the sale of $125 million of ten-year senior subordinated notes and
related warrants and borrowings under a new $175 million senior credit facility
(see Note 6).
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price has been allocated on a preliminary basis to the
net assets acquired based on their estimated fair values. This preliminary
allocation resulted in the recording of a write-up of property, plant and
equipment of approximately $4.0 million; identifiable intangible assets of
approximately $20.6 million, consisting primarily of a noncompete agreement,
prepaid license fees, trademarks and patents; inventory and other current assets
of approximately $4.7 million; in-process research and development costs of $4.7
million; and deferred income tax liability of approximately $5.5 million. The
Company also recorded restructuring reserves to cover anticipated costs of
consolidating sales and service operations and eliminating certain duplicate
product lines. This reserve included $1.6 million for asset valuation allowances
(primarily inventory and fixed assets) and $1.3 million for other related
charges. The intangible assets are being amortized over one to thirteen years,
except for in-process research and development costs which were expensed
immediately. The excess of the purchase price over the estimated fair value of
net assets acquired amounted to approximately $138.0 million, which has been
accounted for as goodwill and is being amortized over forty years. The Company
does not believe that the final purchase price allocation will differ
significantly from the preliminary purchase price allocation recorded at
September 30, 1996.
In connection with the acquisition and subsequent restructuring activities,
the Company recorded approximately $14.6 million of nonrecurring expenses in
fiscal 1996. These costs included $4.7 million to write off purchased in-process
research and development costs, $1.0 million of expenses reimbursed to Fiskars
in connection with the acquisition, and $8.9 million for reserves related to the
closing of the Company's Dallas, Texas manufacturing facility and other
activities required to integrate the operations of Deltec and IPM into Exide
Electronics. The reserves included $1.5 million in termination benefits for
approximately 275 employees, primarily consisting of workers at the Dallas
facility and manufacturing personnel at the Company's facility in Wilmington,
North Carolina. During fiscal 1996, approximately $0.5 million was paid and
charged against the restructuring reserve. Also included in the charge were $6.3
million for asset valuation allowances primarily related to fixed assets,
long-term intangible assets and inventory, and $1.1 million of costs to shut
down the facility in Dallas. The Dallas facility shutdown was completed in
October 1996.
Deltec's accounts and results of operations are included in the Company's
financial statements from March 13, 1996 forward. The following summary,
prepared on a pro forma basis, combines the consolidated results of operations
as if Deltec had been acquired as of the beginning of each of the periods
presented:
(In thousands, except per share data; unaudited) Fiscal Year
ended September 30,
1996 1995
------- --------
Revenues $530,835 $507,293
Net loss (12,024) (13,420)
Fully diluted loss per share (1.40) (1.73)
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been consummated on the first day of each
period presented. In addition, the pro forma results are not intended to be a
projection of future results and do not reflect any cost savings that may be
achieved from combined operations or any future nonrecurring costs which may be
incurred to implement cost savings.
NOTE 3: Accounts Receivable
Accounts receivable consisted of the following (in thousands):
September 30,
-----------------
1996 1995
------- -------
Accounts Receivable:
Commercial $126,161 $ 86,936
United States government 9,297 21,105
------ ------
135,458 108,041
Less: Allowance for doubtful
accounts, customer returns and
adjustments 6,035 2,517
----- -----
$129,423 $105,524
======== ========
Accounts receivable at September 30, 1996 and 1995 included unbilled
receivables of $3,098,000 and $7,371,000, and retainage receivables of
$1,608,000 and $1,452,000, respectively. Unbilled receivables relate primarily
to one U.S. 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,
-----------------
1996 1995
------- -------
Raw materials and supplies $33,328 $27,989
Work in process 5,883 6,064
Finished goods 31,712 24,054
Service parts 19,146 14,783
------- -------
$90,069 $72,890
======= =======
Domestic inventories of approximately $49,788,000 and $52,167,000 were
valued using the LIFO method at September 30, 1996 and 1995, respectively. The
LIFO value exceeded the FIFO value of these inventories by approximately
$2,396,000 at September 30, 1996 and $1,941,000 at September 30, 1995. During
1996, the Company liquidated certain LIFO inventories without a material impact
on cost of revenues. There was no liquidation of prior years' LIFO layers in
1995.
NOTE 5: Short-Term Debt
Certain of the Company's subsidiaries maintain various lines of credit.
These lines, which had interest rates ranging from 5.5% to 8.4% at September 30,
1996, are primarily due on demand and are generally secured by guaranties of
payment by the Company. Approximately $7,725,000 and $7,130,000 were outstanding
under these facilities at September 30, 1996 and 1995, respectively. The
remaining availability under these facilities at September 30, 1996 was subject
to the overall limitation imposed by the Company's senior credit facilities (see
Note 6).
Weighted average borrowings under these facilities were $5,041,000 in 1996
and $5,965,000 in 1995. The weighted average interest rate incurred on the
Company's short-term debt was 7.7% in 1996 and 8.5% in 1995. The short-term debt
balance outstanding at September 30, 1996 approximated fair value for loans with
similar terms.
NOTE 6: Long-Term Debt and Subordinated Notes
Long-term debt consisted of the following (in thousands):
September 30,
------------------
1996 1995
------- -------
Domestic bank credit facility $115,500 $65,000
Other long-term debt 1,690 783
------- -------
117,190 65,783
Less current portion 6,843 525
------- -------
$110,347 $65,258
======= =======
Subordinated notes $121,920 $15,000
======= =======
In March 1996, the Company refinanced its domestic bank credit facilities
with a $175 million senior secured bank package (the "New Credit Facility")
comprised of a $125 million revolving credit facility and a $50 million term
loan ($47.5 million at September 30, 1996). Borrowings under the revolving
credit facility are limited to specified amounts of eligible accounts receivable
and inventories. Outstanding borrowings are secured by substantially all the
inventories and accounts receivable of the Company, and the pledge of all of the
capital stock of all of the Company's material domestic subsidiaries and 66% of
the capital stock of all of its foreign subsidiaries. Amounts outstanding under
the New Credit Facility bear interest at LIBOR (5.5% at September 30, 1996) plus
250 basis points, or the bank's base rate plus 150 points, as defined. The
average unutilized daily commitment incurs a commitment fee of .50% per annum,
and letters of credit bear a fee of 2.50% per annum.
Both the term and revolver portions of the New Credit Facility require at
least quarterly payments of accrued and unpaid interest. The term loan has
scheduled quarterly principal payments. The Company is permitted to prepay the
principal amount of the New Credit Facility without penalty at any time. Any
principal amount of the term loan and any amounts due under the revolver that
remain unpaid on the fifth anniversary of the closing of the New Credit Facility
(the "Maturity Date") are required to be repaid in full on the Maturity Date.
In the event the Company (i) sells certain assets, (ii) incurs certain
additional debt, (iii) issues any equity securities, or (iv) receives certain
casualty insurance proceeds, the Company may be obligated to first repay the
term loan and second permanently reduce commitments under the revolver in
addition to the scheduled payments presented below.
Future maturities of long-term debt at September 30, 1996, excluding the
subordinated notes, are (in thousands):
1997 $ 6,843
1998 8,509
1999 11,009
2000 14,569
2001 75,676
Thereafter 584
-------
$117,190
=======
The Company is subject to certain financial covenants, as defined in the
credit agreement, including maintaining specified fixed charge coverage and
leverage ratios, and minimum net worth and earnings before interest, taxes,
depreciation and amortization ("EBITDA"). The Company and its lending group
modified certain covenants during the third fiscal quarter of 1996. The Company
was in compliance with all applicable financial covenants as of September 30,
1996. The EBITDA covenant for the six months ended September 30, 1996 was $31.0
million. The Company's actual EBITDA for the six months ended September 30, 1996
was $31.2 million. At September 30, 1996, the Company had borrowings of $115.5
million outstanding under the New Credit Facility, and a remaining borrowing
capacity of $5.3 million. The outstanding borrowings under the New Credit
Facility at September 30, 1996 approximated fair value for loans with similar
terms and were subject to a weighted average interest rate of 8.3%.
Under the terms of the New Credit Facility, the Company is required to cap
a portion of its interest rate risk. As of April 30, 1996, the Company had
entered into several two-year interest rate cap agreements for a combined
notional principal amount of $65 million, which capped the Company's floating
rate LIBOR index to a weighted average rate of 6.5%. Premiums paid for the
interest rate cap agreements have been capitalized and are amortized as interest
expense over the terms of the caps. Unamortized premiums are included with other
assets in the accompanying consolidated balance sheet. There are no amounts
receivable under the cap agreements at September 30, 1996. In the future, such
receivable amounts, if any, will be accrued as a reduction of interest expense.
In March 1996, the Company issued 125,000 units (the "Units") comprised of
$125 million of 11.5% senior subordinated notes (the "Notes") and warrants (the
"Warrants") to purchase 643,750 shares of the Company's common stock. Each Unit
consisted of one $1,000 Note and one detachable Warrant to acquire 5.15 shares
of the Company's common stock at an exercise price of $13.475 per share, subject
to adjustment in certain events. The Notes were recorded net of a $3.3 million
discount equal to the fair value of the Warrants as of March 13, 1996, which is
being amortized to interest expense over the term of the Notes. Interest on the
Notes is payable semi-annually on March 15 and September 15, commencing on
September 15, 1996. The Notes are callable at the option of the Company, in
whole or in part, on or after March 15, 2001, at predetermined redemption
prices. The Notes are due and the Warrants expire on March 15, 2006. The fair
market value of the Notes was $132.2 million at September 30, 1996.
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future senior debt, and rank senior in
right of payment to all future subordinated indebtedness of the Company. Upon a
change of control, as defined, the holders of the Notes have the right to
require the Company to purchase their Notes, in whole or in part, at a price
equal to 101% of the aggregate principle amount thereof. The Notes are jointly
and severally guaranteed on a senior subordinated basis by each of the Company's
existing and future domestic subsidiaries. Certain of the Company's subsidiaries
are foreign subsidiaries and are not guarantors. See Note 17 for supplemental
condensed consolidating financial information relating to the guarantor and
non-guarantor subsidiaries.
The New Credit Facility and the Notes contain restrictive convenants which,
among other things, limit the Company's ability to incur additional debt, pay
dividends, consummate certain acquisitions, make certain asset sales, and incur
certain liens.
The holders of the Warrants have no voting rights, no right to receive
dividends, and no liquidation rights in the event of a liquidation, dissolution,
or winding-up of the Company.
In September 1992, the Company sold $15 million of convertible subordinated
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.
NOTE 7: Lease Commitments
The Company leases buildings, equipment and machinery under various
operating leases. Future minimum payments at September 30, 1996 under
noncancellable operating leases were (in thousands):
1997 $ 9,782
1998 8,461
1999 6,850
2000 5,417
2001 4,810
Thereafter 15,467
-------
$50,787
=======
Rental expense related to operating leases was $11,296,000 in 1996,
$8,109,000 in 1995, and $7,780,000 in 1994.
NOTE 8: Redeemable Preferred Stock
Authorized preferred stock consists of 2,000,000 shares of $0.01 par value
preferred stock of which 200,000 shares have been designated as Series F Junior
Participating Preferred Stock and 1,000,000 shares as Series G Convertible
Preferred Stock.
In connection with the Deltec acquisition, the Company issued 1,000,000
shares of the Company's Series G Convertible Preferred Stock valued at
approximately $18 million in March 1996. The Series G Preferred Stock is
convertible into shares of the Company's common stock on a one-for-one basis
(subject to adjustment under certain circumstances), has a per annum dividend
rate of $0.80 per share through March 31, 2001 and $1.20 per share thereafter,
is subject to redemption at the option of the holder at $24 per share at any
time after September 30, 2006, and has a liquidation preference of $20 per share
plus all accrued and unpaid dividends. Straight-line adjustments to accrete the
recorded amount of the Series G Preferred Stock to the future redemption value
were approximately $312,000 in fiscal 1996. Under the terms of the Notes, the
Company is prohibited from paying dividends under certain circumstances. Under
these provisions, the Company was not permitted to pay dividends on the Series G
Preferred Stock as of September 30, 1996. Dividends in arrears of $439,000 at
September 30, 1996 have been accrued and will be paid as the provisions relating
to the Notes permit.
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.
NOTE 9: Common Shareholders' Equity
As of September 30, 1996, the Company had notes receivable of $5,304,000
(including accrued interest of $1,888,000) related to the sale of 499,465 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 $4,930,000 and $4,956,000 at September 30,
1996 and 1995, 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 September 1995, the Board of Directors authorized the repurchase of up
to 5% of the Company's outstanding common stock. Purchases were to be made from
time to time as management considered appropriate. As of September 30, 1996, the
Company had repurchased approximately 387,000 shares of its common stock, net of
approximately 58,000 shares which were reissued under the Company's Employee
Stock Purchase Plan during fiscal 1996. The Company has no further plans to
repurchase stock at this time.
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 exercise 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 exercise 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 to purchase up to 550,000 shares of the Company's common
stock. The exercise 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 exercise 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 Grant
Available Options Price
for Grant Outstanding Range
--------- ---------- ----------
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
------ ------- ------------
Granted (268,750) 268,750 12.88-18.75
Exercised - (20,375) 6.50-12.50
Forfeited 58,516 (58,516) 6.50-23.50
------ ------- ------------
Balances at September 30, 1996 559,834 841,017 $6.50-$23.50
======= ======= ============
As of September 30, 1996, 377,687 outstanding options 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, 1996, 292,200 shares have
been issued under this plan. Under the current offering, which expires December
31, 1996, the offering price at the beginning of the offering period was $13.23.
Defined Contribution 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 $2,492,000 in 1996, $1,917,000 in 1995, and
$2,303,000 in 1994.
Defined Benefit Plan- One of the Company's foreign subsidiaries has a
defined benefit pension plan covering all their employees. Contributions are
made to an independent insurance company, which also holds and invests the
plan's assets. For the period from March 13, 1996 to September 30, 1996, pension
expense approximated $520,000. The projected benefit obligation as of the most
recent actuarial valuation date was $783,000, using an assumed discount rate of
7.4%. The fair value of plan assets available for payment of benefits was
$1,214,000. The assumed expected long-term rate of return on plan assets is 7%.
NOTE 11: Geographic Operations
(in thousands) 1996 1995 1994
---- ---- ----
Revenues
United States -
Unaffiliated customers
United States $ 289,478 $ 268,289 $ 273,087
Latin America 29,447 36,590 31,392
Far East 25,448 23,353 13,138
Other 1,607 452 8,669
Intercompany 84,702 37,338 22,030
Outside the United States -
Unaffiliated customers
Europe 65,584 34,975 19,193
Canada 16,837 18,523 14,779
Far East 15,708 5,306 3,725
Latin America 7,894 1,019 -
Other 7,933 2,471 -
Intercompany 10,353 6,541 3,360
Intercompany eliminations (95,055) (43,879) (25,390)
------- ------- -------
Total revenues $ 459,936 $ 390,978 $ 363,983
========= ========= =========
Income (loss) before income taxes
United States $ (16,309) $ 9,035 $ 13,333
Latin America 2,129 (31) -
Europe (1,381) 2,097 (218)
Canada 416 419 120
Other 440 557 224
--- --- ---
Income (loss) before income
taxes $ (14,705) $ 12,077 $ 13,459
========= ========= =========
Identifiable Assets
United States $ 344,205 $ 213,541 $ 190,515
Europe 122,997 24,935 18,842
Canada 12,879 15,179 14,019
Other 9,393 2,796 1,300
----- ----- -----
Total assets $ 489,474 $ 256,451 $ 224,676
========= ========= =========
Revenues include sales to unaffiliated customers and the Company's
unconsolidated joint venture in Japan. 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
Components of the income tax provision (benefit) are shown below (in thousands):
1996 1995 1994
---- ---- ----
Provision for (benefit from) income taxes:
Federal
Current $(1,430) $ 4,691 $ 4,784
Deferred (5,604) (731) (1,020)
---- ---- ------
Total federal (7,034) 3,960 3,764
----- ----- -----
State
Current 252 653 619
Deferred (180) - (275)
---- ---- ----
Total state 72 653 344
--- --- ---
Foreign
Current 2,503 269 228
Deferred (467) (190) (52)
---- ---- ---
Total foreign 2,036 79 176
--- --- ---
Total $(4,926) $ 4,692 $ 4,284
======= ======= =======
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):
1996 1995 1994
---- ---- ----
Deferred income, net $ (726) $ (352) $(775)
Provisions for uncollectible accounts (214) (204) 365
Inventory provisions (47) (1,310) (208)
Foreign currency gains and losses (10) (104) 5
Depreciation (363) 515 127
Amortization of identifiable
intangible assets (3,766) - -
Restructuring reserves (842) (613) -
Intercompany profit in inventory (358) 47 160
The effective income tax provision (benefit) differs from the amount
computed by applying the federal statutory rate of 35% to income before income
taxes due to the following (in thousands):
1996 1995 1994
---- ---- ----
Income tax expense (benefit) computed at
the federal statutory rate $(5,147) $ 4,227 $ 4,710
State taxes, net of federal tax effect (240) 424 253
Effect of permanent differences,
including goodwill amoritization 1,640 1,413 442
Benefit of Foreign Sales Corporation (425) (315) (206)
Change in valuation allowance -- (995) (534)
Other (754) (62) (381)
---- --- ----
Provision (benefit)for income taxes $(4,926) $ 4,692 $ 4,284
------- ------- -------
The components of the Company's net deferred tax assets (liabilities) were
as follows (in thousands):
September 30,
1996 1995
---- ----
Current:
Service revenue deferred for
financial reporting purposes $ 5,884 $ 4,842
Non-deductible accruals 9,121 6,491
Accelerated expenses recognized
for tax purposes (1,521) (1,548)
Valuation allowance (867) (867)
Other 1,380 754
---- ----
Current net deferred tax asset 13,997 9,672
----- -----
Non-current:
NOLs of foreign subsidiaries 1,679 1,234
Accelerated depreciation for tax purposes (2,145) (1,979)
Accelerated expenses for tax purposes (2,778) (955)
Valuation allowance (370) (370)
Identifiable intangible assets (1,721) -
Other (1,656) 212
---- ----
Non-current net deferred tax liability (6,991) (1,858)
------ ------
Net deferred tax assets $ 7,006 $ 7,814
======= =======
Included in the non-current items listed in the table above are $1.5
million and $0.9 million of non-current deferred tax assets at September 30,
1996 and 1995, respectively. Such assets were classified as other non-current
assets in the accompanying consolidated balance sheet.
The Company's foreign subsidiaries have tax NOLs of approximately $4.1
million, all of which have 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 $1.7 million. Although the Company anticipates
future operating income in these subsidiaries, because of prior losses in one
operation, 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 U.S. taxes on undistributed earnings of
its foreign subsidiaries of approximately $16.1 million at September 30, 1996,
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 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, 1996, are as follows (in
thousands):
1996 1995 1994
---- ---- ----
Income taxes paid $ 5,201 $ 4,665 $9,616
Interest paid 20,994 4,775 4,990
Liabilities assumed in exchange for
certain assets in acquisitions of
subsidiaries (see Notes 2 and 14) 521 450 2,505
Conversion of preferred stock to common
stock (see Note 8) - 10,000 -
Conversion of subordinated debt to common
stock (see Note 6) 15,000 - -
Issuance of common stock in the acquisition
of a subsidiary (see Notes 2 and 14) 11,550 - 944
Issuance of preferred stock in the acquisition
of a subsidiary (see Note 2) 18,000 - -
Note receivable repaid with proceeds from
treasury stock purchases 476 605 -
Issuance of common stock from treasury stock 347 - -
Note 14: Acquisitions
During the fourth quarter of fiscal 1994, the Company acquired two
companies in Canada and one in the United Kingdom. These companies were 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.
On February 8, 1995, the Company completed the merger of International
Power Machines, Inc. ("IPM") with and into a newly-formed subsidiary of the
Company. IPM develops, manufactures, sells, and services UPS products. 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 results for all periods presented include the results of IPM. A nonrecurring
charge of $5.5 million was recorded in the second quarter of fiscal 1995 for
costs related to the IPM merger (see Note 16).
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 $11.5 million, which is being
amortized over 20 years. 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 fiscal 1995, 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. These
costs have been included in acquisition, and restructuring expenses for fiscal
1995.
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 March 1994, a jury 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 could not 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
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 the suits which were taking valuable corporate time and attention and
would have involved significant legal costs to pursue further.
On August 21, 1995, a case entitled National Broadcasting Company, Inc. and
CNBC, Inc. vs. International Power Machines/LorTec Systems Inc. et al, was filed
against IPM in the Supreme Court of New York, New York County. The plaintiffs
allege that IPM negligently manufactured and installed a UPS product that caused
them property and compensatory damages when the equipment malfunctioned during
the installation of the product by third-party contractors. The plaintiffs have
filed seven causes of action, each of which seeks damages in the amount of $1.1
million. Three of those causes of action also seek $3 million in punitive
damages. Claims of this nature are generally covered by the Company's insurance
and its insurer has accepted general defense of the matter. The insurer has
notified the Company that while claims based on IPM's negligent manufacture or
design are covered by the insurance policy, damages, if any, caused by IPM's
intentional or careless decision to install a known defective and dangerous
product would be subject to certain exclusions under the policy. While discovery
is at an early stage, the Company believes at this time, based on the advice of
of its defense counsel, that no evidence has yet been presented that supports
any allegation of intentional or careless conduct. IPM also believes that it has
meritorious defenses and counter-claims against the third-party co-defendants,
who the Company alleges defectively installed the UPS product. The Company
believes that the final outcome of this matter will not have a material adverse
effect on the business or the financial statements of the Company and its
subsidiaries taken as a whole.
The Company is involved in various other 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 13%, 27%, and 33% of total revenues for the fiscal
years 1996, 1995, and 1994, 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,
1996.
During the fourth quarter of fiscal 1996, the Company was awarded a
follow-on contract with the Air Force Air Logistics Center (the "ALC II
contract"). In October 1996, the Company was notified by the Air Force that a
competitor had filed a protest with the General Accounting Office ("GAO")
contesting the award of this contract to Exide Electronics. The requirements
contract, which has a base term of three years and a two-year Air Force renewal
option, was awarded to the Company as a result of a new bid process following a
protest of an earlier award to the Company of a similar contract in June 1995.
As required by the rules governing government contract protests, work under the
contract was automatically suspended. In January 1997, the Company was notified
by the Air Force that the GAO had advised the Air Force that all claims in the
protest had been denied. This permits the Company to immediately begin
performance on the contract. The Company has not yet received the GAO's formal
written decision, and it is unknown whether further appeals will be made by the
competitor who filed the protest. There have been no material purchases to date
under the ALC II contract. There can be no assurances that the ALC II contract
will remain in effect for any definite period or that the Air Force will place
any orders with the Company against such contract.
NOTE 16: Summarized Quarterly Financial Data
(unaudited, in thousands except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- ------- ------- -------- --------
1996
Total revenues $83,303 $101,688 $130,454 $144,491 $459,936
Gross profit 22,215 28,686 39,746 43,258 133,905
Net income (loss) 413 (8,991) (2,978) 1,242 (10,314)
Per share amounts
Primary $ 0.04 $ (0.97) $ (0.33) $ 0.09 $ (1.15)
======= ======== ======== ======== ========
Fully diluted $ 0.04 $ (0.97) $ (0.33) $ 0.09 $ (1.15)
======= ======== ======== ======== ========
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
======= ======== ======== ======== ========
As a result of the acquisition of Deltec, the Company recorded a
nonrecurring charge of $11.6 million ($7.1 million after tax) in the second
quarter of fiscal 1996. In the third quarter of fiscal 1996, the Company
recorded a nonrecurring charge of $3.0 million ($2.1 million after tax) to cover
costs related to the closing of its manufacturing facility in Dallas, Texas.
These charges are discussed in more detail in Note 2.
In the second quarter of fiscal 1995, the Company recorded a nonrecurring
charge of $5.5 million ($4.4 million after tax) in connection with the merger
with IPM (see Note 14). 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 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.
NOTE 17: Supplemental Condensed Consolidating Financial Information
The Company's payment obligations under the Notes (see Note 6) are
guaranteed by certain of the Company's wholly-owned subsidiaries (the "Guarantor
Subsidiaries"). Such guarantees are full, unconditional and joint and several.
Separate financial statements of the Guarantor Subsidiaries are not presented
because the Company's management has determined that they would not be material
to investors. The following supplemental financial information sets forth, on an
unconsolidated basis, statement of operations, balance sheet, and statement of
cash flow information for the Company ("Parent Company Only"), for the Guarantor
Subsidiaries and for the Company's other subsidiaries (the "Non-Guarantor
Subsidiaries"). The supplemental financial information reflects the investments
of the Company and the Guarantor Subsidiaries in the Guarantor and Non-Guarantor
Subsidiaries using the equity method of accounting. Certain reclassifications
have been made to provide for uniform disclosure of all periods presented. These
reclassifications are not material.
In the fourth quarter of fiscal 1996, the Company refined its preliminary
purchase price allocation related to the acquisition of Deltec. This refinement
resulted in a change in the amounts allocated between certain Guarantor,
Non-Guarantor companies and from those previously reported in the Company's
quarterly financial statements.
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
Product revenues....................... $ -- $332,104 $102,674 $(95,055) $339,723
Service revenues....................... -- 98,578 21,635 -- 120,213
------- ------------ ------------- ------------ ------------
Total revenues............... -- 430,682 124,309 (95,055) 459,936
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 259,909 79,934 (94,604) 245,239
Service cost of revenues............... -- 67,645 13,147 -- 80,792
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 327,554 93,081 (94,604) 326,031
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 103,128 31,228 (451) 133,905
Selling, general and administrative
expense.............................. 463 72,780 25,812 -- 99,055
Research and development expense....... -- 11,843 812 -- 12,655
Acquisition, restructuring
and litigation expense............... 1,055 11,805 1,761 -- 14,621
------- ------------ ------------- ------------ ------------
Income (loss) from operations..... (1,518) 6,700 2,843 (451) 7,574
Interest expense....................... 5,910 16,148 1,136 -- 23,194
Interest income........................ (259) 66 (276) -- (469)
Other (income) expense................. -- 77 (523) -- (446)
------- ------------ ------------- ------------ ------------
Income (loss) before income
taxes........................... (7,169) (9,591) 2,506 (451) (14,705)
Provision for (benefit from) income
taxes................................ (2,643) (2,780) 497 -- (4,926)
Minority interest in net income of
subsidiaries......................... -- -- 535 -- 535
------ ----- --- --- -----
Income (loss) before equity in income
(loss) of consolidated subsidiaries.. (4,526) (6,811) 1,474 (451) (10,314)
Equity in income (loss) of consolidated
subsidiaries......................... (5,788) 1,474 -- 4,314 --
------- ------------ ------------- ------------ ------------
Net income (loss)...................... $(10,314) $ (5,337) $ 1,474 $ 3,863 $(10,314)
======== ========== =========== ========== ==========
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
Product revenues....................... $ -- $261,101 $54,415 $(44,034) $271,482
Service revenues....................... -- 105,126 14,370 -- 119,496
------- ------------ ------------- ------------ ------------
Total revenues............... -- 366,227 68,785 (44,034) 390,978
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 204,491 43,872 (43,680) 204,683
Service cost of revenues............... -- 73,654 8,776 -- 82,430
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 278,145 52,648 (43,680) 287,113
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 88,082 16,137 (354) 103,865
Selling, general and administrative
expense.............................. 365 57,106 12,495 -- 69,966
Research and development expense....... -- 9,929 -- -- 9,929
Acquisition, restructuring and
litigation expense................... 5,200 2,500 -- -- 7,700
------- ------------ ------------- ------------ ------------
Income (loss) from operations..... (5,565) 18,547 3,642 (354) 16,270
Interest expense....................... 1,314 3,828 540 (107) 5,575
Interest income........................ (315) (32) (138) -- (485)
Other (income) expense................. (1,312) 217 204 (6) (897)
------- ------------ ------------- ------------ ------------
Income (loss) before income
taxes........................... (5,252) 14,534 3,036 (241) 12,077
Provision for (benefit from) income
taxes................................ (1,118) 5,730 80 -- 4,692
------ ----- --- --- -----
Income (loss) before equity in income
of consolidated subsidiaries......... (4,134) 8,804 2,956 (241) 7,385
Equity in income of consolidated
subsidiaries......................... 11,519 2,956 -- (14,475) --
------- ------------ ------------- ------------ ------------
Net income (loss)...................... $ 7,385 $ 11,760 $ 2,956 $(14,716) $ 7,385
======= ========= =========== ========= =========
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
Product revenues....................... $ -- $252,938 $31,855 $(25,390) $259,403
Service revenues....................... -- 94,931 9,649 -- 104,580
------- ------------ ------------- ------------ ------------
Total revenues............... -- 347,869 41,504 (25,390) 363,983
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 193,729 25,131 (25,288) 193,572
Service cost of revenues............... -- 64,893 6,823 -- 71,716
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 258,622 31,954 (25,288) 265,288
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 89,247 9,550 (102) 98,695
Selling, general and administrative
expense.............................. 222 55,652 9,212 -- 65,086
Research and development expense....... -- 10,150 -- -- 10,150
Acquisition, restructuring and
litigation expense................... -- 4,997 -- -- 4,997
------- ------------ ------------- ------------ ------------
Income (loss) from operations (222) 18,448 338 (102) 18,462
Interest expense....................... 1,300 3,918 199 -- 5,417
Interest income........................ (278) (85) (125) -- (488)
Other (income) expense................. (1,305) 1,137 231 11 74
------- ------------ ------------- ------------ ------------
Income before income taxes............. 61 13,478 33 (113) 13,459
Provision for income taxes............. 25 4,074 185 -- 4,284
------ ----- --- --- -----
Income before equity in income
(loss) of consolidated subsidiaries.. 36 9,404 (152) (113) 9,175
Equity in income (loss) of consolidated
subsidiaries......................... 9,139 (152) -- (8,987) --
------- ------------ ------------- ------------ ------------
Net income (loss)...................... $ 9,175 $ 9,252 $ (152) $ (9,100) $ 9,175
======= ========= =========== ========= =========
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1996
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
ASSETS
Current assets
Cash and cash equivalents............ $ -- $ 2,224 $ 5,624 $ -- $ 7,848
Accounts receivable.................. -- 91,197 38,226 -- 129,423
Intercompany accounts receivable..... 12,139 40,848 5,023 (58,010) --
Inventories.......................... -- 71,699 19,321 (951) 90,069
Deferred tax assets.................. -- 13,836 161 -- 13,997
Other current assets................. 398 4,218 1,796 -- 6,412
------- ------------ ------------- ------------ ------------
Total current assets......... 12,537 224,022 70,151 (58,961) 247,749
Property, plant, and equipment, net.... -- 43,159 5,762 -- 48,921
Goodwill............................... -- 90,555 63,818 -- 154,373
Non-current intercompany receivables... 89,585 155,858 -- (245,443) --
Investment in affiliates............... 267,799 93,326 -- (360,473) 652
Other assets........................... 9,820 16,994 10,965 -- 37,779
------- ------------ ------------- ------------ ------------
$379,741 $623,914 $150,696 $ (664,877) $489,474
======= ========= =========== ========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt...................... $ 6,702 $ -- $ 7,866 $ -- $ 14,568
Accounts payable..................... 27,250 26,884 16,912 -- 71,046
Intercompany accounts payable........ -- 39,351 18,659 (58,010) --
Deferred revenues.................... -- 19,556 2,357 -- 21,913
Accrued compensation................. -- 9,719 2,181 -- 11,900
Other accrued liabilities............ -- 7,814 4,641 -- 12,455
------- ------------ ------------- ------------ ------------
Total current liabilities.... 33,952 103,324 52,616 (58,010) 131,882
Long-term debt......................... 108,833 -- 1,514 -- 110,347
Subordinated notes..................... 121,920 -- -- -- 121,920
Non-current intercompany payables....... -- 245,443 -- (245,443) --
Deferred liabilities................... 385 7,348 2,179 -- 9,912
Redeemable preferred stock............. 18,312 -- -- -- 18,312
Minority interest...................... -- -- 536 226 762
Common shareholders' equity............ 96,339 267,799 93,851 (361,650) 96,339
------- ------------ ------------- ------------ ------------
$379,741 $623,914 $150,696 $ (664,877) $489,474
======= ========= =========== ========= =========
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1995
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
ASSETS
Current assets
Cash and cash equivalents............ $ -- $ 593 $ 2,194 $ -- $ 2,787
Accounts receivable.................. -- 85,512 20,012 -- 105,524
Intercompany accounts receivable..... 206 39,843 791 (40,840) --
Inventories.......................... -- 62,923 10,473 (506) 72,890
Other current assets................. 57 12,124 1,196 -- 13,377
------- ------------ ------------- ------------ ------------
Total current assets......... 263 200,995 34,666 (41,346) 194,578
Property, plant, and equipment, net.... -- 32,901 2,156 -- 35,057
Goodwill............................... -- 12,224 6,514 -- 18,738
Non-current intercompany receivables... 26,969 21,972 -- (48,941) --
Investment in affiliates............... 85,766 18,927 -- (104,295) 398
Other assets........................... 425 6,381 874 -- 7,680
------- ------------ ------------- ------------ ------------
$113,423 $293,400 $44,210 $ (194,582) $256,451
======= ========= =========== ========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt...................... $ 456 $ 68 $ 7,131 $ -- $ 7,655
Accounts payable..................... -- 41,100 4,941 -- 46,041
Intercompany accounts payable........ 9,007 23,599 8,234 (40,840) --
Deferred revenues.................... -- 13,021 2,581 -- 15,602
Other accrued liabilities............ 355 17,153 2,230 (1) 19,737
------- ------------ ------------- ------------ ------------
Total current liabilities.... 9,818 94,941 25,117 (40,841) 89,035
Long-term debt......................... -- 65,258 -- -- 65,258
Subordinated notes..................... 15,000 -- -- -- 15,000
Non-current intercompany payables...... 4,838 44,103 -- (48,941) --
Deferred liabilities................... -- 3,332 59 -- 3,391
Common shareholders' equity............ 83,767 85,766 19,034 (104,800) 83,767
------- ------------ ------------- ------------ ------------
$113,423 $293,400 $44,210 $ (194,582) $256,451
======= ========= =========== ========= =========
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1996
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
Cash flows from operating activities
Net income (loss)........................ $(10,314) $ (5,337) $1,474 $ 3,863 $(10,314)
Adjustments to reconcile net income (loss)
to cash provided by operating
activities:
Depreciation expense................... -- 7,407 1,295 -- 8,702
Amortization expense................... -- 8,316 5,157 -- 13,473
Write-off of in-process research and...
development ......................... -- 2,972 1,761 -- 4,733
Restructuring provisions............... -- 7,826 -- -- 7,826
Equity in (income) loss of consolidated
subsidiaries......................... 5,788 (1,474) -- (4,314) --
(Increase) decrease in accounts
receivable........................... (11,933) (6,342) (8,536) 26,177 (634)
(Increase) decrease in inventories..... -- 5,423 (1,552) 445 4,316
(Increase) decrease in other current
assets............................... (341) (3,027) 2,994 -- (374)
Increase in deferred taxes............. -- (4,786) -- -- (4,786)
Increase (decrease) in accounts
payable.............................. 27,250 2,746 11,276 (26,177) 15,095
Decrease in other current liabilities.. (361) (4,168) (5,355) -- (9,884)
Other, net............................. -- (4,521) (1,354) -- (5,875)
--------- ------------ ------- ------------ ------------
Net cash provided by operating
activities.......................... 10,089 5,035 7,160 (6) 22,278
--------- ------------ ------- ------------ ------------
Cash flows from investing activities
Acquisitions of property, plant, and
equipment.............................. -- (10,543) (1,188) -- (11,731)
Acquisitions, net of cash acquired....... (167,004) -- -- -- (167,004)
Other, net............................... (91,413) 89,999 2,753 6 1,345
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
investing activities.............. (258,417) 79,456 1,565 6 (177,390)
--------- ------------ ------- ------------ ------------
Cash flows from financing activities
Proceeds from bank credit facilities..... 170,160 76,000 7,595 -- 253,755
Payments of bank credit facilities....... (55,247) (141,000) (6,522) -- (202,769)
Payments for debt issue costs............ (9,654) -- -- -- (9,654)
Issuance of subordinated debt............ 121,741 -- -- -- 121,741
Issuance of common stock................. 1,005 -- -- -- 1,005
Issuance of common stock warrants........ 3,259 -- -- -- 3,259
Purchases of treasury stock.............. (6,926) -- -- -- (6,926)
Payments of notes receivable from
shareholders........................... 215 -- -- -- 215
Other, net............................... 23,775 (17,860) (6,368) -- (453)
--------- ------------ ------- ----------- ------------
Net cash provided by (used in)
financing activities.............. 248,328 (82,860) (5,295) -- 160,173
--------- ------------ ------- ----------- ------------
Net increase in cash and cash
equivalents.............................. -- 1,631 3,430 -- 5,061
Cash and cash equivalents, beginning of
period................................... -- 593 2,194 -- 2,787
--------- ------------ ------- ----------- ------------
Cash and cash equivalents, end of period... $ -- $ 2,224 $5,624 $ -- $ 7,848
========= =========== ========== =========== ===========
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1995
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
(IN THOUSANDS)
Cash flows from operating activities
Net income .............................. $ 7,385 $ 11,760 $2,956 $(14,716) $ 7,385
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation expense................... -- 6,182 501 -- 6,683
Amortization expense................... 57 2,132 573 -- 2,762
Equity in income of consolidated
subsidiaries......................... (11,519) (2,956) -- 14,475 --
(Increase) decrease in accounts
receivable........................... (206) 2,485 (4,526) 4,498 2,251
Increase in inventories................ -- (15,304) (2,179) 352 (17,131)
(Increase) decrease in other current
assets............................... (52) 1,970 (138) -- 1,780
Increase in deferred taxes............. -- (2,019) -- -- (2,019)
Increase (decrease) in accounts
payable.............................. (860) 5,298 (17) (4,498) (77)
Increase (decrease) in other current
liabilities.......................... (156) (1,021) 485 1 (691)
Other, net............................. 83 178 (96) -- 165
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
operating activities.............. (5,268) 8,705 (2,441) 112 1,108
--------- ------------ ------- ------------ ------------
Cash flows from investing activities
Acquisitions of property, plant, and
equipment.............................. -- (11,553) (944) -- (12,497)
Acquisitions, net of cash acquired....... (250) (13,151) -- 250 (13,151)
Other, net............................... 1,612 555 (63) (2,154) (50)
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
investing activities.............. 1,362 (24,149) (1,007) (1,904) (25,698)
--------- ------------ ------- ------------ ------------
Cash flows from financing activities
Proceeds from bank credit facilities..... -- 139,600 4,113 -- 143,713
Payments of bank credit facilities....... -- (114,329) (1,945) -- (116,274)
Payments of industrial revenue bonds..... -- (4,600) -- -- (4,600)
Issuance of common stock................. 1,342 -- -- -- 1,342
Purchases of treasury stock.............. (703) -- -- -- (703)
Preferred stock dividends of Exide
Electronics............................ (789) -- -- -- (789)
Preferred stock dividends of IPM......... -- (1,226) -- -- (1,226)
Payments of notes receivable from
shareholders........................... 136 -- -- -- 136
Other, net............................... 3,920 (7,162) 1,342 1,792 (108)
--------- ------------ ------- ------------ ------------
Net cash provided by financing
activities........................ 3,906 12,283 3,510 1,792 21,491
--------- ------------ ------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents.............................. -- (3,161) 62 -- (3,099)
Cash and cash equivalents, beginning of
period................................... -- 3,754 2,132 -- 5,886
--------- ------------ ------- ------------ ------------
Cash and cash equivalents, end of period... $ -- $ 593 $2,194 $ -- $ 2,787
========= =========== ============== =========== ===========
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1994
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
(IN THOUSANDS)
Cash flows from operating activities
Net income (loss)........................ $ 9,175 $ 9,252 $ (152) $(9,100) $ 9,175
Adjustment to conform fiscal year
of IPM................................. -- 49 -- -- 49
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating
activities:
Depreciation expense................... -- 5,701 404 -- 6,105
Amortization expense................... -- 2,110 215 -- 2,325
Equity in (income) loss of consolidated
subsidiaries......................... (9,139) 152 -- 8,987 --
(Increase) decrease in accounts
receivable........................... -- (3,334) (5,207) 1,190 (7,351)
Increase in inventories................ -- (4,483) (239) (221) (4,943)
(Increase) decrease in other current
assets............................... (4) (731) (357) 13 (1,079)
Increase in deferred taxes............. -- (767) -- -- (767)
Increase (decrease) in accounts
payable.............................. 63 (1,318) 5,102 (1,190) 2,657
Increase (decrease) in other current
liabilities.......................... (57) 1,997 (52) 23 1,911
Other, net............................. -- 332 64 -- 396
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
operating activities.............. 38 8,960 (222) (298) 8,478
--------- ------------ ------- ------------ ------------
Cash flows from investing activities
Acquisitions of property, plant, and
equipment.............................. -- (8,206) (529) -- (8,735)
Acquisitions, net of cash acquired....... -- -- (3,580) -- (3,580)
Other, net............................... 1,169 1,264 (1,567) (2,442) (1,576)
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
investing activities.............. 1,169 (6,942) (5,676) (2,442) (13,891)
--------- ------------ ------- ------------ ------------
Cash flows from financing activities
Proceeds from bank credit facilities..... -- 88,629 3,309 -- 91,938
Payments of bank credit facilities....... -- (83,430) (199) -- (83,629)
Payments of industrial revenue bonds..... -- (3,500) -- -- (3,500)
Decrease in funds held in trust for
future construction.................... -- 2,600 -- -- 2,600
Issuance of common stock................. 1,055 -- -- -- 1,055
Preferred stock dividends of Exide
Electronics............................ (839) -- -- -- (839)
Preferred stock dividends of IPM......... -- (500) -- -- (500)
Payments of notes receivable from
shareholders........................... 276 -- -- -- 276
Other, net............................... (1,699) (2,253) 645 2,740 (567)
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
financing activities.............. (1,207) 1,546 3,755 2,740 6,834
--------- ------------ ------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents.............................. -- 3,564 (2,143) -- 1,421
Cash and cash equivalents, beginning of
period................................... -- 190 4,275 -- 4,465
--------- ------------ ------- ------------ ------------
Cash and cash equivalents, end of period... $ -- $ 3,754 $2,132 $ -- $ 5,886
========= =========== ============== =========== ===========
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 25, 1997, 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, 1996.
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 25,
1997, 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, 1996.
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 25, 1997, 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, 1996.
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 25, 1997, 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, 1996.
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, 1996
Consolidated Balance Sheet as of September 30, 1996 and 1995
Consolidated Statement of Changes in Common Shareholders' Equity for
the three years ended September 30, 1996
Consolidated Statement of Cash Flows for the three years ended
September 30, 1996
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., dated November 16, 1995 (filed as Exhibit 10 to the
Company's Current Report on Form 8-K, File No. 0-18106, filed on
November 17, 1995, and incorporated by reference herein).
2(e) Letter Agreement to Amend Stock Purchase Agreement by and between
Exide Electronics Group, Inc. and Fiskars Oy Ab, Fiskars Holdings,
Inc. and Deltec Power Systems, Inc., dated February 9, 1996 (filed as
Exhibit 10.2 to the Company's Form 8-K, File No. 000-18106, filed on
February 21, 1996 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) 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(d) 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).
3(e) Form of Certificate of Designation of the Series G Preferred Stock of
the Company (filed as attachment to Schedule 2.1(d) of Exhibit 10.2 to
the Company's Form 8-K/A, File No. 000-18106, filed on March 22, 1996
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) Indenture, dated as of March 13, 1996, among the Company, the
Guarantors(as defined therein) and American Bank National Association,
as trustee, relating to 125,000,000 principal amount of 11 1/2% Senior
Subordinated Notes due 2006 (filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-4, File No. 333-2471, and
incorporated by reference herein).
4(i) Form of 11 1/2% Series A and Series B Senior Subordinated Notes due
2006 (filed as Exhibit 4.2 to the Company's Registration Statement on
Form S-4, File No. 333-2471, and incorporated by reference herein).
4(j) Registration Rights Agreement, dated as of March 13, 1996, among the
Company, the Guarantors (as defined therein) and the Initial
Purchasers (filed as Exhibit 4.3 to the Company's Registration
Statement on Form S-4, File No. 333-2471, and incorporated by
reference herein).
4(k) Warrant Agreement, dated as of March 13, 1996, between the Company and
American Bank National Association, as warrant agent, relating to
125,000 Warrants to purchase in the aggregate 643,750 shares of Common
Stock (filed as Exhibit 4.4 to the Company's Registration Statement on
Form S-4, File No. 333-2471, and incorporated by reference herein).
4(l) Warrant Registration Rights Agreement, dated March 13, 1996, between
the Company and the Initial Purchasers (filed as Exhibit 4.5 to the
Company's Registration Statement on Form S-4, File No. 333-2471, and
incorporated by reference herein).
4(m) Stockholder Agreement, dated March 13, 1996, between the Company and
Fiskars Oy Ab (filed as Exhibit 4.6 to the Company's Registration
Statement on S-4, File No. 333-2471, 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 (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, 1995, and incorporated by reference herein).
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)Security Agreement, dated March 13, 1996, among the Company, the
Guarantors and Morgan Guaranty Trust Company of New York, as
administrative agent (filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-4, File No. 333-2471, 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 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(s)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(t)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(u)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(v)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(w)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(x)Pledge Agreement, dated March 13, 1996, among the Company, Exide
Electronics Corporation, Exide Electronics USA Holdings Corp.,
International Power Machines Corporation and Deltec Power Systems,
Inc., as pledgors, and Morgan Guaranty Trust Company of New York, as
administrative agent (filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-4, File No. 333-2471, and
incorporated by reference herein).
10(y)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(z)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(aa)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(bb)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(cc)Security Agreement, dated March 13, 1996, among the Company, the
Guarantors and Morgan Guaranty Trust Company of New York, as
administrative agent (filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-4, File No. 333-2471, and
incorporated by reference herein).
10(dd)Lease Agreement, dated June 8, 1995, between Banks D. Kerr and Exide
Electronics Corporation relating to the registrant's facility in
Raleigh, North Carolina (filed as Exhibit 10ff to the Company's Annual
Report on Form 10-K, File No. 0-18106, for the fiscal year ended
September 30, 1995, and incorporated by reference herein).
10(ee)Summary Description of 1995 Management Incentive Plan (filed as
Exhibit 10gg to the Company's Annual Report on Form 10-K, File No.
0-18106, for the fiscal year ended September 30, 1995, and
incorporated by reference herein).
10(ff)Credit Agreement, dated as of March 13, 1996, among the Company,
the Guarantors and Morgan Guaranty Trust Company of New York, First
Union National Bank of North Carolina, Bank of America Illinois,
NationsBank, N.A., ABN AMRO Bank, N.V., as lenders, and Morgan
Guaranty Trust Company of New York, as administrative agent, and Bank
of America Illinois, as documentation agent (filed as Exhibit 10.1 to
the Company's Registration Statement on Form S-4, File No. 333-2471,
and incorporated by reference herein).
10(gg)Amendment to Credit Agreement, dated as of March 25, 1996, among
the Company and the Lenders, the Administrative Agent, the Swing
Lender (as defined therein), the Issuing Lender (as defined therein)
and the lenders listed on Schedule 2 thereto (filed as Exhibit 10.2 to
the Company's Registration Statement on Form S-4, File No. 333-2471,
and incorporated by reference herein).
P Contract, dated September 20, 1996, between the United States Air
Force Sacramento Air Logistics Center and Exide Electronics
Corporation (Filed on paper under Form SE pursuant to Rule 202 of
Regulation S-T and incorporated by reference herein.)
10(hh)Amendment No. 3 to Credit Agreement, dated as of June 30, 1996, among
the Company and the Lenders, the Administrative Agent, the Swing
Lender (as defined therein), the Issuing Lender (as defined therein)
and the lenders listed on Schedule 2 thereto.
10(ii)Summary Description of Management Incentive Plan
11 Statement of Computation of Earnings Per Share.
21 Subsidiaries of Exide Electronics Group, Inc.
23(a)Consent of Arthur Andersen LLP.
23(b)Consent of Arthur Andersen LLP.
27 Financial Data Schedule
99 Exide Electronics' Corporation 401(k) Retirement Benefit Plan
financial statements as of December 31, 1995 and 1994.
(b) Reports on Form 8-K:
The Company filed two reports on Form 8-K/A dated July 9, 1996 under Item 2
and Item 5 for the purpose of amending previous information on Form 8-K's filed
on February 21, 1996 and March 13, 1996 related to the acquisition of Deltec
Power Systems, Inc.
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 28, 1996 (except with respect
to the January 1997 notification related to the government contract matter
discussed in Note 15, as to which the date is January 9, 1997). 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 28, 1996
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
- --------------------------------------------------------------------------------
1994 $2,860 $1,475 $(2,187) $2,148
1995 $2,148 $1,495 $(1,126) $2,517
1996 $2,517 $7,167 (1) $(3,649) $6,035
_____________
(1) Includes reserves assumed in the Deltec acquisition which was consummated
during the second quarter of fiscal 1996.
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: January 13, 1997
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 January 13, 1997
James A. Risher Officer, and Director
(principal executive officer)
/s/ MARTY R. KITTRELL Vice President, Chief January 13, 1997
Marty R. Kittrell Financial Officer, and
Treasurer(principal
financial and accounting officer)
/s/ CONRAD A. PLIMPTON Chairman of the Board January 13, 1997
Conrad A. Plimpton and Director
/s/ LANCE L. KNOX Vice-Chairman of the Board January 13, 1997
Lance L. Knox and Director
/s/ WAYNE L. CLEVENGER Director January 13, 1997
Wayne L. Clevenger
/s/ RON E. DOGGETT Director January 13, 1997
Ron E. Doggett
/s/ JAMES E. FOWLER Director January 13, 1997
James E. Fowler
/s/ DAVID J. MCLAUGHLIN Director January 13, 1997
David J. McLaughlin
/s/ CHIAKI TANAKA Director January 13, 1997
Chiaki Tanaka
/s/ RALF R. BOER Director January 13, 1997
Ralf R. Boer
/s/ STIG STENDAHL Director January 13, 1997
Stig Stendahl
Exide Electronics Group, Inc.
Index to Exhibits to 1996 Annual Report on Form 10-K
Exhibit
Number Exhibit
P Contract, dated September 20, 1996, between the United States Air
Force Sacramento Air Logistics Center and Exide Electronics
Corporation (Filed on paper under Form SE pursuant to Rule 202 of
Regulation S-T and incorporated by reference herein.)
10(hh) Amendment No. 3 to Credit Agreement, dated as of June 30, 1996, among
the Company and the Lenders, the Administrative Agent, the Swing
Lender (as defined therein), the Issuing Lender (as defined therein)
and the lenders listed on Schedule 2 thereto.
10(ii) Summary Description of Management Incentive Plan
11 Statement of Computation of Earnings Per Share.
21 Subsidiaries of Exide Electronics Group, Inc.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Arthur Andersen LLP.
27 Financial Data Schedule
99 Exide Electronics' Corporation 401(k) Retirement Benefit Plan
financial statements as of December 31, 1995 and 1994.