UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1997 Commission File No. 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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ x ] No [ ]
As of August 12, 1997, 10,324,619 shares of the Registrant's $0.01 par value
common stock were outstanding.
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues
Products $ 119,184 $ 97,080 $ 328,310 $ 228,558
Services 28,574 33,374 89,208 86,887
------ ------ ------ -------
Total revenues 147,758 130,454 417,518 315,445
------ ------ ------ -------
Cost of revenues
Products 84,179 69,517 230,748 165,604
Services 19,107 21,191 59,464 59,194
------ ------ ------ -------
Total cost of revenues 103,286 90,708 290,212 224,798
------ ------ ------ -------
Gross profit 44,472 39,746 127,306 90,647
Selling, general and administrative expense 31,299 29,716 89,498 68,198
Research and development expense 3,067 3,895 10,586 8,981
Acquisition and restructuring expense -- 3,000 -- 14,621
----- ----- ------ -------
Income (loss) from operations 10,106 3,135 27,222 (1,153)
Interest expense 6,583 7,129 20,656 16,061
Interest income (77) (134) (369) (345)
Other (income) expense 92 (105) 128 80
---- ---- ----- -----
Income (loss) before income taxes 3,508 (3,755) 6,807 (16,949)
Provision (benefit) for income taxes 1,688 (1,062) 3,338 (5,678)
Minority interests in net income (loss) of subsidiaries (65) 285 127 285
----- ----- ------ ------
Income (loss) before extraordinary item 1,885 (2,978) 3,342 (11,556)
Extraordinary item -- -- 2,376 --
----- ----- ------ ------
Net income (loss) $ 1,885 $ (2,978) $ 966 $ (11,556)
Preferred stock dividends and accretion 342 342 1,026 409
---- ---- ---- ----
Net income (loss) applicable to common shareholders $ 1,543 $ (3,320) $ (60) $(11,965)
========= ========= ========== =========
Per Share Amounts
Primary
Net income (loss) before extraordinary item $ 0.15 $ (0.33) $ 0.23 $ (1.26)
Extraordinary item -- -- (0.24) --
----- ----- ----- -----
Net income (loss) $ 0.15 $ (0.33) $ (0.01) $ (1.26)
========== ========= ========== =========
Weighted average number of common and equivalent
shares outstanding 10,092 9,978 10,085 9,461
====== ===== ======= =====
Fully diluted
Net income (loss) before extraordinary item $ 0.15 $ (0.33) $ 0.23 $ (1.26)
Extraordinary item -- -- (0.24) --
----- ----- ----- -----
Net income (loss) $ 0.15 $ (0.33) $ (0.01) $ (1.26)
========== ========== ========== =========
Weighted average number of common and equivalent
shares outstanding 10,095 9,980 10,107 9,461
====== ===== ====== =====
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
2
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(unaudited; dollars in thousands)
June 30, September 30, June 30,
1997 1996 1996
---- ---- ----
Assets
Current assets
Cash and cash equivalents $ 2,775 $ 7,848 $ 9,727
Accounts receivable 137,613 129,423 127,363
Inventories 105,073 90,069 96,522
Other current assets 25,253 20,409 19,873
------ ------ ------
Total current assets 270,714 247,749 253,485
------- ------- -------
Property, plant, and equipment
Land, buildings, and leasehold improvements 17,728 17,539 13,434
Machinery and equipment 76,618 75,768 78,098
------ ------ ------
94,346 93,307 91,532
Accumulated depreciation 44,874 44,386 41,946
------ ------ ------
49,472 48,921 49,586
Goodwill 151,109 154,373 157,287
Other intangible assets 21,098 28,665 27,637
Other assets 14,048 9,766 14,146
------ ------ ------
$ 506,441 $ 489,474 $ 502,141
========= ========= =========
Liabilities, Redeemable Preferred Stock, & Common Shareholders' Equity
Current liabilities
Short-term debt $ 12,024 $ 14,568 $ 12,047
Accounts payable 82,930 71,046 65,432
Deferred revenues 29,460 21,913 22,996
Other accrued liabilities 28,018 24,355 31,501
------ ------ ------
Total current liabilities 152,432 131,882 131,976
------ ------ ------
Long-term debt 98,513 110,347 128,343
------ ------ ------
Subordinated notes 122,165 121,920 121,838
------ ------ ------
Deferred liabilities 19,324 9,912 6,454
----- ----- -----
Minority interests 1,396 762 -
------ ------ ------
Redeemable preferred stock 18,739 18,312 18,170
----- ----- -----
Common shareholders' equity
Common stock, $0.01 par value, 30,000,000
shares authorized; shares issued - 10,373,255
at June 30, 1997, 10,370,505 at September 30,
1996, and 10,367,255 at June 30, 1996 104 104 104
Additional paid-in capital 86,892 87,491 87,406
Retained earnings 21,311 21,372 20,762
Cumulative translation adjustments (4,161) (975) (1,330)
------ ------ ------
104,146 107,992 106,942
Less: Notes receivable from shareholders (5,175) (5,304) (5,233)
Treasury stock, 322,462 shares at June
30, 1997, and 386,668 shares at September
30, 1996 and at June 30, 1996 (5,099) (6,349) (6,349)
----- ----- -----
93,872 96,339 95,360
------ ------ ------
$ 506,441 $ 489,474 $ 502,141
========= ========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
3
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited; in thousands)
Nine Months Ended
June 30,
-------------------
1997 1996
---- ----
Cash flows from operating activities
Net income (loss) $ 966 $(11,556)
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Depreciation expense 7,915 6,317
Amortization expense 8,487 7,413
Write-off of debt issue costs, net of tax 2,376 --
Acquisition and restructuring provisions -- 13,025
Increase in accounts receivable (10,149) (348)
Increase in inventories (14,048) (700)
(Increase) decrease in other current assets (4,813) 196
Increase (decrease) in accounts payable 14,426 (3,952)
Increase in other current liabilities 7,571 2,288
Other, net 5,274 (9,261)
---- ------
Net cash provided by operating activities 18,005 3,422
----- -----
Cash flows from investing activities
Acquisitions of property, plant, and equipment (8,296) (9,496)
Acquisitions, net of cash received (219) (162,976)
Other, net 2,382 (304)
---- ------
Net cash used in investing activities (6,133) (172,776)
------ ------
Cash flows from financing activities
Proceeds from bank credit facilities 84,305 224,640
Payments of bank credit facilities (98,818) (162,210)
Issuance of senior subordinated debt, net of fees -- 116,673
Issuance of common stock warrants -- 3,259
Issuances of common stock 717 187
Purchases of treasury stock -- (6,926)
Payments of notes receivable from shareholders 306 215
Other, net (3,455) 456
----- -----
Net cash provided by (used in) financing activities (16,945) 176,294
------ ------
Net increase (decrease) in cash and cash equivalents (5,073) 6,940
Cash and cash equivalents, beginning of period 7,848 2,787
------ ------
Cash and cash equivalents, end of period $ 2,775 $ 9,727
======== ========
Supplemental cash flow disclosures
Interest paid, net of amounts capitalized $ 16,238 $ 11,036
Income taxes paid $ 2,547 $ 2,157
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
4
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited 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") products 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, military, and aerospace
applications throughout the world.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission for interim financial
statements. Certain information and footnote disclosures required for complete
financial statements have been condensed or omitted. These financial statements
should be read in conjunction with the financial statements presented in the
Company's 1996 Annual Report to Shareholders.
In the opinion of management, the accompanying consolidated financial statements
include all adjustments (which consist of normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows as of and for the nine month periods ended June 30, 1997 and 1996.
The results of operations for the nine month period ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2 - LICENSE AGREEMENTS
In June 1997, the Company entered into three agreements with a major software
company (the "Software Company"). The first agreement consisted of a
non-exclusive, non-transferable source code license for the Company's FORESEER
product for sale and distribution through the Software Company's sales channels
with a royalty payable to the Company of 17.5% of gross sales. The agreement
calls for minimum guaranteed royalties of $20 million, with payments of $10
million, $5 million, and $5 million payable on June 30, 1997, 1998, and 1999,
respectively.
The second agreement provided the Company with the non-exclusive six year right
and license to distribute one of the Software Company's major product lines as a
reseller. The Company is committed to purchase $5 million of such products, with
payment due on June 30, 1998.
5
The Company also entered into a multi-year, unrestricted license agreement with
the Software Company, covering all of the Software Company's products (including
usage and maintenance fees on such products) on a worldwide basis through June
30, 2003. The Company may only use these products for its internal needs and
cannot provide data processing services to other companies. After the term of
the agreement, the Company will be deemed to have a prepaid license for all such
products deployed during the term of the agreement. The license agreement calls
for guaranteed payments as follows:
June 30, Millions
1998 $ 4
1999 6
2000 8
2001 8
2002 10
2003 10
--
Total $46
For the quarter and nine months ended June 30, 1997, the Company had not
recognized any revenue or expense related to these agreements, and had deferred
the $10 million royalty payment received on that date.
NOTE 3 - INVENTORIES
Inventories, which include materials, labor, and manufacturing overhead, are
stated at the lower of cost or market, and consist of the following (in
thousands):
June 30, Sept. 30, June 30,
1997 1996 1996
---- ---- ----
Raw materials and supplies $ 37,662 $33,328 $37,135
Work in process 5,640 5,883 6,989
Finished goods 41,810 31,712 33,905
Service parts 19,961 19,146 18,493
------ ------ ------
$105,073 $90,069 $96,522
======= ======= =======
6
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 - LONG-TERM DEBT AND EXTRAORDINARY ITEM
In March 1997, the Company entered into an agreement to amend and restate its
domestic bank credit facilities with a $170 million senior secured bank credit
facility (the "Amended and Restated Credit Facility") comprised of a $125
million revolving credit facility and a $45 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 certain of its foreign
subsidiaries. Amounts outstanding under the Amended and Restated Credit
Facility, which was effective April 9, 1997, currently bear interest at LIBOR
plus 150 basis points, or the bank's base rate plus 50 basis points, as defined.
The 30-day LIBOR rate on June 30, 1997 was 5.72%. The average unutilized daily
commitment incurs a commitment fee of .375% per annum, and letters of credit
bear a fee of 1.50% per annum. Interest rates on borrowings under the Amended
and Restated Credit Facility may vary according to the Company's leverage ratio,
as defined. At June 30, 1997, the Company had borrowings of $103.0 million
outstanding under the Amended and Restated Credit Facility, and a remaining
borrowing capacity of approximately $6.5 million.
The amendment and restatement of the credit agreement described above
constituted a substantial modification in the terms of the agreement and has
been treated as an early extinguishment of debt. Accordingly, in March 1997 the
Company wrote off approximately $3.7 million ($2.4 million after tax) of
unamortized debt acquisition costs related to the original credit facility as an
extraordinary item.
Both the term and revolving credit facility portions of the Amended and Restated
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 Amended and Restated Credit
Facility without penalty at any time. Any principal amount of the term loan and
any amounts due under the revolving credit facility that remain unpaid on the
maturity date, April 9, 2002, are required to be repaid in full on that 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 revolving credit
facility in addition to the scheduled term loan payments.
7
The Company is subject to certain financial covenants, as defined in the Amended
and Restated Credit Facility, including maintaining specified fixed charge
coverage and leverage ratios and minimum net worth. The Company and its lending
group modified certain covenants in the Amended and Restated Credit Agreement.
The most restrictive of these covenants was the leverage ratio which is defined
as total debt divided by the sum of EBITDA for the four consecutive quarters
ended June 30, 1997. The Company was in compliance with all applicable financial
covenants as of June 30, 1997.
Under the terms of the Amended and Restated Credit Facility, the Company is
required to cap a portion of its interest rate risk. In April 1996, the Company
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 June 30, 1997. 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
consists 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 Amended and Restated 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 incur certain liens.
NOTE 5 - COMMON SHAREHOLDERS' EQUITY
During the first quarter of fiscal 1997, the Company issued approximately 64,000
shares of its common stock for approximately $0.7 million under its Employee
Stock Purchase Plan. This resulted in a reduction of $1.2 million in treasury
stock and $0.5 million in additional paid-in capital.
8
NOTE 6 - EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share," in February 1997. The
Company is required to adopt SFAS No. 128 for the year ended September 30, 1998.
This statement establishes standards for computing and presenting earnings per
share ("EPS") and makes such standards comparable to international EPS
standards. The statement requires dual presentation of basic and diluted EPS on
the face of the income statement and requires a reconciliation of the numerator
and denominator of the basic EPS calculation to the numerator and denominator of
the diluted EPS calculation. If the Company had been required to report EPS
under SFAS No. 128, EPS for the quarter and nine months ended June 30, 1997 and
1996 would have been the same as shown.
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company's payment obligations under the Notes 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.
9
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
Product revenues....................... $ -- $119,277 $ 47,953 $ (48,046) $ 119,184
Service revenues....................... -- 20,719 7,855 -- 28,574
------- ------------ ------------- ------------ ------------
Total revenues............... -- 139,996 55,808 (48,046) 147,758
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 93,882 38,519 (48,222) 84,179
Service cost of revenues............... -- 13,620 5,487 -- 19,107
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 107,502 44,006 (48,222) 103,286
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 32,494 11,802 176 44,472
Selling, general and administrative
expense.............................. 186 20,902 10,211 -- 31,299
Research and development expense....... -- 2,625 442 -- 3,067
------- ------------ ------------- ------------ ------------
Income (loss) from
operations................. (186) 8,967 1,149 176 10,106
Interest expense....................... 6,041 171 371 -- 6,583
Interest income........................ (65) 19 (31) -- (77)
Other (income) expense................. -- 1,498 (1,406) -- 92
------- ------------ ------------- ------------ ------------
Income (loss) before income taxes...... (6,162) 7,279 2,215 176 3,508
Provision for (benefit from) income
taxes................................ (2,164) 3,101 751 -- 1,688
Minority interests in joint venture.... -- -- (65) -- (65)
------- ------------ ------------- ------------ ------------
Income (loss) before equity in income
of consolidated subsidiaries......... (3,998) 4,178 1,529 176 1,885
Equity in income of consolidated
subsidiaries........................ 5,883 1,529 -- (7,412) --
------- ------------ ------------- ------------ ------------
Net income ........................... $ 1,885 $ 5,707 $ 1,529 $ (7,236) $ 1,885
======= ========= ========== ========= =========
10
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
Product revenues....................... $ -- $ 89,524 $ 29,533 $(21,977) $ 97,080
Service revenues....................... -- 26,482 6,687 205 33,374
------- ------------ ------------- ------------ ------------
Total revenues............... -- 116,006 36,220 (21,772) 130,454
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 69,852 21,838 (22,173) 69,517
Service cost of revenues............... -- 17,705 3,281 205 21,191
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 87,557 25,119 (21,968) 90,708
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 28,449 11,101 196 39,746
Selling, general and administrative
expense.............................. 119 20,619 8,978 -- 29,716
Research and development expense....... -- 3,510 385 -- 3,895
Acquisition and restructuring expense.. -- 3,000 -- -- 3,000
------- ------------ ------------- ------------ ------------
Income (loss) from
operations................. (119) 1,320 1,738 196 3,135
Interest expense....................... 6,921 (35) 243 -- 7,129
Interest income........................ (70) 27 (91) -- (134)
Other (income) expense................. -- 218 (323) -- (105)
------- ------------ ------------- ------------ ------------
Income (loss) before income taxes...... (6,970) 1,110 1,909 196 (3,755)
Provision for (benefit from) income
taxes................................ (2,296) (141) 1,375 -- (1,062)
Minority interest in joint venture..... -- -- 285 -- 285
------- ------------ ------------- ------------ ------------
Income (loss) before equity in income
of consolidated subsidiaries......... (4,674) 1,251 249 196 (2,978)
Equity in income of consolidated
subsidiaries......................... 1,696 249 -- (1,945) --
------- ------------ ------------- ------------ ------------
Net income (loss)..................... $ (2,978) $ 1,500 $ 249 $ (1,749) $ (2,978)
======== ========== ========== ========== =========
11
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1997
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
Product revenues....................... $ -- $321,935 $132,704 $(126,329) $328,310
Service revenues....................... -- 66,408 22,800 -- 89,208
------- ------------ ------------- ------------ ------------
Total revenues............... -- 388,343 155,504 (126,329) 417,518
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 250,069 106,381 (125,702) 230,748
Service cost of revenues............... -- 44,523 14,941 -- 59,464
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 294,592 121,322 (125,702) 290,212
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 93,751 34,182 (627) 127,306
Selling, general and administrative
expense.............................. 504 59,518 29,476 -- 89,498
Research and development expense....... -- 9,249 1,337 -- 10,586
------- ------------ ------------- ------------ ------------
Income (loss) from
operations................. (504) 24,984 3,369 (627) 27,222
Interest expense....................... 18,787 566 1,303 -- 20,656
Interest income........................ (206) (10) (153) -- (369)
Other (income) expense................. -- 3,842 (3,714) -- 128
------- ------------ ------------- ------------ ------------
Income (loss) before income taxes...... (19,085) 20,586 5,933 (627) 6,807
Provision for (benefit from) income
taxes................................ (6,689) 8,342 1,685 -- 3,338
Minority interest in joint venture..... -- -- 127 -- 127
------- ------------ ------------- ------------ ------------
Income (loss) before extraordinary
item and equity in income of
consolidated subsidiaries............ (12,396) 12,244 4,121 (627) 3,342
Extraordinary item..................... 2,376 -- -- -- 2,376
------- ------------ ------------- ------------ ------------
Income (loss) before equity in income
of consolidate subsidiaries.......... (14,772) 12,244 4,121 (627) 966
Equity in income of consolidated
subsidiaries......................... 15,738 4,121 -- (19,859) --
------- ------------ ------------- ------------ ------------
Net income ........................... $ 966 $ 16,365 $ 4,121 $(20,486) $ 966
======== ========== ========== ========== =========
12
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1996
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
Product revenues....................... $ -- $225,118 $ 66,913 $(63,473) $228,558
Service revenues....................... -- 73,081 13,806 -- 86,887
------- ------------ ------------- ------------ ------------
Total revenues............... -- 298,199 80,719 (63,473) 315,445
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 178,813 50,672 (63,881) 165,604
Service cost of revenues............... -- 51,318 7,876 -- 59,194
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 230,131 58,548 (63,881) 224,798
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 68,068 22,171 408 90,647
Selling, general and administrative
expense.............................. 304 51,233 16,661 -- 68,198
Research and development expense....... -- 8,496 485 -- 8,981
Acquisition and restructuring expense.. 1,055 11,866 1,700 -- 14,621
------- ------------ ------------- ------------ ------------
Income (loss) from
operations................. (1,359) (3,527) 3,325 408 (1,153)
Interest expense....................... 12,335 3,192 534 -- 16,061
Interest income........................ (188) (13) (144) -- (345)
Other expense.......................... -- 74 6 -- 80
------- ------------ ------------- ------------ ------------
Income (loss) before income taxes...... (13,506) (6,780) 2,929 408 (16,949)
Provision for (benefit from) income
taxes................................ (4,866) (2,509) 1,697 -- (5,678)
Minority interest in joint venture..... -- -- 285 -- 285
------- ------------ ------------- ------------ ------------
Income (loss) before equity in income
(loss) of consolidated subsidiaries.. (8,640) (4,271) 947 408 (11,556)
Equity in income (loss) of consolidated
subsidiaries......................... (2,916) 947 -- 1,969 --
------- ------------ ------------- ------------ ------------
Net income (loss)..................... $(11,556) $ (3,324) $ 947 $ 2,377 $ (11,556)
======== ========== ========== ========== =========
13
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 1997
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
ASSETS
Current assets
Cash and cash equivalents............ $ -- $ 1,639 $ 1,136 $ -- $ 2,775
Accounts receivable.................. -- 83,929 53,684 -- 137,613
Intercompany accounts receivable..... 6,753 88,855 20,596 (116,204) --
Inventories.......................... -- 84,060 22,590 (1,577) 105,073
Other current assets................. 5,254 17,340 2,659 -- 25,253
------- ------------ ------------- ------------ ------------
Total current assets......... 12,007 275,823 100,665 (117,781) 270,714
Property, plant, and equipment, net.... -- 42,779 6,693 -- 49,472
Goodwill............................... -- 87,694 63,415 -- 151,109
Noncurrent intercompany receivables.... 62,038 364,431 -- (426,469) --
Investment in affiliates............... 284,614 99,335 -- (383,344) 605
Other assets........................... 5,878 20,013 8,650 -- 34,541
------- ------------ ------------- ------------ ------------
$364,537 $890,075 $179,423 $ (927,594) $506,441
======= ========= =========== ========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt...................... $ 7,000 $ -- $ 5,024 $ -- $ 12,024
Accounts payable..................... 26,376 42,647 13,907 -- 82,930
Intercompany accounts payable........ -- 74,187 42,017 (116,204) --
Deferred revenues.................... -- 26,057 3,403 -- 29,460
Other accrued liabilities............ -- 19,771 8,247 -- 28,018
------- ------------ ------------- ------------ ------------
Total current liabilities.... 33,376 162,662 72,598 (116,204) 152,432
Long-term debt......................... 96,000 -- 2,513 -- 98,513
Subordinated notes..................... 122,165 -- -- -- 122,165
Noncurrent intercompany payables....... -- 426,469 -- (426,469) --
Deferred liabilities................... 385 16,330 2,609 -- 19,324
Minority interests..................... -- -- 1,396 -- 1,396
Redeemable preferred stock............. 18,739 -- -- -- 18,739
Common shareholders' equity............ 93,872 284,614 100,307 (384,921) 93,872
------- ------------ ------------- ------------ ------------
$364,537 $890,075 $179,423 $ (927,594) $506,441
======= ========= =========== ========= =========
14
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - 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
Other current assets................. 398 18,054 1,957 -- 20,409
------- ------------ ------------- ------------ ------------
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
Other accrued liabilities............ -- 17,533 6,822 -- 24,355
------- ------------ ------------- ------------ ------------
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 interests..................... -- -- 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
======= ========= ========== ========= =========
15
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1997
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
Cash flows from operating activities
Net income ............................... $ 966 $16,365 $ 4,121 $(20,486) $ 966
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation expense.................... -- 6,640 1,275 -- 7,915
Amortization expense.................... -- 5,487 3,000 -- 8,487
Write-off of debt issue costs,
net of tax............................ 2,376 -- -- -- 2,376
Equity in income of consolidated
subsidiaries.......................... (15,738) (4,121) -- 19,859 --
(Increase) decrease in accounts
receivable............................ 5,386 (42,699) (31,030) 58,194 (10,149)
Increase in inventories................. -- (11,405) (3,270) 627 (14,048)
(Increase) decrease in other current
assets................................ (4,856) 745 (702) -- (4,813)
Increase (decrease) in accounts payable. (874) 53,141 20,353 (58,194) 14,426
Increase in other current liabilities... -- 5,100 2,471 -- 7,571
Other, net.............................. -- 5,556 (282) -- 5,274
--------- ------------ -------- ---------- ------------
Net cash provided by (used in)
operating activities............... (12,740) 34,809 (4,064) -- 18,005
--------- ------------ -------- ---------- ------------
Cash flows from investing activities
Acquisitions of property, plant,
and equipment........................... -- (6,563) (1,733) -- (8,296)
Acquisitions, net of cash received........ -- (219) -- -- (219)
Other, net................................ 23,580 (22,551) 1,353 -- 2,382
--------- ------------ -------- ---------- ------------
Net cash provided by (used in)
investing activities............... 23,580 (29,333) (380) -- (6,133)
--------- ------------ -------- ------------ ----------
Cash flows from financing activities
Proceeds from bank credit facilities...... 77,000 -- 7,305 -- 84,305
Payments of bank credit facilities........ (89,500) -- (9,318) -- (98,818)
Issuance of common stock.................. 717 -- -- -- 717
Payments of notes receivable from
shareholders............................ 306 -- -- -- 306
Other, net................................ 637 (6,061) 1,969 -- (3,455)
--------- ------------ -------- ---------- ------------
Net cash used in financing
activities......................... (10,840) (6,061) (44) -- (16,945)
--------- ------------ -------- ---------- ------------
Net decrease in cash and cash equivalents... -- (585) (4,488) -- (5,073)
Cash and cash equivalents, beginning of
period.................................... -- 2,224 5,624 -- 7,848
--------- ------------ -------- ---------- ------------
Cash and cash equivalents, end of period.... $ -- $ 1,639 $ 1,136 $ -- $ 2,775
========= =========== ============ ========= ===========
16
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1996
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
Cash flows from operating activities
Net income (loss)........................ $(11,556) $ (3,324) $ 947 $ 2,377 $ (11,556)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating
activities:
Depreciation expense................... -- 5,561 756 -- 6,317
Amortization expense................... -- 6,020 1,393 -- 7,413
Acquisition and restructuring provisions -- 12,950 75 -- 13,025
Equity in (income) loss of consolidated
subsidiaries......................... 2,916 (947) -- (1,969) --
(Increase) decrease in accounts
receivable........................... (1,056) 4,855 (11,584) 7,437 (348)
(Increase) decrease in inventories..... -- 233 (523) (410) (700)
(Increase) decrease in other current
assets............................... (169) 1,206 (841) -- 196
Increase (decrease) in accounts
payable.............................. 3,041 (1,621) 2,065 (7,437) (3,952)
Increase (decrease) in other current
liabilities.......................... 5,341 (3,932) 878 1 2,288
Other, net............................. (6) (9,814) 559 -- (9,261)
--------- ------------ ------------- ------------ ------------
Net cash provided by (used in)
operating activities.............. (1,489) 11,187 (6,275) (1) 3,422
--------- ------------ ------------- ------------ ------------
Cash flows from investing activities
Acquisitions of property, plant, and
equipment.............................. -- (8,606) (890) -- (9,496)
Acquisitions, net of cash received....... (162,976) -- -- -- (162,976)
Other, net............................... (108,093) (259,621) (73,284) 440,694 (304)
--------- ------------ ------------- ------------ ------------
Net cash used in investing
activities........................ (271,069) (268,227) (74,174) 440,694 (172,776)
--------- ------------ ------------- ------------ ------------
Cash flows from financing activities
Proceeds from bank credit facilities..... 159,874 57,878 6,888 -- 224,640
Payments of bank credit facilities....... (33,250) (127,108) (1,852) -- (162,210)
Issuance of subordinated debt, net
of fees................................ 116,673 -- -- -- 116,673
Issuance of common stock warrants........ 3,259 -- -- -- 3,259
Issuance of common stock................. 187 -- -- -- 187
Purchases of treasury stock.............. (6,926) -- -- -- (6,926)
Payments of notes receivable from
shareholders........................... 215 -- -- -- 215
Other, net............................... 32,526 329,120 79,503 (440,693) 456
--------- ------------ ------------- ------------ ------------
Net cash provided by financing
activities........................ 272,558 259,890 84,539 (440,693) 176,294
--------- ------------ ------------- ------------ ------------
Net increase in cash and cash
equivalents.............................. -- 2,850 4,090 -- 6,940
Cash and cash equivalents, beginning of
period................................... -- 593 2,194 -- 2,787
--------- ------------ ------------- ------------ ------------
Cash and cash equivalents, end of period... $ -- $ 3,443 $ 6,284 $ -- $ 9,727
========= =========== ============ ============ ===========
17
NOTE 8 - SUBSEQUENT EVENTS
On July 22, 1997, the Company's Board of Directors voted unanimously to reject
the tender offer of a subsidiary of Danaher Corporation to acquire all of the
outstanding shares of common stock and Series G preferred stock of the Company
at a price of $20 per share and all of the outstanding warrants to purchase
common stock at a price of $6.525 per warrant. The Board concluded that such
offer was financially inadequate, and authorized management, working with Lazard
Freres & Co. LLC, to explore and pursue alternative strategic options available
for maximizing shareholder value, including a possible sale of or other
extraordinary transaction involving the Company. The Company anticipates
incurring significant costs during the fourth quarter of fiscal 1997 for
financial advisory, legal and accounting costs in defense of the tender offer.
There are two ongoing legal actions relating to the tender offer. See Item 1,
"Legal Proceedings" for a description of those actions.
18
Exide Electronics Group, Inc.
Management's Discussion and Analysis
of Results of Operations and Financial Condition
Overview
Exide Electronics (the "Company") provides Strategic Power Management(TM)
solutions to a broad range of businesses and institutions worldwide. The
Company's products are used for networking, financial, medical, industrial,
telecommunications, military, and aerospace applications -- wherever continuous
power is essential to daily operations. Several factors had a significant impact
on the Company's results of operations during the first nine months of fiscal
1997 compared to the first nine months of fiscal 1996. These factors include the
impact of an extraordinary non-cash charge to write off debt acquisition costs
in the second quarter of 1997; the growth in revenues of small uninterruptible
power supply ("UPS") products; the overall strong growth in international sales;
the acquisition of Deltec Power Systems, Inc. ("Deltec") in March 1996 and the
expensing of certain costs associated with the acquisition; the impact of
certain restructuring charges recorded in the third quarter of fiscal 1996 to
integrate recent acquisitions; and the effect of declining Federal government
product and service revenues. The impact of these and other factors on fiscal
1996 is discussed in more depth in "Management's Discussion and Analysis of
Results of Operations and Financial Condition" presented in the Company's 1996
Annual Report to Shareholders.
Results of Operations
The following table presents, for the periods shown, revenues; gross profit;
selling, general and administrative expense; research and development expense;
income from operations; and net income before extraordinary item in millions of
dollars, and certain income statement captions as a percentage of related
revenues or total revenues.
19
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------------------------------------------
1997 1996 1997 1996
--------------------------------------------------------------
Revenues
Network and Communications 79.1 61.7 217.4 131.4
Systems(1)
Enterprise Systems(1) 40.1 35.4 110.9 97.1
--------------------------------------------------------------
Total products 119.2 97.1 328.3 228.5
Worldwide Services 28.6 33.4 89.2 86.9
--------------------------------------------------------------
Total revenues 147.8 130.5 417.5 315.4
Gross Profit
Products 35.0 27.5 97.6 62.9
Services 9.5 12.2 29.7 27.7
--------------------------------------------------------------
Total gross profit 44.5 39.7 127.3 90.6
Selling, general and administrative 31.3 29.7 89.5 68.2
expense
Research and development expense 3.1 3.9 10.6 9.0
Acquisition and restructuring - 3.0 - 14.6
expense
--------------------------------------------------------------
Income (loss) from operations 10.1 3.1 27.2 (1.2)
Interest/other 6.6 6.9 20.4 15.8
Provision (benefit) for income taxes 1.7 (1.1) 3.3 (5.7)
Minority interests in net income (loss) (0.1) 0.3 0.1 0.3
of subsidiaries
--------------------------------------------------------------
Income (loss) before extraordinary 1.9 (3.0) 3.4 (11.6)
item
Extraordinary item - - (2.4) -
--------------------------------------------------------------
Net income (loss) 1.9 (3.0) 1.0 (11.6)
--------------------------------------------------------------
Revenue Growth:
Network and Communications 28.2% 65.4%
Systems(1)
Enterprise Systems(1) 13.3% 14.2%
------------- -------------
Total products 22.8 43.6
Worldwide Services (14.4) 2.7
------------- -------------
Total revenues 13.3% 32.4%
------------- -------------
- -------------------
(1) During the second quarter of fiscal 1997, the Company organized into new
business units, which are now aligned by customer and market focus rather than
product lines. The Network and Communications Systems business units have
generally replaced the business unit previously reported as Small Systems Group.
Enterprise Systems has replaced the Large Systems Group. The effects of any
reclassifications were not significant.
20
--------------------------------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,,
--------------------------------------------------------
1997 1996 1997 1996
--------------------------------------------------------
Margin Data (as a percent of revenues):
Gross Profit
Products 29.4 28.4 29.7 27.5
Services 33.1 36.5 33.3 31.9
--------------------------------------------------------
Total gross profit 30.1 30.5 30.5 28.7
--------------------------------------------------------
Selling, general and administrative 21.2 22.8 21.4 21.6
expense
Research and development expense 2.1 3.0 2.5 2.8
Acquisition and restructuring expense - 2.3 - 4.6
---------------------------------------------------------
Income (loss) from operations 6.8 2.4 6.5 (0.4)
---------------------------------------------------------
Three months ended June 30, 1997 versus June 30, 1996
Total revenues increased by 13% to $147.8 million in the third quarter of fiscal
1997 from $130.5 million in the third quarter of fiscal 1996, due to a 23%
increase in product sales offset by a 14% decrease in service revenues.
Network and Communications Systems revenues for the quarter ended June 30, 1997
increased by $17 million or 28% over the same period of the prior year. Revenue
increases were primarily due to continued strong revenue growth in the Prestige
product family and in products for the CATV and broadband communications
markets, and significantly higher sales of new line-interactive NetUPS products.
Sales within the U.S. increased nearly 40% year over year, while sales outside
the U.S. increased 16% over the same period last year. International revenues
were especially strong in Latin America, aided by the operation of the Company's
subsidiary in Brazil. Higher revenues were generally due to a higher number of
units sold, as opposed to increased unit prices.
Enterprise Systems revenues for the third quarter of fiscal 1997 increased $4.7
million or 13% over the same period of the prior year, with commercial growth of
31% offset by a scheduled decline in sales under the Company's program with the
Federal Aviation Administration (the "FAA Program"). Product revenues under the
FAA Program have been declining because the Company has completed the shipment
of most of the systems and related ancillary products to the various FAA sites.
Commercial sales growth in Enterprise Systems products occurred primarily in
international channels, especially the Far East and Latin America. Overall, the
number of units shipped increased while the average selling price decreased,
reflecting higher unit sales of lower power range products. This trend is
consistent with the Company's focus on commercial markets, and the growth in the
mid-range market segment.
21
Service revenues for the third quarter of fiscal 1997 decreased by $4.8 million
or 14% over the same period of the prior fiscal year. Commercial service
revenues in the U.S. declined 3% due to the movement away from large systems
which are more service intensive. International commercial revenues increased
8%, primarily in Canada and Latin America. Federal service revenues declined 59%
over the prior year, mainly attributable to the effect of declining FAA site
service revenues. At June 30, 1997, installation at all FAA sites was complete.
Federal service revenues are expected to decline approximately 50-60% in fiscal
1997 from $35.1 million in fiscal 1996, but the impact is expected to be
substantially offset by growth in commercial segments. Service revenue changes
were primarily a result of the volume of services provided rather than a change
in the price of such services.
Gross Profit
Gross profit increased by $4.8 million in the third quarter of fiscal 1997 over
the third quarter of fiscal 1996 to $44.5 million. Gross profit as a percentage
of total revenues decreased to 30.1% in the third quarter of fiscal 1997 from
30.5% in the same period of fiscal 1996. Product gross profit margins rose to
29.4% in the third quarter of fiscal 1997 from 28.4% in the same period of
fiscal 1996, benefitting from sales of new or lower cost products and improved
sales mix. Service margins declined to 33.1% from 36.5% during that same period
due primarily to lower service volumes, mix issues and integration costs.
Selling, General and Administrative Expense
Selling, general and administrative expense increased $1.6 million to $31.3
million in the third quarter of fiscal 1997 (21.2% percent of revenues) from
$29.7 million in the same period of fiscal 1996 (22.8% of revenues). This
increase was primarily due to expanding operations in Europe and Brazil. SG&A
expenses are expected to remain at approximately 20-22% of revenues for fiscal
1997.
Research and Development Expense
Research and development expense decreased $0.8 million to $3.1 million in the
third quarter of fiscal 1997 compared to the same period of fiscal 1996. As a
percentage of revenues, research and development expense decreased to 2.1% in
fiscal 1997 from 3.0% in fiscal 1996, due to the integration of engineering
efforts. R&D expenses are expected to be approximately 2-3% of revenues for
fiscal 1997.
Acquisition and Restructuring Expense
During the quarter ended June 30, 1996, the Company recorded approximately $3.0
million of non-recurring restructuring expenses related to the closing of its
Dallas manufacturing facility and the relocation of manufacturing to Raleigh,
North Carolina. Restructuring costs consisted primarily of reserves for
severance, facilities shutdown costs, and asset valuations.
22
Income from Operations
Income from operations increased $7.0 million to $10.1 million for the third
quarter of fiscal 1997 from $3.1 million in the same period of fiscal 1996. The
fiscal 1996 quarter included, as described above, certain one-time restructuring
expense and purchase accounting adjustments related to the acquisition of
Deltec. Excluding such one-time charges, operating income was up 20%, primarily
due to higher revenue volumes. As a percentage of revenues, income from
operations (excluding the one-time charges in fiscal 1996) increased to 6.8% in
the third quarter of fiscal 1997 from 6.5% in the same period of fiscal 1996.
Interest Expense
Interest expense decreased to $6.6 million in the third quarter of fiscal 1997
from $7.1 million in the same period of fiscal 1996. This decline is due to
lower debt balances and reduced interest rates on the Company's domestic credit
facility.
Provision (Benefit) for Income Taxes
The provision for third quarter fiscal 1997 income taxes reflects a consolidated
effective tax provision of approximately 48% as compared to a benefit of
approximately 28% for the same period of fiscal 1996. The fiscal 1996 benefit is
due to the loss generated during the quarter. The Company anticipates that its
effective tax rate for fiscal year 1997 will be 47-52%, which is impacted by
permanent differences, including goodwill related to the acquisition of Deltec.
Income (loss) before Extraordinary Item
Net income for the third quarter of fiscal 1997 was $1.9 million, or $0.15 per
fully diluted share, as compared to a net loss of $3.0 million, or $0.33 per
fully diluted share, for the same period of fiscal 1996. Excluding the
non-recurring items in fiscal 1996 discussed above under "Acquisition and
Restructuring Expense" and the effect of one-time purchase accounting
adjustments, pro forma net income increased over 200% for the current quarter
from $0.5 million in the same quarter of fiscal 1996.
Nine months ended June 30, 1997 versus June 30, 1996
Total revenues increased by 32% to $417.5 million in the nine months ended June
30, 1997 from $315.4 million in the nine months ended June 30, 1996, due to a
44% increase in product sales and a 3% increase in service revenues.
The Company acquired Deltec from Fiskars Oy Ab in March 1996. The acquisition
was accounted for using the purchase method of accounting, therefore, Deltec's
accounts and results of operations have been included in the Company's financial
statements from the closing date forward. The nine month period ended June 30,
1996 includes Deltec's operating results for approximately three and one-half
months. A more complete discussion of this effect can be found in "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
presented in the Company's 10-Q for the quarter ended March 31, 1997.
23
Network and Communications Systems revenues for the nine months ended June 30,
1997 increased by $86.0 million or 65% over the same period of the prior year.
Both U.S. and international revenues increased over 50%, with sales abroad
accounting for approximately 48% of total Network and Communications Systems
revenues. Sales of the Prestige product family increased approximately 30% for
the first nine months of fiscal 1997 compared to the same period in fiscal 1996.
Sales of the Company's new line-interactive products accounted for over 25% of
Network and Communications Systems revenues in the first nine months of fiscal
1997. Increased revenues were generally due to higher unit sales as opposed to
increased unit prices.
Enterprise Systems revenues for the nine months ended June 30, 1997 were 14%
higher than in the same period of fiscal 1996, due primarily to growth exceeding
50% in international channels, offset by declines in sales under the FAA
Program. Product revenues under the FAA Program have been declining because the
Company has completed the shipment of most of the systems and related ancillary
products to the various FAA sites. International revenue growth was mostly in
Latin America and the Far East.
Service revenues for the first nine months of fiscal 1997 increased by $2.3
million or 3% over the same period of fiscal 1996. Commercial domestic service
revenues grew by about 13% due to increased battery service and UPS module
upgrade sales, coupled with incremental service revenues from the Deltec
acquisition. International service sales increased 51%, due to higher sales in
Europe, including incremental revenues generated by Deltec. As expected, Federal
service revenues decreased over the prior year by approximately 44%, mainly due
to the decline in FAA site service revenues.
Gross Profit
Gross profit increased by $36.7 million in the first nine months of fiscal 1997
over the same period of fiscal 1996 to $127.3 million. Gross profit as a
percentage of total revenues increased to 30.5% for the first nine months of
fiscal 1997 from 28.7% in the same period of fiscal 1996. Product gross profit
margins rose to 29.7% in the first nine months of fiscal 1997 from 27.5% in the
same period of fiscal 1996, while service margins increased to 33.3% from 31.9%
during that same period. Product gross profit margins rose due to new products,
reduced costs and better product mix. Service margins increased primarily due to
higher mix of commercial service revenues.
Selling, General and Administrative Expense
Selling, general and administrative expense increased $21.3 million to $89.5
million in the first nine months of fiscal 1997 (21.4% of revenues) from $68.2
million in the same period of fiscal 1996 (21.6% of revenues). Selling, general
and administrative expenses increased due to incremental costs related to the
consolidation of Deltec, the amortization of intangible assets generated by
recent acquisitions, expanding operations in Europe, and the operations of the
Company's subsidiaries in Brazil and India.
24
Research and Development Expense
Research and development expense increased $1.6 million in the first nine months
of fiscal 1997 compared to the same period of fiscal 1996, to $10.6 million
(2.5% of revenue) from $9.0 million (2.8% of revenue). Increased research and
development expenses were primarily due to incremental costs for the inclusion
of Deltec and the cost of introducing over 30 new products in the second quarter
of fiscal 1997.
Acquisition and Restructuring Expense
During the third quarter of fiscal 1996, the Company recorded approximately $3.0
million of non-recurring restructuring expenses related to the closing of its
Dallas manufacturing facility and the relocation of manufacturing to Raleigh,
North Carolina. Restructuring costs consisted primarily of reserves for
severance, facilities shutdown costs, and asset valuations.
During the second quarter of fiscal 1996, the Company completed its acquisition
of Deltec. In connection with the acquisition, the Company recorded
approximately $11.6 million of non-recurring expenses, including a $5.0 million
charge for purchased in-process research and development and $6.6 million for
restructuring and other costs primarily related to the acquisition.
Restructuring costs consist primarily of reserves for severance and asset
valuations.
Income (loss) from Operations
Income from operations increased $28.4 million to $27.2 million for the first
nine months of fiscal 1997 from an operating loss of $1.2 million in the same
period of fiscal 1996. The fiscal 1996 period included, as described above,
certain one-time acquisition and restructuring expense. Excluding such one-time
charges, operating income was up over 100%, primarily due to improved gross
margins and higher revenue volumes. As a percentage of revenues, income from
operations (excluding the one-time charges in fiscal 1996) increased to 6.5% in
the first nine months of fiscal 1997 from 4.3% in the same period of fiscal
1996.
Interest Expense
Interest expense increased to $20.7 million in the first nine months of fiscal
1997 from $16.1 million in the same period of fiscal 1996, which included a
one-time non-recurring charge of $4.4 million for interest and fees related to
the Deltec acquisition. The Company incurred approximately $15.5 million in
interest expense during the first nine months of fiscal 1997 related to the
financing of the Deltec acquisition, including interest on $125 million of
senior subordinated notes, versus $7.1 million in the corresponding period of
fiscal 1996.
25
Provision (benefit) for Income Taxes
The provision for income taxes for the first nine months of fiscal 1997 reflects
a consolidated effective tax provision of approximately 49% as compared to a
benefit of approximately 33.5% for the same period of fiscal 1996. The Company
anticipates that its effective tax rate for fiscal year 1997 will be 47-52%,
which is impacted by permanent differences, including goodwill related to the
acquisition of Deltec.
Income (loss) before Extraordinary Item
Income before extraordinary item for the first nine months of fiscal 1997 was
$3.3 million, or $0.23 per fully diluted share, as compared to a net loss of
$11.6 million, or $1.26 per fully diluted share, for the same period of fiscal
1996. Excluding the 1996 non-recurring charges discussed above under
"Acquisition and Restructuring Expense" and the effect of one-time purchase
accounting adjustments, income before extraordinary item for the first nine
months of fiscal 1996 would have been $2.6 million or $0.23 per fully diluted
share.
Extraordinary Item
During the second quarter of fiscal 1997, the Company took a one-time non-cash
charge of $2.4 million, net of tax, or $0.24 per fully diluted share, for the
write-off of debt acquisition costs related to the replacement of the original
credit facility with a new domestic credit facility.
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. The fourth quarter typically has
produced the largest portion of the Company's revenues and income. The Company
believes that the fourth quarter results reflect increased shipments resulting
from management incentives that are tied to annual sales performance, and
increased sales prompted by weather-related power disturbances during the spring
and summer months. The first quarter has typically produced the smallest portion
of the Company's revenues and income, so that there has been a historical
reduction in the Company's first quarter results as compared to the previous
fiscal year's fourth quarter. During fiscal years 1996, 1995 and 1994, revenues
generally increased for each quarter during the fiscal year, but revenues for
the first quarter were lower than revenues for the fourth quarter of the
preceding year.
26
Selling, general and administrative, and research and development expenditures
are incurred to support projected annual sales. These expenses do not
necessarily vary proportionately with revenues on a quarterly basis. As a
result, variations in quarterly revenues may not be accompanied by an equivalent
change in expenses; therefore, operating margins can vary significantly between
quarters.
Liquidity and Financial Condition
At June 30, 1997, the Company had $118.3 million of working capital, as compared
to $115.9 million at September 30, 1996 and $121.5 million at June 30, 1996. The
decrease of approximately $3.2 million in working capital from June 30, 1996 is
primarily the result of an increase in accounts receivable and inventory
balances, offset by higher accounts payable and deferred revenues. Inventory
levels are tied to anticipated fourth quarter sales, while accounts receivable
reflect higher sales at the end of the third quarter. Working capital has been
used to pay down the Company's senior debt, which has decreased $30 million
since June 30, 1996. Cash provided by operations was $8.0 million in the third
quarter of fiscal 1997, as compared to $10.6 million in the third quarter of
fiscal 1996, with the reduction primarily due to an increase in accounts
receivable. For the first nine months ended June 30, 1997, the Company generated
$18.0 million of cash from operations compared to $3.4 million for the same
period of fiscal 1996, primarily due to increased current liabilities balances.
During the first nine months of fiscal 1997, the Company invested approximately
$8.3 million in capital expenditures, as compared to approximately $9.5 million
in the same period of fiscal 1996. Capital expenditures for fiscal 1997 are
expected to approximate $10 to $12 million.
In March 1997, the Company entered into an agreement to amend and restate its
domestic bank credit facilities with a $170 million senior secured bank credit
facility (the "Amended and Restated Credit Facility") comprised of a $125
million revolving credit facility and a $45 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 certain of its foreign
subsidiaries. Amounts outstanding under the Amended and Restated Credit
Facility, which was effective April 9, 1997, currently bear interest at LIBOR
plus 150 basis points, or the bank's base rate plus 50 basis points, as defined.
The 30-day LIBOR rate on June 30, 1997 was 5.72%. The average unutilized daily
commitment incurs a commitment fee of .375% per annum, and letters of credit
bear a fee of 1.50% per annum. Interest rates on borrowings under the Amended
and Restated Credit Facility may vary according to the Company's leverage ratio,
as defined. At June 30, 1997, the Company had borrowings of $103.0 million
outstanding under the Amended and Restated Credit Facility, and a remaining
borrowing capacity of approximately $6.5 million.
27
The amendment and restatement of the credit agreement described above
constituted a substantial modification in the terms of the agreement and was
treated as an early extinguishment of debt. Accordingly, in the second quarter
of fiscal 1997 the Company wrote off approximately $3.7 million ($2.4 million
after tax) of unamortized debt acquisition costs related to the replacement of
the original credit facility as an extraordinary item.
Both the term and revolving credit facility portions of the Amended and Restated
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 Amended and Restated Credit
Facility without penalty at any time. Any principal amount of the term loan and
any amounts due under the revolving credit facility that remain unpaid on the
maturity date, April 9, 2002, are required to be repaid in full on that 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 revolving credit
facility in addition to the scheduled term loan payments.
The Company is subject to certain financial covenants, as defined in the Amended
and Restated Credit Facility, including maintaining specified fixed charge
coverage and leverage ratios and minimum net worth. The Company and its lending
group modified certain covenants in the Amended and Restated Credit Facility.
The most restrictive of these covenants was the leverage ratio, which is defined
as total debt divided by the sum of EBITDA for the four consecutive quarters
ended June 30, 1997. The Company was in compliance with all applicable financial
covenants as of June 30, 1997.
Under the terms of the Amended and Restated Credit Facility, the Company is
required to cap a portion of its interest rate risk. In April 1996, the Company
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 June 30, 1997. 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
consists 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 Amended and Restated 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 incur certain liens.
28
The Company expects to finance its capital requirements in the future through
existing cash balances, cash generated from operations, and borrowings under its
credit facilities. Based on the current level of operations and anticipated
growth, management believes that cash flow from operations, together with
available borrowings under its credit facilities and other sources of liquidity,
will be adequate to meet the Company's anticipated future requirements for
working capital, capital expenditures, and scheduled payments of principal and
interest on its indebtedness. The Company believes that its cash flow from
operations and its bank facilities will be adequate to meet its short-term
requirements for working capital and capital expenditures, however no assurances
can be given 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.
License Agreements
In June 1997, the Company entered into three agreements with a major software
company (the "Software Company"). The first agreement consisted of a
non-exclusive, non-transferable source code license for the Company's FORESEER
product for sale and distribution through the Software Company's sales channels
with a royalty payable to the Company of 17.5% of gross sales. The agreement
calls for minimum guaranteed royalties of $20 million, with payments of $10
million, $5 million, and $5 million payable on June 30, 1997, 1998, and 1999,
respectively.
The second agreement provided the Company with the non-exclusive six year right
and license to distribute one of the Software Company's major product lines as a
reseller. The Company is committed to purchase $5 million of such products, with
payment due on June 30, 1998.
The Company also entered into a multi-year, unrestricted license agreement with
the Software Company, covering all of the Software Company's products (including
usage and maintenance fees on such products) on a worldwide basis through June
30, 2003. The Company may only use these products for its internal needs and
cannot provide data processing services to other companies. After the term of
the agreement, the Company will be deemed to have a prepaid license for all such
products deployed during the term of the agreement. The license agreement calls
for guaranteed payments as follows:
June 30, Millions
1998 $ 4
1999 6
2000 8
2001 8
2002 10
2003 10
--
Total $46
For the quarter and nine months ended June 30, 1997, the Company had not
recognized any revenue or expense related to these agreements, and had deferred
the $10 million royalty payment received on that date.
29
Litigation
For a discussion of pending litigation, see Item 1, "Legal Proceedings"
elsewhere in this Form 10-Q.
Contingencies
Government Contract Matters
Sales to the Federal government accounted for approximately 6% and 14% of total
revenues for the nine months ended June 30, 1997 and 1996, respectively, and
approximately 13% and 27% of total revenues for fiscal years 1996 and 1995,
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 June
30, 1997.
Foreign Currency Exposures
International sales accounted for approximately 43% and 37% of total revenues
for the nine months ended June 30, 1997 and 1996, respectively, and
approximately 37% and 31% of total revenues for fiscal years 1996 and 1995,
respectively. A significant portion of the Company's international sales are
denominated in foreign currencies. As of June 30, 1997, the Company had accounts
receivable totaling approximately $16.2 million that were exposed to
fluctuations in exchange rates. European, Canadian, and Japanese currencies have
been especially volatile over the last two years. Fluctuations in foreign
currency exchange rates adversely impacted the Company's revenues by
approximately $6 million for the nine months ended June 30, 1997. As of June 30,
1997, approximately 35% of the Company's total assets were located outside the
United States, primarily in Canada and Europe. 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.
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 or financial condition or its financial statements taken
as a whole.
30
Subsequent Event
On July 22, 1997, the Company's Board of Directors voted unanimously to reject
the tender offer of a subsidiary of Danaher Corporation (NYSE: DHR) to acquire
all of the outstanding shares of common stock and Series G preferred stock of
the Company at a price of $20 per share and all of the outstanding warrants to
purchase common stock at a price of $6.525 per warrant. The Board concluded that
such offer was financially inadequate, and authorized management, working with
Lazard Freres & Co. LLC, to explore and pursue alternative strategic options
available for maximizing shareholder value, including a possible sale of or
other extraordinary transaction involving the Company. The Company anticipates
incurring significant costs during the fourth quarter of fiscal 1997 for
financial advisory, legal and accounting costs in defense of the tender offer.
For additional information regarding Company activities related to the Danaher
tender offer, see the Company report on Schedule 14D-9, filed with the
Securities and Exchange Commission on July 22, 1997, which Schedule is hereby
incorporated by reference.
Disclosure Regarding Forward-Looking Statements
The disclosures included in this Form 10-Q, 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 be 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-Q 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.
31
PART II - OTHER INFORMATION
JUNE 30, 1997
ITEM 1. Legal Proceedings
In conjunction with the tender offer commenced on July 10, 1997 by PQR
Acquisition Corporation ("Bidder"), a wholly-owned subsidiary of Danaher
Corporation ("Danaher"), to purchase all of the outstanding equity securities of
the Company (the "Danaher Offer") (as discussed in Note 8 of notes to
consolidated financial statements), Danaher and Bidder filed a suit encaptioned
Danaher Corporation and PQR Acquisition Corp. v. Exide Electronics Group, Inc.,
et al. (C.A. No. 15796) in the Court of Chancery of the State of Delaware, New
Castle County, on July 9, 1997, against the Company and the members of the Board
of Directors of the Company (the "Board"). The complaint alleges, among other
things, that the Defendants have refused and will refuse to deal in good faith
with Danaher in negotiating an acquisition of the Company by Bidder and have
taken certain actions in response to Danaher's expression of interest in such an
acquisition, which conduct is alleged to be in breach of the fiduciary duties of
the Board to the Company's shareholders. In particular, the complaint alleges
that the Board acted in violation of its fiduciary duties in amending Exide's
By-Laws to provide for certain time periods with respect to any stockholder call
for a special meeting. The complaint seeks as relief, among other things, (i) to
compel redemption of the Company's preferred stock purchase rights, (ii) to
compel the Board to render Section 203 of the General Corporation Law of the
State of Delaware inapplicable to the proposed acquisition in connection with
the Danaher Offer, (iii) to compel the Board to call a special meeting of its
stockholders at an unspecified future date, (iv) to enjoin the Board from taking
any action that would impede or interfere with the Danaher Offer or the exercise
by Exide's stockholders of their franchise and (v) to enjoin the Board from
taking any actions inconsistent with their fiduciary obligations to Exide's
stockholders. The time for the defendants to move or answer has not yet elapsed.
The Company believes the claims of Danaher and Bidder are without merit.
On July 9, 1997, a purported class action encaptioned Rima Spielman v. Exide
Electronics Group, Inc. et al. (C.A. No. 15800) was commenced in the Delaware
Chancery Court against the Company and the members of the Board (the
"Shareholder Action"). The Shareholder Action was purportedly brought on behalf
of the public stockholders of the Company. The complaint alleges, among other
things, that (i) the defendants have refused to take the steps necessary to
maximize stockholder value, including properly considering the Danaher Offer,
(ii) by purportedly failing and refusing to take such steps, including
adequately considering the Danaher Offer, the defendants have breached their
fiduciary duty to the plaintiff and the public stockholders and are using their
fiduciary positions of control to thwart others in their legitimate attempts to
acquire the Company and (iii) the members of the Board have purportedly
attempted to entrench themselves in their positions with the Company by
instituting certain By-Law amendments. The Shareholder Action seeks, as relief,
among other things, (i) to require the directors to cooperate with any person or
entity, including Danaher, having a bona fide interest in proposing any
transaction that would maximize stockholder value, including a merger or
acquisition of the Company, (ii) to enhance the value and attractiveness of the
Company as a merger/acquisition candidate, (iii) to take all appropriate steps
to create an active auction of the Company and (iv) to have such By-Law
amendment declared void. The time for the defendants to move or answer has not
yet elapsed. The Company believes the claims of Danaher and Bidder are without
merit.
32
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 International Power Machines ("IPM"), a subsidiary of the Company, 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 in progress, 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,
whom 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 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.
33
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Description
10 Exide Electronics Source License agreement, dated June 30, 1997,
among Exide Electronics Group, Inc. and Computer Associates
International, Inc.
10(a) Reseller agreement, dated June 30, 1997, among Exide Electronics
Group, Inc. and Computer Associates International, Inc.
10(b) Computer Associates License agreement, dated June 30, 1997, among
Exide Electronics Group, Inc. and Computer Associates
International, Inc.
11 Statement of Computation of Per Share Earnings.
19 Schedule 14D-9 of Exide Electronics Group, Inc. filed with
the Securities and Exchange Commission on July 22, 1997 (which
Schedule is hereby incorporated by reference).
27 Financial Data Schedule.
(b) Reports on Form 8-K
Report on Form 8-K dated July 9, 1997, containing the Company's news
release with respect to the Danaher tender offer. Also included with this
report were the Company's amended and restated by-laws (as of June 23,
1997).
34
EXIDE ELECTRONICS GROUP, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXIDE ELECTRONICS GROUP, INC.
(Registrant)
Date: August 14, 1997 By: /s/MARTY R. KITTRELL
Marty R. Kittrell
Vice President and
Chief Financial Officer
35
EXIDE ELECTRONICS GROUP, INC.
EXHIBIT INDEX - FORM 10-Q
JUNE 30, 1997
Exhibit
Number Description
10 Exide Electronics Source License agreement, dated June 30, 1997,
among Exide Electronics Group, Inc. and Computer Associates
International, Inc.
10(a) Reseller agreement, dated June 30, 1997, among Exide Electronics
Group, Inc. and Computer Associates International, Inc.
10(b) Computer Associates License agreement, dated June 30, 1997, among
Exide Electronics Group, Inc. and Computer Associates
International, Inc.
11 Statement of Computation of Per Share Earnings.
19 Schedule 14D-9 of Exide Electronics Group, Inc. filed with the
Securities and Exchange Commission on July 22, 1997 (which
Schedule is hereby incorporated by reference).
27 Financial Data Schedule.
36