1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): FEBRUARY 21, 1996
(FEBRUARY 9, 1996)
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EXIDE ELECTRONICS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-18106 23-2231834
(State or other (Commission File Number) (IRS Employer Identification No.)
jurisdiction of incorporation)
8609 SIX FORKS ROAD 27615
RALEIGH, NORTH CAROLINA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (919) 872-3020
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2
ITEM 5. OTHER EVENTS
Pursuant to a stock purchase agreement dated November 17, 1995, as amended
on February 9, 1996 (the "Acquisition Agreement"), Exide Electronics Group, Inc.
("Exide Electronics" or the "Company") intends to acquire (the "Deltec
Acquisition") Deltec Power Systems, Inc. and its subsidiaries (collectively
"Deltec") from Fiskars Oy Ab and Fiskars Holdings, Inc. (collectively
"Fiskars"). Deltec designs, manufactures, markets, sells and services a broad
line of uninterruptible power supply ("UPS") products and power management
software worldwide through its principal operating subsidiaries, Deltec
Electronics Corporation ("Deltec EC"), which is headquartered in San Diego,
California, and FPS Power Systems Oy Ab ("FPS"), which is based in Espoo,
Finland. Deltec and its subsidiaries will become operating subsidiaries of the
Company following completion of the Deltec Acquisition.
Under the terms of the Acquisition Agreement, the purchase price of the
Deltec Acquisition is stated to be approximately $195.0 million, which will be
comprised of approximately $158.5 million in cash, 825,000 shares of the
Company's common stock (the "Common Stock") and 1,000,000 shares of the
Company's Series G preferred stock (the "Series G Preferred Stock"). The stated
contract price is based on the value of the Common Stock and Series G Preferred
Stock to be issued to Fiskars being fixed at $20.00 per share. For purposes of
reflecting the Deltec Acquisition on the Company's financial statements,
however, the Common Stock and Series G Preferred Stock that will be issued to
Fiskars will be valued at $14.00 per share and $18.00 per share, respectively,
resulting in a purchase price of approximately $188.1 million. The Series G
Preferred Stock will be convertible into Common Stock on a one-for-one basis
(subject to adjustment under certain circumstances), will have a per annum
dividend rate of $0.80 per share through March 31, 2001 and $1.20 per share
thereafter, and will be subject to redemption under certain circumstances. The
purchase price was based on the assumption that the net book value of Deltec on
the closing would be approximately $28.7 million. The purchase price will be
adjusted upward or downward to the extent the closing date net book value (as
adjusted for certain excluded assets and liabilities) differs from this amount.
In addition, under the terms of the Acquisition Agreement, the Company will pay
an estimated $4.1 million to Fiskars in payment of certain interest carrying
costs associated with Fiskars' agreement to extend the time for closing the
Deltec Acquisition to March 15, 1996. In the event the Company does not close
the Deltec Acquisition as scheduled, the Company has agreed to pay to Fiskars a
fee of $5.0 million.
The Company expects to finance the cash portion of the purchase price of
the Deltec Acquisition with (i) borrowings under a new credit facility (the "New
Credit Facility"), for which the Company has obtained a commitment, and (ii) the
sale of 100,000 units (the "Units") comprised of $100.0 million of senior
subordinated notes (the "Notes") and warrants (the "Warrants") to purchase an
unspecified number of shares of the Company's Common Stock (the "Offering").
Under the terms of a commitment letter from Morgan Guaranty Trust Company of New
York, on its own behalf and as Administrative Agent for a group of financial
institutions, the New Credit Facility will provide for term and revolving credit
facilities in the aggregate amount of up to $225.0 million, which will be
automatically reduced to $200.0 million if the Company raises $100.0 million in
the Offering. Consummation of the Offering and the Deltec Acquisition and the
effectiveness of the New Credit Facility are each contingent upon the
consummation or effectiveness, as applicable, of each other.
The Company intends to conduct the Offering as a private offering in
reliance upon Rule 144A promulgated under the Securities Act of 1933, as
amended. In connection with the Offering, the Company will distribute an
offering memorandum (the "Offering Memorandum") that contains certain projected
financial information (the "Projections") reflecting the Company's best
estimates of the Company's results of operations for the fiscal year ending
September 30, 1996. The Company does not regularly publish projections of its
operating results. To insure that the public market is provided with the same
disclosure as the Offering Memorandum contains, however, the Company is filing
with the Securities and Exchange Commission this interim report on Form 8-K,
which includes a copy of the Projections, as well as certain financial
information relating to Deltec described below. This Form 8-K also includes (i)
Unaudited Pro Forma Combined Financial Statements, (ii) Annual Consolidated
Financial Statements and unaudited Interim Consolidated Financial Statements of
Exide Electronics and (iii) Annual Combined and Consolidated Financial
Statements and unaudited Interim Consolidated Financial Statements of Deltec
(collectively, the "Offering
3
Memorandum Financial Statements"), all of which will be included in the Offering
Memorandum. The Projections and the Unaudited Pro Forma Combined Financial
Statements give effect to (i) the Deltec Acquisition, (ii) the October 1995
conversion of Exide Electronics' 8.375% convertible subordinated notes (the
"Convertible Subordinated Notes") into shares of Common Stock, (iii) the New
Credit Facility, and (iv) issuance of the Notes in the Offering (collectively
the "Transactions").
THE PROJECTIONS CONTAIN FORWARD LOOKING INFORMATION, AND INVESTORS AND
SHAREHOLDERS SHOULD BE AWARE OF AND REVIEW CAREFULLY THE ASSUMPTIONS
ACCOMPANYING THE PROJECTIONS, AS WELL AS THE CAUTIONARY DISCLOSURES CONCERNING
THE FACTORS THAT MAY CAUSE THE COMPANY'S ACTUAL OPERATING RESULTS TO DIFFER
ADVERSELY AND MATERIALLY FROM THE PROJECTIONS. ACCORDINGLY, NEITHER POTENTIAL
INVESTORS NOR SHAREHOLDERS SHOULD PLACE UNDUE RELIANCE ON THE PROJECTIONS. THE
COMPANY DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE PROJECTIONS TO REFLECT
EVENTS OR CIRCUMSTANCES, OR THE OCCURRENCE OF UNANTICIPATED EVENTS, AFTER THE
PROJECTIONS ARE ISSUED. THE PROJECTIONS SHOULD BE READ TOGETHER WITH THE
INFORMATION CONTAINED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K AND ANNUAL
REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 AND THE
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS CONTAINED THEREIN, THE COMPANY'S NOTICE
OF ANNUAL MEETING AND PROXY STATEMENT DATED JANUARY 26, 1996, THE COMPANY'S
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1995
(COLLECTIVELY THE "COMPANY PERIODIC DISCLOSURE DOCUMENTS"), AND THE OFFERING
MEMORANDUM FINANCIAL STATEMENTS ATTACHED HERETO.
4
EXIDE ELECTRONICS GROUP, INC.
INDEX TO PRO FORMA PROJECTED STATEMENTS OF OPERATIONS
PAGE
----
Introduction.......................................................................... P-2
Statements of Operations
Exide Electronics -- Combined with Deltec........................................... P-4
Exide Electronics -- Stand Alone.................................................... P-7
Deltec -- Stand Alone............................................................... P-12
P-1
5
PROJECTED FINANCIAL INFORMATION
INTRODUCTION
The projected financial information included herein (the "Projections")
represents the Company's best estimates as of February 14, 1996 of the Company's
results of operations for the fiscal year ending September 30, 1996. The
Projections, which are forward looking statements, were prepared by the
Company's management and are qualified by, and subject to, the assumptions set
forth below and the other information contained in the Offering Memorandum
Financial Statements. The Projections were not prepared with a view toward
compliance with published guidelines of the Commission, the American Institute
of Certified Public Accountants, any regulatory or professional agency or body,
or generally accepted accounting principles. In addition, neither Arthur
Andersen LLP, the independent public accountants for the Company, Price
Waterhouse LLP and KPMG, the independent accountants for Deltec, nor the Initial
Purchasers (as defined in the Offering Memorandum), have compiled or examined
the Projections and, accordingly, do not express any opinion or any other form
of assurance with respect thereto, assume no responsibility for and disclaim any
association with the Projections.
No independent expert has reviewed the Projections. The Projections should
be read together with the information contained in the Offering Memorandum
Financial Statements and the Company Periodic Disclosure Documents.
The Deltec -- Stand Alone projected Statement of Operations for the fiscal
year ended September 30, 1996 is based on projected financial information
provided to the Company by Fiskars and Deltec. Based on the results of the
Company's due diligence procedures, the Company has reduced the Deltec -- Stand
Alone projected revenues and income from operations for 1996 from the amounts
projected by Fiskars and Deltec. Because the Deltec Acquisition has not been
consummated and because the Company's management did not participate in the
development of the projected financial information provided to the Company by
Fiskars and Deltec, the ability of the Company's management to project such
information is necessarily more limited than its ability to project financial
information for Exide Electronics -- Stand Alone. Accordingly, the projected
financial information for Deltec -- Stand Alone is necessarily more speculative
in nature.
The Projections are based upon a number of assumptions and estimates that,
while presented with numerical specificity and considered reasonable by the
Company when taken as a whole, are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond the control of the Company, and are based upon specific assumptions with
respect to future business decisions, some of which will change. Projections are
necessarily speculative in nature, and it can be expected that some or all of
the assumptions of the Projections will not materialize or will vary
significantly from actual results. Accordingly, the Projections are only an
estimate and actual results will vary from the Projections and the variations
may be material and are likely to increase over time. The Company does not
intend to update or otherwise revise the projections to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. In light of the foregoing, prospective purchasers of the
Units are cautioned not to place undue reliance on the Projections.
The Company's ability to achieve the projected financial results is
dependent upon a number of factors. For instance, the Projections assume the
success of the Company's operating strategy. The success of the Company's
operating strategy assumes, among other things, that the Company: (i)
successfully integrates the operations of Deltec with the existing operations of
the Company; (ii) continues to expand its revenues and profitability; (iii)
continues to increase its presence in the small systems segment; (iv) continues
to expand its international sales; (v) continues to expand its business in
emerging technologies; (vi) redefines its large systems focus; and (vii)
continues to expand its service business. The success of the strategy is subject
to uncertainties and contingencies beyond the Company's control, and no
assurance can be given that the strategy will be effective or that the
anticipated benefits from the strategy will be realized in the period for which
the Projections have been prepared.
The Projections also assume that: (i) there will be no material change in
the existing political, fiscal or economic conditions, including changes in
foreign exchange rates, that are material to the Company's or Deltec's revenues
or costs; (ii) there will be no material change in legislation or regulations or
the
P-2
6
administration thereof, or changes in technology or industry standards that will
have an unexpected effect on the business of the Company or Deltec; (iii) there
will be no material change in any of the Company's or Deltec's existing material
contracts or customer relationships; (iv) there will be no change in generally
accepted accounting principles that will have a material effect on the financial
results of the Company or Deltec; (v) there will be no labor or other
disturbances that would materially affect the operations or revenues of the
Company or Deltec; (vi) there will be no material costs, gains or losses in
revenues arising from legal proceedings; (vii) there will be no periods of
recession which might adversely affect demand; (viii) there will be no
acceleration in the decline of product prices, which are currently projected to
decline at a rate of 5-10% per year; and (ix) there will be no inflation.
Although no standard rate of inflation was applied to the Projections, each
number was projected to reflect the actual number at such point in the future to
which such figure relates. See Notes to the Statements of Operations of Exide
Electronics Combined with Deltec, of Exide Electronics -- Stand Alone and of
Deltec -- Stand Alone, for a review of other assumptions underlying the
Projections.
The assumptions described herein are those that the Company believes are
significant to the Projections. The failure of the Company to successfully
implement its operating strategy or the occurrence of any of the events or
circumstances set forth in the immediately preceding paragraph or elsewhere
herein could result in the Company's actual operating results being different
than the Projections, and such differences may be adverse and material.
P-3
7
EXIDE ELECTRONICS -- COMBINED WITH DELTEC
STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30,
-------------------------
1996
1995 PRO FORMA
PRO FORMA PROJECTED
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(IN THOUSANDS)
Revenues:
Products............................................................ $368,767 $440,000
Services............................................................ 138,526 128,000
---------- ----------
Total revenues.............................................. $507,293 $568,000
======== ========
Gross profit:
Products............................................................ $104,984 $137,000
Services............................................................ 46,239 42,500
---------- ----------
Total gross profit.......................................... 151,223 179,500
Selling, general and administrative expense........................... 105,883 120,890
Research and development expense...................................... 18,756 19,000
Litigation expense.................................................... 700 --
Merger and acquisition expense........................................ 7,000 --
---------- ----------
Income from operations.............................................. 18,884 39,610
Interest expense...................................................... 28,488 29,477
Interest income....................................................... (1,186) (500)
Other (income) expense................................................ (897) (500)
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Income (loss) before income taxes and minority interest............. (7,521) 11,133
Provision for (benefit from) income taxes............................. (2,280) 5,823
---------- ----------
Income (loss) before minority interest.............................. (5,241) 5,310
Minority interest in earnings of consolidated subsidiaries............ -- 500
---------- ----------
Net income (loss)................................................... $ (5,241) $ 4,810
======== ========
OTHER DATA:
EBITDA................................................................ $ 55,445 $ 69,457
Depreciation.......................................................... 9,224 10,500
Amortization.......................................................... 19,637 19,347
Capital expenditures.................................................. 14,730 16,500
P-4
8
EXIDE ELECTRONICS -- COMBINED WITH DELTEC
NOTES TO STATEMENTS OF OPERATIONS
BASIS OF PRESENTATION
The pro forma projected Statement of Operations of Exide
Electronics -- Combined with Deltec combines the separate projected Statement of
Operations of Exide Electronics -- Stand Alone with that of Deltec -- Stand
Alone and applies the assumed pro forma effect of the Transactions as defined
and explained below. The separate Stand Alone Statements of Operations do not
reflect any pro forma adjustments related to or any effects resulting from the
Transactions.
The pro forma projected Statement of Operations of Exide
Electronics -- Combined with Deltec for the year ended September 30, 1996 gives
effect to the Deltec Acquisition, the conversion of the Convertible Subordinated
Notes, the New Credit Facility and the Offering (collectively, the
"Transactions") as if they had occurred as of October 1, 1995. The pro forma
Statement of Operations for the year ended September 30, 1995 gives effect to
the Transactions as if they had occurred as of October 1, 1994.
The pro forma adjustments to reflect the Transactions assume the following
adjustments:
1995 1996
------- -------
(IN THOUSANDS)
Cost of revenues --
Cost savings resulting from Deltec Acquisition................. $(4,700) $(4,700)
Effect of preliminary purchase price allocation................ 2,200 2,200
------- -------
$(2,500) $(2,500)
======= =======
Selling, general and administrative expense --
Cost savings resulting from Deltec Acquisition................. $(2,300) $(2,300)
Effect of preliminary purchase price allocation................ 7,690 7,690
------- -------
$ 5,390 $ 5,390
======= =======
Research and development expense --
Cost savings resulting from Deltec Acquisition................. $(1,000) $(1,000)
Effect of preliminary purchase price allocation................ 5,000 5,000
------- -------
$ 4,000 $ 4,000
======= =======
The above pro forma adjustments are described in more detail in the Notes
to Unaudited Pro Forma Combined Financial Statements. See Note 2 for a
discussion of the preliminary estimates of the cost savings expected to result
from the Deltec Acquisition. See Note 3 for a discussion of the effect of the
preliminary purchase price allocation.
The estimated preliminary non-recurring costs of implementing the above pro
forma cost savings are $3.5 million and are excluded from the above pro forma
adjustments. The actual non-recurring costs will be reflected in the Company's
operating results following the Deltec Acquisition and may differ significantly
from the preliminary estimates.
The pro forma projected Statement of Operations of Exide
Electronics -- Combined with Deltec for the year ended September 30, 1996
assumes the Transactions had occurred as of October 1, 1995. However, the
consummation of the Deltec Acquisition, the New Credit Facility and the Offering
are currently scheduled to close on March 15, 1996. The pro forma results of
operations which the Company projects to report for fiscal 1996, assuming a
March 31, 1996 closing date, assuming actual cost savings resulting from the
Deltec Acquisition of $3 million in fiscal 1996 (representing approximately 4.5
months of actual savings at an annual rate of $8 million), excluding the
non-recurring costs of implementing the cost savings and including one-half of
the projected 1996 Deltec -- Stand Alone revenues, gross profit, income from
operations and EBITDA, are as follows (in thousands):
Revenues.......................................................... $489,000
Gross profit...................................................... 146,813
Income from operations............................................ 29,006
EBITDA............................................................ 52,833
P-5
9
INTEREST EXPENSE
Interest expense is projected to increase to $29.5 million in fiscal 1996
from pro forma interest expense of $28.5 million in fiscal 1995 as follows:
1995 1996
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(IN THOUSANDS)
The Notes --
Ending principal outstanding............................... $100,000 $100,000
Interest rate.............................................. 11.5% 11.5%
Interest expense........................................... $ 11,500 $ 11,500
New Credit Facility --
Ending principal outstanding............................... $151,200 $146,200
Interest rate.............................................. 8.5% 8.0%
Interest expense, calculated on average balance............ $ 10,858 $ 11,896
Other Senior Debt (as defined in the Offering Memorandum) --
Ending principal outstanding............................... $ 8,300 $ 8,300
Interest rate.............................................. 7.5% 7.5%
Interest expense........................................... $ 623 $ 623
Estimated interest payment to Fiskars........................ 4,100 4,100
Amortization of deferred financing costs..................... 1,407 1,358
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Total interest expense............................. $ 28,488 $ 29,477
======== ========
The increase in pro forma interest expense is due primarily to higher
average principal outstanding under the New Credit Facility. Average LIBOR on
the New Credit Facility is assumed to be 6.0% in 1995 and 5.5% in 1996. There
can be no assurance that interest rates will actually decline.
INCOME TAXES
The provision for income taxes is projected to be $5.8 million in fiscal
1996 as compared to a tax benefit of $2.3 million in fiscal 1995. The effective
tax rate is projected to be 52% in 1996 compared to an actual effective tax rate
of 39% for Exide Electronics -- Stand Alone and 24% for Deltec -- Stand Alone in
1995. The higher tax rate in fiscal 1996 is due primarily to the increase in
non-deductible goodwill. While the tax benefits for interest deductions on the
Notes have been reflected in the provision for (benefit from) income taxes, such
deductions may be subject to certain limitations under the Internal Revenue
Code.
MINORITY INTEREST
In 1996, the Company is planning to form 51%-owned subsidiaries in Brazil
and India. The projected operating results of these subsidiaries have been
consolidated with the Company's projected operating results in the Exide
Electronics -- Stand Alone Statement of Operations. The 49% minority interest in
the earnings of these consolidated subsidiaries is projected to be $0.5 million
in 1996.
EBITDA
EBITDA represents income from operations plus depreciation and amortization
(including the amortization of purchase accounting adjustments), non-recurring
1995 Exide Electronics merger, acquisition and litigation charges of $7.7
million and Deltec royalty expense payable to Fiskars that will not be charged
after the Deltec Acquisition. While EBITDA should not be construed as a
substitute for income from operations, net income and cash flows from operating
activities in analyzing operating performance, financial position and cash
flows, the Company has included EBITDA because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance, leverage and liquidity and to determine a company's
ability to service debt.
P-6
10
EXIDE ELECTRONICS -- STAND ALONE
STATEMENTS OF OPERATIONS
PROJECTED
HISTORICAL YEAR ENDED SEPTEMBER 30, YEAR ENDED
------------------------------------------------------ SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- -------------
(IN THOUSANDS)
Revenues:
Small systems products........... $ 86,800 $ 90,500 $ 89,125 $115,180 $148,079 $ 205,000
Large systems products........... 88,687 96,079 131,018 144,223 123,403 100,000
-------- -------- -------- -------- -------- --------
Total products................ 175,487 186,579 220,143 259,403 271,482 305,000
-------- -------- -------- -------- -------- --------
Services......................... 45,912 60,524 97,799 104,580 119,496 105,000
-------- -------- -------- -------- -------- --------
Total revenues................ $221,399 $247,103 $317,942 $363,983 $390,978 $ 410,000
======== ======== ======== ======== ======== ========
Gross profit:
Small systems products........... $ -- $ 24,811 $ 25,401 $ 33,950 $ 37,582 $ 60,000
Large systems products........... -- 18,872 29,042 31,881 29,217 26,500
-------- -------- -------- -------- -------- --------
Total products................ 30,467(1) 43,683 54,443 65,831 66,799 86,500
Services......................... 20,998 25,012 31,052 32,864 37,066 30,500
-------- -------- -------- -------- -------- --------
Total gross profit............ 51,465 68,695 85,495 98,695 103,865 117,000
Selling, general and administrative
expense.......................... 46,103 47,066 55,506 65,086 69,966 78,500
Research and development expense... 8,261 8,785 9,592 10,150 9,929 10,000
Litigation expense................. -- -- -- 4,997 700 --
Merger and acquisition expense..... -- -- -- -- 7,000 --
-------- -------- -------- -------- -------- --------
Income (loss) from operations.... $ (2,899) $ 12,844 $ 20,397 $ 18,462 $ 16,270 $ 28,500
======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA............................. $ 1,601 $ 19,642 $ 27,347 $ 31,889 $ 33,415 $ 38,209
Depreciation....................... 3,628 4,633 5,304 6,105 6,683 7,237
Amortization....................... 872 2,165 1,646 2,325 2,762 2,472
Capital expenditures............... 6,156 5,828 8,255 8,735 12,497 13,500
- ---------------
(1) Gross profit information for small systems and large systems products is not
available for this period as the Company was not organized into small
systems and large systems strategic business units at that time.
P-7
11
FEDERAL GOVERNMENT REVENUE AND MARGIN DATA:
The following data are provided supplementally to the operating data set
forth above in order to reflect the effect on such historical and projected data
of the revenues and gross profit from the Company's business with the federal
government. The federal government product revenues as set forth below are
almost exclusively from large systems products. The Company does not compute
total actual gross margin percentages related to federal government revenues,
but estimates that the actual gross margin percentages for the period from 1991
to 1995 were approximately 20% to 25%.
PROJECTED
HISTORICAL YEAR ENDED SEPTEMBER 30, YEAR ENDED
------------------------------------------------------ SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- -------------
(IN THOUSANDS)
Federal government product
revenues......................... $ 18,227 $ 30,107 $ 63,911 $ 73,059 $ 53,280 $ 25,000
Federal government service
revenues......................... 4,760 11,340 46,049 45,709 51,479 30,000
-------- -------- -------- -------- -------- -------------
Total federal government
revenues.................... $ 22,987 $ 41,447 $109,960 $118,768 $104,759 $ 55,000
======== ======== ======== ======== ======== ==========
P-8
12
EXIDE ELECTRONICS -- STAND ALONE
NOTES TO STATEMENTS OF OPERATIONS
REVENUES
Revenues are projected to increase to $410.0 million in fiscal 1996 from
$391.0 million in fiscal 1995, an increase of $19.0 million or 4.9%. The
increase in revenues is a result of a projected increase of $56.9 million
(38.4%) in small systems revenues, offset by a projected decrease in large
systems revenues of $23.4 million (19.0%) and a decrease of $14.5 million
(12.1%) in service revenues.
Large systems product revenues and service revenues are projected to be
adversely impacted by scheduled declines in revenues under the Federal Aviation
Administration Airport Traffic Control Center Modernization Program, for which
the Company supplies products and services pursuant to a five-year contract
awarded to the Company by the Air Force Logistics Command (the "ALC Contract")
in May 1988. The Projections do not include incremental revenues that could
result from a favorable resolution of the outstanding protest of the Company's
1995 award of a three-year follow-on to the ALC Contract. See the Company
Periodic Disclosure Documents.
Commercial (non-federal government) revenues in each segment are projected
to grow in part due to continued growth in the UPS industry. The industry growth
is expected to be driven by increases in unit sales, somewhat offset by average
price declines of 5%-10% per annum. The following table sets forth projected
growth in the UPS industry by segment as compared to historical and projected
Company growth.
ANNUAL GROWTH RATE
----------------------------------------------------------------------------
EXIDE ELECTRONICS
PROJECTED
EXIDE ELECTRONICS HISTORICAL -----------------------
TOTAL(1) COMMERCIAL(1) TOTAL(1) COMMERCIAL(1) INDUSTRY
-------------- -------------- -------- ------------- PROJECTED(2)
1994 1995 1994 1995 1996 1996 1996
---- ----- ---- ---- -------- ------------- ------------
Small systems products....... 29.2% 28.6% 28.7% 28.5% 38.4% 38.4% 15.2%
Large systems products....... 10.1 (14.4) 6.7 (1.2) (19.0) 6.1 0.9
Total products..... 17.8 4.7 19.3 17.1 12.3 28.3 12.9
Services..................... 6.9 14.3 13.8 15.5 (12.1) 10.3 4.9
Total products and
services......... 14.5 7.4 17.9 16.7 4.9 24.0 11.6
- ---------------
(1) Total includes commercial and federal government revenues. Commercial
excludes federal government revenues.
(2) Based on industry analysts' and Company estimates.
As indicated in the above table, the Company is projecting that its revenue
growth in small systems products and large systems commercial sales and in
commercial services will be at rates higher than those projected for the
industry on average, resulting in some market share gains in each segment.
The projected increase in small systems revenues in fiscal 1996 is
partially attributable to the inclusion of a full year's revenues of Lectro
Products, Inc. ("Lectro"), which was acquired at the end of fiscal 1995.
Excluding 1995 actual and 1996 projected revenues of Lectro, the Company is
projecting an increase in small systems revenues of 30.4% in fiscal 1996.
The Company's projected increase in small systems revenues is also
attributable to market share gains that are expected to be generated by
developing new and expanded original equipment manufacturer ("OEM") partnerships
and focusing on selected high growth market segments such as medical equipment.
In addition, the Company will focus on increasing international market share in
small systems products by building on the Company's current name recognition and
reputation. The Company also expects to achieve increased small systems and
large systems sales as a result of new 51%-owned subsidiaries in India and
Brazil, which are expected to begin operations during fiscal 1996. New product
offerings, such as line-interactive UPSs and expanded network management
software, will also drive incremental revenues.
P-9
13
The projected increase in commercial large system revenues is attributable,
in part, to increased international market share, which is expected to be
generated by introduction of certain mid-range products designed specifically
for international use, capitalization on the Company's current name recognition,
reputation and leadership role to exploit opportunities in selected
international markets, establishing a presence in certain under-served
international regions and leveraging the market share and distribution channels
of International Power Machines Corporation ("IPM") with those of the Company.
Commercial service revenues are projected to increase due to initiatives to
capitalize on the trend among UPS end users of outsourcing various services that
the Company can provide, such as facilities and battery monitoring, battery
maintenance services, power quality diagnostic services, and powertrain
maintenance. In addition, the Company has recently expanded its Worldwide
Logistics Center to provide cost efficient depot repair and expects to expand
its revenues from repair and replacement services. The Company has also
identified service opportunities related to small systems products, primarily
battery monitoring, maintenance and extended warranty contracts. International
commercial service revenues have been increasing over time due to recent
acquisitions, and this trend is expected to continue. The Company plans to
continue to improve the global infrastructure that supports its worldwide
service organization, including improving information systems and global repair
and spare part depots, and will benefit from its planned 51%-owned subsidiaries
in Brazil and India, which are currently being formed.
GROSS PROFIT
Gross profit is projected to increase to $117.0 million in fiscal 1996 from
$103.9 million in fiscal 1995. As a percentage of total revenues, gross profit
is projected to increase to 28.5% in fiscal 1996 from 26.6% in fiscal 1995 as
follows:
GROSS MARGIN 1995 1996
----------------------------------------------------------- ---- ----
Small systems products..................................... 25.4% 29.3%
Large systems products..................................... 23.7 26.5
Services................................................... 31.0 29.0
Total............................................ 26.6 28.5
The projected increase in small system gross margins in fiscal 1996 is
primarily attributable to programs to standardize manufacturing processes and
incorporate new technologies to reduce costs. The Company also expects to
benefit from continued growth in the Powerware Prestige product family, which
generally generates higher gross margins than the product families it replaced.
Delays and higher than expected introduction costs related to the introduction
of products in the Powerware Prestige family reduced small systems gross margins
in fiscal 1995. In addition, the Company expects to institute programs to reduce
the cost of components by consolidating suppliers, outsourcing selected
sub-assemblies, and use of advanced materials.
The projected increase in large system gross margins in fiscal 1996 is
primarily attributable to a move away from the Company's former strategy of
producing mostly customized products on a job-by-job basis toward more
standardized products with common parts and manufacturing processes. In
addition, fiscal 1996 will see the full year impact of higher margin mid-range
product lines which had very successful introductions in late fiscal 1995 and
contributed to improved margins in that fiscal year.
The projected decrease in services gross margin in fiscal 1996 is primarily
attributable to market conditions, which are expected to require the Company to
reduce pricing to achieve its expected service revenue growth, which should
generate lower gross margins. Service gross margin in fiscal 1996 is also
expected to be adversely affected due to the integration of IPM and the
Company's existing service organizations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense is projected to increase to
$78.5 million in fiscal 1996 from $70.0 million in fiscal 1995. As a percentage
of revenues, selling, general and administrative expense is expected to increase
to 19.1% in fiscal 1996 from 17.9% in fiscal 1995. The increase in selling,
general and
P-10
14
administrative expense as a percentage of revenues is primarily attributable to
higher variable selling expenses related to the higher mix of commercial
revenues as compared to government revenues and investments in media to build
brand awareness, sponsorship of the 1996 Olympic Games in Atlanta and the
Company's new 51%-owned subsidiaries in India and Brazil.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense is projected to increase slightly to $10.0
million in fiscal 1996 from $9.9 million in fiscal 1995. As a percentage of
revenues, however, research and development expense is projected to decrease to
2.4% in fiscal 1996 from 2.5% in fiscal 1995.
INCOME FROM OPERATIONS
Excluding non-recurring litigation and merger and acquisition expense, the
Company had operating income of $24.0 million, or 6.1% of revenues, in fiscal
1995 which, due to the reasons discussed above, the Company projects will
increase to $28.5 million, or 7.0% of revenues, in fiscal 1996.
EBITDA
EBITDA represents income from operations plus depreciation and
amortization, a non-recurring 1994 litigation charge of $5.0 million, and
non-recurring 1995 merger, acquisition and litigation charges of $7.7 million.
While EBITDA should not be construed as a substitute for income from operations,
net income and cash flows from operating activities in analyzing operating
performance, financial position and cash flows, the Company has included EBITDA
because it is commonly used by certain investors and analysts to analyze and
compare companies on the basis of operating performance, leverage and liquidity
and to determine a company's ability to service debt.
P-11
15
DELTEC -- STAND ALONE
STATEMENTS OF OPERATIONS
PROJECTED
HISTORICAL YEAR ENDED DECEMBER 31, YEAR ENDED
------------------------------------ SEPTEMBER 30,
1993 1994 1995 1996
-------- -------- -------- -------------
(IN THOUSANDS)
Revenues:
Products................................... $ 60,446 $ 80,236 $113,031 $ 135,000
Services................................... 14,982 16,960 19,918 23,000
-------- -------- -------- -------------
Total revenues.......................... 75,428 97,196 132,949 158,000
-------- -------- -------- -------------
Gross profit:
Products................................... 21,212 29,884 41,110 48,000
Services................................... 7,537 8,634 10,949 12,000
-------- -------- -------- -------------
Total gross profit...................... 28,749 38,518 52,059 60,000
Selling, general and administrative
expense.................................... 19,963 26,003 33,647 37,000
Research and development expense............. 3,119 4,168 4,976 5,000
Royalty expense.............................. 1,478 2,298 3,411 --
-------- -------- -------- -------------
Income from operations..................... $ 4,189 $ 6,049 $ 10,025 $ 18,000
======== ======== ======== ==========
OTHER DATA:
EBITDA....................................... $ 9,016 $ 12,332 $ 17,853 $ 23,248
Depreciation................................. 1,358 1,690 2,014 2,763
Amortization................................. 1,991 2,295 2,403 2,485
Capital expenditures......................... 1,456 1,634 2,402 3,000
P-12
16
NOTES TO DELTEC STAND ALONE
STATEMENTS OF OPERATIONS
BASIS OF PRESENTATION
The Deltec -- Stand Alone projected Statement of Operations for the fiscal
year ended September 30, 1996 is based on projected financial information
provided to the Company by Fiskars and Deltec. Because the Deltec Acquisition
has not been consummated and because the Company's management did not
participate in the development of the projected financial information provided
to the Company by Fiskars and Deltec, the ability of the Company's management to
project such information is necessarily more limited than its ability to project
financial information for Exide Electronics -- Stand Alone. Accordingly, the
projected financial information for Deltec -- Stand Alone is necessarily more
speculative in nature.
Based on the results of the Company's due diligence procedures, the Company
has reduced the Deltec -- Stand Alone projected revenues and income from
operations for 1996 from the amounts projected by Fiskars and Deltec. The
Company reduced Deltec product and service revenue growth rates to levels more
in line with expected market growth rates and reduced gross margins to reflect
reduced margins due to pressure from the lower-margin OEM channel, as it becomes
a greater component of Deltec's revenues, and to reflect lower service margins
due to increased competition for third-party service contracts.
REVENUES
Revenues are projected to increase to $158.0 million in fiscal 1996 from
$132.9 million in fiscal 1995, an increase of $25.1 million or 18.8% due to an
increase of $22.0 million (19.4%) in product revenues, and an increase of $3.1
million (15.5%) in service revenues. Deltec's annual historical and projected
growth rates as compared to projected industry growth rates are as follows:
ANNUAL GROWTH RATE
--------------------------------------------
DELTEC
HISTORICAL DELTEC INDUSTRY
-------------- PROJECTED PROJECTED
1994 1995 1996 1996
---- ---- --------- ---------
Products....................................... 32.7% 40.9% 19.4% 15.2%
Services....................................... 13.2 17.4 15.5 4.9
Total................................ 28.9 36.8 18.8 11.6
As indicated in the above table, the Company is projecting that Deltec's
revenue growth in products and services will be at rates higher than those
projected for the industry on average, resulting in some market share gains in
those segments.
The projected increases in product revenues in fiscal 1996 are primarily
attributable to increased sales to OEMs, computer distributor channels and
Pan-European distributors. Additionally, sales in fiscal 1996 are expected to
increase, in part, due to the introduction of a new single-phase product line.
The projected increase in service revenues is primarily attributable to
increased service contract sales, in conjunction with increased product sales,
and increased contracts to service UPS products manufactured by third-party
vendors.
P-13
17
GROSS PROFIT
Gross profit is projected to increase to $60.0 million in fiscal 1996 from
$52.1 million in fiscal 1995. As a percentage of revenues, gross profit is
projected to be 38.0% in fiscal 1996, as compared to 39.2% in fiscal 1995 as
follows:
GROSS MARGIN 1995 1996
--------------------------------------------------------------- ---- ----
Products....................................................... 36.4% 35.6%
Services....................................................... 55.0 52.2
Total................................................ 39.2 38.0
Gross margin percentages are projected to decline slightly due to expected
declines in prices of the small systems products, partially offset by improved
manufacturing costs due to expanded manufacturing capabilities, improved
efficiencies and improved production logistics.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense is projected to increase to
$37.0 million in fiscal 1996 from $33.6 million in fiscal 1995, an increase of
10.0%. As a percentage of revenues, however, selling, general and administrative
expense is expected to decrease to 23.4% in fiscal 1996 from 25.3% in fiscal
1995. The expected increase in selling, general and administrative expense is
the result of increased marketing expenses in support of small systems products,
continued investment in the European direct sales force and new sales offices in
Europe. The decrease as a percentage of revenues is due to increasing revenues
over a relatively fixed cost base.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense is projected to remain unchanged at $5.0
million in fiscal 1996. As a percentage of revenues, research and development
expense is projected to decrease to 3.2% in fiscal 1996 from 3.7% in fiscal
1995.
INCOME FROM OPERATIONS
Operating income (excluding royalty payments for use of Fiskar's trademarks
that will not be paid following the Deltec Acquisition) was $13.4 million in
fiscal 1995 which, for the reasons discussed above, is projected to increase to
$18.0 million in fiscal 1996. As a percentage of revenues, operating income is
projected to increase to 11.4% in fiscal 1996 from 10.1% of revenues in fiscal
1995.
EBITDA
EBITDA represents income from operations plus depreciation and amortization
and Deltec royalty expense payable to Fiskars that will not be charged after the
Deltec Acquisition. While EBITDA should not be construed as a substitute for
income from operations, net income and cash flows from operating activities in
analyzing operating performance, financial position and cash flows, the Company
has included EBITDA because it is commonly used by certain investors and
analysts to analyze and compare companies on the basis of operating performance,
leverage and liquidity and to determine a company's ability to service debt.
P-14
18
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The following sets forth the Company's Unaudited Pro Forma Combined
Statement of Operations and Other Data, and the Company's Unaudited Pro Forma
Combined Balance Sheet, in each case giving effect to the Transactions described
in Note 1 hereto as if such transactions had been consummated at the beginning
of fiscal 1995 (in the case of the Unaudited Pro Forma Combined Statement of
Operations and Other Data) and on December 31, 1995 (in the case of the Pro
Forma Combined Balance Sheet). The Unaudited Pro Forma Combined Financial
Statements of the Company do not purport to present the financial position or
results of operations of the Company had the Transactions assumed herein
occurred on the dates indicated, nor are they necessarily indicative of the
results of operations which may be expected to occur in the future.
The Exide Electronics operating data for the last twelve months ("LTM")
ended December 31, 1995 was derived from the Exide Electronics Statements of
Operations for the last nine months of the year ended September 30, 1995 and the
three months ended December 31, 1995. The Deltec operating data for the year
ended September 30, 1995, was derived from the Deltec Statements of Income for
the three months ended December 31, 1994, and for the nine months ended
September 30, 1995.
The Deltec Acquisition will be accounted for by the Company as a purchase
whereby the basis for accounting for Deltec's assets and liabilities will be
based upon their fair market values at the date of the Deltec Acquisition. Pro
forma adjustments, including the preliminary purchase price allocation and
estimated cost savings resulting from the Deltec Acquisition as described in
Notes 1 and 2 of the Notes to the Unaudited Pro Forma Combined Financial
Statements, represent the Company's preliminary determination of these
adjustments and are based upon preliminary information, assumptions and
operating decisions which the Company considers reasonable under the
circumstances. Final amounts may differ significantly from those set forth
herein.
U-1
19
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND OTHER DATA
LATEST TWELVE MONTHS ENDED DECEMBER 31, 1995
EXIDE PRO FORMA PRO FORMA
ELECTRONICS DELTEC ADJUSTMENTS(1) COMBINED
----------- -------- -------------- ---------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Product revenues............................. $ 265,245 $113,031 $ -- $378,276
Service revenues............................. 116,970 19,918 -- 136,888
----------- -------- -------------- ---------
Total revenues........................... 382,215 132,949 -- 515,164
----------- -------- -------------- ---------
Product cost of revenues..................... 198,131 71,921 (4,200)(2)(3) 265,852
Service cost of revenues..................... 81,688 8,969 -- 90,657
----------- -------- -------------- ---------
Total cost of revenues................... 279,819 80,890 (4,200) 356,509
----------- -------- -------------- ---------
Gross profit................................. 102,396 52,059 4,200 158,655
Selling, general and administrative
expense.................................... 70,866 33,647 3,797(2)(3) 108,310
Research and development expense............. 9,891 4,976 (1,000)(2) 13,867
Litigation expense........................... 700 -- -- 700
Merger and acquisition expense............... 7,000 -- -- 7,000
Royalty expense.............................. -- 3,411 (3,411)(4) --
----------- -------- -------------- ---------
Income from operations................... 13,939 10,025 4,814 28,778
Interest expense............................. 5,648 3,177 16,105(5) 24,930
Interest income.............................. (377) (678) -- (1,055 )
Other (income) expense....................... (619) -- -- (619 )
----------- -------- -------------- ---------
Income before income taxes............... 9,287 7,526 (11,291) 5,522
Provision for income taxes................... 3,738 2,237 (3,067)(6) 2,908
----------- -------- -------------- ---------
Net income............................... 5,549 $ 5,289 (8,224) 2,614
=========
Preferred stock dividends.................... 394 977(7) 1,371
----------- -------------- ---------
Net income applicable to common
shareholders............................... $ 5,155 $ (9,201) $ 1,243
========== ============== ==========
Earnings per share(7)........................ $ 0.57 $ .12
========== ==========
Weighted average common shares outstanding... 9,677 10,439
========== ==========
OTHER DATA:
EBITDA(8).................................... $ 31,322 $ 17,853 $ 8,000(2) $ 57,175
Depreciation................................. 6,962 2,014 500 9,476
Amortization................................. 2,721 2,403 6,097 11,221
Capital expenditures......................... 14,103 2,402 16,505
Ratio of EBITDA to interest expense.......... 5.5x 5.6x 2.3 x
Ratio of earnings to fixed charges(9)........ 2.1x 2.8x 1.2 x
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements
U-2
20
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND OTHER DATA
YEAR ENDED SEPTEMBER 30, 1995
EXIDE PRO FORMA PRO FORMA
ELECTRONICS DELTEC ADJUSTMENTS(1) COMBINED
----------- -------- -------------- ---------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Product revenues........................... $ 271,482 $ 97,285 $ -- $368,767
Service revenues........................... 119,496 19,030 -- 138,526
----------- -------- -------------- ---------
Total revenues......................... 390,978 116,315 -- 507,293
----------- -------- -------------- ---------
Product cost of revenues................... 204,683 61,600 (2,500)(2)(3) 263,783
Service cost of revenues................... 82,430 9,857 -- 92,287
----------- -------- -------------- ---------
Total cost of revenues................. 287,113 71,457 (2,500) 356,070
----------- -------- -------------- ---------
Gross profit........................... 103,865 44,858 2,500 151,223
Selling, general and administrative
expense.................................. 69,966 30,527 5,390(2)(3) 105,883
Research and development expense........... 9,929 4,827 4,000(2)(3) 18,756
Litigation expense......................... 700 0 -- 700
Merger and acquisition expense............. 7,000 0 -- 7,000
Royalty expense............................ 0 2,923 (2,923)(4) 0
----------- -------- -------------- ---------
Income from operations................. 16,270 6,581 (3,967) 18,884
Interest expense........................... 5,575 2,982 19,931(5) 28,488
Interest income............................ (485) (701) -- (1,186 )
Other (income) expense..................... (897) -- -- (897 )
----------- -------- -------------- ---------
Income before income taxes............. 12,077 4,300 (23,898) (7,521 )
Provision for income taxes................. 4,692 1,012 (7,984)(6) (2,280 )
----------- -------- -------------- ---------
Net income............................. 7,385 $ 3,288 (15,914) (5,241 )
=========
Preferred stock dividends.................. 592 779(7) 1,371
----------- -------------- ---------
Net income applicable to common
shareholders............................. $ 6,793 $(16,693) $ (6,612 )
========== ============== ==========
Earnings per share(7)...................... $ 0.84 $ (0.63 )
========== ==========
Weighted average common shares
outstanding.............................. 9,673 10,471
========== ==========
OTHER DATA:
EBITDA(8).................................. $ 33,415 $ 14,030 $ 8,000(2) $ 55,445
Depreciation............................... 6,683 2,041 500 9,224
Amortization............................... 2,762 2,485 14,390 19,637
Capital expenditures....................... 12,497 2,233 14,730
Ratio of EBITDA to interest expense........ 6.0x 4.7x 1.9 x
Ratio of earnings to fixed charges......... 2.4x 2.1x 0.8 x(9)
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements
U-3
21
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND OTHER DATA
THREE MONTHS ENDED DECEMBER 31, 1994
EXIDE PRO FORMA PRO FORMA
ELECTRONICS DELTEC ADJUSTMENTS(1) COMBINED
----------- ------- -------------- ---------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Product revenues............................ $63,896 $24,620 $ -- $ 88,516
Service revenues............................ 28,170 4,854 -- 33,024
----------- ------- -------------- ---------
Total revenues.......................... 92,066 29,474 -- 121,540
----------- ------- -------------- ---------
Product cost of revenues.................... 49,060 14,997 650(2)(3) 64,707
Service cost of revenues.................... 19,322 2,977 -- 22,299
----------- ------- -------------- ---------
Total cost of revenues.................. 68,382 17,974 650 87,006
----------- ------- -------------- ---------
Gross profit............................ 23,684 11,500 (650) 34,534
Selling, general and administrative
expense................................... 16,557 6,862 2,344(2)(3) 25,763
Research and development expense............ 2,547 1,145 4,750(2)(3) 8,442
Royalty expense............................. -- 714 (714)(4) --
----------- ------- -------------- ---------
Income from operations.................. 4,580 2,779 (7,030) 329
Interest expense............................ 1,424 665 8,073(5) 10,162
Interest income............................. (139) (121) -- (260 )
Other (income) expense...................... (161) -- -- (161 )
----------- ------- -------------- ---------
Income before income taxes.............. 3,456 2,235 (15,103) (9,412 )
Provision for income taxes.................. 1,207 685 (5,556)(6) (3,664 )
----------- ------- -------------- ---------
Net income.............................. 2,249 $ 1,550 (9,547) (5,748 )
========
Preferred stock dividends................... 198 145(7) 343
----------- -------------- ---------
Net income applicable to common
shareholders.............................. $ 2,051 $ (9,692) $ (6,091 )
========== ============== ==========
Earnings per share(7)....................... $ 0.25 $ (0.59 )
========== ==========
Weighted average common shares
outstanding............................... 9,005 10,349
========== ==========
OTHER DATA:
EBITDA(8)................................... $ 6,795 $ 4,698 $ 2,000(2) $ 13,493
Depreciation................................ 1,562 530 125 2,217
Amortization................................ 653 675 9,619 10,947
Capital expenditures........................ 2,332 570 2,902
Ratio of EBITDA to interest expense......... 4.8x 7.1x 1.3 x
Ratio of earnings to fixed charges(9)....... 2.6x 3.7x 0.1 x(9)
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements
U-4
22
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND OTHER DATA
THREE MONTHS ENDED DECEMBER 31, 1995
EXIDE PRO FORMA PRO FORMA
ELECTRONICS DELTEC ADJUSTMENTS(1) COMBINED
----------- ------- -------------- ---------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Product revenues............................ $57,659 $40,366 $ -- $ 98,025
Service revenues............................ 25,644 5,742 -- 31,386
----------- ------- -------------- ---------
Total revenues.......................... 83,303 46,108 -- 129,411
----------- ------- -------------- ---------
Product cost of revenues.................... 42,508 25,318 (1,050)(2)(3) 66,776
Service cost of revenues.................... 18,580 2,089 -- 20,669
----------- ------- -------------- ---------
Total cost of revenues.................. 61,088 27,407 (1,050) 87,445
----------- ------- -------------- ---------
Gross profit............................ 22,215 18,701 1,050 41,966
Selling, general and administrative
expense................................... 17,457 9,982 751(2)(3) 28,190
Research and development expense............ 2,509 1,294 (250)(2) 3,553
Royalty expense............................. -- 1,202 (1,202)(4) --
----------- ------- -------------- ---------
Income from operations.................. 2,249 6,223 1,751 10,223
Interest expense............................ 1,497 860 4,247(5) 6,604
Interest income............................. (31) (98) -- (129 )
Other (income) expense...................... 117 -- -- 117
----------- ------- -------------- ---------
Income before income taxes.............. 666 5,461 (2,496) 3,631
Provision for income taxes.................. 253 1,910 (639)(6) 1,524
----------- ------- -------------- ---------
Net income.............................. 413 $ 3,551 (1,857) 2,107
========
Preferred stock dividends................... -- 343(7) 343
----------- -------------- ---------
Net income applicable to common
shareholders.............................. $ 413 $ (2,200) $ 1,764
========== ============== ==========
Earnings per share(7)....................... $ 0.04 $ 0.17
========== ==========
Weighted average common shares
outstanding............................... 9,500 10,323
========== ==========
OTHER DATA:
EBITDA(8)................................... $ 4,702 $ 8,521 $ 2,000(2) $ 15,223
Depreciation................................ 1,841 503 125 2,469
Amortization................................ 612 593 1,326 2,531
Capital expenditures........................ 3,938 739 4,677
Ratio of EBITDA to interest expense......... 3.1x 9.9x 2.3 x
Ratio of earnings to fixed charges(9)....... 1.3x 6.2x 1.5 x
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements
U-5
23
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1995
-------------------------------------------------------------
EXIDE PRO FORMA PRO FORMA
ELECTRONICS DELTEC ADJUSTMENTS(1) COMBINED
----------- ------- -------------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Current Assets
Cash and cash equivalents............. $ 2,001 $ 5,603 $ (5,603)(1) $ 2,001
Accounts receivable................... 95,436 34,268 -- 129,704
Inventories........................... 76,753 21,633 1,700(1) 100,086
Other current assets.................. 15,357 4,388 2,500(1) 22,245
----------- ------- -------------- ---------
Total current assets............... 189,547 65,892 (1,403) 254,036
Property, plant and equipment........... 37,251 7,135 4,000(1) 48,386
Goodwill................................ 18,318 7,384 129,624(10) 155,326
Other assets............................ 8,823 468 28,500(11) 37,791
----------- ------- -------------- ---------
$ 253,939 $80,879 $160,721 $ 495,539
======== ======= =========== ========
LIABILITIES, PREFERRED STOCK AND COMMON SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt....................... $ 6,747 $ 10 $ -- $ 6,757
Accounts payable...................... 43,220 11,845 -- 55,065
Deferred revenues..................... 15,840 4,461 -- 20,301
Other accrued liabilities............. 15,707 19,341 (6,752)(1)(13) 28,296
Payable to Fiskars.................... -- -- 6,657(1) 6,657
----------- ------- -------------- ---------
Total current liabilities.......... 81,514 35,657 (95) 117,076
Long-term debt.......................... 76,416 37,836 138,457(12) 252,709
Deferred liabilities.................... 3,421 4,076 1,670(1)(13) 9,167
Series G Preferred Stock (redeemable
after September 30, 2006)............. -- -- 18,000(1) 18,000
Common shareholders' equity............. 92,588 3,310 2,689(13) 98,587
----------- ------- -------------- ---------
$ 253,939 $80,879 $160,721 $ 495,539
======== ======= =========== ========
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements
U-6
24
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. The Company's Unaudited Pro Forma Combined Financial Statements assume the
following transactions occurred (1) at the beginning (October 1, 1994) of
the Company's 1995 fiscal year for purposes of the Unaudited Pro Forma
Combined Statements of Operations and Other Data and (2) on December 31,
1995, for purposes of the Unaudited Pro Forma Combined Balance Sheet:
a. The Deltec Acquisition -- Immediately prior to the closing of the
Deltec Acquisition, under the terms of the Acquisition Agreement,
Fiskars will convert all net amounts owed by Deltec to Fiskars or
affiliates to Deltec shareholders' equity and distribute all Deltec cash
to Fiskars. Accordingly, the pro forma adjustments reflect decreases in
cash ($5,603), goodwill and intangible assets ($7,384), other accrued
liabilities ($6,791), deferred liabilities ($1,060) and long-term debt
($36,643), along with a corresponding increase to Deltec shareholders'
equity ($31,507).
It is assumed that the Deltec Acquisition will be financed through
borrowings of $61,000 under the New Credit Facility, $97,000 from the
net proceeds of the Offering of the Units, $500 payable to Fiskars on
January 8, 1997 and $6,157 additional variable amount payable to Fiskars
related to the assumed purchase price adjustment at December 31, 1995.
The excess of cost over fair value of net assets acquired resulting from
the preliminary purchase price allocation is assumed to be as follows:
Pro forma purchase price --
Cash --
Fixed amount stated in Acquisition Agreement...................... $158,500
Variable amount related to assumed purchase price adjustment;
calculated based on Deltec net book value and excluded assets and
liabilities at December 31, 1995................................. 6,157
Series G Preferred Stock (1,000,000 shares at fair value of $18 per
share)............................................................ 18,000
Common Stock (825,000 shares at fair market value of $14 per
share)............................................................ 11,550
Transaction costs.................................................... 4,500
--------
Total pro forma purchase price.................................... 198,707
--------
Pro forma historical net book value of assets acquired --
Book value per historical financial statements....................... 3,310
Net liabilities excluded as described above.......................... 31,507
--------
Total pro forma historical net book value of assets acquired...... (34,817)
--------
Excess of purchase price over net book value of assets acquired........ 163,890
Allocated to:
Inventories....................................................... (1,700)
Other current assets.............................................. (2,500)
Property and equipment............................................ (4,000)
Other long-term assets............................................ (20,000)
In-process research and development............................... (5,000)
Deferred income tax liability --
Current......................................................... 1,638
Long-term....................................................... 4,680
--------
Remaining excess of cost over fair value of net assets acquired
(goodwill)........................................................... $137,008
========
The preliminary purchase price allocation included allocations to other
long-term assets for the noncompete agreement, prepaid license fees for
use of the Fiskars tradename in Europe, trademarks, patents and product
drawings and specifications.
U-7
25
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The foregoing preliminary purchase price allocation is based on
available information and certain assumptions the Company considers
reasonable. The final purchase price allocation will be based upon a
final determination of the fair market value of the net assets acquired
at the date of the Deltec Acquisition as determined by valuations and
other studies which are not yet complete. The final purchase price
allocation may differ significantly from the preliminary allocation.
b. The conversion on October 23, 1995, of Exide Electronics' 8.375%
convertible subordinated notes (the "Convertible Subordinated Notes")
(balance at September 30, 1995 -- $15,000) into 1,146,789 shares of
Common Stock.
c. The New Credit Facility -- Simultaneously with closing the Offering,
the Company will enter into the New Credit Facility to replace its
existing credit facility. The Deltec Acquisition will be partially
financed through borrowings under the New Credit Facility.
d. The issuance of the Notes in the Offering.
2. Because the Deltec Acquisition has not been consummated, the Company has
begun, but not completed, its strategic and operating plans for the
integration of Deltec's operations into those of the Company. Once the
Deltec Acquisition has been consummated, the Company plans to complete its
strategic and operating integration plan, including coordinating its
strategic and operating plans and decisions with the plans and decisions of
Deltec's management. Nevertheless, based on preliminary information,
assumptions and operating decisions, the Company estimates that it can
eliminate duplicative costs through the combination of the two companies as
described below. However, the actual cost savings may differ significantly
from the preliminary estimates.
The pro forma adjustments to reflect estimated cost savings resulting from
the Deltec Acquisition assumes the following preliminary estimates of
expected cost savings:
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, LTM ENDED
SEPTEMBER 30, ----------------- DECEMBER 31,
1995 1994 1995 1995
------------- ------ ------ ------------
Consolidation of large systems manufacturing
facilities.................................. $ 3,000 $ 750 $ 750 $3,000
Elimination of duplicative selling, general
and administrative and research and
development
costs....................................... 2,700 675 675 2,700
Elimination of certain manufacturing
outsourcing and combination of
procurement................................. 1,200 300 300 1,200
Consolidation of European sales and service
operations.................................. 600 150 150 600
Consolidation of international product
offerings................................... 500 125 125 500
------------- ------ ------ ------------
Pro forma adjustment..................... $ 8,000 $2,000 $2,000 $8,000
========== ====== ====== ==========
Such pro forma adjustments have reduced costs of revenues, selling, general
and administrative expense and research and development expense by $4,700,
$2,300 and $1,000, respectively, for both the year ended September 30, 1995
and the LTM ended December 31, 1995 and by $1,175, $575 and $250 for both
the three month periods ended December 31, 1994 and 1995, respectively.
In addition to the cost savings initiatives and estimated cost savings
described above, the Company estimates that it can eliminate additional
annual duplicative costs through the combination of the two companies.
However, such amount cannot be quantified at this time and has not been
reflected in the pro forma adjustments.
U-8
26
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The estimated preliminary non-recurring costs of implementing the above pro
forma cost savings are $3,500 and are excluded from the pro forma
adjustments. The actual non-recurring costs may differ significantly from
the preliminary estimates.
3. The pro forma adjustment to reflect the effect of the preliminary purchase
price allocation on cost of revenues, selling, general and administrative
expense and research and development expense assumes:
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, LTM ENDED
SEPTEMBER 30, ---------------- DECEMBER 31,
1995 1994 1995 1995
------------- ------ ------ ------------
Cost of revenues --
Record amortization of amounts allocated
to inventories........................ $ 1,700 $1,700 $ -- $ --
Record depreciation of amounts allocated
to property and equipment............. 500 125 125 500
------------- ------ ------ ------------
$ 2,200 $1,825 $ 125 $ 500
========== ====== ====== ==========
Selling, general and administrative
expense --
Record amortization of amounts allocated
to other current assets............... $ 2,500 $1,675 $ -- $ 825
Record amortization of goodwill in
connection with the acquisition over
40 years.............................. 3,425 856 856 3,425
Record amortization of amounts allocated
to other long-term assets............. 4,250 1,063 1,063 4,250
Elimination of previously recorded Deltec
amortization of goodwill and
intangible assets..................... (2,485) (675) (593) (2,403)
------------- ------ ------ ------------
$ 7,690 $2,919 $1,326 $ 6,097
========== ====== ====== ==========
Research and development expense --
Record amortization of amounts allocated
to purchased in-process research and
development........................... $ 5,000 $5,000 $ -- $ --
========== ====== ====== ==========
The amounts allocated to inventories, other current assets and purchased
in-process research and development will be fully amortized during the
twelve months following the Deltec Acquisition date. Amounts allocated to
certain long-term assets will be fully amortized during the four years
following the Deltec Acquisition date, which will reduce the annual
amortization for such amounts from $4,250 as shown above to $750 beginning
in the fifth year following the Deltec Acquisition date.
4. The royalty expense previously charged by Fiskars to Deltec will not be
charged after the Deltec Acquisition due to the license fees paid in the
purchase price for use of the Fiskars tradename in Europe.
U-9
27
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
5. The pro forma adjustment to interest expense assumes:
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, LTM ENDED
SEPTEMBER 30, ----------------- DECEMBER 31,
1995 1994 1995 1995
------------- ------ ------ ------------
Elimination of interest related to --
Conversion of Deltec debt to Fiskars to
Deltec equity............................ $(2,888) $ (635) $ (808) $ (3,061)
Conversion of Convertible Subordinated
Notes.................................... (1,256) (314) (80) (1,022)
Additional interest expense related to --
The Notes at 11.5%(a)....................... 11,500 2,875 2,875 11,500
$75,100 of net additional borrowings under
the New Credit Facility.................. 6,353 1,571 1,587 6,369
Replacement of the existing credit facility
with the New Credit Facility............. 715 125 334 924
Estimated interest payment to Fiskars as
part of amendment to Acquisition
Agreement................................ 4,100 4,100 -- --
Amortization of deferred financing costs
related to --
The Notes................................... 425 106 106 425
New Credit Facility......................... 982 245 233 970
------------- ------ ------ ------------
Pro forma adjustment..................... $19,931 $8,073 $4,247 $ 16,105
========== ====== ====== ==========
- ---------------
(a) Assumes a 11.5% interest rate. Does not reflect the sale of any
Warrants as part of the Units offered hereby. The issuance of any such
Warrants will result in the Notes being recorded at a discount, which
discount will be amortized over the life of the Notes resulting in
additional interest expense being recorded.
The additional interest expense related to the replacement of the existing
credit facility with the New Credit Facility was determined based on (i)
average borrowings outstanding under the existing credit facility of
$40,985 for the year ended September 30, 1995, $28,550 for the three months
ended December 31, 1994, $70,334 for the three months ended December 31,
1995 and $51,431 for the LTM ended December 31, 1995, and (ii) an increase
in the interest rate from the agent bank's base rate or, at the Company's
option, the LIBOR rate plus 0.60% under the existing credit facility to the
agent bank's base rate plus 1.5%, or at the Company's option, the LIBOR
rate plus 2.5% under the New Credit Facility.
A 25 basis point increase (or decrease) in such interest rates would
increase (or decrease) annual interest expense with respect to the New
Credit Facility by $378 based on pro forma borrowings of $151,200 at
December 31, 1995.
6. The pro forma adjustments to the provision for income taxes assumes a tax
benefit at a 39% tax rate is applied (1) to the pro forma adjustments which
are assumed to be deductible for tax return purposes and (2) to
non-deductible pro forma adjustments for which deferred income taxes were
established in the preliminary purchase price allocation. While tax
benefits for interest deductions on the Notes have been reflected in the
pro forma adjustments, such deductions may be subject to certain
limitations under the Code (as defined).
U-10
28
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
7. The pro forma adjustments to preferred stock dividends assumes:
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, LTM ENDED
SEPTEMBER 30, --------------- DECEMBER 31,
1995 1994 1995 1995
------------- ----- ----- ------------
Dividends related to Series G Preferred
Stock issued to Fiskars --
Cash dividends........................... $ 800 $ 200 $ 200 $ 800
Accreted dividends....................... 571 143 143 571
Eliminate dividends on Exide Electronics
Series D and E preferred stock which was
converted to Common Stock in 1995........ (592) (198) -- (394)
------------- ----- ----- ------------
$ 779 $ 145 $ 343 $ 977
========== ===== ===== ==========
The accreted dividends relate to the accretion of the difference between
the assumed fair market value of the Series G Preferred Stock at the Deltec
Acquisition date ($18,000) and the redemption price at the option of holder
($24,000) after September 30, 2006 over the period from the Deltec
Acquisition date to September 30, 2006.
Pro forma primary and fully diluted earnings per share are the same for all
periods presented. The computation of pro forma primary and fully diluted
earnings per share assumes that the Exide Electronics Series D and E
preferred stock were converted to Common Stock on October 1, 1994.
8. EBITDA represents income from operations plus depreciation and amortization
(including depreciation and amortization of purchase accounting
adjustments), non-recurring 1995 Exide Electronics merger, acquisition and
litigation charges of $7,700 and Deltec royalty expense payable to Fiskars
which will not be charged after the Deltec Acquisition. While EBITDA should
not be construed as a substitute for income from operations, net income and
cash flows from operating activities in analyzing operating performance,
financial position and cash flows, the Company has included EBITDA because
it is commonly used by certain investors and analysts to analyze and
compare companies on the basis of operating performance, leverage and
liquidity and to determine a company's ability to service debt.
9. In the computation of the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges minus the
undistributed earnings of Exide Electronics' 50%-owned subsidiary accounted
for by the equity method. Fixed charges consist of interest expense which
includes amortization of deferred financing costs, and one-third of rental
expenses which represents that portion of rental expenses attributable to
interest. On a pro forma basis after giving effect to the Transactions,
earnings were inadequate to cover fixed charges by $7,778 for the year
ended September 30, 1995 and $9,529 for the three months ended December 31,
1994. Adjusted to eliminate non-cash charges of depreciation and
amortization of $28,861 for the year ended September 30, 1995 and $13,164
for the three months ended December 31, 1994, pro forma earnings would have
exceeded fixed charges by $21,083 and $3,635, respectively.
10. The pro forma adjustment to goodwill assumes:
Record additional goodwill related to the Deltec Acquisition............ $137,008
Eliminate existing Deltec goodwill...................................... (7,384)
--------
Pro forma adjustment............................................... $129,624
========
U-11
29
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
11. The pro forma adjustment to other long-term assets assumes:
Record certain other intangible assets..................................... $ 20,000
Record deferred financing costs related to the Notes....................... 4,250
Record deferred financing costs related to New Credit Facility............. 4,250
--------
Pro forma adjustment.................................................. $ 28,500
========
12. The pro forma adjustment to long-term debt assumes:
Record the Notes........................................................... $100,000(a)
Record net additional borrowings under New Credit Facility:
Cash purchase price to Fiskars........................................ 61,000
Acquisition transaction costs......................................... 4,500
Transaction costs related to the Notes................................ 1,250
Transaction costs related to New Credit Facility...................... 4,250
Interest paid to Fiskars.............................................. 4,100
Eliminate Deltec long-term debt to Fiskars................................. (36,643)
--------
Pro forma adjustment.................................................. $138,457
========
- ---------------
(a) Does not reflect the sale of any Warrants as part of the Units offered
hereby. The issuance of any such Warrants will result in the Notes being
recorded at a discount.
13. The pro forma adjustment to shareholders' equity assumes:
Record common stock issued to Fiskars...................................... $ 11,550
Record writeoff of purchased in-process research and development, net of
assumed tax benefit of $1,950............................................ (3,050)
Record interest of $4,100 paid to Fiskars, net of assumed tax benefit of
$1,599................................................................... (2,501)
Eliminate Deltec shareholders' equity...................................... (3,310)
--------
Pro forma adjustment.................................................. $ 2,689(a)
========
- ---------------
(a) Does not reflect the sale of any Warrants as part of the Units offered
hereby. The issuance of any such Warrants will result in the value of
the Warrants being recorded as additional common shareholders' equity.
U-12
30
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
Exide Electronics Group, Inc.
Annual Consolidated Financial Statements
Report of Arthur Andersen LLP, Independent Public Accountants.................... F-2
Consolidated Balance Sheet as of September 30, 1994 and 1995..................... F-3
Consolidated Statement of Operations for the years ended September 30, 1993, 1994
and 1995........................................................................ F-4
Consolidated Statement of Changes in Common Shareholders' Equity for the years
ended September 30, 1993, 1994 and 1995......................................... F-5
Consolidated Statement of Cash Flows for the years ended September 30, 1993, 1994
and 1995....................................................................... F-6
Notes to Consolidated Financial Statements....................................... F-7
Interim Consolidated Financial Statements -- unaudited
Consolidated Balance Sheet as of September 30, 1995 and December 31, 1995........ F-30
Consolidated Statement of Operations for the three months ended December 31, 1994
and 1995........................................................................ F-31
Consolidated Statement of Cash Flows for the three months ended December 31, 1994
and 1995........................................................................ F-32
Notes to Consolidated Financial Statements....................................... F-33
Deltec Power Systems, Inc.
Annual Combined and Consolidated Financial Statements
Report of Price Waterhouse LLP, Independent Accountants.......................... F-40
Reports of KPMG Peat Marwick LLP, Independent Accountants, covering FPS Power
Systems Oy Ab (Finland), FPS Power Systems A/S (Norway), Fiskars Power Systems
A/S (Denmark) and Fiskars Power Systems AB (Sweden)............................. F-41
Consolidated Balance Sheets as of December 31, 1994 and 1995 (unaudited) and
September 30, 1995.............................................................. F-45
Combined/Consolidated Statements of Operations for the years ended December 31,
1993, 1994, and 1995 (unaudited) and for the nine months ended September 30,
1995............................................................................ F-46
Combined/Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1993 and 1994, and for the nine months ended September 30, 1995 and
for the three months ended December 31, 1995 (unaudited)........................ F-47
Combined/Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 (unaudited) and for the nine months ended September 30,
1995............................................................................ F-48
Notes to the Combined and Consolidated Financial Statements...................... F-49
Interim Consolidated Financial Statements -- unaudited
Consolidated Balance Sheets as of September 30, 1995 and December 31, 1995....... F-67
Consolidated Statements of Operations for the three months ended December 31,
1994 and 1995................................................................... F-68
Consolidated Statements of Cash Flows for the three months ended December 31,
1994 and 1995................................................................... F-69
Notes to the Consolidated Financial Statements................................... F-70
F-1
31
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, 1994 and 1995, and the related consolidated statements of
operations, changes in common shareholders' equity and cash flows (restated for
the pooling-of-interest transaction as discussed in Note 2) for each of the
three years in the period ended September 30, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Exide Electronics Group,
Inc. and subsidiaries as of September 30, 1994 and 1995 and the results of their
operations and their cash flows (restated for the pooling-of-interest
transaction as discussed in Note 2) for each of the three years in the period
ended September 30, 1995, in conformity with generally accepted accounting
principles.
As explained in Note 12, in 1993 the Company changed its method of
accounting for income taxes.
ARTHUR ANDERSEN LLP
Raleigh, North Carolina,
October 25, 1995 (except for the matters discussed in Note 16,
as to which the date is December 13, 1995).
F-2
32
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,
---------------------
1994 1995
-------- --------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets
Cash and cash equivalents.......................................... $ 5,886 $ 2,787
Accounts receivable................................................ 105,712 105,524
Inventories........................................................ 55,529 72,890
Deferred tax assets................................................ 7,532 9,672
Other current assets............................................... 4,549 3,705
-------- --------
Total current assets............................................ 179,208 194,578
-------- --------
Property, plant, and equipment
Land, buildings, and leasehold improvements........................ 8,809 9,931
Machinery and equipment............................................ 51,653 61,519
-------- --------
60,462 71,450
Accumulated depreciation........................................... 32,250 36,393
-------- --------
28,212 35,057
Goodwill............................................................. 8,947 18,738
Other assets......................................................... 8,309 8,078
-------- --------
$224,676 $256,451
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK, & COMMON SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt.................................................... $ 5,802 $ 7,655
Accounts payable................................................... 44,958 46,041
Deferred revenues.................................................. 16,577 15,602
Accrued compensation............................................... 8,153 7,945
Other accrued liabilities.......................................... 10,381 11,792
-------- --------
Total current liabilities....................................... 85,871 89,035
-------- --------
Long-term debt....................................................... 43,400 65,258
-------- --------
Convertible subordinated notes....................................... 15,000 15,000
-------- --------
Deferred liabilities................................................. 2,943 3,391
-------- --------
Redeemable preferred stock........................................... 10,000 --
-------- --------
Commitments and contingencies (Notes 6, 7 and 15)
Common shareholders' equity
Common stock, $0.01 par value, 30,000,000 shares authorized;
shares issued: 7,735,165 in 1994 and 8,376,341 in 1995.......... 77 84
Additional paid-in capital......................................... 48,223 58,190
Retained earnings.................................................. 26,870 32,437
Cumulative translation adjustments................................. (1,757) (1,404)
-------- --------
73,413 89,307
Less: Notes receivable from shareholders............................. (5,951) (5,520)
Treasury stock................................................. -- (20)
-------- --------
67,462 83,767
-------- --------
$224,676 $256,451
======== ========
The accompanying notes are an integral part of these financial statements,
which have been restated to reflect the merger with International Power
Machines on a pooling-of-interests basis.
F-3
33
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30,
------------------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Product revenues......................................... $220,143 $259,403 $271,482
Service revenues......................................... 97,799 104,580 119,496
-------- -------- --------
Total revenues...................................... 317,942 363,983 390,978
-------- -------- --------
Product cost of revenues................................. 165,700 193,572 204,683
Service cost of revenues................................. 66,747 71,716 82,430
-------- -------- --------
Total cost of revenues.............................. 232,447 265,288 287,113
-------- -------- --------
Gross profit........................................... 85,495 98,695 103,865
Selling, general and administrative expense.............. 55,506 65,086 69,966
Research and development expense......................... 9,592 10,150 9,929
Litigation expense....................................... -- 4,997 700
Merger and acquisition expense........................... -- -- 7,000
-------- -------- --------
Income from operations................................. 20,397 18,462 16,270
Interest expense......................................... 4,421 5,417 5,575
Interest income.......................................... (466) (488) (485)
Other (income) expense................................... 396 74 (897)
-------- -------- --------
Income before income taxes and the cumulative effect of
accounting change................................... 16,046 13,459 12,077
Provision for income taxes............................... 6,214 4,284 4,692
-------- -------- --------
Income before the cumulative effect of accounting
change.............................................. 9,832 9,175 7,385
Cumulative effect of accounting change for income
taxes.................................................. 1,000 -- --
-------- -------- --------
Net income............................................... $ 10,832 $ 9,175 $ 7,385
======== ======== ========
Preferred stock dividends................................ 1,071 790 592
-------- -------- --------
Net income applicable to common shareholders............. $ 9,761 $ 8,385 $ 6,793
======== ======== ========
PRIMARY EARNINGS PER SHARE
Income before the cumulative effect of accounting
change.............................................. $ 1.21 $ 1.07 $ 0.84
Cumulative effect of accounting change for income
taxes............................................... 0.13 -- --
-------- -------- --------
Net income............................................. $ 1.34 $ 1.07 $ 0.84
======== ======== ========
Weighted average number of common and equivalent shares
outstanding......................................... 7,270 7,814 8,054
======== ======== ========
FULLY DILUTED EARNINGS PER SHARE
Income before the cumulative effect of accounting
change.............................................. $ 1.10 $ 1.03 $ 0.84
Cumulative effect of accounting change for income
taxes............................................... 0.11 -- --
-------- -------- --------
Net income............................................. $ 1.21 $ 1.03 $ 0.84
======== ======== ========
Weighted average number of common and equivalent shares
outstanding......................................... 9,316 9,393 9,673
======== ======== ========
The accompanying notes are an integral part of these financial statements,
which have been restated to reflect the merger with International Power
Machines on a pooling-of-interests basis.
F-4
34
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
NOTES
ADDITIONAL CUMULATIVE RECEIVABLE
COMMON PAID-IN RETAINED TRANSLATION FROM TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENTS SHAREHOLDERS STOCK TOTAL
------ ---------- -------- ----------- ------------ -------- -------
(IN THOUSANDS)
Balance at September 30, 1992,
as restated for merger....... $ 70 $ 40,578 $ 10,215 $ (515) $ (5,847) $ -- $44,501
Issuance of common stock..... 1 597 -- -- -- -- 598
Conversion of Series C
preferred stock........... 5 4,995 -- -- -- -- 5,000
IPM preferred stock
dividends................. -- -- (400) -- -- -- (400)
Exide Electronics preferred
stock dividends........... -- -- (1,071) -- -- -- (1,071)
Accrued interest income on
notes receivable from
shareholders.............. -- -- -- -- (262) -- (262)
Other, net................... -- 55 -- (1,396) 160 -- (1,181)
Net income................... -- -- 10,832 -- -- -- 10,832
------ ---------- -------- ----------- ------------ -------- -------
Balance at September 30,
1993......................... 76 46,225 19,576 (1,911) (5,949) -- 58,017
Adjustment to conform fiscal
year of IPM............... -- -- (591) -- -- -- (591)
Issuance of common stock..... 1 1,998 -- -- -- -- 1,999
IPM preferred stock
dividends................. -- -- (500) -- -- -- (500)
Exide Electronics preferred
stock dividends........... -- -- (790) -- -- -- (790)
Accrued interest income on
notes receivable from
shareholders.............. -- -- -- -- (278) -- (278)
Other, net................... -- -- -- 154 276 -- 430
Net income................... -- -- 9,175 -- -- -- 9,175
------ ---------- -------- ----------- ------------ -------- -------
Balance at September 30,
1994......................... 77 48,223 26,870 (1,757) (5,951) -- 67,462
Issuance of common stock..... 1 (3) -- -- -- 1,288 1,286
Conversion of Series D and
Series E preferred
stock..................... 6 9,994 -- -- -- -- 10,000
Purchases of treasury
stock..................... -- -- -- -- 605 (1,308) (703)
IPM preferred stock
dividends................. -- -- (1,226) -- -- -- (1,226)
Exide Electronics preferred
stock dividends........... -- -- (592) -- -- -- (592)
Accrued interest income on
notes receivable from
shareholders.............. -- -- -- -- (310) -- (310)
Other, net................... -- (24) -- 353 136 -- 465
Net income................... -- -- 7,385 -- -- -- 7,385
------ ---------- -------- ----------- ------------ -------- -------
Balance at September 30,
1995......................... $ 84 $ 58,190 $ 32,437 $(1,404) $ (5,520) $ (20) $83,767
====== ======= ======= ========= ========= ====== =======
The accompanying notes are an integral part of these financial statements,
which have been restated to reflect the merger with International Power
Machines on a pooling-of-interests basis.
F-5
35
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
----------------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
Cash flows from operating activities
Net income............................................... $ 10,832 $ 9,175 $ 7,385
Adjustment to conform fiscal year of IPM................. -- 49 --
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation expense.................................. 5,304 6,105 6,683
Amortization expense.................................. 1,646 2,325 2,762
(Increase) decrease in accounts receivable............ (25,867) (7,351) 2,251
Increase in inventories............................... (14,795) (4,943) (17,131)
(Increase) decrease in other current assets........... 437 (2,549) (360)
Increase (decrease) in accounts payable............... 14,935 2,657 (77)
Increase (decrease) in other current liabilities...... 5,869 1,946 (681)
Cumulative effect of accounting change................ (1,000) -- --
Other, net............................................ (682) 1,064 276
-------- -------- --------
Net cash provided by (used in) operating
activities....................................... (3,321) 8,478 1,108
-------- -------- --------
Cash flows from investing activities
Acquisitions of property, plant, and equipment........... (8,255) (8,735) (12,497)
Acquisitions, net of cash acquired....................... (1,983) (3,580) (13,151)
Other, net............................................... (1,282) (1,576) (50)
-------- -------- --------
Net cash used in investing activities............... (11,520) (13,891) (25,698)
-------- -------- --------
Cash flows from financing activities
Proceeds from bank credit facilities..................... 78,527 91,938 143,713
Payments of bank credit facilities....................... (63,703) (83,629) (116,274)
Payments of industrial revenue bonds..................... (900) (3,500) (4,600)
(Increase) decrease in funds held in trust for future
construction.......................................... (64) 2,600 --
Issuance of common stock................................. 598 1,055 1,342
Purchases of treasury stock.............................. -- -- (703)
Issuance of redeemable preferred stock................... 4,900 -- --
Preferred stock dividends of Exide Electronics........... (1,006) (839) (789)
Preferred stock dividends of IPM......................... (400) (500) (1,226)
Payments of notes receivable from shareholders........... 160 276 136
Other, net............................................... (879) (567) (108)
-------- -------- --------
Net cash provided by financing activities........... 17,233 6,834 21,491
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 2,392 1,421 (3,099)
Cash and cash equivalents, beginning of period............. 2,073 4,465 5,886
-------- -------- --------
Cash and cash equivalents, end of period................... $ 4,465 $ 5,886 $ 2,787
======== ======== ========
The accompanying notes are an integral part of these financial statements,
which have been restated to reflect the merger with International Power
Machines on a pooling-of-interests basis.
F-6
36
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION The consolidated financial statements include the
accounts of Exide Electronics Group, Inc. (the "Company") and its wholly-owned
subsidiaries. The Company designs, manufactures, markets, and services a broad
line of uninterruptible power systems ("UPS") products that protect computers
and other sensitive electronic equipment against electrical power distortions
and interruptions. The Company's products are used principally for financial,
medical, industrial, telecommunications, military, and aerospace applications
throughout the world. The Company's investment in a joint venture is accounted
for using the equity method. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain amounts in the prior
years' financial statements have been reclassified to conform to the current
year presentation. These reclassifications are not material.
On February 8, 1995, the Company completed the merger of International
Power Machines Corporation ("IPM") with and into a newly formed subsidiary of
the Company. The merger was structured as a tax-free exchange and was accounted
for as a pooling-of-interests. Accordingly, the accompanying consolidated
financial statements and related notes include the accounts and results of
operations of IPM for all periods presented (see Note 2).
REVENUES Revenues from product sales are recognized at the time of
shipment to customers. Service revenues are recognized as services are
performed. Maintenance contract revenues, net of directly associated costs, are
deferred and recognized on a straight-line basis over the terms of the
contracts. All revenues are shown net of provisions for customer returns and
adjustments.
ADVERTISING COSTS Advertising costs are reported in selling, general and
administrative expenses in the accompanying consolidated statement of operations
and include costs of advertising, public relations, trade shows, direct
mailings, customer seminars, and other activities designed to enhance demand for
the Company's products. Advertising costs were $4,356,000 in 1993, $5,972,000 in
1994, and $7,344,000 in 1995. There are no capitalized advertising costs in the
accompanying consolidated balance sheet.
PER SHARE DATA Primary net income per common and equivalent share is
computed using net income after preferred stock dividends and the weighted
average number of shares of common stock and dilutive common stock equivalents.
Fully diluted net income per share is similarly computed but includes the
effect, when dilutive, of assumed conversion of the Company's convertible
subordinated notes, and prior to its conversion, the Company's redeemable
preferred stock (see Note 8).
INVENTORIES Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out ("LIFO") method for certain domestic
inventories and by the first-in, first-out ("FIFO") method for the remaining
inventories.
PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment is stated at
original cost. Depreciation and amortization is calculated using primarily the
straight-line method for financial reporting purposes and primarily accelerated
methods for tax purposes. For financial reporting purposes, equipment is
depreciated over three to ten years and buildings are depreciated over thirty
years. Leasehold improvements are amortized over the shorter of the useful life
of the asset or the term of the lease.
SOFTWARE DEVELOPMENT COSTS Costs of developing new software products and
enhancements to existing software products are capitalized after technological
feasibility is established. The costs of capitalized software are amortized over
the estimated useful lives of the related products, generally one to five years.
The accompanying consolidated balance sheet at September 30, 1994 and 1995
includes unamortized software development costs of $2,128,000 and $2,072,000,
respectively. Related amortization expense was $277,000 in 1993, $683,000 in
1994, and $1,035,000 in 1995.
GOODWILL Goodwill is amortized over periods ranging from ten to forty
years.
F-7
37
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TRANSLATION OF FOREIGN CURRENCIES Certain of the Company's non-U.S.
subsidiaries use their local currency as their functional currency. Their asset
and liability accounts are translated into U.S. dollars at the exchange rates in
effect at the balance sheet date, while revenues and expenses are translated
using average exchange rates during the period. Translation adjustments are
recorded directly to the cumulative translation adjustments component of common
shareholders' equity and do not affect the results of operations. Losses on
foreign currency transactions were $221,000 in 1993, $257,000 in 1994, and
$218,000 in 1995.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of revenues and expenses. Actual results
may differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board
recently issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This statement requires
long-lived assets to be evaluated for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company will adopt SFAS No. 121 in fiscal 1996 and does not
expect its provisions to have a material effect on the Company's consolidated
results of operations.
The Financial Accounting Standards Board also recently issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This statement introduces a
fair-value based method of accounting for stock-based compensation. It
encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options and other equity instruments to employees
based on the new fair value accounting rules. However, if the Company chooses
not to recognize compensation expense in accordance with the provisions of this
statement, pro forma disclosures are required in the notes to consolidated
financial statements. The Company will adopt the disclosure provisions of SFAS
No. 123 by fiscal 1997.
NOTE 2: MERGER WITH IPM
On February 8, 1995, the Company completed the merger of IPM with and into
a newly-formed subsidiary of the Company. IPM develops, manufactures, sells, and
services UPS products, and is compatible with Exide Electronics in terms of the
products and services provided and its channels of distribution. Under the terms
of the agreement, the Company issued approximately 1,510,000 newly registered
shares of Exide Electronics' common stock for all of the outstanding shares of
IPM's common and preferred stock. The merger was structured as a tax-free
exchange and was accounted for as a pooling-of-interests. Accordingly, the
accompanying consolidated financial statements and related notes have been
restated to include the accounts and results of operations of IPM for all
periods presented.
Historically, IPM prepared its financial statements using a December 31
fiscal year end. As of September 30, 1994, IPM's fiscal year end has been
changed to conform to Exide Electronics' September 30 year end. The consolidated
statement of operations for the year ended September 30, 1994, combines Exide
Electronics' historical consolidated statement of operations for the fiscal year
ended September 30, 1994, with IPM's consolidated statement of operations for
the year ended September 30, 1994. In accordance with the accounting rules
prescribed or permitted for pooling-of-interests, the restated financial
statements for the fiscal year ended September 30, 1993 combine the historical
consolidated results of operations of Exide Electronics for the year then ended
with IPM's historical consolidated results of operations for the calendar year
ended December 31, 1993. As a result, IPM's operations for the quarter ended
December 31, 1993, are included in the consolidated statements of income,
changes in shareholders' equity, and cash flows for both of the fiscal years
ended September 30, 1994 and 1993. IPM's revenues were $9,486,000 and net income
was $688,000 for the quarter ended December 31, 1993.
F-8
38
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The restated balance sheet as of September 30, 1994 combines Exide
Electronics' historical consolidated balance sheet as of September 30, 1994 with
IPM's historical consolidated balance sheet as of that date. The restated
balance sheet as of September 30, 1993 combines Exide Electronics' historical
consolidated balance sheet as of September 30, 1993 with IPM's historical
consolidated balance sheet as of December 31, 1993. An adjustment to conform
IPM's fiscal year is shown in the accompanying consolidated statement of changes
in shareholders' equity. An adjustment is also shown in the accompanying
consolidated statement of cash flows for the year ended September 30, 1994 to
account for IPM's change in cash for the quarter ended December 31, 1993.
Combined and separate results of Exide Electronics and IPM during the periods
preceding the merger were as follows (in thousands):
EXIDE
ELECTRONICS IPM ADJUSTMENTS COMBINED
----------- ------- ----------- --------
Quarter ended December 31, 1994
Revenues.................................... $ 81,264 $10,802 -- $ 92,066
Net income.................................. $ 1,746 $ 538 $ (35) $ 2,249
----------- ------- ----------- --------
Year ended September 30, 1994
Revenues.................................... $ 326,583 $37,400 -- $363,983
Net income.................................. $ 7,731 $ 1,566 $ (122) $ 9,175
----------- ------- ----------- --------
Year ended September 30, 1993
Revenues.................................... $ 281,949 $35,993 -- $317,942
Net income.................................. $ 9,251 $ 1,814 $ (233) $ 10,832
----------- ------- ----------- --------
The combined financial results presented above and the accompanying
consolidated financial statements include adjustments to conform the accounting
methodology of IPM for reserving for excess and obsolete service inventories to
the accounting methodology used by Exide Electronics. There were no intercompany
transactions during the periods presented.
In connection with the merger, the Company recorded a nonrecurring charge
of $5.5 million ($4.4 million after tax) in the second quarter of fiscal 1995.
This charge included approximately $3.0 million for legal, accounting, financial
advisory, and other costs. The Company also expensed approximately $2.5 million
for the estimated costs of closing a duplicate operating facility and
discontinuing certain duplicate product lines manufactured at that facility. As
of September 30, 1995, all operations at the duplicate facility have ceased, and
the Company has entered into negotiations to sell the remaining fixed assets at
the facility. The Company is also in the process of disposing of excess
inventories related to the duplicate product lines. Other than amounts
sufficient to cover remaining lease payments on the duplicate facilities and
disposal of excess inventory, there are no significant accrued costs related to
the merger included in the consolidated balance sheet at September 30, 1995.
F-9
39
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3: ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (in thousands):
SEPTEMBER 30,
---------------------
1994 1995
-------- --------
Accounts Receivable:
Commercial......................................................... $ 73,913 $ 86,936
United States government........................................... 33,947 21,105
-------- --------
107,860 108,041
Less: Allowance for doubtful accounts, customer returns and
adjustments.................................................... 2,148 2,517
-------- --------
$105,712 $105,524
======== ========
Accounts receivable at September 30, 1994 and 1995 included unbilled
receivables of $12,808,000 and $7,371,000, and retainage receivables of $755,500
and $1,452,000, respectively. Unbilled receivables relate primarily to one
United States government contract with multiple installation sites and are
generally billable in the month following contract performance. Retainage
receivables generally relate to larger customer contracts and become payable at
specified dates after installation and customer acceptance.
Commercial accounts receivable are generally not concentrated in any
geographic region or industry. Collateral is usually not required except for
certain international transactions for which the Company requires letters of
credit to secure payment.
NOTE 4: INVENTORIES
Inventories, which include materials, labor and manufacturing overhead,
consisted of the following (in thousands):
SEPTEMBER 30,
-------------------
1994 1995
------- -------
Raw materials and supplies............................................. $20,149 $27,989
Work in process........................................................ 7,288 6,064
Finished goods......................................................... 14,805 24,054
Service parts.......................................................... 13,287 14,783
------- -------
$55,529 $72,890
======= =======
Domestic inventories of approximately $37,900,000 and $52,167,000 were
valued using the LIFO method at September 30, 1994 and 1995, respectively. The
LIFO value exceeded the FIFO value of these inventories by approximately
$693,000 at September 30, 1994 and $1,941,000 at September 30, 1995. There was
no liquidation of prior years' LIFO layers in 1995, and the effect of such
liquidation in 1994 was not significant.
NOTE 5: SHORT-TERM DEBT
Certain of the Company's subsidiaries maintain various lines of credit.
These lines, which had interest rates ranging from 7.25% to 8.50% at September
30, 1995, are primarily due on demand and are generally secured by guaranties of
payment by the Company. Approximately $4,902,000 and $7,130,000 were outstanding
under these facilities at September 30, 1994 and 1995, respectively. The
remaining availability under these facilities at September 30, 1995, was
approximately $6,900,000.
F-10
40
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average interest rate incurred on the Company's short-term
debt was 8.5% in 1995 and 8.1% in 1994. The short-term debt balance outstanding
at September 30, 1995 approximated fair value for loans with similar terms.
NOTE 6: LONG-TERM DEBT AND CONVERTIBLE SUBORDINATED NOTES
Long-term debt consisted of the following (in thousands):
SEPTEMBER 30,
-------------------
1994 1995
------- -------
Domestic bank credit facility.......................................... $39,700 $65,000
Industrial revenue bonds............................................... 4,600 --
Other long-term debt................................................... -- 783
------- -------
44,300 65,783
Less current portion................................................... 900 525
------- -------
$43,400 $65,258
======= =======
Convertible subordinated notes......................................... $15,000 $15,000
======= =======
At September 30, 1995, the Company had $145 million of committed domestic
unsecured bank credit facilities comprised of a $95 million revolving credit
facility ("Facility A") for working capital and general corporate purposes,
which may include letters of credit, and a $50 million revolving credit facility
("Facility B") for financing certain acquisitions and refinancing specified
existing obligations. Facility A includes a sublimit of $30 million which may be
used in support of the Company's international subsidiaries.
Amounts outstanding at September 30, 1995 under both facilities bear
interest at either the agent bank's base rate or, at the Company's option, the
LIBOR rate plus .60%. For the year ended September 30, 1995, the weighted
average interest rate on these facilities was 6.5%. The average daily unutilized
commitment incurs a commitment fee of .20% per annum, and letters of credit bear
a fee of .60% per annum. These rates and fees may be adjusted based on a senior
debt to cash flow ratio, as defined. Balances outstanding on these facilities at
September 30, 1994 and 1995 approximated their fair value. Amounts outstanding
under Facility A are due and payable on September 30, 1997. Amounts outstanding
under Facility B will convert to a term loan on September 30, 1996, with
quarterly principal payments thereafter of 5% of the amount outstanding on
conversion, with the remaining balance due September 30, 1999.
The credit agreement contains certain financial covenants, including a
senior debt to cash flow ratio, a fixed charge coverage ratio, a leverage ratio,
and a minimum net worth requirement. As of September 30, 1995, the Company was
in compliance with all financial covenants, as amended. The agreement also
imposes certain restrictions on mergers, acquisitions, investments in other
companies and liquidations; additional senior indebtedness; disposition of
assets; related party transactions; and prohibits payments of dividends on
common stock if the Company would be in default before or after such dividend
payment.
In December 1995, the Company received a commitment to refinance these
facilities, concurrent with the closing of the Deltec Acquisition (see Note 16).
In fiscal 1990, Industrial Revenue Bonds ("the IRBs") in the aggregate
amount of $9 million were issued to finance a portion of the cost of
constructing a manufacturing facility near Wilmington, North Carolina. The
average interest rate on the IRBs was 7.24%. On June 1, 1994, the Company
executed a partial redemption in the amount of $2.6 million using the excess
project funds held in trust. On December 1, 1994, the Company exercised its
option to redeem the remaining bonds outstanding at a redemption price of 102%.
F-11
41
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 1992, the Company sold $15 million of convertible subordinated
notes (the "Notes"). The Notes bore interest at 8.375% per annum, payable
semi-annually. The Notes were convertible into common stock of the Company at
any time for an initial conversion price of $13.08 per share, subject to
adjustment for certain events. On October 23, 1995, the holder of the Notes
exercised its option to convert the Notes into 1,146,789 shares of the Company's
common stock. The market value of the Notes if they had been converted into the
Company's common stock was approximately $24.9 million and $21.5 million at
September 30, 1994 and 1995, respectively.
Future maturities of long-term debt at September 30, 1995, giving effect to
the October 1995 conversion of the Notes into the Company's common stock, were
(in thousands):
1996............................. $ 525
1997............................. 53,469
1998............................. 2,969
1999............................. 8,769
2000............................. 51
Thereafter....................... --
-------
$65,783
=======
NOTE 7: LEASE COMMITMENTS
The Company leases buildings, equipment and machinery under various
operating leases. Future minimum payments at September 30, 1995 under
noncancellable operating leases were (in thousands):
1996............................. $ 6,410
1997............................. 6,175
1998............................. 5,249
1999............................. 4,815
2000............................. 3,909
Thereafter....................... 19,265
-------
$45,823
=======
Rental expense related to operating leases was $7,165,000 in 1993,
$7,780,000 in 1994, and $8,109,000 in 1995.
NOTE 8: REDEEMABLE PREFERRED STOCK
Authorized preferred stock consists of 2,000,000 shares of $0.01 par value
preferred stock, of which 6,000 shares have been designated as Series D
Preferred Stock, 6,000 shares as Series E Preferred Stock, and 200,000 shares as
Series F Junior Participating Preferred Stock.
In August 1991, the Company issued 5,000 shares of Series C Preferred Stock
(the "Series C shares") at a purchase price of $1,000 per share. The Series C
shares were convertible at the option of the holder into the Company's common
stock at a conversion price per share of $9.5062. The holder exercised this
option in August 1993 and converted the Series C shares into 525,972 shares of
the Company's common stock. In February 1995, authorization for Series C
Preferred Stock was removed from the Company's Certificate of Incorporation.
In July 1992, the Company issued to Japan Storage Battery Co., Ltd. ("JSB")
5,100 shares of the Company's Series D Preferred Stock (the "Series D shares")
at a purchase price of $1,000 per share. JSB had
F-12
42
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the right to convert some or all of the Series D shares into the Company's
common stock at a conversion price per share of $13.08, subject to adjustment
upon the occurrence of certain events. In December 1992, JSB exercised an option
to purchase 4,900 shares of Series E Preferred Stock (the "Series E shares") at
a purchase price of $1,000 per share. The Series E shares were convertible at
the option of JSB into the Company's common stock at a conversion price per
share of $23.86, subject to adjustment upon the occurrence of certain events. On
July 1, 1995, JSB exercised these options and converted all of the Series D and
Series E shares into 595,273 shares of the Company's common stock.
The Company owns 50% of a joint venture with JSB for distribution of
products in Japan. The carrying value of the Company's investment in the joint
venture at September 30, 1995 was $399,000. Total sales to the joint venture by
the Company were approximately $3.6 million in 1993, $4.1 million in 1994, and
$9.1 million in 1995. Accounts receivable from the joint venture were
approximately $938,000 and $2,806,000 at September 30, 1994 and 1995,
respectively.
NOTE 9: COMMON SHAREHOLDERS' EQUITY
As of September 30, 1995, the Company had notes receivable of $5,520,000
(including accrued interest of $1,917,000) related to the sale of 537,852 shares
of common stock to certain employees. The notes generally bear simple interest
at prime and are payable ten years from the date of issuance or earlier upon
sales of the shares or upon termination of employment. The market value of these
notes receivable was approximately $5,120,000 and $4,956,000 at September 30,
1994 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 November 1994, the Board of Directors authorized the repurchase of up to
5% of the Company's outstanding common stock. Purchases may be made from time to
time as management considers appropriate. In October 1995, the Company
repurchased approximately 131,000 shares of its common stock.
NOTE 10: STOCK AND BENEFIT PLANS
1995 EMPLOYEE STOCK OPTION AND RESTRICTED STOCK PLAN This plan provides
for the grant to selected employees of up to 750,000 shares of the Company's
common stock. The purchase price for stock options under this plan shall be no
less than fair market value of the common stock at the date of grant.
F-13
43
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995 DIRECTORS PLAN This plan provides for the grant of up to 150,000
shares of the Company's common stock. Each of the Company's non-employee
directors receives an option to purchase 3,000 shares of common stock on the
date of commencement of service as a director and annually thereafter for as
long as the director remains on the board. The purchase price for stock options
under this plan shall be no less than fair market value of the common stock at
the date of grant.
1989 STOCK OPTION PLAN This plan provides for the grant to selected
employees of options for up to 550,000 shares of the Company's common stock. The
purchase price for stock options under this plan shall be no less than fair
market value of the common stock at the date of grant.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN This plan provided for the grant
of 87,500 shares of the Company's common stock. All options available under this
plan have been granted. The purchase price for stock options granted under this
plan was no less than the fair market value of the common stock at the date of
grant.
The following table summarizes the activity under these plans:
SHARES
AVAILABLE OPTIONS EXERCISE
FOR GRANT OUTSTANDING PRICE RANGE
--------- ----------- ------------
Balances at September 30, 1992....................... 201,270 434,980 $2.99-$18.00
--------- ----------- ------------
Granted............................................ (48,000) 48,000 15.00-20.13
Exercised.......................................... -- (23,375) 6.50-15.00
Forfeited.......................................... 17,250 (17,250) 6.50-15.00
--------- ----------- ------------
Balances at September 30, 1993....................... 170,520 442,355 2.99-20.13
--------- ----------- ------------
Granted............................................ (64,000) 64,000 16.13-23.50
Exercised.......................................... -- (49,059) 2.99-17.38
Forfeited.......................................... 26,285 (26,285) 6.50-15.00
--------- ----------- ------------
Balances at September 30, 1994....................... 132,805 431,011 6.50-23.50
--------- ----------- ------------
1995 Director and Employee Plans................... 900,000 -- --
Granted............................................ (291,987) 291,987 16.38-16.75
Exercised.......................................... -- (42,590) 6.50-17.38
Forfeited.......................................... 29,250 (29,250) 15.00-23.50
--------- ----------- ------------
Balances at September 30, 1995....................... 770,068 651,158 $6.50-$23.50
======== ========= ===========
As of September 30, 1995, outstanding options to purchase 342,404 common
shares were exercisable. The majority of these options expire ten years after
the grant date if not exercised.
EMPLOYEE STOCK PURCHASE PLAN This plan provides for the grant to employees
of rights to purchase shares of the Company's common stock. Shares are purchased
at the end of an offering period, with a purchase price for the shares equal to
the lower of 85% of the fair market value of the common stock at the beginning
or the end of the offering period. A maximum of 600,000 shares have been
authorized under this plan, and through September 30, 1995, 234,242 shares have
been issued under this plan. Under the current offering, which expires December
31, 1995, the offering price at the beginning of the offering period was $13.84.
BENEFIT PLANS The Company and its subsidiaries have defined contribution
plans that cover substantially all employees. The plans allow for the matching
of voluntary employee contributions, and the Company may
F-14
44
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
elect to make additional contributions at the discretion of the Board of
Directors. Total expenses related to these plans were $2,097,000 in 1993,
$2,303,000 in 1994, and $1,917,000 in 1995.
NOTE 11: GEOGRAPHIC OPERATIONS
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
REVENUES
United States --
Unaffiliated customers
United States..................................... $248,452 $273,087 $268,289
Latin America..................................... 19,962 31,392 36,590
Far East.......................................... 11,958 13,138 23,353
Other............................................. 6,986 8,669 452
Intercompany........................................ 18,171 22,030 37,338
Outside the United States --
Unaffiliated customers
Europe............................................ 13,538 19,193 34,975
Canada............................................ 13,768 14,779 18,523
Other............................................. 3,278 3,725 8,796
Intercompany........................................ 2,341 3,360 6,541
Intercompany eliminations.............................. (20,512) (25,390) (43,879)
-------- -------- --------
Total revenues................................. $317,942 $363,983 $390,978
======== ======== ========
INCOME (LOSS) BEFORE INCOME TAXES AND THE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE
United States.......................................... $ 17,560 $ 13,333 $ 9,035
Europe................................................. (2,630) (218) 2,097
Canada................................................. 1,068 120 419
Other.................................................. 48 224 526
-------- -------- --------
Total income before income taxes and the
cumulative effect of accounting change....... $ 16,046 $ 13,459 $ 12,077
======== ======== ========
IDENTIFIABLE ASSETS
United States.......................................... $179,482 $190,515 $213,541
Europe................................................. 11,011 18,842 24,935
Canada................................................. 11,767 14,019 15,179
Other.................................................. 973 1,300 2,796
-------- -------- --------
Total assets................................... $203,233 $224,676 $256,451
======== ======== ========
Revenues include sales to unaffiliated customers and the Company's joint
venture (see Note 8). Intercompany sales are made at transfer prices intended to
provide a profit for the purchasing entities after coverage of their selling,
general and administrative expenses. Identifiable assets are those assets
identified with operations in each geographic area.
F-15
45
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12: INCOME TAXES
As of the beginning of fiscal 1993, the Company adopted Financial
Accounting Standards Board Statement No. 109, "Accounting for Income Taxes,"
which superseded Statement No. 96, the method of accounting for income taxes
previously used by the Company. Statement No. 109 requires recognition of future
tax benefits, to the extent that realization of such benefits is more likely
than not, attributable to deductible temporary differences between the financial
statement and income tax basis of assets and liabilities and to tax net
operating loss carryforwards ("NOLs"). The Company elected to adopt Statement
No. 109 using the prospective adoption method. Under this method, the Company
recognized an increase in net income of $1.0 million in fiscal year 1993 for the
cumulative effect of the change in accounting principle. The increase resulted
from recording the net benefit of approximately $850,000 in net deferred tax
assets for temporary differences and state income tax NOLs which could not
previously be recognized under Statement No. 96, and approximately $150,000 for
the net benefit of NOLs for certain of the Company's foreign subsidiaries.
Components of the tax provision are shown below (in thousands):
1993 1994 1995
------- ------- -------
Provision for (benefit from) income taxes:
Federal
Current................................................ $ 6,770 $ 4,784 $ 4,691
Deferred............................................... (1,736) (1,020) (731)
------- ------- -------
Total federal........................................ 5,034 3,764 3,960
------- ------- -------
State
Current................................................ 1,328 619 653
Deferred............................................... (363) (275) --
------- ------- -------
Total state.......................................... 965 344 653
------- ------- -------
Foreign
Current................................................ 420 228 269
Deferred............................................... (205) (52) (190)
------- ------- -------
Total foreign........................................ 215 176 79
------- ------- -------
Total................................................ $ 6,214 $ 4,284 $ 4,692
======= ======= =======
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):
1993 1994 1995
------- ------- -------
Deferred income, net........................................ $ (427) $ (775) $ (352)
Provisions for uncollectible accounts....................... (406) 365 (204)
Inventory provisions........................................ (616) (208) (1,310)
Foreign currency gains and losses........................... (231) 5 (104)
Depreciation................................................ (46) 127 515
------- ------- -------
F-16
46
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective income tax provision differs from the amount computed by
applying the federal statutory rate of 35% to income before income taxes due to
the following (in thousands):
1993 1994 1995
------- ------- -------
Income tax expense computed at the federal statutory rate... $ 5,616 $ 4,710 $ 4,227
State taxes, net of federal tax benefit..................... 648 253 424
Effect of permanent differences............................. 132 442 1,413
Operating losses by foreign subsidiaries with no tax
benefit................................................... 692 100 26
Benefit of Foreign Sales Corporation........................ (189) (206) (315)
Change in valuation allowance............................... (603) (534) (995)
Other....................................................... (82) (481) (88)
------- ------- -------
Provision for income taxes................................ $ 6,214 $ 4,284 $ 4,692
------- ------- -------
The components of the Company's net deferred tax assets (liabilities) were
as follows (in thousands):
SEPTEMBER 30,
-------------------
1994 1995
------- -------
Current:
Service revenue deferred for financial reporting purposes............ $ 4,189 $ 4,842
Non-deductible accruals.............................................. 4,569 6,491
Accelerated expenses recognized for tax purposes..................... (1,366) (1,548)
Valuation allowance.................................................. (702) (867)
Other................................................................ 842 754
------- -------
7,532 9,672
------- -------
Noncurrent:
NOLs of foreign subsidiaries......................................... 2,215 1,234
Accelerated depreciation for tax purposes............................ (1,464) (1,979)
Accelerated expenses for tax purposes................................ (932) (955)
Valuation allowance.................................................. (1,731) (370)
Other................................................................ 223 212
------- -------
(1,689) (1,858)
------- -------
Net deferred tax assets.............................................. $ 5,843 $ 7,814
======= =======
The Company's foreign subsidiaries have tax NOLs of approximately $3.4
million, of which $1.3 million expires in fiscal 1998, and $2.1 million has no
expiration date. If the NOLs are fully utilized at current statutory tax rates
of the respective countries, the total asset is estimated to be approximately
$1.2 million. Although the Company anticipates future operating income in these
subsidiaries, because of prior operating losses in these subsidiaries, as well
as general economic conditions, competition, and other factors beyond the
Company's control, there can be no guarantee that these NOLs will be utilized. A
valuation reserve has been established which reduces the net deferred tax asset
of the NOLs to an amount which the Company believes is more likely than not to
be realized.
The Company has not provided for potential U.S. taxes on undistributed
earnings of its foreign subsidiaries of approximately $7.6 million at September
30, 1995, as it does not currently intend to repatriate such earnings.
Calculation of the potential unrecognized deferred tax liability related to
these earnings is not
F-17
47
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
practicable; however, credits for foreign income taxes already paid may
partially offset potential U.S. income taxes.
NOTE 13: SUPPLEMENTAL CASH FLOW INFORMATION
Cash and cash equivalents consist of cash and short-term investments with
original maturities of three months or less. Cash equivalents are carried at
cost, which approximates market.
Cash flow disclosures, including non-cash investing and financing
activities for the three years ended September 30, 1995, are as follows (in
thousands):
1993 1994 1995
------- ------- -------
Income taxes paid........................................... $ 5,048 $ 9,616 $ 4,665
Interest paid............................................... 4,718 4,990 4,775
Liabilities assumed in exchange for certain assets in
acquisitions of subsidiaries (see Note 14)................ 758 2,505 450
Conversion of preferred stock to common stock (see Note
8)........................................................ 5,000 -- 10,000
Issuance of common stock in the acquisition of a subsidiary
(see Note 14)............................................. -- 944 --
Note receivable repaid with proceeds from treasury stock
purchases................................................. -- -- 605
------- ------- -------
NOTE 14: ACQUISITIONS
During the fourth quarter of fiscal 1995, the Company acquired Lectro
Products, Inc. ("Lectro"), a broadband industry leader specializing in power
protection and other transmission enhancement devices for converging cable
television and telecommunications networks, for approximately $12.4 million plus
the assumption of certain liabilities. The acquisition was accounted for using
the purchase method of accounting. In connection with the acquisition, the
Company recorded goodwill of approximately $10.2 million, which is being
amortized over 20 years. The Company is evaluating the final purchase price
allocation, which may impact currently recorded goodwill. Lectro's results of
operations are included in the Company's results of operations beginning in July
1995. If Lectro had been consolidated at the beginning of the fiscal year, the
effect on the Company's operations or financial condition would not have been
significant.
During the fourth quarter of fiscal 1994, the Company acquired two
companies in Canada and one in the United Kingdom. These companies are involved
in the sales and service of UPS products. The acquisitions were accounted for
using the purchase method of accounting. Goodwill totaling approximately $4.0
million was recorded and is being amortized over periods ranging from ten to
twenty years. The results of operations of these companies were included in the
Company's consolidated financial statements at various dates beginning in the
fourth quarter of fiscal 1994. If these companies had been consolidated at the
beginning of fiscal 1994, the effect on the Company's operations or financial
condition would not have been significant.
During the fiscal year ended September 30, 1993, the Company completed the
acquisition of DataTrax Systems Corporation ("DataTrax"). DataTrax is a
developer of power, environmental, and security monitoring systems for computer
rooms and other mission-critical applications, and is based in Colorado. The
acquisition was accounted for using the purchase method of accounting. Goodwill
of approximately $1.0 million was recorded and is being amortized over 15 years.
The results of operations of DataTrax were included in the Company's
consolidated financial statements beginning in September 1993. If DataTrax had
been consolidated at the beginning of fiscal 1993, the effect on the Company's
operations or financial condition would not have been significant.
F-18
48
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 1995, the Company wrote off approximately $1.5 million
($813,000 after tax) of costs related to a proposed acquisition that was not
consummated. Such costs were incurred during fiscal 1995, and consisted
primarily of legal, accounting, and other financial advisory services.
NOTE 15: CONTINGENCIES
LITIGATION In January 1989, a case was filed by a former manufacturer's
representative of the Company, alleging that the Company failed to pay
commissions owed to him on certain sales. In April 1990, a jury awarded the
plaintiff damages of approximately $14.9 million. The Company appealed the
decision, and in September 1992, the appellate court reversed the judgment
against the Company. In response to various motions filed by the plaintiff, a
new trial was granted, and in March 1994, the jury in the new trial awarded
damages of $3.75 million to the plaintiff. While the Company continued to
believe that it should have no liability in this matter and announced its
intention to appeal, it recorded a one-time charge in the second quarter of
fiscal 1994 of $4,997,000 ($2,936,000 after tax) for the jury verdict and for
the costs of the trial.
In July 1994, the Company announced that this litigation had been settled.
Following agreement among the parties to settle, the court vacated the jury
award of $3.75 million previously entered and determined that the vacated
judgment cannot be used against the Company in the future. To avoid further
litigation including post-trial motions and appeals, the Company settled the
case by making payments to the plaintiff and his attorneys. The parties
thereafter stipulated that the entire action was dismissed with prejudice. Since
the total value of the settlement payments was less than the one-time charge for
the jury verdict recorded by the Company in the second quarter of fiscal 1994,
no further charges were necessary in this matter. By agreement with the
plaintiff, the terms of the confidential settlement were not disclosed.
In May 1990, the Company was served with a complaint in the Delaware Court
of Chancery and in May 1991, a related case was filed in Federal Court in New
York. These complaints alleged, among other things, that the Company's
description of the case involving the manufacturer's representative in its
prospectus dated December 21, 1989, was false and misleading. In April 1995, the
Company announced that it had settled both the Delaware and New York suits. The
Delaware action had been dismissed once for failure to state a claim, but was
reinstated following an appeal and was in the discovery process prior to the
settlement. The Company recorded a charge of $700,000 ($424,000 after tax) for
the settlement of the two related lawsuits in the quarter ended March 31, 1995.
Court approval of the settlement agreement, after notice to affected
shareholders, was granted in August 1995. While the Company believed that
neither suit had merit, it decided to settle as the suits were taking valuable
corporate time and attention and would have involved significant legal costs to
pursue further.
The Company is involved in various litigation proceedings incidental to its
business. The defense of most of these matters is handled by the Company's
insurance carriers. The Company believes that the outcome of such other pending
litigation in the aggregate will not have a material adverse effect on its
financial statements.
GOVERNMENT CONTRACT MATTERS Sales to the United States Federal government
accounted for approximately 35%, 33%, and 27% of total revenues for the years
ended September 30, 1993, 1994, and 1995, respectively. The Company's Federal
government business is currently performed under firm fixed-price type contracts
and time-and-materials type contracts, and at times a combination of both
contract types. The Company's compliance with government contract regulations is
audited or reviewed from time to time by government auditors, who have the right
to audit the Company's records and the records of its subcontractors during and
after completion of contract performance. Under Federal government regulations,
certain costs are not allowable as costs for which the government will reimburse
the Company. Government auditors may recommend that certain charges be treated
as unallowable and reimbursement be made to the government. The Company provides
for estimated unallowable charges and voluntary refunds in its financial
statements, and believes that its provisions are adequate as of September 30,
1995.
F-19
49
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 1993, the Company engaged in discussions with the Federal
government regarding contract interpretation matters relating to certain
time-and-materials charges by the Company under its principal government
contract. In August 1993, the Company reached an agreement with the Federal
government under which these matters were resolved to the satisfaction of the
Company. Under this agreement, there were no adjustments relating to the
Company's past time-and-materials charges, and accordingly there was no effect
on the Company's financial statements for prior periods relating to this matter.
The agreement provided for adjustments to certain hourly labor rates and limited
the recovery of certain general and administrative costs prospectively from
August 1993.
In June 1995, the Company was awarded a follow-on ALC contract. This is a
three-year requirements contract, which permits extension of the ordering period
for up to two additional one-year periods at the option of the Government.
Actual revenues under this contract will depend on the specific purchases, if
any, by the Air Force and other governmental agencies which can use the contract
during the contract period. Following the award of the contract, certain
competitors filed protests with the General Accounting Office ("GAO"). In
December 1995, the GAO notified the Company that all of the protests had been
dismissed, except the protest of the Air Force's evaluation of certain discounts
offered by the Company in the contract. In sustaining this protest on the basis
that it did, the GAO did not recommend termination of the contract or any other
remedy adverse to the interests of the Company at this time. As a result, the
Company retains the contract for the present and the Government can place orders
under the contract. The GAO has, however, recommended that the Air Force amend a
portion of the request for proposal that led to the contract award. The GAO
further recommended that the Air Force allow the protesting companies and the
Company to submit new proposals regarding such portion, and that the Air Force
re-evaluate the award to the Company based upon these new proposals. The Company
has not been advised by the Air Force whether it will contest or accept the
GAO's recommendations. Similarly, the Air Force has not advised the Company of
its plans regarding the issuance of additional orders under the contract, or an
amended request for proposal. No assurances can be given that the Company
ultimately will retain the contract.
NOTE 16: SUBSEQUENT EVENTS
In November 1995, the Company executed a definitive agreement to acquire
Deltec Power Systems, Inc. and its subsidiaries ("Deltec") from Fiskars Oy Ab
("Fiskars") and an affiliated company for a purchase price of approximately $195
million, subject to certain post-closing adjustments. The acquisition will be
accounted for as a purchase. Under the stock purchase agreement, Fiskars will
receive cash of approximately $157.5 million and 1,875,000 shares of the
Company's common stock valued at a fixed price of $20 per share ($37.5 million),
in exchange for all of the issued and outstanding capital stock of Deltec.
Deltec had revenues of $86.8 million and net income of $1.7 million for the nine
months ended September 30, 1995, and revenues of $97.2 million and net income of
$3.2 million for the year ended December 31, 1994. Deltec has two principal
operating subsidiaries: Deltec Electronics Corporation, which is headquartered
in San Diego, California; and FPS Power Systems Oy Ab, which is based in Espoo,
Finland near Helsinki. Deltec is one of the world's largest manufacturers and
marketers of off-line and line-interactive small UPS systems. Off-line and
line-interactive systems are smaller and less expensive than larger on-line
systems, and are suitable for applications where system downtime may be less
costly, such as personal or small business uses. The combination will strengthen
the product line offering of the Company and enhance its global service
capabilities. It is expected that the acquisition will close in the first
calendar quarter of 1996, after completion of due diligence reviews by the
Company and attainment of all required governmental and other regulatory
approvals.
In December 1995, the Company received a commitment from several banks to
establish a five-year senior bank package (the "Facilities") of up to $225
million comprised of a $75 million term loan (the "Term Loan") and a $150
million revolving credit facility (the "Revolver"). The Term Loan would be used
for the Deltec acquisition and to refinance a portion of the Company's existing
debt, while the Revolver would be
F-20
50
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
used for working capital, letters of credit, and general corporate purposes.
Amounts outstanding under the Facilities would be secured by substantially all
the inventory and accounts receivable of the Company and would initially bear
interest at LIBOR plus 200 basis points, or the bank's base rate plus 100 basis
points, as defined. This commitment is subject to consummation of the Deltec
acquisition by February 28, 1996, and the issuance of at least $75 million of
subordinated debt, or equivalent bridge financing.
NOTE 17: SUMMARIZED QUARTERLY FINANCIAL DATA
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- -------- --------
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
1994
Total revenues....................... $79,675 $88,013 $91,764 $104,531 $363,983
Gross profit......................... 22,241 25,359 24,804 26,291 98,695
Net income........................... 1,887 522 3,176 3,590 9,175
Per share amounts
Primary............................ $ 0.22 $ 0.04 $ 0.38 $ 0.43 $ 1.07
------- ------- ------- -------- --------
Fully diluted...................... $ 0.21 $ 0.04 $ 0.35 $ 0.40 $ 1.03
======= ======= ======= ======== ========
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
======= ======= ======= ======== ========
The Company completed its merger with IPM during the second quarter of
1995. This merger has been accounted for as a pooling-of-interests, as discussed
in Note 2. Accordingly, the results for all quarterly periods presented include
the results of IPM. Per share amounts have been recalculated after adding the
shares of Exide Electronics common stock issued to effect the merger to weighted
average share amounts.
In connection with the merger, the Company recorded a non-recurring charge
in the second quarter of $5.5 million ($4.4 million after tax). The one-time
charge included approximately $3.0 million for legal, accounting, financial
advisory, and other costs related to the merger. The Company also expensed
approximately $2.5 million for the estimated costs of closing a duplicate
operating facility and discontinuing certain duplicate product lines
manufactured at that facility.
The Company incurred additional nonrecurring charges in the second quarter
of fiscal 1995 for litigation, and in the fourth quarter of fiscal 1995 for
expenses related to a potential acquisition. The amount of these charges was
$700,000, or $424,000 after tax (see Note 15), and $1,500,000, or $813,000 after
tax (see Note 14), respectively.
The Company recorded a one-time litigation charge in the second quarter of
fiscal 1994 of $5.0 million ($2.9 million after tax), which is described in Note
15.
The sum of quarterly per share amounts does not necessarily equal the
annual net income per share due to the rounding effect of the weighted average
common shares outstanding for the individual periods, and for the fully diluted
calculation, to the inclusion of the dilutive effect of convertible securities.
The effective tax rate for the fourth quarter of fiscal 1995 was lower than
the rate for the previous quarters in fiscal 1995. The lower rate reflected the
use in the fourth quarter of foreign NOL's due to a different mix of foreign
versus domestic taxable earnings for the full year than was anticipated in prior
quarters.
F-21
51
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
If the Offering of $100 million of Senior Subordinated Notes described
elsewhere in this Offering Memorandum is consummated, the Company's payment
obligations under the Notes will be jointly and severally guaranteed by certain
of the Company's subsidiaries (the "Guarantor Subsidiaries"). The following
supplemental financial information sets forth, on an unconsolidated basis,
balance sheet, statement of operations and cash flow information for the Company
("Parent Company Only"), for the Guarantor Subsidiaries and for the Company's
other subsidiaries (the "Non-Guarantor Subsidiaries").
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1995
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(DOLLARS 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 30,836 791 (31,833) --
Inventories.......................... -- 62,923 10,473 (506) 72,890
Other current........................ 57 12,124 1,196 -- 13,377
------- ------------ ------------- ------------ ------------
Total current assets......... 263 191,988 34,666 (32,339) 194,578
Property, plant, and equipment, net.... -- 32,901 2,156 -- 35,057
Goodwill............................... -- 12,224 6,514 -- 18,738
Noncurrent intercompany receivables.... 26,969 21,972 -- (48,941) --
Investment in affiliates............... 41,776 23,902 -- (65,030) 648
Other assets........................... 425 6,381 655 (31) 7,430
------- ------------ ------------- ------------ ------------
$69,433 $289,368 $43,991 $ (146,341) $256,451
======= ========= =========== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt...................... $ 456 $ 68 $ 7,131 $ -- $ 7,655
Accounts payable..................... -- 41,100 4,941 -- 46,041
Intercompany accounts payable........ -- 23,599 8,234 (31,833) --
Deferred revenues.................... -- 13,021 2,581 -- 15,602
Other accrued liabilities............ 355 17,153 2,343 (114) 19,737
------- ------------ ------------- ------------ ------------
Total current liabilities.... 811 94,941 25,230 (31,947) 89,035
Long-term debt......................... -- 65,258 -- -- 65,258
Noncurrent intercompany payables....... 4,838 44,103 -- (48,941) --
Convertible subordinated notes......... 15,000 -- -- -- 15,000
Deferred liabilities................... -- 3,332 59 -- 3,391
Shareholders' equity................... 48,784 81,734 18,702 (65,453) 83,767
------- ------------ ------------- ------------ ------------
$69,433 $289,368 $43,991 $ (146,341) $256,451
======= ========= =========== ========= =========
F-22
52
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1994
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets
Cash and cash equivalents............ $ -- $ 3,754 $ 2,132 $ -- $ 5,886
Accounts receivable.................. -- 91,022 14,690 -- 105,712
Intercompany accounts receivable..... -- 24,888 1,587 (26,475) --
Inventories.......................... -- 47,389 8,294 (154) 55,529
Other current assets................. 5 11,018 1,051 7 12,081
------- ------------ ------------- ------------ ------------
Total current assets......... 5 178,071 27,754 (26,622) 179,208
Property, plant, and equipment, net.... -- 26,475 1,737 -- 28,212
Goodwill............................... -- 2,259 6,688 -- 8,947
Noncurrent intercompany receivables.... 26,533 2,226 -- (28,759) --
Investment in affiliates............... 41,526 23,928 -- (65,323) 131
Other assets........................... 565 6,435 646 532 8,178
------- ------------ ------------- ------------ ------------
$68,629 $239,394 $36,825 $ (120,172) $224,676
======= ========= =========== ========= =========
LIABILITIES REDEEMABLE PREFERRED STOCK AND COMMON SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt...................... $ -- $ 900 $ 4,902 $ -- $ 5,802
Accounts payable..................... -- 39,517 5,441 -- 44,958
Intercompany accounts payable........ -- 18,724 7,751 (26,475) --
Deferred revenues.................... -- 14,199 2,378 -- 16,577
Other accrued liabilities............ 511 16,075 1,920 28 18,534
------- ------------ ------------- ------------ ------------
Total current liabilities.... 511 89,415 22,392 (26,447) 85,871
Long-term debt......................... -- 43,400 -- -- 43,400
Noncurrent intercompany payables....... -- 28,759 -- (28,759) --
Convertible subordinated notes......... 15,000 -- -- -- 15,000
Deferred liabilities................... -- 2,837 59 47 2,943
Redeemable preferred stock............. 10,000 -- -- -- 10,000
Common shareholders' equity............ 43,118 74,983 14,374 (65,013) 67,462
------- ------------ ------------- ------------ ------------
$68,629 $239,394 $36,825 $ (120,172) $224,676
======= ========= =========== ========= =========
F-23
53
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: 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
------- ------------ ------------- ------------ ------------
(DOLLARS 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 58,493 11,108 -- 69,966
Research and development expense....... -- 9,929 -- -- 9,929
Litigation expense..................... 700 -- -- -- 700
Merger and acquisition expense......... 4,500 2,500 -- -- 7,000
------- ------------ ------------- ------------ ------------
Income (loss) from operations..... (5,565) 17,160 5,029 (354) 16,270
Interest expense....................... 1,314 3,828 540 (107) 5,575
Interest income........................ (315) (32) (138) -- (485)
Other (income) expense................. (1,312) (1,002) 204 1,213 (897)
------- ------------ ------------- ------------ ------------
Income (loss) before income
taxes........................... (5,252) 14,366 4,423 (1,460) 12,077
Provision for (benefit from) income
taxes................................ (1,118) 5,562 248 -- 4,692
------- ------------ ------------- ------------ ------------
Net income (loss)...................... $(4,134) $ 8,804 $ 4,175 $ (1,460) $ 7,385
======= ========= =========== ========= =========
F-24
54
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: 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
------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
Product revenues....................... $ -- $250,421 $26,596 $(17,614) $259,403
Service revenues....................... -- 94,931 9,649 -- 104,580
------- ------------ ------------- ------------ ------------
Total revenues............... -- 345,352 36,245 (17,614) 363,983
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 190,471 20,951 (17,850) 193,572
Service cost of revenues............... -- 64,893 6,823 -- 71,716
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 255,364 27,774 (17,850) 265,288
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 89,988 8,471 236 98,695
Selling, general and administrative
expense.............................. 222 57,580 7,284 -- 65,086
Research and development expense....... -- 10,150 -- -- 10,150
Litigation expense..................... -- 4,997 -- -- 4,997
------- ------------ ------------- ------------ ------------
Income from operations....... (222) 17,261 1,187 236 18,462
Interest expense....................... 1,300 3,916 201 -- 5,417
Interest income........................ (278) (85) (125) -- (488)
Other (income) expense................. (1,305) 341 232 806 74
------- ------------ ------------- ------------ ------------
Income before income taxes............. 61 13,089 879 (570) 13,459
Provision for income taxes............. 25 4,009 252 (2) 4,284
------- ------------ ------------- ------------ ------------
Net income............................. $ 36 $ 9,080 $ 627 $ (568) $ 9,175
======= ========= =========== ========= =========
F-25
55
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1993
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
Product revenues...................... $ -- $215,040 $25,615 $(20,512) $220,143
Service revenues...................... -- 89,878 7,921 -- 97,799
--------- ------------ ------------- ------------ ------------
Total revenues.............. -- 304,918 33,536 (20,512) 317,942
--------- ------------ ------------- ------------ ------------
Product cost of revenues.............. -- 164,576 21,608 (20,484) 165,700
Service cost of revenues.............. -- 61,758 4,989 -- 66,747
--------- ------------ ------------- ------------ ------------
Total cost of revenues...... -- 226,334 26,597 (20,484) 232,447
--------- ------------ ------------- ------------ ------------
Gross profit..................... -- 78,584 6,939 (28) 85,495
Selling, general and administrative
expense............................. 219 47,875 7,412 -- 55,506
Research and development expense...... -- 9,592 -- -- 9,592
--------- ------------ ------------- ------------ ------------
Income from operations...... (219) 21,117 (473) (28) 20,397
Interest expense...................... 1,330 2,993 155 (57) 4,421
Interest income....................... (262) (73) (188) 57 (466)
Other (income) expense................ (1,330) 654 344 728 396
--------- ------------ ------------- ------------ ------------
Income (loss) before taxes and
cumulative effect of accounting
change.............................. 43 17,543 (784) (756) 16,046
Provision for income taxes............ 9 5,886 549 (230) 6,214
--------- ------------ ------------- ------------ ------------
Income (loss) before cumulative
effect.............................. 34 11,657 (1,333) (526) 9,832
Cumulative effect of accounting
change.............................. 9 846 145 -- 1,000
--------- ------------ ------------- ------------ ------------
Net income (loss)..................... $ 43 $ 12,503 $(1,188) $ (526) $ 10,832
======= ========= =========== ========= =========
F-26
56
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: 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
--------- ------------ -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
Cash flows from operating activities
Net income (loss)........................ $(4,134) $ 8,804 $4,175 $ (1,460) $ 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
(Increase) decrease in accounts
receivable........................... -- 1,624 (4,526) 5,153 2,251
Increase in inventories................ -- (15,303) (2,179) 351 (17,131)
(Increase) decrease in other current
assets............................... (52) (170) (145) 7 (360)
Increase (decrease) in accounts
payable.............................. (206) 5,619 (17) (5,473) (77)
Increase (decrease) in other current
liabilities.......................... (156) (1,007) 625 (143) (681)
Other, net............................. 83 289 (96) -- 276
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
operating activities.............. (4,408) 8,170 (1,089) (1,565) 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............................... 752 1,598 (198) (2,202) (50)
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
investing activities.............. 502 (23,106) (1,142) (1,952) (25,698)
--------- ------------ ------- ------------ ------------
Cash flows from financing activities
Proceeds from bank credit facilities..... -- 155,128 4,113 (15,528) 143,713
Payments of bank credit facilities....... -- (131,183) (1,945) 16,854 (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 (6,344) 125 2,191 (108)
--------- ------------ ------- ------------ ------------
Net cash provided by financing
activities........................ 3,906 11,775 2,293 3,517 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
========= =========== ============== =========== ===========
F-27
57
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: 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
--------- ------------ -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
Cash flows from operating activities
Net income............................... $ 36 $ 9,080 $ 627 $ (568) $ 9,175
Adjustment to conform fiscal year
of IPM................................. -- 49 -- -- 49
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation expense................... -- 5,701 404 -- 6,105
Amortization expense................... -- 2,110 215 -- 2,325
(Increase) decrease in accounts
receivable........................... -- (3,271) (5,207) 1,127 (7,351)
Increase in inventories................ -- (4,483) (239) (221) (4,943)
(Increase) decrease in other current
assets............................... (4) (2,201) (350) 6 (2,549)
Increase (decrease) in accounts
payable.............................. -- (2,069) 5,102 (376) 2,657
Increase (decrease) in other current
liabilities.......................... (57) 2,028 (79) 54 1,946
Other, net............................. -- 1,000 64 -- 1,064
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
operating activities.............. (25) 7,944 537 22 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............................... 1,403 1,200 (1,213) (2,966) (1,576)
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
investing activities.............. 1,403 (7,006) (5,322) (2,966) (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)
(Increase) 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............................... (1,870) (1,173) (468) 2,944 (567)
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
financing activities.............. (1,378) 2,626 2,642 2,944 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
========= =========== ============== =========== ===========
F-28
58
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1993
PARENT GUARANTOR NON-GUARANTOR
COMPANY ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
Cash flows from operating activities
Net income........................... $ 43 $ 12,503 $ (1,188) $ (526) $ 10,832
Adjustments to reconcile net income
to cash provided by (used in)
operating activities:
Depreciation expense............... -- 4,925 379 -- 5,304
Amortization expense............... -- 1,475 74 97 1,646
(Increase) decrease in accounts
receivable....................... 1 (17,760) 6,155 (14,263) (25,867)
Increase in inventories............ -- (14,171) (404) (220) (14,795)
(Increase) decrease in other
current assets................... (1) 547 (96) (13) 437
Increase (decrease) in accounts
payable.......................... -- 8,714 (8,562) 14,783 14,935
Increase (decrease) in other
current liabilities.............. 284 6,153 (543) (25) 5,869
Cumulative effect of accounting
change........................... (9) (846) (145) -- (1,000)
Other, net......................... (214) (652) 184 -- (682)
------------ ------------ -------------- ------------ ------------
Net cash provided by (used in)
operating activities.......... 104 888 (4,146) (167) (3,321)
------------ ------------ -------------- ------------ ------------
Cash flows from investing activities
Acquisitions of property, plant, and
equipment.......................... -- (7,907) (348) -- (8,255)
Acquisitions, net of cash acquired... -- (1,983) -- -- (1,983)
Other, net........................... (11,680) (13,847) 747 23,498 (1,282)
------------ ------------ -------------- ------------ ------------
Net cash provided by (used in)
investing activities.......... (11,680) (23,737) 399 23,498 (11,520)
------------ ------------ -------------- ------------ ------------
Cash flows from financing activities
Proceeds from bank credit
facilities......................... -- 73,813 4,714 -- 78,527
Payments of bank credit facilities... -- (60,101) (3,602) -- (63,703)
Payments of industrial revenue
bonds.............................. -- (900) -- -- (900)
(Increase) decrease in funds held in
trust for future construction...... -- (64) -- -- (64)
Issuance of common stock............. 598 -- -- -- 598
Issuance of redeemable preferred
stock.............................. 4,900 -- -- -- 4,900
Preferred stock dividends of Exide
Electronics........................ (1,006) -- -- -- (1,006)
Preferred stock dividends of IPM..... -- (400) -- -- (400)
Payments of notes receivable from
shareholders....................... 160 -- -- -- 160
Other, net........................... 6,924 10,431 5,097 (23,331) (879)
------------ ------------ -------------- ------------ ------------
Net cash provided by (used in)
financing activities.......... 11,576 22,779 6,209 (23,331) 17,233
------------ ------------ -------------- ------------ ------------
Net increase (decrease) in cash and
cash
equivalents.......................... $ -- (70) 2,462 -- 2,392
Cash and cash equivalents, beginning of
period............................... $ -- 260 1,813 -- 2,073
------------ ------------ -------------- ------------ ------------
Cash and cash equivalents, end of
period............................... -- $ 190 $ 4,275 $ -- $ 4,465
============= =========== ============== =========== ===========
F-29
59
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, DECEMBER 31,
1995 1995
------------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
Current assets
Cash and cash equivalents...................................... $ 2,787 $ 2,001
Accounts receivable............................................ 105,524 95,436
Inventories.................................................... 72,890 76,753
Other current assets........................................... 13,377 15,357
------------- ------------
Total current assets................................... 194,578 189,547
------------- ------------
Property, plant, and equipment
Land, buildings, and leasehold improvements.................... 9,931 10,248
Machinery and equipment........................................ 61,519 64,564
------------- ------------
71,450 74,812
Accumulated depreciation....................................... 36,393 37,561
------------- ------------
35,057 37,251
Goodwill......................................................... 18,738 18,318
Other assets..................................................... 8,078 8,823
------------- ------------
$ 256,451 $253,939
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt................................................ $ 7,655 $ 6,747
Accounts payable............................................... 46,041 43,220
Deferred revenues.............................................. 15,602 15,840
Other accrued liabilities...................................... 19,737 15,707
------------- ------------
Total current liabilities.............................. 89,035 81,514
------------- ------------
Long-term debt................................................... 65,258 76,416
------------- ------------
Convertible subordinated notes................................... 15,000 --
------------- ------------
Deferred liabilities............................................. 3,391 3,421
------------- ------------
Common shareholders' equity
Common stock, $0.01 par value, 30,000,000 shares authorized;
shares issued -- 8,376,341 at September 30, 1995 and
9,537,130 at December 31, 1995.............................. 84 95
Additional paid-in capital..................................... 58,190 72,556
Retained earnings.............................................. 32,437 32,850
Cumulative translation adjustments............................. (1,404) (1,456)
------------- ------------
89,307 104,045
Less: Notes receivable from shareholders....................... (5,520) (5,122)
Treasury stock, 926 shares at September 30, 1995 and
385,899 shares at December 31, 1995....................... (20) (6,335)
------------- ------------
83,767 92,588
------------- ------------
$ 256,451 $253,939
========== ==========
The accompanying notes are an integral part of these financial statements.
F-30
60
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED
DECEMBER 31,
---------------------
1994 1995
------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Product revenues..................................................... $63,896 $57,659
Service revenues..................................................... 28,170 25,644
------- -------
Total revenues............................................. 92,066 83,303
------- -------
Product cost of revenues............................................. 49,060 42,508
Service cost of revenues............................................. 19,322 18,580
------- -------
Total cost of revenues..................................... 68,382 61,088
------- -------
Gross profit....................................................... 23,684 22,215
Selling, general and administrative expense.......................... 16,557 17,457
Research and development expense..................................... 2,547 2,509
------- -------
Income from operations............................................. 4,580 2,249
Interest expense..................................................... 1,424 1,497
Interest income...................................................... (139) (31)
Other (income) expense............................................... (161) 117
------- -------
Income before income taxes......................................... 3,456 666
Provision for income taxes........................................... 1,207 253
------- -------
Net income......................................................... $ 2,249 $ 413
======= =======
Preferred stock dividends............................................ 198 --
Net income applicable to common shareholders......................... $ 2,051 $ 413
======= =======
Per Share amounts
Primary
Net income......................................................... $ 0.26 $ 0.04
======= =======
Weighted average number of common and equivalent shares
outstanding..................................................... 7,782 9,211
======= =======
Fully diluted
Net income......................................................... $ 0.25 $ 0.04
======= =======
Weighted average number of common and equivalent shares
outstanding..................................................... 9,005 9,500
======= =======
The accompanying notes are an integral part of these financial statements.
F-31
61
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
DECEMBER 31,
-----------------------
1994 1995
-------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Cash flows from operating activities
Net income......................................................... $ 2,249 $ 413
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Depreciation expense............................................ 1,562 1,841
Amortization expense............................................ 653 612
Decrease in accounts receivable................................. 15,940 10,088
Increase in inventories......................................... (4,317) (3,863)
Increase in other current assets................................ -- (1,714)
Increase (decrease) in accounts payable......................... 8,518 (2,821)
Decrease in other current liabilities........................... (6,150) (3,792)
Other, net...................................................... (138) (1,276)
-------- --------
Net cash provided by (used in) operating activities........ 18,317 (512)
-------- --------
Cash flows from investing activities
Acquisitions of property, plant, and equipment..................... (2,332) (3,938)
Other, net......................................................... (783) (165)
-------- --------
Net cash used in investing activities...................... (3,115) (4,103)
-------- --------
Cash flows from financing activities
Proceeds from bank credit facilities............................... 18,130 36,925
Payments of bank credit facilities................................. (32,196) (26,504)
Payment of industrial revenue bonds................................ (4,600) --
Issuances of common stock.......................................... 2 142
Purchases of treasury stock........................................ (625) (6,926)
Preferred stock dividends of Exide Electronics..................... (395) --
Preferred stock dividends of IPM................................... (100) --
Payments of notes receivables from shareholders.................... 104 215
Other, net......................................................... (53) (23)
-------- --------
Net cash provided by (used in) financing activities........ (19,733) 3,829
-------- --------
Net decrease in cash and cash equivalents............................ (4,531) (786)
Cash and cash equivalents, beginning of period....................... 5,886 2,787
-------- --------
Cash and cash equivalents, end of period............................. $ 1,355 $ 2,001
======== ========
Supplemental cash flow disclosures
Interest paid, net of amounts capitalized.......................... $ 1,368 $ 1,920
Income taxes paid.................................................. $ 221 $ 1,548
The accompanying notes are an integral part of these financial statements.
F-32
62
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited 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 annual financial statements
included elsewhere herein.
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 at December 31,
1995, and the results of operations and cash flows for the three months ended
December 31, 1994 and 1995. The results of operations for the three months ended
December 31, 1995 are not necessarily indicative of the results to be expected
for the full year.
NOTE 2 -- INVENTORIES
Inventories, which include materials, labor, and manufacturing overhead,
are stated at the lower of cost or market, and consist of the following:
SEPTEMBER 30, DECEMBER 31,
1995 1995
------------- ------------
(IN THOUSANDS)
Raw materials and supplies................................. $27,989 $ 31,153
Work in process............................................ 6,064 7,259
Finished goods............................................. 24,054 23,318
Service parts.............................................. 14,783 15,023
------------- ------------
$72,890 $ 76,753
========== ==========
NOTE 3 -- LONG-TERM DEBT
At December 31, 1995, the Company had borrowings of $76.1 million
outstanding under its $145 million package of committed domestic unsecured bank
credit facilities comprised of a $95 million revolving credit facility for
working capital and general corporate purposes, including a sublimit of $30
million which may be used in support of its international subsidiaries, and a
$50 million revolving credit facility to be used for financing certain
acquisitions and refinancing specified existing obligations. The credit
agreement contains certain financial covenants, including a senior debt to cash
flow ratio, a fixed charge ratio, a leverage ratio and a minimum net worth
requirement. At December 31, 1995, the Company was in compliance with all
financial covenants, except that its senior debt to cash flow ratio exceeded the
prescribed ratio; however, the lenders have waived the applicability of this
covenant from December 31, 1995 through March 30, 1996.
NOTE 4 -- COMMON SHAREHOLDERS' EQUITY
In September 1992, the Company sold $15 million of convertible subordinated
notes (the "Notes"). The Notes bore interest at 8.375% per annum, payable
semi-annually. The Notes were convertible into common stock of the Company at
any time for an initial conversion price of $13.08 per share, subject to
adjustment for certain events. On October 23, 1995, the holder of the Notes
exercised its option to convert the Notes into 1,146,789 shares of the Company's
common stock.
During the three months ended December 31, 1995, the Company's treasury
stock transactions included: (1) the repurchase of approximately 444,000 shares
of its common stock for approximately $7.4 million under a program to repurchase
up to 5% of the Company's outstanding common stock as originally authorized by
the Board of Directors in November 1994 and reaffirmed in September 1995 and (2)
the issuance of
F-33
63
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately 59,000 shares of its common stock for approximately $.8 million
under its Employee Stock Purchase Plan, which included $1.1 million credited to
treasury stock and $.3 million charged to additional paid-in capital.
NOTE 5 -- SUBSEQUENT EVENTS
Pursuant to a Stock Purchase Agreement dated November 17, 1995, as amended
on February 9, 1996, the Company intends to acquire Deltec Power Systems, Inc.
from Fiskars Oy Ab and Fiskars Holdings, Inc. simultaneously with the closing of
the Offering of Units consisting of $100 million of Senior Subordinated Notes
and an unspecified number of Warrants to purchase shares of the Company's Common
Stock as described elsewhere herein. The purchase price of approximately $188.1
million will be comprised of approximately $158.5 million in cash, 825,000
shares of the Company's common stock valued at $14.00 per share, and 1,000,000
shares of the Company's Series G Convertible Preferred Stock valued at $18.00
per share (the "Series G Preferred Stock"). The purchase price was determined
based on an assumption that the net book value of Deltec on the closing would be
approximately $28.7 million. The purchase price will be adjusted upward or
downward to the extent the closing date net book value (as adjusted for certain
excluded assets and liabilities) differs from this amount. The Series G
Preferred Stock will be convertible into shares of the Company's Common Stock on
a one-for-one basis (subject to adjustment under certain circumstances), will
have a dividend rate of $0.80 per share through March 31, 2001, and $1.20 per
share thereafter, will be subject to redemption at the option of the holder at
$24 per share at any time after September 30, 2006 and will have a liquidation
preference of $20 per share, plus all accrued and unpaid dividends. The Company
expects to finance the cash portion of the purchase price, excluding transaction
costs, with (i) the net proceeds of the Offering (excluding transaction costs),
estimated to be $97.0 million, (ii) an estimated $61.0 million of borrowings
under a new credit facility (the "New Credit Facility"), for which the Company
has obtained a commitment and (iii) $500,000 payable to Fiskars on January 8,
1997. The New Credit Facility will provide for term and revolving credit
facilities in the aggregate amount of up to $225.0 million, which will be
automatically reduced to $200.0 million upon completion of the Offering.
Consummation of the Offering and the Deltec Acquisition and the effectiveness of
the New Credit Facility are each contingent upon the consummation or
effectiveness, as applicable, of each other. In the event that the Deltec
acquisition is not consummated by March 15, 1996, the Company will be required
to pay Fiskars a $5 million break-up fee. In addition, the Company has agreed to
make certain interest payments to Fiskars through March 15, 1996. Such interest
payments will be made regardless of whether the Deltec Acquisition is
consummated and are estimated to be approximately $4.1 million.
F-34
64
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
If the Offering of $100 million of Senior Subordinated Notes described
elsewhere in this Offering Memorandum is consummated, the Company's payment
obligations under the Notes will be jointly and severally guaranteed by certain
of the Company's subsidiaries (the "Guarantor Subsidiaries"). The following
supplemental financial information sets forth, on an unconsolidated basis,
balance sheet, statement of operations and cash flow information for the Company
("Parent Company Only"), for the Guarantor Subsidiaries and for the Company's
other subsidiaries (the "Non-Guarantor Subsidiaries").
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets
Cash and cash equivalents............ $ -- $ 1,160 $ 841 $ -- $ 2,001
Accounts receivable.................. 766 72,177 22,493 -- 95,436
Intercompany accounts receivable..... 209 26,447 1,287 (27,943) --
Inventories.......................... -- 66,749 10,392 (388) 76,753
Other current........................ 57 13,862 1,300 138 15,357
------- ------------ ------------- ------------ ------------
Total current assets......... 1,032 180,395 36,313 (28,193) 189,547
Property, plant, and equipment, net.... -- 34,940 2,311 -- 37,251
Goodwill............................... -- 12,059 6,259 -- 18,318
Noncurrent intercompany receivables.... 26,944 12,088 -- (39,032) --
Investment in affiliates............... 41,776 24,505 -- (65,516) 765
Other assets........................... 1,071 5,861 652 474 8,058
------- ------------ ------------- ------------ ------------
$70,823 $269,848 $45,535 $ (132,267) $253,939
======= ========= =========== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt...................... $ 459 $ -- $ 6,288 $ -- $ 6,747
Accounts payable..................... -- 38,431 4,789 -- 43,220
Intercompany accounts payable........ -- 18,065 9,878 (27,943) --
Deferred revenues.................... -- 13,718 2,122 -- 15,840
Other accrued liabilities............ 85 12,484 2,835 303 15,707
------- ------------ ------------- ------------ ------------
Total current liabilities.... 544 82,698 25,912 (27,640) 81,514
Long-term debt......................... -- 76,416 -- -- 76,416
Noncurrent intercompany payables....... 13,132 25,900 -- (39,032) --
Deferred liabilities................... -- 3,204 186 31 3,421
Shareholders' equity................... 57,147 81,630 19,437 (65,626) 92,588
------- ------------ ------------- ------------ ------------
$70,823 $269,848 $45,535 $ (132,267) $253,939
======= ========= =========== ========= =========
F-35
65
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
Product revenues....................... $ -- $ 58,633 $15,444 $(16,418) $ 57,659
Service revenues....................... -- 22,695 3,154 (205) 25,644
------- ------------ ------------- ------------ ------------
Total revenues............... -- 81,328 18,598 (16,623) 83,303
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 47,248 11,762 (16,502) 42,508
Service cost of revenues............... -- 16,617 2,168 (205) 18,580
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 63,865 13,930 (16,707) 61,088
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 17,463 4,668 84 22,215
Selling, general and administrative
expense.............................. 121 14,170 3,166 -- 17,457
Research and development expense....... -- 2,509 -- -- 2,509
------- ------------ ------------- ------------ ------------
Income (loss) from
operations................. (121) 784 1,502 84 2,249
Interest expense....................... 34 1,343 120 -- 1,497
Interest income........................ (31) -- -- -- (31)
Other (income) expense................. -- (237) 354 -- 117
------- ------------ ------------- ------------ ------------
Income (loss) before income taxes...... (124) (322) 1,028 84 666
Provision for (benefit from) income
taxes................................ (44) 48 249 -- 253
------- ------------ ------------- ------------ ------------
Net income (loss)...................... $ (80) $ (370) $ 779 $ 84 $ 413
======= ========= =========== ========= =========
F-36
66
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1994
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
Product revenues....................... $ -- $ 62,315 $11,884 $(10,303) $ 63,896
Service revenues....................... -- 24,812 3,358 -- 28,170
------- ------------ ------------- ------------ ------------
Total revenues............... -- 87,127 15,242 (10,303) 92,066
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 49,623 9,507 (10,070) 49,060
Service cost of revenues............... -- 17,225 2,097 -- 19,322
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 66,848 11,604 (10,070) 68,382
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 20,279 3,638 (233) 23,684
Selling, general and administrative
expense.............................. 82 13,582 2,893 -- 16,557
Research and development expense....... -- 2,547 -- -- 2,547
------- ------------ ------------- ------------ ------------
Income (loss) from
operations................. (82) 4,150 745 (233) 4,580
Interest expense....................... 328 987 109 -- 1,424
Interest income........................ (77) (27) (35) -- (139)
Other (income) expense................. -- (163) 9 (7) (161)
------- ------------ ------------- ------------ ------------
Income (loss) before income taxes...... (333) 3,353 662 (226) 3,456
Provision for (benefit from) income
taxes................................ (116) 1,131 192 -- 1,207
------- ------------ ------------- ------------ ------------
Net income (loss)...................... $(217) $ 2,222 $ 470 $ (226) $ 2,249
======= ========= =========== ========= =========
F-37
67
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1995
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
Cash flows from operating activities
Net income (loss)........................ $ (80) $ (370) $ 779 $ 84 $ 413
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation expense................... -- 1,723 118 -- 1,841
Amortization expense................... -- 242 370 -- 612
(Increase) decrease in accounts
receivable........................... (769) 17,724 (2,977) (3,890) 10,088
(Increase) decrease in inventories..... -- (3,826) 81 (118) (3,863)
Increase in other current assets....... -- (1,472) (104) (138) (1,714)
Increase (decrease) in accounts
payable.............................. -- (8,203) 1,492 3,890 (2,821)
Increase (decrease) in other current
liabilities.......................... (270) (3,972) 33 417 (3,792)
Other, net............................. 3 (1,202) (77) -- (1,276)
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
operating activities.............. (1,116) 644 (285) 245 (512)
--------- ------------ ------- ------------ ------------
Cash flows from investing activities
Acquisitions of property, plant,
and equipment.......................... -- (3,521) (417) -- (3,938)
Other, net............................... 445 9,157 130 (9,897) (165)
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
investing activities.............. 445 5,636 (287) (9,897) (4,103)
--------- ------------ ------- ------------ ------------
Cash flows from financing activities
Proceeds from bank credit facilities..... -- 36,558 367 -- 36,925
Payments of bank credit facilities....... -- (25,400) (1,104) -- (26,504)
Issuance of common stock................. 142 -- -- -- 142
Purchases of treasury stock.............. (6,926) -- -- -- (6,926)
Payments of notes receivable from
shareholders........................... 215 -- -- -- 215
Other, net............................... 7,240 (16,871) (44) 9,652 (23)
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
financing
activities........................ 671 (5,713) (781) 9,652 3,829
--------- ------------ ------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents.............................. -- 567 (1,353) -- (786)
Cash and cash equivalents, beginning of
period................................... -- 593 2,194 -- 2,787
--------- ------------ ------- ------------ ------------
Cash and cash equivalents, end of period... $ -- $ 1,160 $ 841 $ -- $ 2,001
========= =========== ============== =========== ===========
F-38
68
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1994
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
Cash flows from operating activities
Net income (loss)........................ $(217) $ 2,222 $ 470 $ (226) $ 2,249
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation expense................... -- 1,430 132 -- 1,562
Amortization expense................... -- 528 125 -- 653
(Increase) decrease in accounts
receivable........................... -- 15,220 (2,723) 3,443 15,940
(Increase) decrease in inventories..... -- (3,021) (1,464) 168 (4,317)
(Increase) decrease in other current
assets............................... 6 (142) 201 (65) --
Increase (decrease) in accounts
payable.............................. -- 11,534 2,315 (5,331) 8,518
Increase (decrease) in other current
liabilities.......................... (549) (4,903) (782) 84 (6,150)
Other, net............................. -- (138) -- -- (138)
--------- ------------ -------------- ------------ ------------
Net cash provided by (used in)
operating activities.............. (760) 22,730 (1,726) (1,927) 18,317
--------- ------------ -------------- ------------ ------------
Cash flows from investing activities
Acquisitions of property, plant, and
equipment.............................. -- (2,181) (151) -- (2,332)
Other, net............................... 722 1,265 309 (3,079) (783)
--------- ------------ -------------- ------------ ------------
Net cash provided by (used in)
investing activities.............. 722 (916) 158 (3,079) (3,115)
--------- ------------ -------------- ------------ ------------
Cash flows from financing activities
Proceeds from bank credit facilities..... -- 17,116 1,014 -- 18,130
Payments of bank credit facilities....... -- (32,100) (96) (32,196)
Payments of industrial revenue bonds..... -- (4,600) -- -- (4,600)
Issuance of common stock................. 2 -- -- -- 2
Purchases of treasury stock.............. (625) -- -- -- (625)
Preferred stock dividends of Exide
Electronics............................ (395) -- -- -- (395)
Preferred stock dividends of IPM......... -- (100) -- -- (100)
Payments of notes receivable from
shareholders........................... 104 -- -- -- 104
Other, net............................... 952 (5,518) (493) 5,006 (53)
--------- ------------ -------------- ------------ ------------
Net cash provided by (used in)
financing
activities........................ 38 (25,202) 425 5,006 (19,733)
--------- ------------ -------------- ------------ ------------
Net decrease in cash and cash
equivalents.............................. -- (3,388) (1,143) -- (4,531)
Cash and cash equivalents, beginning of
period................................... -- 3,754 2,132 -- 5,886
--------- ------------ -------------- ------------ ------------
Cash and cash equivalents, end of period... $ -- $ 366 $ 989 $ -- $ 1,355
========= =========== ============== =========== ===========
F-39
69
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Deltec Power Systems, Inc.
In our opinion, based upon our audits and the reports of other auditors,
the accompanying consolidated balance sheets and the related
combined/consolidated statements of operations, of shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Deltec Power Systems, Inc. and its subsidiaries (the "Company") at December 31,
1994 and September 30, 1995, and the results of their operations and their cash
flows for the years ended December 31, 1993 and 1994 and for the nine months
ended September 30, 1995 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of FPS
Power Systems Oy Ab, FPS Power Systems A/S, Fiskars Power Systems A/S and
Fiskars Power Systems AB, wholly-owned subsidiaries, which statements reflect
total assets of $13.0 and $23.7 million at December 31, 1994 and September 30,
1995, respectively, and total revenues of $20.8, $26.7 and $25.8 million for the
years ended December 31, 1993 and 1994 and for the nine months ended September
30, 1995, respectively. Those statements were audited by other auditors whose
reports thereon have been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for those companies, is based
solely on the reports of the other auditors. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the reports of
other auditors provide a reasonable basis for the opinion expressed above.
As discussed in Notes 2 and 9 to the financial statements, effective
January 1, 1993, Statement of Financial Accounting Standards No. 109 was
adopted.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
January 16, 1996,
except as to Note 13 which is
as of February 9, 1996
F-40
70
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
FPS Power Systems Oy Ab
We have audited the accompanying balance sheets of FPS Power Systems Oy Ab
(the "Company"), a wholly-owned subsidiary of Deltec Power Systems, Inc., as of
December 31, 1994 and September 30, 1995, and the related statements of income
and cash flows for years ended December 31, 1993 and 1994 and the nine months
ended September 30, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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.
As more fully described in note 1 to the financial statements, the Company
accounts for its investments in wholly-owned subsidiaries using the cost method.
The subsidiaries should be consolidated in order to conform with generally
accepted accounting principles.
In our opinion, except for the effects of accounting for investments in
subsidiaries on the cost method as discussed in the preceding paragraph, the
financial statements referred to above present fairly, in all material respects,
the financial position of FPS Power Systems Oy Ab, as of December 31, 1994 and
September 30, 1995, and the results of its operations and its cash flows for the
years ended December 31, 1993 and 1994 and the nine months ended September 30,
1995, in conformity with generally accepted accounting principles in the United
States of America.
KPMG WIDERI OY AB
Helsinki, Finland
January 12, 1996
Sixten Nyman
Authorized Public Accountant
F-41
71
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholder of
FPS Power Systems A/S
We have audited the accompanying balance sheets of FPS Power Systems A/S
(the "Company"), a wholly-owned subsidiary of Deltec Power Systems, Inc., as of
September 30, 1995 and December 31, 1994 and the related statements of income
and retained earnings and of cash flows for the nine month period ended
September 30, 1995 and for the years ended December 31, 1994 and 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 audited by us present fairly, in
all material respects, the financial position of FPS Power Systems A/S at
September 30, 1995 and December 31, 1994, and the results of their operations
and their cash flows for the nine month period ended September 30, 1995 and for
the years ended December 31, 1994 and 1993, in conformity with generally
accepted accounting principles in the United States of America.
KPMG
Oslo, Norway
January 11, 1996
Tom Myhre
State Authorized Public Accountant (Norway)
F-42
72
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholder of
Fiskars Power Systems A/S
We have audited the accompanying balance sheets of Fiskars Power Systems
A/S, a wholly-owned subsidiary of Deltec Power Systems, Inc., as of September
30, 1995 and December 31, 1994 and the related statements of income and retained
earnings and of cash flows for the nine month period ended September 30, 1995
and for the years ended December 31, 1994 and 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We have conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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.
As more fully described in summary of significant accounting policies note
to the financial statements, the Company accounts for its wholly owned
subsidiary company, on the equity method. The subsidiary should be consolidated
to conform with generally accepted accounting principles.
In our opinion, except for the effects of accounting for its investment in
subsidiary on the equity method, the financial statements audited by us present
fairly, in all material respects, the financial position of Fiskars Power
Systems A/S at September 30, 1995 and December 31, 1994, and the results of
their operations and their cash flows for the nine month period ended September
30, 1995 and for the years ended December 31, 1994 and 1993, in conformity with
generally accepted accounting principles in the United States of America.
KPMG C. Jespersen
Copenhagen, Denmark
December 22, 1995
Torben Vonsild
State Authorized
Public Accountant
F-43
73
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
and Shareholder of
Fiskars Power Systems AB
We have audited the accompanying balance sheets of Fiskars Power Systems AB
(the "Company"), a wholly-owned subsidiary of Deltec Power Systems, Inc., as of
September 30, 1995 and December 31, 1994 and the related statements of income
and retained earnings and of cash flows for the nine month period ended
September 30, 1995 and for the years ended December 31, 1994 and 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 audited by us present fairly, in
all material respects, the financial position of Fiskars Power Systems AB at
September 30, 1995 and December 31, 1994 and the results of their operations and
their cash flows for the nine month period ended September 30, 1995 and for the
years ended December 31, 1994 and 1993, in conformity with generally accepted
accounting principles.
As discussed in the income taxes note to the financial statements, in 1993
the Company adopted the method of accounting for income taxes prescribed by
Statements of Financial Accounting Standards No. 109.
KPMG Bohlins AB
Stockholm, Sweden
December 22, 1995
Thomas Thiel
Partner
F-44
74
DELTEC POWER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash.............................................. $ 6,008,000 $ 8,842,000 $ 5,603,000
Accounts receivable, net.......................... 21,463,000 23,641,000 34,268,000
Inventories, net.................................. 16,379,000 19,923,000 21,633,000
Deferred income taxes............................. 1,681,000 2,007,000 2,518,000
Other current assets.............................. 1,606,000 1,920,000 1,870,000
----------- -----------
Total current assets...................... 47,137,000 56,333,000 65,892,000
Property and equipment, net......................... 6,611,000 6,927,000 7,135,000
Intangible assets, net.............................. 9,630,000 7,905,000 7,384,000
Other long-term assets.............................. 124,000 436,000 468,000
----------- -----------
$ 63,502,000 $ 71,601,000 $ 80,879,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 5,843,000 $ 8,135,000 $ 11,845,000
Deferred revenue.................................. 4,374,000 4,678,000 4,461,000
Accrued payroll and employee benefits............. 3,350,000 3,552,000 4,840,000
Income taxes payable.............................. 1,576,000 1,778,000 3,281,000
Intercompany payable, net......................... 2,537,000 5,546,000 6,791,000
Accrued commissions............................... 740,000 814,000 1,125,000
Accrued warranty.................................. 504,000 610,000 836,000
Current maturities of long-term debt.............. -- 2,121,000 10,000
Other current liabilities......................... 1,877,000 2,405,000 2,468,000
----------- -----------
Total current liabilities................. 20,801,000 29,639,000 35,657,000
----------- -----------
Deferred income taxes............................... 2,941,000 2,307,000 2,252,000
----------- -----------
Long-term debt (payable primarily to related
parties).......................................... 33,257,000 31,941,000 37,836,000
----------- -----------
Other long-term liabilities......................... 1,461,000 1,474,000 1,824,000
----------- -----------
Commitments (Note 11)
Shareholders' equity:
Class A redeemable preferred stock -- $.01 par
value, 1,500 shares outstanding at December 31,
1994 and September 30, 1995 (liquidation value
of $15,000,000); 900 shares outstanding at
December 31, 1995 (liquidation value of
$9,000,000), at ascribed value................. 9,695,000 9,695,000 5,817,000
Common stock -- $.01 par value, 600 shares
outstanding, at ascribed value................. (4,881,000) (4,881,000) (4,881,000)
Retained earnings................................. 269,000 882,000 1,936,000
Cumulative translation adjustment................. (41,000) 544,000 438,000
----------- -----------
Total shareholders' equity................ 5,042,000 6,240,000 3,310,000
----------- -----------
$ 63,502,000 $ 71,601,000 $ 80,879,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-45
75
DELTEC POWER SYSTEMS, INC.
COMBINED/CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
DECEMBER 31, 1994 SEPTEMBER 30, DECEMBER 31,
1993 (COMBINED/ 1995 1995
(COMBINED) CONSOLIDATED) (CONSOLIDATED) (CONSOLIDATED)
------------ ------------ ------------- -------------
(UNAUDITED)
Revenues:
Products........................... $ 60,446,000 $ 80,236,000 $ 72,665,000 $ 113,031,000
Services........................... 14,982,000 16,960,000 14,176,000 19,918,000
------------ ------------ ------------- -------------
Total revenues............. 75,428,000 97,196,000 86,841,000 132,949,000
Cost of revenues:
Products........................... 39,234,000 50,352,000 46,603,000 71,921,000
Services........................... 7,445,000 8,326,000 6,880,000 8,969,000
------------ ------------ ------------- -------------
Total cost of revenues..... 46,679,000 58,678,000 53,483,000 80,890,000
------------ ------------ ------------- -------------
Gross profit......................... 28,749,000 38,518,000 33,358,000 52,059,000
Operating expenses:
Selling and marketing.............. 15,059,000 19,767,000 18,628,000 26,067,000
General and administrative......... 4,904,000 6,236,000 5,037,000 7,580,000
Engineering........................ 3,119,000 4,168,000 3,682,000 4,976,000
Royalty expense (primarily with
related parties)................ 1,478,000 2,298,000 2,209,000 3,411,000
------------ ------------ ------------- -------------
Income from operations............... 4,189,000 6,049,000 3,802,000 10,025,000
Interest income (primarily with
related parties)................... (382,000) (367,000) (580,000) (678,000)
Interest expense (primarily with
related parties)................... 781,000 1,375,000 2,317,000 3,177,000
------------ ------------ ------------- -------------
Income before income taxes and
cumulative effect of change in
accounting principle for income
taxes.............................. 3,790,000 5,041,000 2,065,000 7,526,000
Provision for income taxes........... 815,000 1,885,000 327,000 2,237,000
------------ ------------ ------------- -------------
Income before cumulative effect of
change in accounting principle for
income taxes....................... 2,975,000 3,156,000 1,738,000 5,289,000
Cumulative effect of change in
accounting principle for income
taxes.............................. 1,509,000 -- -- --
------------ ------------ ------------- -------------
Net income........................... 4,484,000 3,156,000 1,738,000 5,289,000
Dividends on preferred stock......... -- 375,000 1,125,000 1,500,000
Premium on redemption of preferred
stock.............................. -- -- -- 2,122,000
------------ ------------ ------------- -------------
Net income allocable to
common shares............ $ 4,484,000 $ 2,781,000 $ 613,000 $ 1,667,000
========== ========== ========== ===========
The accompanying notes are an integral part of these financial statements.
F-46
76
DELTEC POWER SYSTEMS, INC.
COMBINED/CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CAPITAL IN CUMULATIVE
PREFERRED COMMON EXCESS OF RETAINED TRANSLATION
STOCK STOCK PAR VALUE EARNINGS ADJUSTMENT TOTAL
---------- ------------ ---------- ----------- ---------- -----------
BALANCE AT DECEMBER 31,
1992................. $ -- $ 23,164,000 $ 904,000 $(2,370,000) $ -- $21,698,000
Combined net income.... -- -- -- 4,484,000 -- 4,484,000
Group Contribution, net
of tax benefit....... -- -- -- (649,000) -- (649,000)
Translation
adjustments.......... (502,000) (502,000)
---------- ------------ ---------- ----------- ---------- -----------
BALANCE AT DECEMBER 31,
1993................. -- 23,164,000 904,000 1,465,000 (502,000) 25,031,000
Combined/consolidated
net income........... -- -- -- 3,156,000 -- 3,156,000
Group Contribution, net
of tax benefit....... -- -- -- (1,068,000) -- (1,068,000)
Dividends declared:
Common stock......... -- -- -- (5,786,000) -- (5,786,000)
Preferred stock...... -- -- -- (375,000) -- (375,000)
Assumption of Fiskars
Holdings, Inc.
debt................. (6,000,000) -- -- -- (6,000,000)
Capitalization of
DPSI................. 9,695,000 (22,045,000) (904,000) 2,877,000 502,000 (9,875,000)
Translation
adjustments.......... (41,000) (41,000)
---------- ------------ ---------- ----------- ---------- -----------
BALANCE AT DECEMBER 31,
1994................. 9,695,000 (4,881,000) -- 269,000 (41,000) 5,042,000
Consolidated net
income............... -- -- -- 1,738,000 -- 1,738,000
Preferred stock
dividends declared... -- -- -- (1,125,000) -- (1,125,000)
Translation
adjustments.......... 585,000 585,000
---------- ------------ ---------- ----------- ---------- -----------
BALANCE AT SEPTEMBER
30, 1995............. 9,695,000 (4,881,000) -- 882,000 544,000 6,240,000
Consolidated net
income............... -- -- -- 3,551,000 -- 3,551,000
Preferred stock
dividends declared... -- -- -- (375,000) -- (375,000)
Preferred stock
redemption........... (3,878,000) -- -- (2,122,000) -- (6,000,000)
Translation
adjustments.......... -- -- -- -- (106,000) (106,000)
---------- ------------ ---------- ----------- ---------- -----------
BALANCE AT DECEMBER 31,
1995 (UNAUDITED)..... $5,817,000 $ (4,881,000) $ -- $ 1,936,000 $ 438,000 $ 3,310,000
========= =========== ========= ========== ========= ==========
The accompanying notes are an integral part of these financial statements.
F-47
77
DELTEC POWER SYSTEMS, INC.
COMBINED/CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED
YEAR ENDED NINE MONTHS DECEMBER 31,
YEAR ENDED DECEMBER 31, ENDED 1995
DECEMBER 31, 1994 SEPTEMBER 30, (CONSOLIDATED)
1993 (COMBINED/ 1995 -------------
(COMBINED) CONSOLIDATED) (CONSOLIDATED)
-------------- ------------- ------------- (UNAUDITED)
Cash flows from operating activities:
Net income............................ $ 4,484,000 $ 3,156,000 $ 1,738,000 $ 5,289,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation of property and
equipment........................ 1,358,000 1,690,000 1,511,000 2,014,000
Amortization of intangibles........ 1,991,000 2,295,000 1,810,000 2,403,000
Loss on sale of property and
equipment........................ 53,000 47,000 -- --
Deferred income taxes.............. 3,813,000 (1,102,000) (934,000) (1,482,000)
Other.............................. -- 68,000 -- --
Cumulative effect of change in
accounting for income taxes...... (1,509,000) -- -- --
Changes in:
Net accounts receivable.......... (3,031,000) (4,832,000) (1,486,000) (12,199,000)
Net intercompany accounts........ (3,759,000) 6,112,000 1,497,000 2,427,000
Net inventories.................. (77,000) (6,047,000) (2,959,000) (4,822,000)
Other current assets............. (424,000) (70,000) (251,000) (227,000)
Accounts payable................. 803,000 (196,000) 1,858,000 5,773,000
Accrued expenses................. 791,000 1,530,000 1,229,000 4,417,000
Deferred revenue................. 582,000 480,000 239,000 102,000
-------------- ------------- ------------- -------------
Net cash provided by operating
activities............................ 5,075,000 3,131,000 4,252,000 3,695,000
-------------- ------------- ------------- -------------
Cash flows from investing activities:
Purchases of property and equipment... (1,456,000) (1,634,000) (1,663,000) (2,402,000)
Proceeds from sale of property and
equipment.......................... -- 7,000 10,000 10,000
Acquisition of NSSI................... -- (1,751,000) -- --
Other................................. (388,000) (544,000) (378,000) (481,000)
-------------- ------------- ------------- -------------
Net cash used in investing activities... (1,844,000) (3,922,000) (2,031,000) (2,873,000)
-------------- ------------- ------------- -------------
Cash flows from financing activities:
Payments on intercompany note......... (1,500,000) (300,000) (232,000) (1,921,000)
Payments on external debt............. (618,000) -- -- --
Advances on intercompany note......... -- 3,814,000 -- --
Proceeds from external debt........... 211,000 138,000 537,000 537,000
Dividends paid........................ -- (786,000) -- --
Group Contributions, net of tax
benefit............................ (649,000) (1,068,000) -- --
-------------- ------------- ------------- -------------
Net cash provided (used) by financing
activities............................ (2,556,000) 1,798,000 305,000 (1,384,000)
-------------- ------------- ------------- -------------
Effect of exchange rates on cash........ (293,000) 379,000 308,000 157,000
Increase (decrease) in cash............. 382,000 1,386,000 2,834,000 (405,000)
Cash at beginning of period............. 4,240,000 4,622,000 6,008,000 6,008,000
-------------- ------------- ------------- -------------
Cash at end of period................... $ 4,622,000 $ 6,008,000 $ 8,842,000 $ 5,603,000
========== ========== ========== ===========
Supplemental information:
Income taxes paid..................... $ 356,000 $ 795,000 $ 1,441,000 $ 2,128,000
Assumption of Fiskars Holdings, Inc.
debt............................... $ -- $ 6,000,000 $ -- $ --
Dividends to Fiskars Holdings, Inc.
financed by note................... $ -- $ 5,000,000 $ -- $ --
Preferred stock redemption financed by
note............................... $ -- $ -- $ -- $ 6,000,000
The accompanying notes are an integral part of these financial statements.
F-48
78
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS AT DECEMBER 31, 1995 AND FOR
THE YEAR THEN ENDED ARE UNAUDITED)
NOTE 1 -- THE COMPANY AND DESCRIPTION OF BUSINESS
Deltec Power Systems, Inc. ("DPSI" or the "Company") was organized on
September 27, 1994 by Fiskars Oy Ab ("Fiskars"), a Finnish company, to acquire
the outstanding common shares of FPS Power Systems Oy Ab ("Power Systems") and
Deltec Electronics Corporation ("Deltec"). As discussed in Note 12, DPSI
acquired Power Systems from Fiskars and Deltec was acquired from Fiskars
Holdings, Inc., a wholly-owned subsidiary of Fiskars. This acquisition, between
companies under common control, was treated as a tax-free reorganization. Assets
acquired and liabilities assumed were recorded at approximate historical values.
The accompanying DPSI financial statements include Deltec and Power Systems
on a combined basis prior to the formation of DPSI and on a consolidated basis
thereafter. All significant intercompany transactions and accounts have been
eliminated.
Deltec's financial statements include the accounts of Deltec S.A. de C.V.,
a subsidiary in Mexico. During 1994, Deltec purchased the assets and assumed
certain liabilities of Network Security Systems, Inc. ("NSSI"). The excess of
the purchase price over the market value of the net assets acquired was recorded
as goodwill. NSSI designs, manufactures and markets a line of uninterruptible
power supplies and related software used in computer networking environments.
NSSI's operations are not material. On July 1, 1994, Fiskars Holdings, Inc.
pushed down $6,000,000 of acquisition debt to Deltec; accordingly, an
intercompany note payable was recorded and common stock was reduced by this
amount as a return of capital.
The financial statements of Power Systems include the accounts of the
following wholly-owned subsidiaries:
SUBSIDIARY COUNTRY
-------------------------------------------------------- ---------------
Fiskars Power Systems GmbH.............................. Germany
Fiskars Power Systems A/S............................... Denmark
FPS Power Systems A/S................................... Norway
Fiskars Power Systems AB................................ Sweden
Fiskars Electronics Limited............................. United Kingdom
Both Power Systems and Deltec design, manufacture, and distribute
uninterruptible power supply systems and related electronic equipment, and power
management and facilities monitoring software used in computer networking
environments.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
FOREIGN CURRENCY
Assets and liabilities of the Company's foreign operations are translated
at period-end exchange rates; income and expenses are translated at average
exchange rates prevailing during the year. Gains and losses from the translation
of foreign currency financial statements are accumulated as a separate component
of shareholders' equity. Foreign exchange transaction gains and losses were not
significant.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
on a first-in, first-out method.
F-49
79
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives of three to ten years on a straight-line basis for
financial reporting purposes. Expenditures which substantially increase value or
extend useful lives are capitalized. Maintenance and repairs are expensed as
incurred.
INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method over their
estimated economic lives of three to ten years. The Company reviews the carrying
value of intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount 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 intangible.
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment. Revenue and the
directly-related costs arising from the sale of maintenance and extended
warranty contracts are recognized ratably over the terms of the individual
contracts.
INCOME TAXES
Deltec was included in the consolidated income tax return of Fiskars
Holdings, Inc. until the formation of DPSI on September 27, 1994; thereafter,
Deltec has been included in the consolidated income tax return of the Company.
Federal and state income tax provisions and related tax balances through
September 27, 1994 were allocated to Deltec on a separate-company basis by its
parent and were settled periodically through the intercompany accounts. The
Company's foreign subsidiaries, both before and after the formation of DPSI,
filed tax returns in their respective countries based on their separate taxable
income.
Domestic income taxes are not provided on undistributed earnings of foreign
subsidiaries which are considered to be permanently invested. If undistributed
earnings were remitted, foreign tax credits would substantially offset any
resulting domestic tax liability.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes". The
adoption of FAS 109 changes the method of accounting for income taxes from the
deferred method to an asset and liability approach, which requires recognition
of deferred tax liabilities and assets for the expected future tax consequences
of temporary differences between the financial reporting and tax bases of the
assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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 could differ from those estimates.
UNAUDITED FINANCIAL DATA
The financial data as of and for the year ended December 31, 1995 is
unaudited; however, in the opinion of the Company, this financial data includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair statement of the results for the year ended December 31, 1995.
F-50
80
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1994 Consolidated Balance Sheet have been
reclassified to conform to the current financial statement presentation.
NOTE 3 -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
(UNAUDITED)
Accounts receivable:
Trade accounts receivable.................. $ 22,249,000 $ 25,219,000 $ 35,990,000
Allowance for doubtful accounts............ (786,000) (1,578,000) (1,722,000)
------------ ------------- ------------
$ 21,463,000 $ 23,641,000 $ 34,268,000
=========== =========== ===========
Inventories:
Raw materials.............................. $ 8,652,000 $ 11,580,000 $ 14,014,000
Work-in-process............................ 1,773,000 304,000 411,000
Finished goods............................. 8,040,000 10,483,000 10,015,000
Allowance for obsolescence................. (2,086,000) (2,444,000) (2,807,000)
------------ ------------- ------------
$ 16,379,000 $ 19,923,000 $ 21,633,000
=========== =========== ===========
Property and equipment:
Machinery and equipment.................... $ 8,766,000 $ 9,307,000 $ 10,228,000
Furniture and fixtures..................... 3,917,000 4,620,000 4,575,000
Leasehold improvements..................... 988,000 1,174,000 1,432,000
Construction in progress................... 395,000 1,103,000 473,000
------------ ------------- ------------
14,066,000 16,204,000 16,708,000
Accumulated depreciation................... (7,455,000) (9,277,000) (9,573,000)
------------ ------------- ------------
$ 6,611,000 $ 6,927,000 $ 7,135,000
=========== =========== ===========
Intangible assets:
Goodwill................................... $ 10,074,000 $ 10,074,000 $ 10,074,000
Other intangible assets.................... 10,773,000 10,256,000 10,299,000
------------ ------------- ------------
20,847,000 20,330,000 20,373,000
Accumulated amortization................... (11,217,000) (12,425,000) (12,989,000)
------------ ------------- ------------
$ 9,630,000 $ 7,905,000 $ 7,384,000
=========== =========== ===========
F-51
81
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- TRANSACTIONS WITH RELATED PARTIES
Intercompany balances due to (from) other affiliates within the Fiskars Oy
Ab consolidated group were:
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
(UNAUDITED)
Fiskars Holdings, Inc.................. $2,611,000 $ 2,867,000 $ 7,847,000
Fiskars Oy Ab.......................... (357,000) 791,000 (1,497,000)
Fiskars AB............................. 225,000 (6,000) 3,000
Fiskars Europe BV...................... 146,000 1,532,000 145,000
Fiskars GmbH........................... 99,000 66,000 --
Fiskars Finance AG..................... (224,000) 54,000 11,000
Fiskars Ltd............................ -- 206,000 7,000
Fiskars S.a.r.1........................ -- 55,000 142,000
Other related entities................. 37,000 (19,000) 133,000
------------ ------------- ------------
$2,537,000 $ 5,546,000 $ 6,791,000
========== ========== ==========
Cash included $5,012,000, $7,701,000 and $4,048,000 in pooled accounts with
various related parties at December 31, 1994, September 30, 1995 and December
31, 1995, respectively. The Company recorded interest income from the pooled
account totaling $135,000, $222,000 and $375,000 for the years ended December
31, 1993, 1994 and 1995, respectively, and $247,000 for the nine month period
ended September 30, 1995.
The Company is obligated to pay royalties to affiliates on sales of certain
product lines bearing the Fiskars name. The Company recorded royalty expense of
$1,478,000, $2,298,000 and $3,411,000 for the years ended December 31, 1993,
1994 and 1995, respectively, and $2,209,000 for the nine month period ended
September 30, 1995.
Interest expense of $687,000, $1,330,000 and $3,061,000 was recorded on
long-term intercompany borrowings for the years ended December 31, 1993, 1994
and 1995, respectively, and $2,253,000 for the nine month period ended September
30, 1995.
Intercompany payables to Fiskars Holdings, Inc. include accrued dividends
relating to the Class A redeemable preferred stock of $375,000, $1,500,000 and
$1,875,000 at December 31, 1994, September 30, 1995 and December 31, 1995,
respectively.
On September 23, 1994, Deltec declared a $5,000,000 dividend to Fiskars
Holdings, Inc., which was financed by a note to Fiskars Holdings, Inc.
During 1994, DPSI entities paid $786,000 in dividends to affiliated
companies.
During 1995, the Company paid management fees to Fiskars totaling $391,000.
These expenses are included in income from operations.
F-52
82
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- LONG-TERM DEBT
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------- ------------ ------------
(UNAUDITED)
Note Payable to Fiskars Holdings, Inc........... $ 18,401,000 $ 18,401,000 $ 24,401,000
Notes Payable to Fiskars Oy Ab.................. 11,897,000 12,121,000 10,000,000
Note Payable to Fiskars Limited................. 2,274,000 2,303,000 2,242,000
Other........................................... 685,000 1,237,000 1,203,000
------------- ------------ ------------
33,257,000 34,062,000 37,846,000
Less: Current maturities........................ -- (2,121,000) (10,000)
------------- ------------ ------------
$ 33,257,000 $ 31,941,000 $ 37,836,000
========== ========== ==========
Interest on the Note Payable to Fiskars Holdings, Inc. is payable quarterly
at an annual rate of 8.4%. The principal amount is due in varying amounts
through 2004.
At September 30, 1995, the Notes Payable to Fiskars Oy Ab is comprised of
two separate notes. A $10,000,000 note which is due in varying amounts through
2004, with interest payable annually at a rate of 8.4%. A $2,121,000 note was
due on January 1, 1996, with interest payable quarterly at a rate of HELIBOR
plus 0.70% (6.5% at September 30, 1995). The $2,121,000 note was paid prior to
December 31, 1995.
The Note Payable to Fiskars Limited is due on December 19, 2004, with
interest payable annually at a rate of LIBOR plus 0.60% (8.35% at September 30,
1995 and 6.91% at December 31, 1995).
Total interest paid on long-term debt was $746,000, $969,000 and $1,795,000
for the years ended December 31, 1993, 1994 and 1995, respectively, and
$1,015,000 for the nine month period ended September 30, 1995.
Future annual maturities of long-term debt outstanding at September 30,
1995 are as follows:
1995 (October - December)................................... $ --
1996........................................................ 2,121,000
1997........................................................ 2,308,000
1998........................................................ 3,308,000
1999........................................................ 3,308,000
2000........................................................ 3,308,000
Thereafter.................................................. 19,709,000
-----------
$34,062,000
==========
NOTE 6 -- FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, accounts payable and
long-term debt at December 31, 1994, September 30, 1995 and December 31, 1995
approximates fair value.
Power Systems enters into forward foreign exchange contracts with Fiskars
to hedge certain of its foreign currency commitments. These contracts minimize
the risk from fluctuations in exchange rates. Gains and losses on these
contracts are deferred and accounted for in the same period as the underlying
transactions.
F-53
83
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following forward contracts were outstanding:
CURRENCY CURRENCY SEPTEMBER 30, DECEMBER 31,
SOLD PURCHASED 1995 1995
-------- --------------------------- ------------- ------------
(UNAUDITED)
German DM.................. Finnish Markka............. $ 2,645,000 $293,000
Danish Krone............... Finnish Markka............. 914,000 5,000
Norwegian Krone............ Finnish Markka............. 922,000 --
Finnish Markka............. British Pound.............. 789,000 --
Swedish Krona.............. Finnish Markka............. 688,000 4,000
U.S. Dollar................ Finnish Markka............. 582,000 --
Finnish Markka............. U.S. Dollar................ -- 265,000
Others.................................................. 243,000 67,000
------------- ------------
$ 6,783,000 $634,000
========== ==========
NOTE 7 -- RESEARCH AND DEVELOPMENT
Expenditures for research activities relating to product development and
improvement are charged against income as incurred. Such expenditures amounted
to $1,678,000, $2,136,000 and $2,593,000 for the years ended December 31, 1993,
1994 and 1995, respectively, and $2,023,000 for the nine month period ended
September 30, 1995.
NOTE 8 -- SIGNIFICANT CUSTOMERS, EXPORT SALES AND GEOGRAPHIC SEGMENTS
SIGNIFICANT CUSTOMERS
The Company has an agreement with a customer to supply certain product
lines at market prices. The agreement is for an indefinite term and is
cancelable at any time. Sales under this agreement amounted to 6%, 10% and 21%
of net sales for the years ended December 31, 1993, 1994 and 1995, respectively,
and 16% for the nine month period ended September 30, 1995. Receivables
outstanding from these sales were $1,856,000, $5,310,000 and $11,415,000 at
December 31, 1994, September 30, 1995 and December 31, 1995, respectively.
Receivables outstanding from a foreign distributor were $1,473,000,
$1,208,000 and $1,197,000 at December 31, 1994, September 30, 1995 and December
31, 1995, respectively.
EXPORT SALES
The Company's foreign operations primarily serve markets in their
respective countries. Export sales from the Company's domestic operation were
approximately 21%, 23% and 19% of net sales for the years ended December 31,
1993, 1994 and 1995, respectively, and 21% for the nine month period ended
September 30, 1995.
F-54
84
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC SEGMENTS
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1995
------------ ------------ ------------- ------------
(UNAUDITED)
Total Revenues
Domestic.............................. $ 43,335,000 $ 56,405,000 $ 49,385,000 $ 78,364,000
European.............................. 32,093,000 40,791,000 37,456,000 54,585,000
------------ ------------ ------------- ------------
$ 75,428,000 $ 97,196,000 $ 86,841,000 $132,949,000
========== ========== ========== ===========
Income from Operations
Domestic.............................. $ 1,786,000 $ 2,586,000 $ 705,000 $ 4,550,000
European.............................. 2,403,000 3,463,000 3,097,000 5,475,000
------------ ------------ ------------- ------------
$ 4,189,000 $ 6,049,000 $ 3,802,000 $ 10,025,000
========== ========== ========== ===========
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
(UNAUDITED)
Total Assets
Domestic............................... $ 46,154,000 $ 45,857,000 $ 56,743,000
European............................... 17,348,000 25,744,000 24,136,000
------------ ------------- ------------
$ 63,502,000 $ 71,601,000 $ 80,879,000
========== ========== ==========
NOTE 9 -- INCOME TAXES
The components of income before income taxes and cumulative effect of
change in accounting principle for income taxes included the following:
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1995
------------ ------------ ------------- ------------
(UNAUDITED)
Domestic................................. $1,387,000 $1,581,000 $ (974,000) $2,093,000
Foreign.................................. 2,403,000 3,460,000 3,039,000 5,433,000
------------ ------------ ------------- ------------
$3,790,000 $5,041,000 $ 2,065,000 $7,526,000
========== ========== ========== ==========
F-55
85
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes consists of the following:
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1995
------------ ------------ ------------- ------------
(UNAUDITED)
Current
Federal..................... $ (3,567,000) $ 1,828,000 $ 187,000 $ 1,733,000
State....................... 21,000 87,000 100,000 464,000
Foreign..................... 548,000 1,072,000 974,000 1,522,000
------------ ------------ ------------- ------------
(2,998,000) 2,987,000 1,261,000 3,719,000
------------ ------------ ------------- ------------
Deferred
Federal..................... 3,842,000 (990,000) (572,000) (1,221,000)
State....................... 29,000 (214,000) (113,000) (224,000)
Foreign..................... (58,000) 102,000 (249,000) (37,000)
------------ ------------ ------------- ------------
3,813,000 (1,102,000) (934,000) (1,482,000)
------------ ------------ ------------- ------------
$ 815,000 $ 1,885,000 $ 327,000 $ 2,237,000
========== ========== ========== ==========
An analysis of the effective income tax rates is as follows:
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1995
------------ ------------ ------------- ------------
(UNAUDITED)
Federal statutory rate.......... 35.0% 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit............... .1 (1.6) -- 2.1
Foreign tax differential........ (9.3) (.7) (16.4) (5.5)
Other........................... (4.3) 4.7 (2.8) (1.9)
----- ----- ------ -----
21.5% 37.4% 15.8% 29.7%
========== ========== ========== ==========
Power Systems made Group Contributions to Fiskars and its related entities
of $868,000 and $1,424,000 for the years ended December 31, 1993 and 1994,
respectively, and consequently realized tax benefits of $219,000 and $356,000
for the respective years. The distributions have been recorded as a reduction of
Shareholders' Equity, net of the related tax benefits.
Deferred income tax assets and liabilities are comprised of the following:
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
(UNAUDITED)
Current deferred tax asset:
Nondeductible accruals................... $1,681,000 $ 2,007,000 $2,518,000
------------ ------------- ------------
Non-current deferred tax liability:
Amortization on intangible assets........ $2,834,000 $ 2,199,000 $1,988,000
Depreciation on property and equipment... 611,000 537,000 631,000
Net operating loss carryforwards......... (596,000) (587,000) (523,000)
Other.................................... 92,000 158,000 156,000
------------ ------------- ------------
$2,941,000 $ 2,307,000 $2,252,000
========== ========== ==========
F-56
86
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, Fiskars Power Systems AB had an operating loss
carryforward of approximately $1,867,000 available to offset future income tax
liabilities for an unlimited time.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
Deltec maintains a defined contribution retirement savings plan which
covers substantially all full-time domestic employees. Participants may
contribute a percentage of their salaries subject to statutory annual
limitations. Deltec contributes an amount equal to a designated percentage of
its annual operating profits. The percentage is discretionary and is determined
annually by Deltec's board of directors. Contributions totalled $210,000,
$336,000 and $560,000 for the years ended December 31, 1993, 1994 and 1995,
respectively, and $227,000 for the nine month period ended September 30, 1995.
Power Systems has a defined benefit pension plan covering all employees.
Contributions are made to an independent insurance company, which also holds and
invests the plan's assets. Pension expense was $618,000, $684,000 and $958,000
for the years ended December 31, 1993, 1994 and 1995, respectively, and $674,000
for the nine month period ended September 30, 1995. 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 expected long-term rate of return on
plan assets was 7%. At December 31, 1995, other assets includes a prepaid
pension asset of $157,000.
NOTE 11 -- LEASE OBLIGATIONS
Deltec leases its San Diego facility under a non-cancelable operating lease
that expires in 2006 and provides options to renew for three additional five
year terms. Deltec leases its Mexico facility under a non-cancelable operating
lease that expires in 2000 and provides the option to renew for two additional
five year terms.
Power Systems leases its facility under a non-cancelable operating lease
which expires in 1996 with options to renew.
Both Deltec and Power Systems also lease office equipment and automobiles.
Future minimum lease payments under non-cancelable agreements at September
30, 1995 are as follows:
1995 (October - December)................................... $ 689,000
1996........................................................ 2,340,000
1997........................................................ 2,042,000
1998........................................................ 1,423,000
1999........................................................ 822,000
2000........................................................ 620,000
Thereafter.................................................. 3,006,000
-----------
$10,942,000
==========
Rent expense was $2,344,000, $2,406,000 and $2,821,000 for the years ended
December 31, 1993, 1994 and 1995, respectively, and $2,261,000 for the nine
month period ended September 30, 1995.
NOTE 12 -- SHAREHOLDERS' EQUITY
The Company has authorized 3,000 shares of Class A redeemable preferred
stock and 6,000 shares of common stock, each with a par value of $.01 per share.
On September 27, 1994, the Company issued 1,500 shares of Class A
redeemable preferred stock to Fiskars Holdings, Inc. in exchange for the
outstanding common shares of Deltec Electronics Corporation, a
F-57
87
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
wholly-owned subsidiary of Fiskars Holdings, Inc. Annual dividends of $1,000 per
share are cumulative from the date of issuance and payable on a quarterly basis.
The preferred stock is redeemable at the option of the Company at any time at a
redemption price of $15,000,000 ($10,000 per share) plus unpaid dividends. The
liquidation value of this stock is $10,000 per share. The amount ascribed to the
Class A redeemable preferred stock approximates the historical value of Deltec's
net assets at the date of issuance. On December 29, 1995, DPSI redeemed 600
shares of its Class A preferred stock for $6,000,000.
On September 27, 1994, the Company also issued 600 shares of common stock
and a $10,000,000 note (discussed in Note 5) to Fiskars in exchange for the
common stock of Fiskars Power Systems Oy Ab. No dividend will be paid or
declared on shares of common stock as long as the Class A redeemable preferred
stock is outstanding. The amount ascribed to the common stock represents the
excess of the $10,000,000 note over the historical value of the net assets of
Power Systems at the date of issuance.
NOTE 13 -- SUBSEQUENT EVENTS
On November 17, 1995, Fiskars and Fiskars Holdings, Inc. agreed to sell
100% of DPSI's capital stock to Exide Electronics Group, Inc. ("Exide") for
approximately $195,000,000, subject to certain post-closing adjustments. Under
the agreement as amended on February 9, 1996, the purchase price will be settled
on or about the "Closing Date" (not later than March 15, 1996) as follows:
(A) 825,000 shares of Exide's common stock (valued at a fixed price of
$20 per share under the agreement).
(B) 1,000,000 shares of Exide's Series G convertible preferred stock
(valued at a fixed price of $20.00 per share under the agreement).
(C) Redemption of all of DPSI's Class A preferred stock owned by
Fiskars Holdings, Inc. at the Closing Date for $10,000 per share plus
accrued dividends.
(D) Repayment of DPSI notes payable and intercompany amounts to
Fiskars and Fiskars Holdings, Inc.
(E) The balance paid in cash.
To facilitate consummation of the stock purchase agreement as described
above, Exide will issue Senior Subordinated Notes, principal amount of
$100,000,000, due 2006. The Senior Subordinated Notes will be guaranteed,
jointly and severally, by domestic subsidiaries of Exide ("guarantor
subsidiaries"). The following supplemental combining/consolidating Balance
Sheets, Statements of Operations and Statements of Cash Flows, present condensed
financial information for the guarantor subsidiaries and the non-guarantor
subsidiaries of DPSI.
F-58
88
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
SEPTEMBER 30, 1995
NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------- -------------
ASSETS
Current Assets:
Cash.................... $ -- $ 1,517,000 $ 7,325,000 $ -- $ 8,842,000
Accounts receivable,
net.................. -- 15,970,000 7,671,000 -- 23,641,000
Inventories, net........ -- 12,495,000 7,428,000 -- 19,923,000
Other current assets.... -- 2,594,000 1,333,000 -- 3,927,000
----------- ----------- -------------- ------------- -------------
Total current
assets............. -- 32,576,000 23,757,000 -- 56,333,000
Property and equipment,
net..................... -- 5,171,000 1,756,000 -- 6,927,000
Intangible assets, net.... -- 7,739,000 166,000 -- 7,905,000
Investment in
affiliates.............. 14,814,000 -- -- (14,814,000) --
Other long-term assets.... 83,000 288,000 65,000 -- 436,000
----------- ----------- -------------- ------------- -------------
$14,897,000 $45,774,000 $ 25,744,000 $ (14,814,000) $ 71,601,000
========== ========== =========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable........ $ -- $ 4,992,000 $ 3,143,000 $ -- $ 8,135,000
Deferred revenue........ -- 3,093,000 1,585,000 -- 4,678,000
Intercompany, net....... 2,393,000 1,380,000 1,773,000 -- 5,546,000
Other current
liabilities.......... -- 4,110,000 7,170,000 -- 11,280,000
----------- ----------- -------------- ------------- -------------
Total current
liabilities........ 2,393,000 13,575,000 13,671,000 -- 29,639,000
Deferred income taxes..... -- 2,641,000 (334,000) -- 2,307,000
Long-term debt............ 10,000,000 18,401,000 3,540,000 -- 31,941,000
Other long-term
liabilities............. -- 1,389,000 85,000 -- 1,474,000
Shareholders' equity...... 2,504,000 9,768,000 8,782,000 (14,814,000) 6,240,000
----------- ----------- -------------- ------------- -------------
$14,897,000 $45,774,000 $ 25,744,000 $ (14,814,000) $ 71,601,000
========== ========== =========== =========== ==========
F-59
89
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1994
NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------- -------------
ASSETS
Current Assets:
Cash.................... $ -- $ 3,192,000 $ 2,816,000 $ -- $ 6,008,000
Accounts receivable,
net.................. -- 14,411,000 7,052,000 -- 21,463,000
Inventories, net........ -- 11,345,000 5,034,000 -- 16,379,000
Other current assets.... -- 2,735,000 552,000 -- 3,287,000
----------- ----------- -------------- ------------- -------------
Total current
assets............. -- 31,683,000 15,454,000 -- 47,137,000
Property and equipment,
net..................... -- 4,918,000 1,693,000 -- 6,611,000
Intangible assets, net.... -- 9,490,000 140,000 -- 9,630,000
Investment in
affiliates.............. 14,814,000 -- -- (14,814,000) --
Other long-term assets.... 63,000 -- 61,000 -- 124,000
----------- ----------- -------------- ------------- -------------
$14,877,000 $46,091,000 $ 17,348,000 $ (14,814,000) $ 63,502,000
========== ========== =========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable........ $ -- $ 3,354,000 $ 2,489,000 $ -- $ 5,843,000
Deferred revenue........ -- 3,219,000 1,155,000 -- 4,374,000
Intercompany, net....... 651,000 3,034,000 (1,148,000) -- 2,537,000
Other current
liabilities.......... -- 3,661,000 4,386,000 -- 8,047,000
----------- ----------- -------------- ------------- -------------
Total current
liabilities........ 651,000 13,268,000 6,882,000 -- 20,801,000
Deferred income taxes..... -- 3,265,000 (324,000) -- 2,941,000
Long-term debt............ 10,000,000 18,401,000 4,856,000 -- 33,257,000
Other long-term
liabilities............. -- 1,385,000 76,000 -- 1,461,000
Shareholders' equity...... 4,226,000 9,772,000 5,858,000 (14,814,000) 5,042,000
----------- ----------- -------------- ------------- -------------
$14,877,000 $46,091,000 $ 17,348,000 $ (14,814,000) $ 63,502,000
========== ========== =========== =========== ==========
F-60
90
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------- -------------
Revenues:
Products................. $ -- $45,007,000 $ 33,983,000 $ (6,325,000) $ 72,665,000
Services................. -- 8,570,000 5,606,000 -- 14,176,000
----------- ----------- -------------- ------------- -------------
Total revenues........ -- 53,577,000 39,589,000 (6,325,000) 86,841,000
Cost of revenues:
Products................. -- 30,891,000 22,037,000 (6,325,000) 46,603,000
Services................. -- 3,448,000 3,432,000 -- 6,880,000
----------- ----------- -------------- ------------- -------------
Total cost of
revenues............ -- 34,339,000 25,469,000 (6,325,000) 53,483,000
----------- ----------- -------------- ------------- -------------
Gross profit............... -- 19,238,000 14,120,000 -- 33,358,000
Operating expenses:
Selling and marketing.... -- 10,537,000 8,091,000 -- 18,628,000
General and
administrative........ 334,000 3,706,000 997,000 -- 5,037,000
Engineering.............. -- 2,372,000 1,310,000 -- 3,682,000
Royalty expense
(primarily with
related parties)...... -- 1,584,000 625,000 -- 2,209,000
----------- ----------- -------------- ------------- -------------
Income from operations..... (334,000) 1,039,000 3,097,000 -- 3,802,000
Interest income (primarily
with related parties).... -- (132,000) (448,000) -- (580,000)
Interest expense (primarily
with related parties).... 651,000 1,160,000 506,000 -- 2,317,000
----------- ----------- -------------- ------------- -------------
Income before income taxes
and cumulative effect of
change in accounting
principle for income
taxes.................... (985,000) 11,000 3,039,000 -- 2,065,000
Provision for income
taxes.................... (392,000) 16,000 703,000 -- 327,000
----------- ----------- -------------- ------------- -------------
Net income (loss).......... (593,000) (5,000) 2,336,000 -- 1,738,000
Dividends on preferred
stock.................... 1,125,000 -- -- -- 1,125,000
----------- ----------- -------------- ------------- -------------
Net income (loss)
allocable to common
shares................ $(1,718,000) $ (5,000) $ 2,336,000 $ -- $ 613,000
========== ========== =========== ========== ==========
F-61
91
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL COMBINING/CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- -------------- ------------- -------------
Revenues:
Products.................. $ -- $49,222,000 $ 37,119,000 $ (6,105,000) $ 80,236,000
Services.................. -- 11,190,000 5,770,000 -- 16,960,000
--------- ----------- -------------- ------------- -------------
Total revenues......... -- 60,412,000 42,889,000 (6,105,000) 97,196,000
Cost of revenues:
Products.................. -- 33,151,000 23,306,000 (6,105,000) 50,352,000
Services.................. -- 4,476,000 3,850,000 -- 8,326,000
--------- ----------- -------------- ------------- -------------
Total cost of
revenues............. -- 37,627,000 27,156,000 (6,105,000) 58,678,000
--------- ----------- -------------- ------------- -------------
Gross profit................ -- 22,785,000 15,733,000 -- 38,518,000
Operating expenses:
Selling and marketing..... -- 11,320,000 8,447,000 -- 19,767,000
General and
administrative......... 3,000 4,636,000 1,597,000 -- 6,236,000
Engineering............... -- 2,728,000 1,440,000 -- 4,168,000
Royalty expense (primarily
with related
parties)............... -- 1,512,000 786,000 -- 2,298,000
--------- ----------- -------------- ------------- -------------
Income from operations...... (3,000) 2,589,000 3,463,000 -- 6,049,000
Interest income (primarily
with related parties)..... -- (141,000) (226,000) -- (367,000)
Interest expense (primarily
with related parties)..... 210,000 936,000 229,000 -- 1,375,000
--------- ----------- -------------- ------------- -------------
Income before income taxes
and cumulative effect of
change in accounting
principle for income
taxes..................... (213,000) 1,794,000 3,460,000 -- 5,041,000
Provision for income
taxes..................... (93,000) 804,000 1,174,000 -- 1,885,000
--------- ----------- -------------- ------------- -------------
Net income (loss)........... (120,000) 990,000 2,286,000 -- 3,156,000
Dividends on preferred
stock..................... 375,000 -- -- -- 375,000
--------- ----------- -------------- ------------- -------------
Net income (loss)
allocable to common
shares................. $(495,000) $ 990,000 $ 2,286,000 $ -- $ 2,781,000
========= ========== =========== ========== ==========
F-62
92
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- -------------- ------------- -------------
Revenues:
Products.................. $ -- $34,682,000 $ 27,301,000 $ (1,537,000) $ 60,446,000
Services.................. -- 10,159,000 4,823,000 -- 14,982,000
--------- ----------- -------------- ------------- -------------
Total revenues......... -- 44,841,000 32,124,000 (1,537,000) 75,428,000
Cost of revenues:
Products.................. -- 25,464,000 15,307,000 (1,537,000) 39,234,000
Services.................. -- 4,063,000 3,382,000 -- 7,445,000
--------- ----------- -------------- ------------- -------------
Total cost of
revenues............. -- 29,527,000 18,689,000 (1,537,000) 46,679,000
--------- ----------- -------------- ------------- -------------
Gross profit................ -- 15,314,000 13,435,000 -- 28,749,000
Operating expenses:
Selling and marketing..... -- 7,851,000 7,208,000 -- 15,059,000
General and
administrative......... -- 3,570,000 1,334,000 -- 4,904,000
Engineering............... -- 1,883,000 1,236,000 -- 3,119,000
Royalty expense (primarily
with related
parties)............... -- 224,000 1,254,000 -- 1,478,000
--------- ----------- -------------- ------------- -------------
Income from operations...... -- 1,786,000 2,403,000 -- 4,189,000
Interest income (primarily
with related parties)..... -- (32,000) (350,000) -- (382,000)
Interest expense (primarily
with related parties)..... -- 431,000 350,000 -- 781,000
--------- ----------- -------------- ------------- -------------
Income before income taxes
and cumulative effect of
change in accounting
principle for income
taxes..................... -- 1,387,000 2,403,000 -- 3,790,000
Provision for income
taxes..................... -- 325,000 490,000 -- 815,000
--------- ----------- -------------- ------------- -------------
Income before cumulative
effect of change in
accounting principle for
income taxes.............. -- 1,062,000 1,913,000 -- 2,975,000
Cumulative effect of change
in accounting principle
for income taxes.......... -- 560,000 949,000 -- 1,509,000
--------- ----------- -------------- ------------- -------------
Net income............. $ -- $ 1,622,000 $ 2,862,000 $ -- $ 4,484,000
========= ========== =========== ========== ==========
F-63
93
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- -------------- ------------- -------------
Cash flows from operating activities:
Net income (loss)............ $(593,000) $ (5,000) $ 2,336,000 $ -- $ 1,738,000
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation expense...... -- 980,000 531,000 -- 1,511,000
Amortization of
intangibles............. 12,000 1,751,000 47,000 -- 1,810,000
Loss on sale of property
and equipment........... -- -- -- -- --
Deferred income taxes..... -- (685,000) (249,000) -- (934,000)
Other..................... -- -- -- -- --
Changes in:
Net accounts
receivable........... -- (1,559,000) 73,000 -- (1,486,000)
Net intercompany
accounts............. 710,000 (2,299,000) 3,086,000 -- 1,497,000
Net inventories......... -- (1,150,000) (1,809,000) -- (2,959,000)
Other current assets.... -- 202,000 (453,000) -- (251,000)
Accounts payable........ -- 1,638,000 220,000 -- 1,858,000
Accrued expenses........ (97,000) 1,095,000 231,000 -- 1,229,000
Deferred revenue........ -- (122,000) 361,000 -- 239,000
--------- ----------- -------------- ------------- -------------
Net cash provided (used) by
operating activities......... 32,000 (154,000) 4,374,000 -- 4,252,000
--------- ----------- -------------- ------------- -------------
Cash flows from investing
activities:
Purchases of property and
equipment................. -- (1,243,000) (420,000) -- (1,663,000)
Proceeds from sale of
property and equipment.... -- 10,000 -- -- 10,000
Acquisition of NSSI.......... -- -- -- -- --
Other........................ (32,000) (288,000) (58,000) -- (378,000)
--------- ----------- -------------- ------------- -------------
Net cash used in investing
activities................... (32,000) (1,521,000) (478,000) -- (2,031,000)
--------- ----------- -------------- ------------- -------------
Cash flows from financing
activities:
Payments on intercompany
note...................... -- -- (232,000) -- (232,000)
Payments on external debt.... -- -- -- -- --
Advances on intercompany
note...................... -- -- -- -- --
Proceeds from external
debt...................... -- -- 537,000 -- 537,000
Dividends paid............... -- -- -- -- --
Group contributions, net of
tax....................... -- -- -- -- --
--------- ----------- -------------- ------------- -------------
Net cash provided by financing
activities................... -- -- 305,000 -- 305,000
--------- ----------- -------------- ------------- -------------
Effect of exchange rates on
cash......................... -- -- 308,000 -- 308,000
Increase in cash............... -- (1,675,000) 4,509,000 -- 2,834,000
Cash at beginning of period.... -- 3,192,000 2,816,000 -- 6,008,000
--------- ----------- -------------- ------------- -------------
Cash at end of period.......... $ -- $ 1,517,000 $ 7,325,000 $ -- $ 8,842,000
========= ========== =========== ========== ==========
F-64
94
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------
4.1 -- Form of Certificate of Designation of the Series G Preferred Stock of Exide
Electronics Group, Inc. (included as attachment to Schedule 2.1.(d) of
Exhibit 10.2 filed herewith).
10.1 -- Stock Purchase Agreement by and between Exide Electronics Group, Inc. and
Fiskars Oy Ab, Fiskars Holding, Inc. and Deltec Power Systems, Inc, dated
November 16, 1995 (previously filed as Exhibit to Form 8-K of Exide
Electronics Group, Inc, filed on November 17, 1995 (File No. 000-18106),
and incorporated herein by reference).
10.2 -- Letter Agreement to Amend Stock Purchase Agreement by and between Exide
Electronics Group, Inc. and Fiskars Oy Ab, Fiskars Holding, Inc. and Deltec
Power Systems, Inc., dated February 9, 1996.
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Price Waterhouse LLP
23.3(a) -- Consent of KPMG as
23.3(b) -- Consent of KPMG C. Jespersen
23.3(c) -- Consent of KPMG WIDERI OY AB
23.3(d) -- Consent of KPMG Bohlins AB
95
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)
By: MARTY R. KITTRELL
----------------------------------
Marty R. Kittrell
Vice President and
Chief Financial Officer
Date: February 21, 1996
96
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------- ----
4.1 Form of Certificate of Designation of the Series G Preferred Stock of
Exide Electronics Group, Inc. (included as attachment to Schedule
2.1.(d) of Exhibit 10.2 filed herewith).
10.1 Stock Purchase Agreement by and between Exide Electronics Group, Inc.
and Fiskars Oy Ab, Fiskars Holding, Inc. and Deltec Power Systems, Inc,
dated November 16, 1995 (previously filed as Exhibit to Form 8-K of
Exide Electronics Group, Inc, filed on November 17, 1995 (File No.
000-18106), and incorporated herein by reference).
10.2 Letter Agreement to Amend Stock Purchase Agreement by and between Exide
Electronics Group, Inc. and Fiskars Oy Ab, Fiskars Holding, Inc. and
Deltec Power Systems, Inc., dated February 9, 1996.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Price Waterhouse LLP
23.3(a) Consent of KPMG as
23.3(b) Consent of KPMG C. Jespersen
23.3(c) Consent of KPMG WIDERI OY AB
23.3(d) Consent of KPMG Bohlins AB