<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission File Number 0-27994
BATTERIES BATTERIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-383-5420
(State of other jurisdiction (IRS Employer
incorporation or organization) Identification No.)
711 Fifth Avenue
New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 223-1260
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of October 14, 1997, there were 4,743,500 shares of common stock
outstanding.
<PAGE>
BATTERIES BATTERIES, INC.
FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1997
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Consolidated Financial Statements
Consolidated Balance Sheets .................................... 3
September 30, 1997 (unaudited) and December 31, 1996
Consolidated Statements of Income ................................ 4
For the three and nine months ended September 30, 1996
(unaudited) and 1997 (unaudited)
Consolidated Statements of Cash Flows ............................ 5
For the nine months ended September 30, 1996 (unaudited) and
1997 (unaudited)
Notes to the Consolidated Financial Statements ................... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 11
PART II - OTHER INFORMATION ............................................... 15
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BATTERIES BATTERIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------- -------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,609 $ 795
Accounts receivable 2,730 7,122
Inventories 4,445 10,639
Prepaid expenses and other current assets 219 511
Current deferred income taxes 28 28
------- -------
Total current assets 10,031 19,095
------- -------
PROPERTY AND EQUIPMENT - Net 751 1,176
EXCESS OF COST OVER NET ASSETS ACQUIRED 615 5,627
OTHER ASSETS 337 370
------- -------
TOTAL $11,734 $26,268
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 590 $ 0
Accounts payable 1,336 2,767
Accrued expenses 499 1,277
Redeemable Preferred Stock 750 0
Preferred dividends payable 35 0
Current portion of long-term bank debt 0 600
Current portion of obligations under capital leases 40 5
------- -------
Total current liabilities $ 3,250 $ 4,649
------- -------
REVOLVING BANK CREDIT FACILITY 0 7,865
LONG-TERM BANK DEBT 0 2,000
OBLIGATIONS UNDER CAPITAL LEASES 7 4
DEFERRED INCOME TAXES AND OTHER DEFERRED CREDITS 17 9
STOCKHOLDERS' EQUITY
Common Stock, par value $.001, 10,000,000 shares
authorized, 4,000,000 shares and 4,743,500 shares,
respectively, issued and outstanding 4 5
Additional paid-in capital 8,000 10,716
Retained earnings 456 1,020
------- -------
Total stockholders' equity 8,460 11,741
------- -------
TOTAL $11,734 $26,268
======= =======
</TABLE>
See notes to consolidated financial statements.
3
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BATTERIES BATTERIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, 1996 September 30, 1997 September 30, 1996 September 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
NET SALES $ 6,521 $ 14,109 $ 18,897 $ 39,682
COST OF SALES 4,534 9,773 13,439 27,820
----------- ----------- ----------- -----------
Gross profit 1,987 4,336 5,458 11,862
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,741 3,779 4,744 10,214
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 246 557 714 1,648
INTEREST (INCOME) EXPENSE, NET (7) 211 6 524
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 253 346 708 1,124
PROVISION FOR INCOME TAXES 97 200 253 545
----------- ----------- ----------- -----------
NET INCOME 156 146 455 579
PREFERRED STOCK DIVIDEND
REQUIREMENTS 15 0 45 15
----------- ----------- ----------- -----------
NET INCOME ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ 141 $ 146 $ 410 $ 564
=========== =========== =========== ===========
NET INCOME PER SHARE $ 0.03 $ 0.03 $ 0.10 $ 0.12
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON &
COMMON EQUIVALENT SHARES OUTSTANDING 4,200,000 4,743,000 4,200,000 4,700,000
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
4
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BATTERIES BATTERIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In 000's)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
September 30, September 30,
1996 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 455 $ 579
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization expense 127 452
Deferred income tax 83 (8)
Changes in assets and liabilities:
Accounts receivable (34) (1,091)
Inventories (576) (1,157)
Prepaid expenses and other assets (103) (4)
Accounts payable and accrued expenses (158) 338
-------- --------
Net cash provided (used) by operating activities (206) (891)
-------- --------
INVESTING ACTIVITIES:
Purchase of property and equipment, net (243) (387)
Acquisition of Specific Energy, net of cash acquired (55) 0
Acquisition of Battery Network, net of cash acquired 0 (10,656)
Acquisition of Cliffco of Tampa Bay, net of cash acquired 0 (942)
-------- --------
Net cash used in investing activities (298) (11,985)
-------- --------
FINANCING ACTIVITIES:
Borrowings under Term Loan Facility 0 3,000
Payments under Term Loan Facility 0 (400)
Net borrowings under Revolving Credit Facility 0 7,865
Issuance of Common Stock to stockholders of Battery Network
and Cliffco of Tampa Bay 0 2,716
Proceeds from initial public offering, net of expenses 9,135 0
Redemption of Preferred Stock (250) (750)
Payments to stockholders of Merger
Companies in connection with mergers (6,664) 0
Financing costs relating to the Battery Network aquisition
and Cliffco of Tampa Bay acquisition 0 (178)
Payments on debt and capital lease obligations (199) (1,191)
Payment of note payable to minority stockholders (180) 0
-------- --------
Net cash provided by financing activities 1,842 11,062
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,337 (1,814)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 946 2,609
-------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD 2,283 795
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during period for:
Interest 53 468
======== ========
Income taxes 134 348
======== ========
</TABLE>
See notes to consolidated financial statements.
5
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BATTERIES BATTERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
1. ORGANIZATION BASIS OF PRESENTATION
In April 1996, Batteries Batteries, Inc. (the "Company") acquired, by merger
or stock acquisition (the "Mergers"), simultaneously with the closing of its
initial public offering of common stock and redeemable warrants (the
"Offering"), Advanced Fox Antenna, Inc. ("Advanced Fox") and Tauber
Electronics, Inc. ("Tauber") and collectively the ("Merger Companies") for
common stock and cash. These three companies are referred to herein as the
"Combined Companies." As a result of the substantial continuing interests in
the Company of the former stockholders of the Combined Companies, the
historical financial information of each of the Combined Companies has been
combined on a historical cost basis in accordance with generally accepted
accounting principles as if the Combined Companies had always been members of
the same operating group. In September 1995, the Company acquired 95% of the
outstanding common stock of Specific Energy Corporation ("Specific Energy")
in a business combination accounted for as a purchase. (In September 1996,
the Company acquired the remaining minority 5% interest for cash).
On January 7, 1997, effective January 1, 1997, the Company acquired the
business and related assets of Battery Network, Inc. and affiliated companies
(collectively, "Battery Network"), (see Note 2), an assembler and wholesale
distributor of batteries servicing specialty batteries customers nationally,
in a business combination accounted as a purchase. The results of operations
of Battery Network are included in the consolidated results of the Company
from January 1, 1997, the effective date of its acquisition.
On May 12, 1997, effective May 9, 1997, the Company acquired the business and
related assets of Cliffco of Tampa Bay, Inc. ("CTB"), (see Note 2), a
distributor of cellular products operating out of Tampa, Florida, in a
business combination accounted for as a purchase. The results of operations of
CTB are included in the consolidated results of the Company from May 9, 1997,
the effective date of its acquisition.
The accompanying consolidated financial statements and related notes to the
consolidated financial statements are representative of what the financial
position, results of operations and cash flows would have been if the Combined
Companies, except for Battery Network and CTB, which are included,
respectively, from January 1, 1997, and May 9, 1997, the effective dates of
their acquisitions, had been combined at the beginning of fiscal 1996. The
assets and liabilities of the Combined Companies are reflected at their
historical amounts. As of the date of the Mergers, the capital stock of
Batteries Batteries, Inc. was treated as capital stock of the Company and the
capital stock of Advanced Fox and Tauber was included in additional paid-in
capital and their retained earnings have been reclassified to additional
paid-in capital.
6
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Effective during the quarter ended June 30, 1996, Batteries Batteries,
Inc. changed its fiscal year end from January 31, 1997 to December 31, 1996 in
order to conform with that of Tauber and Advanced Fox. Advanced Fox and Tauber
previously reported on a fiscal year ending December 31, 1996. Therefore, the
unaudited consolidated statements of income and cash flows presented herein
for the three and nine months ended September 30, 1996 include the results of
Advanced Fox and Tauber for the three and nine months ended September 30, 1996
and that of Batteries Batteries, Inc. for the two and eight months ended
September 30, 1996.
The results of operations of the Combined Companies for the three and nine
months ended September 30, 1996, reflect the combined historical operating
results of closely held Subchapter S and C corporations through the effective
date of the mergers, and do not include pro forma adjustments for income
taxes, officers' salaries or other items necessary for combining Subchapter S
and C corporations through such date. However, net income and net income per
share amounts would not have been materially different from the reported
historical amounts if such adjustments were included.
The accompanying consolidated financial statements as of September 30, 1997,
and the three and nine months ended September 30, 1997 and September 30, 1996
are unaudited; but in the opinion of management, the information contained
herein reflects all adjustments necessary to make the results of operations
for the interim periods a fair statement of such operations. All such
adjustments are of a normal recurring nature. Operating results for interim
periods are not necessarily indicative of results which may be expected for
the year as a whole. These consolidated financial statements should be read in
conjunction with the audited financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
2. ACQUISITIONS AND LOAN FACILITY
On January 7, 1997 effective January 1, 1997 the Company acquired (the "BN
Acquisition") the business and related assets of Battery Network, Inc. and
affiliated companies ("Battery Network"), which operates principally in
California, New Jersey and Illinois and had combined revenues of approximately
$23 million for the year ended December 31, 1996.
The purchase price of approximately $11.2 million consisted of (i)
approximately $8.3 million in cash, subject to adjustment to the extent that
the net worth, as defined, of Battery Network, exceeded or was less than $7.3
million; (ii) 550,000 shares of Common Stock valued at a price of $4.125 per
share and five year options to purchase an additional 225,000 shares at an
exercise price of $4.50 per share, and (iii) approximately $590,000 in
transaction costs.
The Battery Network agreement also provides the sellers the contingent right
to receive additional
7
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consideration of up to $1 million in cash, 350,000 shares of Common Stock and
five year options to acquire 250,000 shares of Common Stock, of which half are
exercisable at $4.50 per share and half are exercisable at $6.00 per share.
Payment of the additional consideration is to be based on the excess amount by
which the combined "per-tax income" as defined of Battery Network and Tauber,
exceeds (i) $2,100,000 for the year ending December 31, 1997 (the "One-Year
Period"), (ii) $4,200,000 for the two years ending December 31, 1998 (the
"Two-Year Period") or (iii) $6,300,000 for the three years ending December 31,
1999 (the "Three Year Period"), with the maximum amount of additional
consideration to be paid if the excess is $400,000 for the One-Year Period,
$800,000 for the Two-Year Period or $1,200,000 for the Three-Year period. The
sellers also entered into employment agreements and were granted options under
the Company's Stock Option Plan to purchase an aggregate of 75,000 shares of
Common Stock.
On May 12, 1997, the Company acquired the business and related assets of
Cliffco of Tampa Bay, Inc. ("CTB"). The purchase price of approximately
$615,000 consisted of (i) cash of approximately $75,000 (ii) 193,000 shares of
common stock valued at $2.35 per share or $446,985 and (iii) approximately
$93,000 in transaction costs. In addition, the Company assumed liabilities of
$1,162,000. As part of its assumption of liabilities, the Company paid at the
closing indebtedness of CTB of approximately $560,000. The CTB agreement
provides the president and sole stockholder of the seller with a three-year
employment agreement.
The cash portion of the purchase price of each transaction, as well as the
repayment of CTB debt of $560,000 to its collateralized lender was funded with
a portion of the proceeds of a borrowing pursuant to a Revolving Credit, Term
Loan and Security Agreement, dated January 6, 1997, as amended May 13, 1997,
(the "Loan Facility"), between IBJ Schroder Bank & Trust Company, as Agent
("IBJ") and the Company and all its subsidiaries. The Loan Facility consists
of a $3,000,000 Term Loan (the "Term Loan") payable in 35 monthly installments
of $50,000 each with the balance to be paid at maturity and a Revolving Credit
Facility (the "Revolver Loan") of up to $10,000,000 to be advanced at the rate
of 80% of eligible accounts receivable and 50% of inventories. The Revolver
Loans bears interest at the rate of 1/4 of 1% plus the higher of (i) the base
commercial lending rate of IBJ or (ii) the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers plus 1/4 of 1%, or, at the option of
the Company at the Eurodollar rate plus 2%. The Eurodollar rate is defined as
Libor for a designated period divided by one less the aggregate reserve
requirements. The interest on the Term Loan is 1/2% higher than the interest
rate on the Revolver Loans. The Loans Facility is secured by a pledge of the
assets of the borrowers and a pledge of the outstanding capital stock of the
subsidiaries of the Company. As of September 30, 1997, the principal amounts
outstanding of Term Loans was $2,600,000 and the Revolver Loans was
$7,865,000.
Pursuant to the Management Agreement with Founders Management Services, Inc.
("Founders"), the Company paid Founders, for its origination and negotiating
services in connection with the acquisitions of Battery Network and the loan
facility, $240,000 and issued to the designees of Founders five year warrants
to purchase 100,000 shares of Common Stock at a price of $4.125 per
8
<PAGE>
share and paid Founders in connection with the acquisition of CTB, $40,000.
The BN Acquisition and CTB Acquisition were accounted for as purchases in
accordance with Accounting Principles Board Opinion No. 16. The total purchase
price, net of cash acquired, was allocated to the assets acquired and
liabilities assumed based on their estimated fair values, as follows:
(In Thousands)
Battery
Network CTB
-------- --------
Accounts receivable $2,522 $725
Inventories 4,679 412
Property and equipment 185 79
Other assets 177 32
Accounts payable, accrued expenses and debt (1,307) (1,062)
Excess of cost over net assets acquired 4,400 756
-------- --------
Total $10,656 $942
======== ========
The excess of the cost over the net assets acquired will be amortized over a
period of 25 years. The results of operations of Battery Network and CTB are
included with those of the Company for the periods subsequent to the dates of
acquisition.
The following unaudited pro forma summary data presents the consolidated
results of operations of the Company for the three and nine months ended
September 30, 1996, as if the BN and CTB acquisitions had been completed at
the beginning of 1996, and for the three and nine months ended September 30,
1997, as if the CTB acquisition had been completed at the beginning of 1997,
and does not purport to be indicative of what would have occurred had the
acquisitions actually been made as of such date or dates of results which may
occur in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $12,845 $14,109 $39,245 $41,474
=========== =========== =========== =======
Net income attributable to common
stockholders* $102 $136 $543 $554
=========== =========== =========== =======
Income per share attributable to
common stockholders* $.02 $.03 $.11 $.12
=========== =========== =========== =======
*Reflect adjustments for increased interest expense arising from acquisition
debt, amortization of goodwill, changes in compensation to stockholder
officers, and related tax adjustments.
</TABLE>
9
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3. INITIAL PUBLIC OFFERING
On April 8, 1996, the Company completed its initial public offering (the
"Offering") of 2,300,000 shares of Common Stock at an initial public offering
price of $5.00 per share and 2,300,000 redeemable common stock purchase
warrants (the "Warrants") at $.10 per Warrant. The net proceeds to the Company
net of underwriting discounts and Offering costs, were approximately $9.1
million. Simultaneously with the closing of the Offering, the Company issued
960,000 shares of Common Stock and options to purchase 50,000 shares of Common
Stock and paid approximately $5.9 million in cash to the former stockholders
of the Merger Companies. The Company subsequently paid an additional
$.8 million in cash to the former stockholders of the Merger Companies in
connection with price adjustments stipulated in the respective merger
agreements. The cash consideration paid to the former stockholders of the
Merger Companies has been reflected as a reduction of stockholders' equity
in the consolidated financial statements. The remaining cash proceeds from the
Offering were used for general corporate purposes.
4. STOCKHOLDERS EQUITY
See Notes 1 and 2 for information as to the issuance in January, 1997 in
connection with the acquisition of Battery Network, of 550,000 shares of
Common Stock valued at $4.125 per share and five year options to purchase
225,000 shares of Common Stock at an exercise price of $4.50 per share and the
issuance in May 1997 of 193,500 shares of Common Stock valued at $2.31 per
share upon the acquisition of CTB. The Company also issued in connection with
the BN Acquisition to designees of Founders Management Services Inc. warrants
to purchase 100,000 shares of Common Stock at a price of $4.125 per share.
10
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Item 2. MANAGEMENTS DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
RESULTS OF OPERATIONS
The following table represents the Company's statement of operations data
expressed as a percentage of net sales for the respective periods:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100% 100% 100% 100%
---- ---- ---- ----
Cost of Sales 69.5 69.3 71.0 70.1
---- ----- ---- ----
Gross Profit 30.5 30.7 28.0 29.9
Selling, General & Administrative
Expenses 26.7 26.8 25.1 25.7
---- ---- ---- ----
Operating Income 3.8 3.9 3.8 4.2
--- --- --- ---
Interest (Income) expense, net (.1) 1.4 .1 1.3
-------- --- -- ---
Income before provision for
income taxes 3.9 2.5 3.7 2.9
--- --- --- ---
Income taxes 1.5 1.5 1.3 1.4
--- --- --- ---
Net Income 2.4% 1.0% 2.4% 1.5%
==== ==== ==== ====
</TABLE>
Three Months ended September 30, 1997 ("1997") Compared to Three Months Ended
September 30, 1996 ("1996")
Net sales increased 117% from $6.5 million in 1996 to $14.1million in 1997.
The increase was primarily due to the acquisitions of Battery Network,
effective January 1, 1997, and CTB, effective May 12, 1997, contributing $5.5
million and $1.4 million, respectively, of sales for the three months and the
continued growth of Advanced Fox's cellular accessory business (up
approximately 22% as compared to 1996).
Gross profit increased by $2.3 million from $2.0 million in 1996 to $4.3
million in 1997, and as a percentage of sales increased from 30.5 % in 1996 to
30.7 % in 1997. The increase in gross profit
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is primarily attributable to the acquisition of Battery Network ($1.4 million)
and CTB ($ .5 million) and to increases in Advanced Fox of $ .2 million. The
increase in percentage is attributable to the addition of CTB which carries
higher gross margin percentages than the other operations of the Company taken
as a whole, and improvement in Advanced Fox overall margin percentage.
Selling, general and administrative ("SG&A") expenses increased by $2.1
million from $1.7 million in 1996 to $3.8 million in 1997 and as a percentage
of sales increased from 26.7% to 26.8%. The increase in SG&A expenses is
primarily attributable to: (i) the acquisition of Battery Network ($1.4
million) and the acquisition of CTB ($.5 million.) (ii) an increase in
marketing, selling and distribution costs incurred by Advanced Fox, offset in
part by cost reductions in the Tauber division, and (iii) amortization of
goodwill related to the Battery Network and CTB acquisitions.
Interest (income) expense, net increased from <$7000> in 1996 to $211,000 in
1997, primarily due to interest on borrowings incurred in connection with the
acquisitions of Battery Network in January 1997, and CTB in May 1997, and the
redemption of the outstanding shares of Series A Preferred Stock in April
1997.
The Company's effective income tax rate increased from 35.7% in 1996 to 48.9%
in 1997. Prior to the Mergers, certain of the Founding Companies had operated
as Subchapter S Corporations under the Internal Revenue Code of 1986, as
amended. Upon consummation of the Mergers, effective June 30, 1996, the
Company filed as a consolidated group for Federal income tax purposes. The
income tax provision for the three months ended September 30, 1997 reflects
income taxes at an estimated annual rate. The increase in the Company's
effective income tax rate is also attributable to the nondeductibility of
goodwill for tax reporting purposes.
Nine Months Ended September 30, 1997 ("1997") Compared to Nine Months Ended
September 30, 1996, ("1996")
Net sales increased 110% from $18.9 million in 1996 to $39.7 million in 1997.
The increase was primarily due to the acquisitions of Battery Network,
effective January 1, 1997, and CTB, effective May 12, 1997, contributing
respectively, $16.9 million and $2.1 million of sales for the nine months, and
the continued growth of Advanced Fox's cellular accessory business (up
approximately 20% as compared to 1996).
Gross profit increased by $6.4 million from $5.5 million in 1996 to $11.9
million in 1997 and as a percentage of sales increased from 28.0% in 1996 to
29.9% in 1997. The increase in gross profit is primarily attributable to the
acquisition of Battery Network ($4.7 million) and CTB ($ .8 million) and to an
increase of $1.2 million in Advanced Fox's gross profit. The increase in
percentage is attributable to the addition of CTB which carries higher gross
margin percentages than the other operations of the Company taken as a whole,
and improvement in Advanced Fox overall margin percentage.
SG&A expenses increased by $5.5 million from $4.7 million in 1996 to $10.2
million in 1997, and as a percentage of sales increased from 25.1% to 25.7%.
The increase is primarily attributable to;
12
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(i) the acquisition of Battery Network ($2.8 million) and the acquisition of
CTB ($.2 million), (ii) general and administration costs associated with being
a publicly held company commencing in April 1996, (iii) an increase in
marketing, selling and distribution costs incurred by Advanced Fox and
Specific Energy, offset in part by cost reductions in the Tauber division, and
(iv) amortization of goodwill related to the Battery Network and CTB
acquisitions.
Interest (income) expense, net increased from <$6,000> in 1996 to $524,000 in
1997, primarily due to interest on borrowings incurred in connection with the
acquisition of Battery Network in January 1997, and CTB in May 1997, and the
redemption of the outstanding shares of Series A Preferred Stock.
The Company's effective income tax rate increased from 35.7% in 1996 to 48.5%
in 1997. Prior to the Mergers, certain of the Founding Companies had operated
as Subchapter S Corporations under the Internal Revenue Code of 1986, as
amended. Upon consummation of the Mergers, effective June 30, 1996, the
Company filed as a consolidated group for Federal income tax purposes. The
income tax provision for the nine months ended September 30, 1997, reflects
income taxes at an estimated annual rate. The increase in the Company's
effective income tax rate is also attributable to the non-deductibility of
goodwill for tax reporting purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs have been to fund (i) the working capital
requirements necessitated by its sales growth, (ii) acquisitions and (iii)
prior to the initial public offering, distributions to its existing
stockholders primarily to satisfy their tax liabilities resulting from the S
Corporation status of certain of the Predecessor Companies. The Company's
primary sources of financing have been cash from operations, the initial
public offering and bank borrowings under the Loan Facility.
On January 7, 1997, effective January 1, 1997, the Company acquired the
business and related assets of Battery Network, as discussed in (Note 2)
"Acquisition and Loan Facility" to the Consolidated Financial Statement.
The Company redeemed in April 1997, the outstanding 750,000 shares of Series A
Preferred Stock at the redemption price of $1.00 per share plus accrued
dividends at 8% per annum, a total of $800,000.
On May 12, 1997, the Company acquired the business and related assets of
("CTB") as discussed in (Note 2) to the Consolidated Financial Statement.
The Preferred Stock redemption and the cash payments made in connection with
the BN Acquisition and CTB Acquisition were funded under the Company's
Revolving Credit, Term Loan and Security Agreement, as amended on May 12,
1997.
13
<PAGE>
The Company's working capital as of September 30, 1997, was $14.4 million. For
the nine months ended September 30, 1996, and 1997, net cash used by operating
activities was $.2 million and $.9 million, respectively. The difference
results from several factors including the increase in net income and
increases in inventory, accounts receivable, prepaid expenses and other
assets, and decreases in accounts payable and accrued expenses. Cash used for
additions to property and equipment were $243,000 for 1996 and $387,000 for
1997, respectively. Cash used for investing activities of $12.0
million in 1997 included the purchase price and related expenses net of cash
acquired relating to the acquisitions of Battery Network and CTB. The cash
provided by financing activities was $1.8 million in 1996, primarily due to
the net proceeds from the Offering. Of the $9.1 million net proceeds from the
Offering, $6.7 million was paid to the former stockholders of the Merger
Companies. In 1997, cash provided by financing activities was $11.0 million
principally consisting of net borrowings of $10.9 million under the Revolving
Credit, Term Loan and Security Agreement. Financing activities in 1997
included: (i) the issuance of 550,000 shares of Common Stock at $4.125 per
share, totaling $2,269,000 to the Battery Network stockholders and the finance
costs of $148,000 related to Revolving Credit, Term Loan and Security
Agreement, (ii) the issuance of 193,000 shares of Common Stock valued at $2.35
per share, totaling $446,985 to the CTB stockholders, and financing costs of
$30,000 expended in 1997 related to the amendment of the Revolving Credit,
Term Loan and Security Agreement, partially offset by (iii) payments of
indebtedness of CTB of $560,000 and of long-term debt of Advanced Fox of
$590,000 and net capital lease obligations of $38,000. The Company had at
September 30, 1997, cash and cash equivalents of approximately $.8 million.
The Company estimates that it will incur additional capital expenditures of
approximately $800,000 during the twelve months ended September 30, 1998,
principally for the expansion and relocation of office and warehouse
facilities, acquisition of machinery and equipment used in the assembly of
battery packs and procurement of computer systems.
Based upon its present plans, management believes that operating cash flow,
available cash and available credit resources, will be adequate to make the
repayments of indebtedness described herein and meet the working capital cash
needs and anticipated capital expenditures needs of the Company during the
twelve month period ended September 30, 1998.
Although the Company intends to issue shares of Common Stock as a principal
method of financing acquisitions, it anticipates that additional funds will be
required to implement successfully its acquisition program.
SEASONALITY AND INFLATION
The Company's net sales typically show no significant seasonal variations,
although net sales may be affected in the future by timing of acquisitions.
14
<PAGE>
The impact of inflation on the Company's operations has not been significant
to date. However, there can be no assurance that a high rate of inflation in
the future would not have an adverse effect on the Company's operating
results.
15
<PAGE>
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits
(1) Financial Data Schedule.
b) Reports on Form 8-K
No Report on Form 8-K was filed during the three months ended September 30,
1997.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
11/14/97 By: Ronald E. Badke /s/
-------------- ---------------------------------
Date Ronald E. Badke
Chief Operating Officer and Chief
Financial Officer
11/14/97 By: John L. Teeger /s/
-------------- ---------------------------------
Date John L. Teeger
Vice President, Secretary and
Director
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the unaudited
consolidated balance sheet as of September 30, 1997, and the unaudited statement
of income for the nine months then ended contained in the report on Form 10-Q
for the nine months ended September 30, 1997, of Batteries Batteries, Inc. and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 795
<SECURITIES> 0
<RECEIVABLES> 7,122
<ALLOWANCES> 551
<INVENTORY> 10,639
<CURRENT-ASSETS> 19,095
<PP&E> 1,176
<DEPRECIATION> 219
<TOTAL-ASSETS> 26,268
<CURRENT-LIABILITIES> 4,649
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 10,716
<TOTAL-LIABILITY-AND-EQUITY> 26,268
<SALES> 39,682
<TOTAL-REVENUES> 39,682
<CGS> 27,820
<TOTAL-COSTS> 27,820
<OTHER-EXPENSES> 10,214
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 524
<INCOME-PRETAX> 1,124
<INCOME-TAX> 545
<INCOME-CONTINUING> 579
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 579
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
