<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
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): MARCH 13, 1996
---------------------
EXIDE ELECTRONICS GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 0-18106 23-2231834
(State or other (Commission File Number) (IRS Employer Identification
jurisdiction of No.)
incorporation)
8609 SIX FORKS ROAD 27615
RALEIGH, NORTH CAROLINA (Zip Code)
(Address of principal executive
offices)
</TABLE>
Registrant's telephone number, including area code: (919) 872-3020
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<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
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") acquired (the "Deltec Acquisition")
Deltec Power Systems, Inc. and its subsidiaries (collectively "Deltec") from
Fiskars Oy Ab and Fiskars Holdings, Inc. (collectively "Fiskars"). The Deltec
Acquisition was completed on March 13, 1996. 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.
Under the terms of the Acquisition Agreement, the purchase price of the
Deltec Acquisition was stated to be approximately $195.0 million, which is
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 was based on the value of the Common Stock and Series G Preferred
Stock that was 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 was issued to
Fiskars was 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 is convertible into Common Stock on a one-for-one basis (subject
to adjustment under certain circumstances), has a per annum dividend rate of
$0.80 per share through March 31, 2001 and $1.20 per share thereafter, and is
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. Such determination is
expected to be made within 60 days of the closing date, as provided in the
Acquisition Agreement. In addition, under the terms of the Acquisition
Agreement, the Company paid $4.0 million to Fiskars in payment of certain
interest carrying costs associated with Fiskars' agreement to extend the time
for closing the Deltec Acquisition.
The Company financed the cash portion of the purchase price of the Deltec
Acquisition with (i) borrowings under a new credit facility (the "New Credit
Facility") and (ii) the sale of 125,000 units (the "Units") comprised of $125.0
million of senior subordinated notes (the "Notes") and warrants (the "Warrants")
to purchase 643,750 shares of the Company's Common Stock (the "Offering"). Under
the terms of a credit agreement with 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 provides for term and revolving credit
facilities in the aggregate amount of $175.0 million.
The Company conducted 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 distributed 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 included the Projections in a
Current Report on Form 8-K dated February 21, 1996 (as amended by Form 8-K/A
dated March 22, 1996), which was filed prior to the closing date of the
Offering. The Company is including under Item 7(b) hereof the Projections that
are included in the final Offering Memorandum, which Projections were updated
with respect to interest expense to reflect the final terms of the Offering.
This Form 8-K also includes (i) Unaudited Pro Forma Combined Financial
Statements under Item 7(b) and (ii) Annual Combined and Consolidated Financial
Statements and unaudited Interim Consolidated Financial Statements of Deltec
under Item 7(a) (collectively, the "Offering Memorandum Financial Statements"),
all of which are included in the Offering Memorandum. The Unaudited Pro Forma
Combined Financial Statements were also included in the Form 8-K dated February
21, 1996 (as amended), and also are updated to reflect the final terms of the
Offering. The Projections and the Unaudited Pro Forma Combined Financial
Statements give effect to (i) the Deltec Acquisition, (ii) the
<PAGE> 3
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, THE
COMPANY'S CURRENT REPORT ON FORM 8-K DATED FEBRUARY 21, 1996, AS AMENDED BY FORM
8-K/A DATED MARCH 22, 1996 (COLLECTIVELY THE "COMPANY PERIODIC DISCLOSURE
DOCUMENTS"), AND THE OFFERING MEMORANDUM FINANCIAL STATEMENTS ATTACHED HERETO.
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
<PAGE> 5
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-1
<PAGE> 6
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-2
<PAGE> 7
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-3
<PAGE> 8
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-4
<PAGE> 9
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-5
<PAGE> 10
DELTEC POWER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
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
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 11
DELTEC POWER SYSTEMS, INC.
COMBINED/CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C>
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
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 12
DELTEC POWER SYSTEMS, INC.
COMBINED/CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN CUMULATIVE
PREFERRED COMMON EXCESS OF RETAINED TRANSLATION
STOCK STOCK PAR VALUE EARNINGS ADJUSTMENT TOTAL
---------- ------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
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
========= =========== ========= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 13
DELTEC POWER SYSTEMS, INC.
COMBINED/CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 14
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:
<TABLE>
<CAPTION>
SUBSIDIARY COUNTRY
-------------------------------------------------------- ---------------
<S> <C>
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
</TABLE>
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-10
<PAGE> 15
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-11
<PAGE> 16
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
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
F-12
<PAGE> 17
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:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
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-13
<PAGE> 18
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30, DECEMBER 31,
1994 1995 1995
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
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:
<TABLE>
<S> <C>
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
==========
</TABLE>
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-14
<PAGE> 19
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following forward contracts were outstanding:
<TABLE>
<CAPTION>
CURRENCY CURRENCY SEPTEMBER 30, DECEMBER 31,
SOLD PURCHASED 1995 1995
-------- --------------------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
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
========== ==========
</TABLE>
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-15
<PAGE> 20
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC SEGMENTS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1995
------------ ------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
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
========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1995
------------ ------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
F-16
<PAGE> 21
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1995
------------ ------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
An analysis of the effective income tax rates is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1995
------------ ------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
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%
========== ========== ========== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
F-17
<PAGE> 22
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:
<TABLE>
<S> <C>
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
==========
</TABLE>
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-18
<PAGE> 23
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-19
<PAGE> 24
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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
========== ========== =========== =========== ==========
</TABLE>
F-20
<PAGE> 25
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1994
<TABLE>
<CAPTION>
NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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
========== ========== =========== =========== ==========
</TABLE>
F-21
<PAGE> 26
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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
========== ========== =========== ========== ==========
</TABLE>
F-22
<PAGE> 27
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL COMBINING/CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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
========= ========== =========== ========== ==========
</TABLE>
F-23
<PAGE> 28
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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
========= ========== =========== ========== ==========
</TABLE>
F-24
<PAGE> 29
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
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
========= ========== =========== ========== ==========
</TABLE>
F-25
<PAGE> 30
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL COMBINING/CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............ $(120,000) $ 990,000 $ 2,286,000 $ -- $ 3,156,000
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation expense...... -- 1,000,000 690,000 -- 1,690,000
Amortization of
intangibles............. 3,000 2,248,000 44,000 -- 2,295,000
Loss on sale of property
and equipment........... -- 47,000 -- -- 47,000
Deferred income taxes..... -- (1,205,000) 103,000 -- (1,102,000)
Other..................... -- -- 68,000 -- 68,000
Changes in:
Net accounts
receivable........... -- (3,420,000) (1,412,000) -- (4,832,000)
Net intercompany
accounts............. 183,000 7,098,000 (1,169,000) -- 6,112,000
Net inventories......... -- (4,241,000) (1,806,000) -- (6,047,000)
Other current assets.... -- (372,000) 302,000 -- (70,000)
Accounts payable........ -- (562,000) 366,000 -- (196,000)
Accrued expenses........ -- 468,000 1,062,000 -- 1,530,000
Deferred revenue........ -- 237,000 243,000 -- 480,000
--------- ----------- -------------- ------------- -------------
Net cash provided by operating
activities................... 66,000 2,288,000 777,000 -- 3,131,000
--------- ----------- -------------- ------------- -------------
Cash flows from investing
activities:
Purchases of property and
equipment................. -- (1,204,000) (430,000) -- (1,634,000)
Proceeds from sale of
property and equipment.... -- 7,000 -- -- 7,000
Acquisition of NSSI.......... -- (1,751,000) -- -- (1,751,000)
Other........................ (66,000) -- (478,000) -- (544,000)
--------- ----------- -------------- ------------- -------------
Net cash used in investing
activities................... (66,000) (2,948,000) (908,000) -- (3,922,000)
--------- ----------- -------------- ------------- -------------
Cash flows from financing
activities:
Payments on intercompany
note...................... -- (300,000) -- -- (300,000)
Payments on external debt.... -- -- -- -- --
Advances on intercompany
note...................... -- 1,751,000 2,063,000 -- 3,814,000
Proceeds from external
debt...................... -- -- 138,000 -- 138,000
Dividends paid............... -- -- (786,000) -- (786,000)
Group contributions, net of
tax....................... -- -- (1,068,000) -- (1,068,000)
--------- ----------- -------------- ------------- -------------
Net cash provided by financing
activities................... -- 1,451,000 347,000 -- 1,798,000
--------- ----------- -------------- ------------- -------------
Effect of exchange rates on
cash......................... -- -- 379,000 -- 379,000
Increase in cash............... -- 791,000 595,000 -- 1,386,000
Cash at beginning of period.... -- 2,401,000 2,221,000 -- 4,622,000
--------- ----------- -------------- ------------- -------------
Cash at end of period.......... $ -- $ 3,192,000 $ 2,816,000 $ -- $ 6,008,000
========= ========== =========== ========== ==========
</TABLE>
F-26
<PAGE> 31
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................... $ -- $ 1,622,000 $ 2,862,000 $ -- $ 4,484,000
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation expense........... -- 860,000 498,000 -- 1,358,000
Amortization of intangibles.... -- 1,981,000 10,000 -- 1,991,000
Loss on sale of property and
equipment.................... -- 53,000 -- -- 53,000
Deferred income taxes.......... -- 3,871,000 (58,000) -- 3,813,000
Other.......................... -- -- -- -- --
Cumulative effect of change in
accounting for income
taxes........................ -- (560,000) (949,000) -- (1,509,000)
Changes in:
Net accounts receivable...... -- (2,302,000) (729,000) -- (3,031,000)
Net intercompany accounts.... -- (3,435,000) (324,000) -- (3,759,000)
Net inventories.............. -- 409,000 (486,000) -- (77,000)
Other current assets......... -- (118,000) (306,000) -- (424,000)
Accounts payable............. -- 995,000 (192,000) -- 803,000
Accrued expenses............. -- 366,000 425,000 -- 791,000
Deferred revenue............. -- 432,000 150,000 -- 582,000
-------- ----------- -------------- ------------- -------------
Net cash provided by operating
activities....................... -- 4,174,000 901,000 -- 5,075,000
-------- ----------- -------------- ------------- -------------
Cash flows from investing
activities:
Purchases of property and
equipment...................... -- (1,161,000) (295,000) -- (1,456,000)
Proceeds from sale of property
and equipment.................. -- -- -- -- --
Acquisition of NSSI.............. -- -- -- -- --
Other............................ -- -- (388,000) -- (388,000)
-------- ----------- -------------- ------------- -------------
Net cash used in investing
activities....................... -- (1,161,000) (683,000) -- (1,844,000)
-------- ----------- -------------- ------------- -------------
Cash flows from financing
activities:
Payments on intercompany note.... -- (1,500,000) -- -- (1,500,000)
Payments on external debt........ -- -- (618,000) -- (618,000)
Advances on intercompany note.... -- -- -- -- --
Proceeds from external debt...... -- -- 211,000 -- 211,000
Dividends paid................... -- -- -- -- --
Group contributions, net of
tax............................ -- -- (649,000) -- (649,000)
-------- ----------- -------------- ------------- -------------
Net cash used by financing
activities....................... -- (1,500,000) (1,056,000) -- (2,556,000)
-------- ----------- -------------- ------------- -------------
Effect of exchange rates on cash... -- -- (293,000) -- (293,000)
Increase in cash................... -- 1,513,000 (1,131,000) -- 382,000
Cash at beginning of period........ -- 888,000 3,352,000 -- 4,240,000
-------- ----------- -------------- ------------- -------------
Cash at end of period.............. $ -- $ 2,401,000 $ 2,221,000 $ -- $ 4,622,000
========= ============ ============== ============ ============
</TABLE>
F-27
<PAGE> 32
DELTEC POWER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995
SEPTEMBER 30, ------------
1995
------------- (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.......................................................... $ 8,842,000 $ 5,603,000
Accounts receivable, net...................................... 23,641,000 34,268,000
Inventories, net.............................................. 19,923,000 21,633,000
Deferred income taxes......................................... 2,007,000 2,518,000
Other current assets.......................................... 1,920,000 1,870,000
----------- -----------
Total current assets.................................. 56,333,000 65,892,000
Property and equipment, net..................................... 6,927,000 7,135,000
Intangible assets, net.......................................... 7,905,000 7,384,000
Other long-term assets.......................................... 436,000 468,000
----------- -----------
$ 71,601,000 $ 80,879,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 8,135,000 $ 11,845,000
Deferred revenue.............................................. 4,678,000 4,461,000
Accrued payroll and employee benefits......................... 3,552,000 4,840,000
Income taxes payable.......................................... 1,778,000 3,281,000
Intercompany payable, net..................................... 5,546,000 6,791,000
Accrued commissions........................................... 814,000 1,125,000
Accrued warranty.............................................. 610,000 836,000
Current maturities of long-term debt.......................... 2,121,000 10,000
Other current liabilities..................................... 2,405,000 2,468,000
----------- -----------
Total current liabilities............................. 29,639,000 35,657,000
----------- -----------
Deferred income taxes........................................... 2,307,000 2,252,000
----------- -----------
Long-term debt.................................................. 31,941,000 37,836,000
----------- -----------
Other long-term liabilities..................................... 1,474,000 1,824,000
----------- -----------
Shareholders' equity:
Class A redeemable preferred stock -- $.01 par value, 1,500
shares outstanding at 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 5,817,000
Common stock -- $.01 par value, 600 shares outstanding, at
ascribed value............................................. (4,881,000) (4,881,000)
Retained earnings............................................. 882,000 1,936,000
Cumulative translation adjustment............................. 544,000 438,000
----------- -----------
Total shareholders' equity............................ 6,240,000 3,310,000
----------- -----------
$ 71,601,000 $ 80,879,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 33
DELTEC POWER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER
31,
-----------------------------
1994 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Products.................................................... $24,620,000 $40,366,000
Services.................................................... 4,854,000 5,742,000
----------- -----------
Total revenues...................................... 29,474,000 46,108,000
Cost of revenues:
Products.................................................... 14,997,000 25,318,000
Services.................................................... 2,977,000 2,089,000
----------- -----------
Total cost of revenues.............................. 17,974,000 27,407,000
----------- -----------
Gross profit.................................................. 11,500,000 18,701,000
Operating expenses:
Selling and marketing....................................... 5,255,000 7,439,000
General and administrative.................................. 1,607,000 2,543,000
Engineering................................................. 1,145,000 1,294,000
Royalty expense (primarily with related parties)............ 714,000 1,202,000
----------- -----------
Income from operations........................................ 2,779,000 6,223,000
Interest income (primarily with related parties).............. (121,000) (98,000)
Interest expense (primarily with related parties)............. 665,000 860,000
----------- -----------
Income before income taxes.................................... 2,235,000 5,461,000
Provision for income taxes.................................... 685,000 1,910,000
----------- -----------
Net income.................................................... 1,550,000 3,551,000
Dividends on preferred stock.................................. 375,000 375,000
Premium on redemption of preferred stock...................... -- 2,122,000
----------- -----------
Net income allocable to common shares............... $ 1,175,000 $ 1,054,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 34
DELTEC POWER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1994 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 1,550,000 $ 3,551,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of property and equipment................... 530,000 503,000
Amortization of intangibles.............................. 675,000 593,000
Deferred income taxes.................................... (547,000) (548,000)
Changes in:
Net accounts receivable................................ (5,808,000) (10,713,000)
Net intercompany accounts.............................. (914,000) 930,000
Net inventories........................................ 794,000 (1,863,000)
Other current assets................................... (21,000) 24,000
Accounts payable....................................... 293,000 3,915,000
Accrued expenses....................................... 778,000 3,188,000
Deferred revenue....................................... (51,000) (137,000)
------------ ------------
Net cash used by operating activities......................... (2,721,000) (557,000)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment......................... (570,000) (739,000)
Proceeds from sale of property and equipment................ -- --
Other....................................................... (399,000) (103,000)
------------ ------------
Net cash used in investing activities......................... (969,000) (842,000)
------------ ------------
Cash flows from financing activities:
Payments on intercompany note............................... -- (1,689,000)
Payments on external debt................................... -- --
Advances on intercompany note............................... 2,274,000 --
Proceeds from external debt................................. -- --
Dividends paid.............................................. -- --
Group Contributions, net of tax benefit..................... (1,068,000) --
------------ ------------
Net cash provided (used) by financing activities.............. 1,206,000 (1,689,000)
------------ ------------
Effect of exchange rates on cash.............................. 24,000 (151,000)
Increase (decrease) in cash................................... (2,460,000) (3,239,000)
Cash at beginning of period................................... 8,468,000 8,842,000
------------ ------------
Cash at end of period......................................... $ 6,008,000 $ 5,603,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 35
DELTEC POWER SYSTEMS, 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. 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 audited financial statements presented elsewhere herein.
In the opinion of management, the accompanying consolidated financial
statements include all adjustments (which consist only of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at December 31, 1995. The results of operations for
the quarter ended December 31, 1995 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 -- 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 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.
F-31
<PAGE> 36
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (CONTINUED).
(b) Pro Forma Financial Information
<PAGE> 37
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
<PAGE> 38
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND OTHER DATA
LATEST TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
EXIDE PRO FORMA PRO FORMA
ELECTRONICS DELTEC ADJUSTMENTS(1) COMBINED
----------- -------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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 17,325(5) 26,150
Interest income.............................. (377) (678) -- (1,055 )
Other (income) expense....................... (619) -- -- (619 )
----------- -------- -------------- ---------
Income before income taxes............... 9,287 7,526 (12,511) 4,302
Provision for income taxes................... 3,738 2,237 (3,543)(6) 2,432
----------- -------- -------------- ---------
Net income............................... 5,549 $ 5,289 (8,968) 1,870
=========
Preferred stock dividends.................... 394 977(7) 1,371
----------- -------------- ---------
Net income applicable to common
shareholders............................... $ 5,155 $ (9,945) $ 499
========== ============== ==========
Earnings per share(7)........................ $ 0.57 $ 0.05
========== ==========
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 2.2 x
Ratio of earnings to fixed charges(9)........ 2.1x 2.8x 1.1 x
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements
U-2
<PAGE> 39
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND OTHER DATA
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
EXIDE PRO FORMA PRO FORMA
ELECTRONICS DELTEC ADJUSTMENTS(1) COMBINED
----------- -------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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 -- -- 700
Merger and acquisition expense............. 7,000 -- -- 7,000
Royalty expense............................ -- 2,923 (2,923)(4) --
----------- -------- -------------- ---------
Income from operations................. 16,270 6,581 (3,967) 18,884
Interest expense........................... 5,575 2,982 21,156(5) 29,713
Interest income............................ (485) (701) -- (1,186 )
Other (income) expense..................... (897) -- -- (897 )
----------- -------- -------------- ---------
Income before income taxes............. 12,077 4,300 (25,123) (8,746 )
Provision for (benefit from) income
taxes.................................... 4,692 1,012 (8,462)(6) (2,758 )
----------- -------- -------------- ---------
Net income............................. 7,385 $ 3,288 (16,661) (5,988 )
=========
Preferred stock dividends.................. 592 779(7) 1,371
----------- -------------- ---------
Net income applicable to common
shareholders............................. $ 6,793 $(17,440) $ (7,359 )
========== ============== ==========
Earnings per share(7)...................... $ 0.84 $ (0.70 )
========== ==========
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 0.7 x(9)
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements
U-3
<PAGE> 40
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND OTHER DATA
THREE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
EXIDE PRO FORMA PRO FORMA
ELECTRONICS DELTEC ADJUSTMENTS(1) COMBINED
----------- ------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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 8,386(5) 10,475
Interest income............................. (139) (121) -- (260 )
Other (income) expense...................... (161) -- -- (161 )
----------- ------- -------------- ---------
Income before income taxes.............. 3,456 2,235 (15,416) (9,725 )
Provision for (benefit from) income taxes... 1,207 685 (5,678)(6) (3,786 )
----------- ------- -------------- ---------
Net income.............................. 2,249 $ 1,550 (9,738) (5,939 )
========
Preferred stock dividends................... 198 145(7) 343
----------- -------------- ---------
Net income applicable to common
shareholders.............................. $ 2,051 $ (9,883) $ (6,282 )
========== ============== ==========
Earnings per share(7)....................... $ 0.25 $ (0.61 )
========== ==========
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)
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements
U-4
<PAGE> 41
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND OTHER DATA
THREE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
EXIDE PRO FORMA PRO FORMA
ELECTRONICS DELTEC ADJUSTMENTS(1) COMBINED
----------- ------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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 4,555(5) 6,912
Interest income............................. (31) (98) -- (129 )
Other (income) expense...................... 117 -- -- 117
----------- ------- -------------- ---------
Income before income taxes.............. 666 5,461 (2,804) 3,323
Provision for income taxes.................. 253 1,910 (760)(6) 1,403
----------- ------- -------------- ---------
Net income.............................. 413 $ 3,551 (2,044) 1,920
========
Preferred stock dividends................... -- 343(7) 343
----------- -------------- ---------
Net income applicable to common
shareholders.............................. $ 413 $ (2,387) $ 1,577
========== ============== ==========
Earnings per share(7)....................... $ 0.04 $ 0.15
========== ==========
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 2.2 x
Ratio of earnings to fixed charges(9)....... 1.3x 6.2x 1.4 x
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements
U-5
<PAGE> 42
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------------
EXIDE PRO FORMA PRO FORMA
ELECTRONICS DELTEC ADJUSTMENTS(1) COMBINED
----------- ------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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 29,250(11) 38,541
----------- ------- -------------- ---------
$ 253,939 $80,879 $161,471 $ 496,289
======== ======= =========== ========
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 37,836 135,948(12) 250,200
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 5,948(13) 101,846
----------- ------- -------------- ---------
$ 253,939 $80,879 $161,471 $ 496,289
======== ======= =========== ========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements
U-6
<PAGE> 43
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 $36,750 under the New Credit Facility, $121,250 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:
<TABLE>
<S> <C>
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
========
</TABLE>
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
<PAGE> 44
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:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, LTM ENDED
SEPTEMBER 30, ----------------- DECEMBER 31,
1995 1994 1995 1995
------------- ------ ------ ------------
<S> <C> <C> <C> <C>
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
========== ====== ====== ==========
</TABLE>
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
<PAGE> 45
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:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, LTM ENDED
SEPTEMBER 30, ---------------- DECEMBER 31,
1995 1994 1995 1995
------------- ------ ------ ------------
<S> <C> <C> <C> <C>
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 $ -- $ --
========== ====== ====== ==========
</TABLE>
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
<PAGE> 46
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
5. The pro forma adjustment to interest expense assumes:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, LTM ENDED
SEPTEMBER 30, ----------------- DECEMBER 31,
1995 1994 1995 1995
------------- ------ ------ ------------
<S> <C> <C> <C> <C>
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%.......................... 14,375 3,594 3,594 14,375
Amortization of discount related to the
Notes(a)................................. 326 82 82 326
$50,850 of net additional borrowings under
the New Credit Facility.................. 4,302 1,064 1,075 4,313
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................................... 500 125 125 500
New Credit Facility......................... 982 245 233 970
------------- ------ ------ ------------
Pro forma adjustment..................... $21,156 $8,386 $4,555 $ 17,325
========== ====== ====== ==========
</TABLE>
- ---------------
(a) The issuance of Warrants in connection with Notes resulted in the Notes
being recorded at a discount of $3,259, which discount is 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 $317 based on pro forma borrowings of $126,950 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
U-10
<PAGE> 47
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
reflected in the pro forma adjustments, such deductions may be subject to
certain limitations under the Code (as defined).
7. The pro forma adjustments to preferred stock dividends assumes:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, LTM ENDED
SEPTEMBER 30, --------------- DECEMBER 31,
1995 1994 1995 1995
------------- ----- ----- ------------
<S> <C> <C> <C> <C>
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
========== ===== ===== ==========
</TABLE>
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 $9,003 for the year
ended September 30, 1995 and $9,842 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 $19,858 and $3,322, respectively.
U-11
<PAGE> 48
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
10. The pro forma adjustment to goodwill assumes:
<TABLE>
<S> <C>
Record additional goodwill related to the Deltec Acquisition............ $137,008
Eliminate existing Deltec goodwill...................................... (7,384)
--------
Pro forma adjustment............................................... $129,624
========
</TABLE>
11. The pro forma adjustment to other long-term assets assumes:
<TABLE>
<S> <C>
Record certain other intangible assets..................................... $ 20,000
Record deferred financing costs related to the Notes....................... 5,000
Record deferred financing costs related to New Credit Facility............. 4,250
--------
Pro forma adjustment.................................................. $ 29,250
========
</TABLE>
12. The pro forma adjustment to long-term debt assumes:
<TABLE>
<S> <C>
Record the Notes, less discount of $3,259(a)............................... $121,741
Record net additional borrowings under New Credit Facility:
Cash purchase price to Fiskars........................................ 36,750
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.................................................. $135,948
========
</TABLE>
- ---------------
(a) The issuance of Warrants in connection with the Notes resulted in the
Notes being recorded at a discount.
13. The pro forma adjustment to shareholders' equity assumes:
<TABLE>
<S> <C>
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)
Record value of Warrants issued in connection with the Notes(a)............ 3,259
Eliminate Deltec shareholders' equity...................................... (3,310)
--------
Pro forma adjustment.................................................. $ 5,948
========
</TABLE>
- ---------------
(a) The issuance of Warrants to purchase 643,750 shares of common stock at
$13.475 per share resulted in the value ($3,259) of the Warrants being
recorded as additional common shareholders' equity.
U-12
<PAGE> 49
EXIDE ELECTRONICS GROUP, INC.
INDEX TO PRO FORMA PROJECTED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction.......................................................................... P-2
Statements of Operations
Exide Electronics -- Combined with Deltec........................................... P-4
Exide Electronics -- Stand Alone.................................................... P-7
Deltec -- Stand Alone............................................................... P-12
</TABLE>
P-1
<PAGE> 50
PROJECTED FINANCIAL INFORMATION
INTRODUCTION
The projected financial information included herein (the "Projections")
represents the Company's best estimates as of February 14, 1996 (except with
respect to interest expense, which has been updated as of March 7, 1996 to
reflect the final terms of the Offering) 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.
P-2
<PAGE> 51
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 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
<PAGE> 52
EXIDE ELECTRONICS -- COMBINED WITH DELTEC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------
1996
1995 PRO FORMA
PRO FORMA PROJECTED
---------- ----------
<S> <C> <C>
(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...................................................... 29,713 30,813
Interest income....................................................... (1,186) (500)
Other (income) expense................................................ (897) (500)
---------- ----------
Income (loss) before income taxes and minority interest............. (8,746) 9,797
Provision for (benefit from) income taxes............................. (2,758) 5,289
---------- ----------
Income (loss) before minority interest.............................. (5,988) 4,508
Minority interest in earnings of consolidated subsidiaries............ -- 500
---------- ----------
Net income (loss)................................................... $ (5,988) $ 4,008
======== ========
OTHER DATA:
EBITDA................................................................ $ 55,445 $ 69,457
Depreciation.......................................................... 9,224 10,500
Amortization.......................................................... 19,637 19,347
Capital expenditures.................................................. 14,730 16,500
</TABLE>
P-4
<PAGE> 53
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:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
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
======= =======
</TABLE>
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):
<TABLE>
<S> <C>
Revenues.......................................................... $489,000
Gross profit...................................................... 146,813
Income from operations............................................ 29,006
EBITDA............................................................ 52,833
</TABLE>
P-5
<PAGE> 54
INTEREST EXPENSE
Interest expense is projected to increase to $30.8 million in fiscal 1996
from pro forma interest expense of $29.7 million in fiscal 1995 as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
The Notes --
Ending principal outstanding................................. $125,000 $125,000
Interest rate................................................ 11.5% 11.5%
Interest expense............................................. $ 14,375 $ 14,375
New Credit Facility --
Ending principal outstanding................................. $126,950 $121,950
Interest rate................................................ 8.5% 8.0%
Interest expense, calculated on average balance.............. $ 8,807 $ 9,956
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
Amortization of discount related to the Notes.................. 326 326
Estimated interest payment to Fiskars.......................... 4,100 4,100
Amortization of deferred financing costs....................... 1,482 1,433
-------- --------
Total interest expense............................... $ 29,713 $ 30,813
======== ========
</TABLE>
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 $5.3 million in fiscal
1996 as compared to a tax benefit of $2.8 million in fiscal 1995. The effective
tax rate is projected to be 54% 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
<PAGE> 55
EXIDE ELECTRONICS -- STAND ALONE
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PROJECTED
HISTORICAL YEAR ENDED SEPTEMBER 30, YEAR ENDED
------------------------------------------------------ SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ======== ========
</TABLE>
OTHER DATA:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(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
<PAGE> 56
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%.
<TABLE>
<CAPTION>
PROJECTED
HISTORICAL YEAR ENDED SEPTEMBER 30, YEAR ENDED
------------------------------------------------------ SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
(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
======== ======== ======== ======== ======== ==========
</TABLE>
P-8
<PAGE> 57
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 Air Route 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.
<TABLE>
<CAPTION>
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
---- ----- ---- ---- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(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
<PAGE> 58
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:
<TABLE>
<CAPTION>
GROSS MARGIN 1995 1996
----------------------------------------------------------- ---- ----
<S> <C> <C>
Small systems products..................................... 25.4% 29.3%
Large systems products..................................... 23.7 26.5
Services................................................... 31.0 29.0
Total............................................ 26.6 28.5
</TABLE>
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
<PAGE> 59
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
<PAGE> 60
DELTEC -- STAND ALONE
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PROJECTED
HISTORICAL YEAR ENDED DECEMBER 31, YEAR ENDED
------------------------------------ SEPTEMBER 30,
1993 1994 1995 1996
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
(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
</TABLE>
P-12
<PAGE> 61
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:
<TABLE>
<CAPTION>
ANNUAL GROWTH RATE
--------------------------------------------
DELTEC
HISTORICAL DELTEC INDUSTRY
-------------- PROJECTED PROJECTED
1994 1995 1996 1996
---- ---- --------- ---------
<S> <C> <C> <C> <C>
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
</TABLE>
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.
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:
<TABLE>
<CAPTION>
GROSS MARGIN 1995 1996
--------------------------------------------------------------- ---- ----
<S> <C> <C>
Products....................................................... 36.4% 35.6%
Services....................................................... 55.0 52.2
Total................................................ 39.2 38.0
</TABLE>
P-13
<PAGE> 62
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
<PAGE> 63
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (CONTINUED).
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------
<C> <C> <S>
23.1 -- Consent of Price Waterhouse LLP
23.2(a) -- Consent of KPMG as
23.2(b) -- Consent of KPMG C. Jespersen
23.2(c) -- Consent of KPMG WIDERI OY AB
23.2(d) -- Consent of KPMG Bohlins AB
</TABLE>
<PAGE> 64
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: March 27, 1996
<PAGE> 65
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------- ----
<C> <S> <C>
23.1 Consent of Price Waterhouse LLP
23.2(a) Consent of KPMG as
23.2(b) Consent of KPMG C. Jespersen
23.2(c) Consent of KPMG WIDERI OY AB
23.2(d) Consent of KPMG Bohlins AB
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 and in the
Registration Statements on Form S-8 listed below of Exide Electronics Group,
Inc. of our report dated January 16, 1996, except as to Note 13 which is as of
February 9, 1996, relating to the combined/consolidated financial statements of
Deltec Power Systems, Inc., which appears in the Current Report on Form 8-K of
Exide Electronics Group, Inc. dated March 27, 1996.
1. Registration Statement on Form S-3 (Registration No. 33-63969)
2. Registration Statement on Form S-3 (Registration No. 33-64818)
3. Registration Statement on Form S-3 (Registration No. 33-88466)
4. Registration Statement on Form S-8 (Registration No. 33-35202)
5. Registration Statement on Form S-8 (Registration No. 33-39310)
6. Registration Statement on Form S-8 (Registration No. 33-39311)
7. Registration Statement on Form S-8 (Registration No. 33-63971)
8. Registration Statement on Form S-8 (Registration No. 33-63973)
9. Registration Statement on Form S-8 (Registration No. 33-64121)
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
March 27, 1996
<PAGE> 1
EXHIBIT 23.2(a)
To the Board of Directors
and Shareholder of
Fiskars Power Systems AS
We consent to the incorporation by reference in the registration statements
(Nos. 33-63969, 33-64818 and 33-88466) on Form S-3 and registration statements
(Nos. 33-63973, 33-63971, 33-39311, 33-39310, 33-35202 and 33-64121) on Form S-8
of Exide Electronics Group, Inc. of our report dated January 11, 1996 with
respect to the balance sheets of Fiskars Power Systems AS 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 months ended September 30, 1995 and for
the years ended December 31, 1994 and 1993, which report appears in the Form 8-K
of Exide Electronics Group, Inc. dated March 27, 1996.
Oslo, Norway
March 26, 1996
KPMG as
Tom Myhre
State Authorized Public Accountant (Norway)
<PAGE> 1
EXHIBIT 23.2(b)
To the Board of Directors
and Shareholders of
Fiskars Power Systems A/S
We consent to the incorporation by reference in the registration statements
(Nos. 33-63969, 33-64818 and 33-88466) on Form S-3 and registration statements
(Nos. 33-63973, 33-63971, 33-39311, 33-39310, 33-35202 and 33-64121) on Form S-8
of Exide Electronics Group, Inc. of our report dated December 22, 1995 with
respect to the balance sheets of Fiskars Power Systems A/S 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 months ended September 30, 1995 and for
the years ended December 31, 1994 and 1993, which report appears in the Form 8-K
of Exide Electronics Group, Inc. dated March 27, 1996.
KPMG C. Jespersen
Copenhagen, Denmark
March 26, 1996
Torben Vonsild
State Authorized
Public Accountant
<PAGE> 1
EXHIBIT 23.2(c)
To the Board of Directors
and Shareholders of
FPS Power Systems Oy Ab
We consent to the incorporation by reference in the registration statements
(Nos. 33-63969, 33-64818 and 33-88466) on Form S-3 and registration statements
(Nos. 33-63973, 33-63971, 33-39311, 33-39310, 33-35202 and 33-64121) on Form S-8
of Exide Electronics Group, Inc. of our report dated January 12, 1996 with
respect to the balance sheets of FPS Power Systems Oy Ab as of September 30,
1995 and December 31, 1994, and the related statements of income and of cash
flows for the nine months ended September 30, 1995 and for the years ended
December 31, 1994 and 1993, which report appears in the Form 8-K of Exide
Electronics Group, Inc. dated March 27, 1996.
KPMG WIDERI OY AB
Helsinki, Finland
March 26, 1996
Sixten Nyman
Authorized Public Accountant
<PAGE> 1
EXHIBIT 23.2(d)
To the Board of Directors
and Shareholder of
Fiskars Power Systems AB
We consent to the incorporation by reference in the registration statements
(Nos. 33-63969, 33-64818 and 33-88466) on Form S-3 and registration statements
(Nos. 33-63973, 33-63971, 33-39311, 33-39310, 33-35202 and 33-64121) on Form S-8
of Exide Electronics Group, Inc. of our report dated December 22, 1995 with
respect to the balance sheets of Fiskars Power Systems AB as of September 30,
1995 and December 31, 1994, and the related statements of income and of cash
flows for the nine months ended September 30, 1995 and for the years ended
December 31, 1994 and 1993, which report appears in the Form 8-K of Exide
Electronics Group, Inc. dated March 27, 1996.
KPMG Bohlins AB
Stockholm, Sweden
March 26, 1996
Thomas Thiel
Partner
