UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1996 Commission File No. 0-18106
EXIDE ELECTRONICS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2231834
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
8609 Six Forks Road, Raleigh, North Carolina 27615
(Address of principal executive offices and zip code)
(919) 872-3020
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ x ] No [ ]
As of February 11, 1997, 10,049,543 shares of the Registrant's $0.01 par value
common stock were outstanding.
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
Three Months Ended
December 31,
--------------------
1996 1995
---- ----
Revenues
Products $ 99,412 $ 57,659
Services 31,510 25,644
------ ------
Total revenues 130,922 83,303
------ ------
Cost of revenues
Products 68,540 42,508
Services 20,776 18,580
------ ------
Total cost of revenues 89,316 61,088
------ ------
Gross profit 41,606 22,215
Selling, general and administrative expense 28,931 17,457
Research and development expense 3,575 2,509
----- -----
Income from operations 9,100 2,249
Interest expense 6,999 1,497
Interest income (185) (31)
Other expense 158 117
---- ----
Income before income taxes 2,128 666
Provision for income taxes 1,058 253
Minority interests in net income of subsidiaries 111 --
----- -----
Net income $ 959 $ 413
========= =========
Preferred stock dividends and accretion 342 --
---- ----
Net income applicable to common shareholders $ 617 $ 413
========= =========
Per Share Amounts
Primary
Net income $ 0.06 $ 0.04
========= =========
Weighted average number of common and equivalent
shares outstanding 10,022 9,211
====== =====
Fully diluted
Net income $ 0.06 $ 0.04
========= =========
Weighted average number of common and equivalent
shares outstanding 10,089 9,500
====== =====
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(unaudited; in thousands)
<TABLE>
<CAPTION>
December 31, September 30, December 31,
1996 1996 1995
---- ---- ----
Assets
Current assets
<S> <C> <C> <C>
Cash and cash equivalents $ 3,460 $ 7,848 $ 2,001
Accounts receivable 124,285 129,423 95,436
Inventories 99,519 90,069 76,753
Other current assets 19,576 20,409 15,357
------ ------ ------
Total current assets 246,840 247,749 189,547
------- ------- -------
Property, plant, and equipment
Land, buildings, and leasehold improvements 16,349 17,539 10,248
Machinery and equipment 74,243 75,768 64,564
------ ------ ------
90,592 93,307 74,812
Accumulated depreciation 41,944 44,386 37,561
------ ------ ------
48,648 48,921 37,251
Goodwill 153,825 154,373 18,318
Other intangible assets 27,343 28,665 1,447
Other assets 9,865 9,766 7,376
------ ------ ------
$ 486,521 $ 489,474 $ 253,939
========= ========= =========
Liabilities, Redeemable Preferred Stock, & Common Shareholders' Equity
Current liabilities
Short-term debt $ 16,244 $ 14,568 $ 6,747
Accounts payable 74,112 71,046 43,220
Deferred revenues 22,171 21,913 15,840
Other accrued liabilities 26,504 24,355 15,707
------ ------ ------
Total current liabilities 139,031 131,882 81,514
------ ------ ------
Long-term debt 99,249 110,347 76,416
------ ------ ------
Subordinated notes 122,002 121,920 -
------ ------ ------
Deferred liabilities 8,457 9,912 3,421
----- ----- -----
Redeemable preferred stock 18,455 18,312 -
----- ----- -----
Minority interests 1,376 762 -
------ ------ ------
Common shareholders' equity
Common stock, $0.01 par value, 30,000,000
shares authorized; shares issued - 10,370,505
at December 31, 1996, 10,370,505 at September 30,
1996, and 9,537,130 at December 31, 1995 104 104 95
Additional paid-in capital 86,946 87,491 72,556
Retained earnings 21,989 21,372 32,850
Cumulative translation adjustments (927) (975) (1,456)
------ ------ ------
108,112 107,992 104,045
Less: Notes receivable from shareholders (5,039) (5,304) (5,122)
Treasury stock, 322,462 shares at December
31, 1996, 386,668 shares at September
30, 1996 and 385,899 shares
at December 31, 1995 (5,122) (6,349) (6,335)
----- ----- -----
97,951 96,339 92,588
------ ------ ------
$ 486,521 $ 489,474 $ 253,939
========= ========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
3
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited; in thousands)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------
1996 1995
---- ----
Cash flows from operating activities
<S> <C> <C>
Net income $ 959 $ 413
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation expense 2,385 1,841
Amortization expense 2,926 612
Decrease in accounts receivable 4,264 10,088
Increase in inventories (8,629) (3,863)
(Increase) decrease in other current assets 870 (1,714)
Increase (decrease) in accounts payable 3,066 (2,821)
Increase (decrease) in other current liabilities 1,552 (3,792)
Other, net (1,656) (1,276)
---- ------
Net cash provided by (used in) operating activities 5,737 (512)
----- -----
Cash flows from investing activities
Acquisitions of property, plant, and equipment (2,068) (3,938)
Acquisitions, net of cash received (219) --
Other, net 610 (165)
---- ------
Net cash used in investing activities (1,677) (4,103)
------ ------
Cash flows from financing activities
Proceeds from bank credit facilities 16,706 36,925
Payments of bank credit facilities (26,139) (26,504)
Issuances of common stock 684 142
Purchases of treasury stock -- (6,926)
Payments of notes receivable from shareholders 306 215
Other, net (5) (23)
----- -----
Net cash provided by (used in) financing activities (8,448) 3,829
------ ------
Net decrease in cash and cash equivalents (4,388) (786)
Cash and cash equivalents, beginning of period 7,848 2,787
------ ------
Cash and cash equivalents, end of period $ 3,460 $ 2,001
======== ========
Supplemental cash flow disclosures
Interest paid, net of amounts capitalized $ 3,189 $ 1,920
Income taxes paid $ 719 $ 1,548
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
4
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Exide Electronics Group, Inc. (the "Company") and its subsidiaries.
The Company designs, manufactures, markets, and services a broad line of
uninterruptible power systems ("UPS") products that protect computers and other
sensitive electronic equipment against electrical power distortions and
interruptions. The Company's products are used principally for networking,
financial, medical, industrial, telecommunications, military, and aerospace
applications throughout the world.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission for interim financial
statements. Certain information and footnote disclosures required for complete
financial statements have been condensed or omitted. These financial statements
should be read in conjunction with the financial statements presented in the
Company's 1996 Annual Report to Shareholders.
In the opinion of management, the accompanying consolidated financial statements
include all adjustments (which consist of normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows as of and for the three month periods ended December 31, 1996 and
1995. The results of operations for the three month period ended December 31,
1996 are not necessarily indicative of the results to be expected for the full
year.
NOTE 2: ACQUISITION OF DELTEC
On March 13, 1996, the Company completed its acquisition of Power Systems, Inc.
("Deltec"), one of the world's largest manufacturers and marketers of off-line
and line-interactive small UPS, from Fiskars Oy Ab. Deltec's accounts and
results of operations are included in the Company's financial statements from
March 13, 1996 forward.
The following summary, prepared on a pro forma basis, combines the consolidated
results of operations as if Deltec had been acquired as of the beginning of each
of the periods presented:
(unaudited; in thousands, except per share data) Three Months
ended December 31,
1996 1995
------- --------
Revenues $130,922 $129,411
Net loss (7,368) (7,322)
Fully diluted loss per share $ (0.76) $ (0.74)
The pro forma results are not necessarily indicative of what actually would have
occurred if the acquisition had been consummated on the first day of each period
presented. In addition, the pro forma results are not intended to be a
projection of future results and do not contain any pro forma adjustments to
reflect cost savings that may be achieved from combined operations or any future
nonrecurring costs which may be incurred to implement cost savings.
5
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 - INVENTORIES
Inventories, which include materials, labor, and manufacturing overhead, are
stated at the lower of cost or market, and consist of the following (in
thousands):
Dec. 31, Sept. 30, Dec. 31,
1996 1996 1995
---- ---- ----
Raw materials and supplies $39,162 $33,328 $31,153
Work in process 7,219 5,883 7,259
Finished goods 32,671 31,712 23,318
Service parts 20,467 19,146 15,023
------ ------ ------
$99,519 $90,069 $76,753
======= ======= =======
NOTE 4 - COMMON SHAREHOLDERS' EQUITY
During the first quarter of fiscal 1997, the Company issued approximately 64,000
shares of its common stock for approximately $0.7 million under its Employee
Stock Purchase Plan. This resulted in a reduction of $1.2 million in treasury
stock and $0.5 million in additional paid-in capital.
NOTE 5 - GOVERNMENT CONTRACT MATTERS
During the fourth quarter of fiscal 1996, the Company was awarded a follow-on
contract with the Air Force Air Logistics Center (the "ALC II Contract"). The
requirements contract, which has a base term of three years and a two-year
renewal option, was awarded to the Company as a result of a new bid process
following a protest of an earlier award to the Company of a similar contract in
June 1995. In October 1996, the Company was notified by the Air Force that a
competitor had filed a protest with the General Accounting Office ("GAO")
contesting the award of this contract to Exide Electronics. As required by the
rules governing government contract protests, work under the contract was
automatically suspended. In January 1997, the Company was notified by the Air
Force that the GAO had advised the Air Force that all claims in the protest had
been denied. A motion seeking reconsideration of the denial of the protest of
the contract award has been filed with the GAO by the competitor and is pending
GAO review. However, this motion does not impact the Company's ability to begin
performance under the ALC II Contract. The GAO may decide on the motion for
reconsideration at any time. It is unknown whether further appeals will be made
by the competitor who filed the protest. There have been no material purchases
to date under the ALC II Contract. There can be no assurances that the ALC II
Contract will remain in effect for any definite period or that the Air Force
will place orders with the Company against such contract.
NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In March 1996, the Company issued $125 million of 11.5% senior subordinated
notes (the "Notes"). The Company's payment obligations under the Notes are
guaranteed by certain of the Company's wholly-owned subsidiaries (the "Guarantor
Subsidiaries"). Such guarantees are full, unconditional and joint and several.
Separate financial statements of the Guarantor Subsidiaries are not presented
because the Company's management has determined that they would not be material
to investors. The following supplemental financial information sets forth, on an
unconsolidated basis, statement of operations, balance sheet, and statement of
cash flow information for the Company ("Parent Company Only"), for the Guarantor
Subsidiaries and for the Company's other subsidiaries (the "Non-Guarantor
Subsidiaries"). The supplemental financial information reflects the investments
of the Company and the Guarantor Subsidiaries in the Guarantor and Non-Guarantor
Subsidiaries using the equity method of accounting. Certain reclassifications
have been made to provide for uniform disclosure of all periods presented. These
reclassifications are not material.
6
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Product revenues....................... $ -- $ 97,191 $35,671 $(33,450) $ 99,412
Service revenues....................... -- 24,377 7,133 -- 31,510
------- ------------ ------------- ------------ ------------
Total revenues............... -- 121,568 42,804 (33,450) 130,922
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 72,547 28,474 (32,481) 68,540
Service cost of revenues............... -- 16,037 4,739 -- 20,776
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 88,584 33,213 (32,481) 89,316
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 32,984 9,591 (969) 41,606
Selling, general and administrative
expense.............................. 162 19,897 8,872 -- 28,931
Research and development expense....... -- 3,124 451 -- 3,575
------- ------------ ------------- ------------ ------------
Income (loss) from
operations................. (162) 9,963 268 (969) 9,100
Interest expense....................... 6,434 161 404 -- 6,999
Interest income........................ (90) -- (95) -- (185)
Other (income) expense................. -- 710 (552) -- 158
------- ------------ ------------- ------------ ------------
Income (loss) before income taxes...... (6,506) 9,092 511 (969) 2,128
Provision for (benefit from) income
taxes................................ (2,278) 3,066 270 -- 1,058
Minority interests in net income of
subsidiaries......................... -- -- 111 -- 111
------- ------------ ------------- ------------ ------------
Income (loss) before equity in income
of consolidated subsidiaries......... (4,228) 6,026 130 (969) 959
Equity in income of consolidated
subsidiaries......................... 5,187 130 -- (5,317) --
------- ------------ ------------- ------------ ------------
Net income ............................ $ 959 $ 6,156 $ 130 $ (6,286) $ 959
======= ========= =========== ========= =========
</TABLE>
7
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Product revenues....................... $ -- $ 58,633 $ 15,444 $(16,418) $ 57,659
Service revenues....................... -- 22,695 3,154 (205) 25,644
------- ------------ ------------- ------------ ------------
Total revenues............... -- 81,328 18,598 (16,623) 83,303
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 47,248 11,762 (16,502) 42,508
Service cost of revenues............... -- 16,617 2,168 (205) 18,580
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 63,865 13,930 (16,707) 61,088
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 17,463 4,668 84 22,215
Selling, general and administrative
expense.............................. 121 14,170 3,166 -- 17,457
Research and development expense....... -- 2,509 -- -- 2,509
------- ------------ ------------- ------------ ------------
Income (loss) from
operations................. (121) 784 1,502 84 2,249
Interest expense....................... 34 1,343 120 -- 1,497
Interest income........................ (31) -- -- -- (31)
Other (income) expense................. -- (237) 354 -- 117
------- ------------ ------------- ------------ ------------
Income (loss) before income taxes...... (124) (322) 1,028 84 666
Provision for (benefit from) income
taxes................................ (44) 48 249 -- 253
------- ------------ ------------- ------------ ------------
Income (loss) before equity in income
of consolidated subsidiaries......... (80) (370) 779 84 413
Equity in income of consolidated
subsidiaries......................... 493 779 -- (1,272) --
------- ------------ ------------- ------------ ------------
Net income ........................... $ 413 $ 409 $ 779 $ (1,188) $ 413
======== ========== ========== ========== =========
</TABLE>
8
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents............ $ -- $ 868 $ 2,592 $ -- $ 3,460
Accounts receivable.................. -- 84,911 39,374 -- 124,285
Intercompany accounts receivable..... 10,979 55,225 11,475 (77,679) --
Inventories.......................... -- 75,314 26,331 (2,126) 99,519
Other current assets................. 283 17,794 1,499 -- 19,576
------- ------------ ------------- ------------ ------------
Total current assets......... 11,262 234,112 81,271 (79,805) 246,840
Property, plant, and equipment, net.... -- 42,555 6,093 -- 48,648
Goodwill............................... -- 89,848 63,977 -- 153,825
Noncurrent intercompany receivables.... 80,453 226,225 -- (306,678) --
Investment in affiliates............... 275,846 94,033 -- (369,231) 648
Other assets........................... 9,204 16,736 10,620 -- 36,560
------- ------------ ------------- ------------ ------------
$376,765 $703,509 $161,961 $ (755,714) $486,521
======= ========= =========== ========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt...................... $ 7,535 $ -- $ 8,709 $ -- $ 16,244
Accounts payable..................... 30,359 29,320 14,433 -- 74,112
Intercompany accounts payable........ -- 48,600 29,079 (77,679) --
Deferred revenues.................... -- 19,706 2,465 -- 22,171
Other accrued liabilities............ 2,328 17,039 7,137 -- 26,504
------- ------------ ------------- ------------ ------------
Total current liabilities.... 40,222 114,665 61,823 (77,679) 139,031
Long-term debt......................... 97,750 -- 1,499 -- 99,249
Subordinated notes..................... 122,002 -- -- -- 122,002
Noncurrent intercompany payables....... -- 306,678 -- (306,678) --
Deferred liabilities................... 385 6,320 1,752 -- 8,457
Minority interests..................... -- -- 1,376 -- 1,376
Redeemable preferred stock............. 18,455 -- -- -- 18,455
Common shareholders' equity............ 97,951 275,846 95,511 (371,357) 97,951
------- ------------ ------------- ------------ ------------
$376,765 $703,509 $161,961 $ (755,714) $486,521
======= ========= =========== ========= =========
</TABLE>
9
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents............ $ -- $ 2,224 $ 5,624 $ -- $ 7,848
Accounts receivable.................. -- 91,197 38,226 -- 129,423
Intercompany accounts receivable..... 12,139 40,848 5,023 (58,010) --
Inventories.......................... -- 71,699 19,321 (951) 90,069
Other current assets................. 398 18,054 1,957 -- 20,409
------- ------------ ------------- ------------ ------------
Total current assets......... 12,537 224,022 70,151 (58,961) 247,749
Property, plant, and equipment, net.... -- 43,159 5,762 -- 48,921
Goodwill............................... -- 90,555 63,818 -- 154,373
Non-current intercompany receivables... 89,585 155,858 -- (245,443) --
Investment in affiliates............... 267,799 93,326 -- (360,473) 652
Other assets........................... 9,820 16,994 10,965 -- 37,779
------- ------------ ------------- ------------ ------------
$379,741 $623,914 $150,696 $ (664,877) $489,474
======= ========= ========== ========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt...................... $ 6,702 $ -- $ 7,866 $ -- $ 14,568
Accounts payable..................... 27,250 26,884 16,912 -- 71,046
Intercompany accounts payable........ -- 39,351 18,659 (58,010) --
Deferred revenues.................... -- 19,556 2,357 -- 21,913
Other accrued liabilities............ -- 17,533 6,822 -- 24,355
------- ------------ ------------- ------------ ------------
Total current liabilities.... 33,952 103,324 52,616 (58,010) 131,882
Long-term debt......................... 108,833 -- 1,514 -- 110,347
Subordinated notes..................... 121,920 -- -- -- 121,920
Non-current intercompany payables....... -- 245,443 -- (245,443) --
Deferred liabilities................... 385 7,348 2,179 -- 9,912
Redeemable preferred stock............. 18,312 -- -- -- 18,312
Minority interests..................... -- -- 536 226 762
Common shareholders' equity............ 96,339 267,799 93,851 (361,650) 96,339
------- ------------ ------------- ------------ ------------
$379,741 $623,914 $150,696 $ (664,877) $489,474
======= ========= ========== ========= =========
</TABLE>
10
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
Cash flows from operating activities
<S> <C> <C> <C> <C> <C>
Net income .............................. $ 959 $ 6,156 $ 130 $ (6,286) $ 959
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation expense.................... -- 1,974 411 -- 2,385
Amortization expense.................... -- 1,863 1,063 -- 2,926
Equity in income of subsidiaries........ (5,187) (130) -- 5,317 --
(Increase) decrease in accounts
receivable............................ 1,160 (8,965) (7,600) 19,669 4,264
Increase in inventories................. -- (2,794) (7,010) 1,175 (8,629)
Decrease in other current assets........ 115 297 458 -- 870
Increase in accounts payable............ 3,109 11,685 7,941 (19,669) 3,066
Increase (decrease) in other current
liabilities........................... 2,328 (1,199) 423 -- 1,552
Other, net.............................. -- (779) (877) -- (1,656)
--------- ------------ -------- ---------- ------------
Net cash provided by (used in)
operating activities............... 2,484 8,108 (5,061) 206 5,737
--------- ------------ -------- ---------- ------------
Cash flows from investing activities
Acquisitions of property, plant,
and equipment........................... -- (1,365) (703) -- (2,068)
Acquisitions, net of cash received........ -- (219) -- -- (219)
Other, net................................ 6,551 (6,645) 910 (206) 610
--------- ------------ -------- ---------- ------------
Net cash provided by (used in)
investing activities............... 6,551 (8,229) 207 (206) (1,677)
--------- ------------ -------- ------------ ----------
Cash flows from financing activities
Proceeds from bank credit facilities...... 12,000 -- 4,706 -- 16,706
Payments of bank credit facilities........ (22,250) -- (3,889) -- (26,139)
Issuance of common stock.................. 684 -- -- -- 684
Payments of notes receivable from
shareholders............................ 306 -- -- -- 306
Other, net................................ 225 (1,235) 1,005 -- (5)
--------- ------------ -------- ---------- ------------
Net cash provided by (used in)
financing activities............... (9,035) (1,235) 1,822 -- (8,448)
--------- ------------ -------- ---------- ------------
Net decrease in cash and cash equivalents... -- (1,356) (3,032) -- (4,388)
Cash and cash equivalents, beginning of
period.................................... -- 2,224 5,624 -- 7,848
--------- ------------ -------- ---------- ------------
Cash and cash equivalents, end of period.... $ -- $ 868 $ 2,592 $ -- $ 3,460
========= =========== ============ ========= ===========
</TABLE>
11
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
Cash flows from operating activities
<S> <C> <C> <C> <C> <C>
Net income .............................. $ 413 $ 409 $ 779 $ (1,188) $ 413
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation expense................... -- 1,723 118 -- 1,841
Amortization expense................... -- 242 370 -- 612
Equity in income of consolidated
subsidiaries......................... (493) (779) -- 1,272 --
(Increase) decrease in accounts
receivable........................... (769) 17,838 (2,977) (4,004) 10,088
(Increase) decrease in inventories..... -- (3,826) 81 (118) (3,863)
(Increase) in other current assets -- (1,476) (238) -- (1,714)
Increase (decrease) in accounts
payable.............................. (114) (8,203) 1,492 4,004 (2,821)
Increase (decrease) in other current
liabilities.......................... (270) (3,824) 301 1 (3,792)
Other, net............................. 3 (1,202) (77) -- (1,276)
--------- ------------ ------------- ------------ ------------
Net cash provided by (used in)
operating activities.............. (1,230) 902 (151) (33) (512)
--------- ------------ ------------- ------------ ------------
Cash flows from investing activities
Acquisitions of property, plant, and
equipment.............................. -- (3,521) (417) -- (3,938)
Other, net.............................. 559 8,972 212 (9,908) (165)
--------- ------------ ------------- ------------ ------------
Net cash provided by (used in)
investing activities.............. 559 5,451 (205) (9,908) (4,103)
--------- ------------ ------------- ------------ ------------
Cash flows from financing activities
Proceeds from bank credit facilities..... -- 36,558 367 -- 36,925
Payments of bank credit facilities....... -- (25,400) (1,104) -- (26,504)
Issuance of common stock................. 142 -- -- -- 142
Purchases of treasury stock.............. (6,926) -- -- -- (6,926)
Payments of notes receivable from
shareholders........................... 215 -- -- -- 215
Other, net............................... 7,240 (16,944) (260) 9,941 (23)
--------- ------------ ------------- ------------ ------------
Net cash provided by (used in)
financing activities.............. 671 (5,786) (997) 9,941 3,829
--------- ------------ ------------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents.............................. -- 567 (1,353) -- (786)
Cash and cash equivalents, beginning of
period................................... -- 593 2,194 -- 2,787
--------- ------------ ------------- ------------ ------------
Cash and cash equivalents, end of period... $ -- $ 1,160 $ 841 $ -- $ 2,001
========= =========== ============ ============ ===========
</TABLE>
12
<PAGE>
Exide Electronics Group, Inc.
Management's Discussion and Analysis
of Results of Operations and Financial Condition
The following discussion provides an assessment of the consolidated results of
operations and liquidity and capital resources of the Company and should be read
in conjunction with the consolidated financial statements of the Company and the
notes thereto.
Overview
Exide Electronics (the "Company") provides Strategic Power Management(TM)
solutions to a broad range of businesses and institutions worldwide. The
Company's products are used for networking, financial, medical, industrial,
telecommunications, military, and aerospace applications -- wherever continuous
power is essential to daily operations. Several factors had a significant impact
on the Company's results of operations during the first quarter of fiscal 1997
compared to the first quarter of fiscal 1996, including the acquisition of
Deltec Power Systems, Inc. ("Deltec"), the growth in revenues of small
uninterruptible power supply ("UPS") products, the overall strong growth in
international sales, and the effect of declining Federal government service
revenues. The impact of certain of these and other factors on fiscal 1996 is
discussed in more depth in "Management's Discussion and Analysis of Results of
Operations and Financial Condition" presented in the Company's 1996 Annual
Report to Shareholders.
The Company acquired Deltec from Fiskars Oy Ab in March 1996. Deltec designs,
manufactures, markets, sells and services a broad line of UPS products and power
management software worldwide through its principal operating subsidiaries,
Deltec Electronics, which is headquartered and has a plant in San Diego,
California and a plant in Tijuana, Mexico, and Fiskars Power Systems ("FPS"),
which is based and has a manufacturing facility in Helsinki, Finland. Deltec's
accounts and results of operations have been included in the Company's financial
statements from the closing date forward. During the quarter ended December 31,
1996, approximately 30% of the Company's revenues resulted from the
consolidation of Deltec. The acquisition and its financing is discussed further
in Note 2 of notes to consolidated financial statements and in the "Liquidity
and Financial Condition" section of Management's Discussion and Analysis of
Results of Operations and Financial Condition contained in the Company's 1996
Annual Report to Shareholders.
The Company's product and service offerings and its marketing, manufacturing,
and research and development functions are organized into four business units:
the Small Systems Group ("SSG") for all single phase products; the Large Systems
Group ("LSG") for all three-phase products; the Emerging Technologies Group
("ETG"), for products in the CATV and broadband communications markets; and the
Worldwide Services Group ("WSG") for all services provided by the Company. ETG
results are included with SSG results for the three months ended December 31,
1996 and 1995.
13
<PAGE>
Results of Operations
The following table presents, for the periods shown, revenues; gross profit;
selling, general and administrative expense; research and development expense;
income from operations; and net income in millions of dollars, and certain
income statement captions as a percentage of related revenues or of total
revenues.
<TABLE>
<CAPTION>
------------------------
Three Months Ended
December 31,
-------------------------
(in millions) 1996 1995
-------------------------
Revenues
<S> <C> <C>
Small Systems Products (1) $65.9 $30.5
Large Systems Products (1) 33.5 27.2
-------------------------
Total Products 99.4 57.7
Worldwide Services Group 31.5 25.6
-------------------------
Total Revenues 130.9 83.3
-------------------------
Gross Profit
Products 30.9 15.1
Services 10.7 7.1
-------------------------
Total Gross Profit 41.6 22.2
-------------------------
Selling, general and administrative expense 28.9 17.4
Research and development expense 3.6 2.5
------------------------
Income from operations 9.1 2.2
Interest expense 7.0 1.5
Interest income (.2) -
Other expense .2 .1
Provision for income taxes 1.1 .3
Minority interests in net income of subsidiaries 0.1 -
-------------------------
Net income $1.0 $0.4
-------------------------
Revenue Growth:
Small Systems Products (1) 116.4%
Large Systems Products (1) 23.2%
Total Products 72.4%
Worldwide Services Group 23.9%
Total Revenues 57.2%
Margin Data (as a percentage of revenues):
Gross Profit
Products 31.0% 26.3%
Services 34.1% 27.5%
Total Gross Profit 31.8% 26.7%
Selling, general and administrative expense 22.1% 21.1%
Research and development expense 2.7% 3.0%
Income from operations 7.0% 1.8%
</TABLE>
- ----------
(1) Certain Powerware Plus product lines were reclassified from
SSG to LSG during fiscal 1996. All periods were restated.
14
<PAGE>
Three months ended December 31, 1996 versus December 31, 1995
Revenues
Total revenues increased by 57% to $130.9 million in the first quarter of fiscal
1997 from $83.3 million in the first quarter of fiscal 1996, due to a 72%
increase in product revenues and a 23% increase in service revenues.
SSG revenues for the quarter ending December 31, 1996 increased by $35.4 million
or 116% over the same period of the prior year. Approximately 75% of this
increase was due to revenues generated by the acquisition of Deltec. Revenues
doubled in both domestic and international channels after inclusion of Deltec
revenues. SSG revenues in the Company's historical channels increased by 27%,
primarily due to growth exceeding 30% in Exide Electronics' Prestige product
family and growth of over 60% in the Company's ETG products for the CATV and
broadband communications markets. The increase in the Company's historical
channels was driven by domestic sales increases of 25% and international sales
increases of 38%. Revenues in Latin America rose over 100%, due in part to
operation of the Company's new subsidiary in Brazil. Revenues in Europe were up
over 20% from the prior year. Higher revenues were generally due to a higher
number of units sold, as opposed to increased unit prices.
LSG revenues for the first quarter of fiscal 1997 were 23% higher than in the
same period of fiscal 1996, due primarily to increased sales in commercial
channels which more than offset a decline in sales under the Company's program
with the Federal Aviation Administration (the "FAA Program"). Product revenues
under the FAA Program have been declining because the Company has completed the
shipment of systems and related ancillary products to the various FAA sites.
U.S. commercial revenues increased over 20%, while revenues in international
markets increased over 90% due primarily to sales from FPS and increased sales
in Europe and Latin America. Higher revenues were generally due to a higher
number of units sold, as opposed to increased unit prices.
WSG revenues for the first quarter of fiscal 1997 increased by $5.9 million or
23% over the same period of the prior fiscal year. WSG's U.S. commercial
revenues increased by 35%, and international commercial revenues doubled,
primarily due to consolidation of Deltec results. This growth was offset by a
decline of 26% in Federal service revenues over the prior year, mainly
attributable to the effect of declining FAA site service revenues. At December
31, 1996, the Company was installing systems at four FAA sites, versus eight
sites in the prior year. Installation of the remainder of the FAA systems
ordered is currently scheduled to be completed in fiscal 1997. Federal service
revenues are expected to decline approximately 50-60% in fiscal 1997 from $35.1
million in fiscal 1996, but the impact is expected to be substantially offset by
growth in commercial segments. WSG commercial revenue increases were a result of
a greater amount of services provided rather than an increase in the price of
the services.
Gross Profit
Gross profit increased by $19.4 million to $41.6 million in the first quarter of
fiscal 1997 from $22.2 million in the first quarter of fiscal 1996. Gross profit
as a percentage of total revenues increased to 31.8% in the first quarter of
fiscal 1997 from 26.7% in the same period of fiscal 1996. Product gross profit
margins rose to 31.0% in the first quarter of fiscal 1997 from 26.3% in the same
period of fiscal 1996, while service margins rose to 34.1% from 27.5% during
that same period. Product gross profit margins rose as a result of improved
product sales mix, cost reductions, and improved manufacturing operations.
Service margins increased for the quarter primarily due to a higher mix of
commercial revenues and operating improvements.
Selling, General and Administrative Expense
Selling, general and administrative expense increased $11.5 million to $28.9
million in the first quarter of fiscal 1997 (22.1% of revenues) from $17.4
million in the same period of fiscal 1996 (21.1% of revenues). This increase was
primarily attributable to incremental costs related to the operations of Deltec,
coupled with the amortization of intangible assets recognized in the Deltec
acquisition. Excluding these incremental expenses, SG&A expense increased $1.3
million year-over-year, due to expenses of new subsidiaries in Brazil and India,
higher expenditures in ETG and increased media spending. Selling expenses were
also affected by increased commissions expense due to higher revenues and a
larger proportion of revenue in commissionable channels than in the same quarter
of the prior fiscal year. SG&A expenses are expected to remain at approximately
21-22% of revenues for fiscal 1997.
15
<PAGE>
Research and Development Expense
Research and development expense increased $1.1 million to $3.6 million in the
first quarter of fiscal 1997 compared to the same period of fiscal 1996. As a
percentage of revenues, research and development expense decreased to 2.7% from
3.0% in the year-ago quarter, due to integration of product development efforts.
The Company expects research and development expenditures for the remainder of
the year to decline slightly as a percentage of sales.
Income from Operations
Income from operations increased $6.9 million to $9.1 million for the first
quarter of fiscal 1997 from $2.2 million in the same period of fiscal 1996,
primarily as a result of higher gross margins. As a percentage of revenues,
income from operations increased to 7.0% in the first quarter of fiscal 1997
from 1.8% in the same period of fiscal 1996.
Interest Expense
Interest expense increased to $7.0 million in the first quarter of fiscal 1997
from $1.5 million in the same period of fiscal 1996. The Company incurred
approximately $5.4 million in interest expense related to increased borrowings
used to finance the acquisition of Deltec, including interest on $125 million of
senior subordinated notes. The remaining increase is due to increased borrowings
to finance working capital and higher interest rates on the Company's credit
facility than in the prior year.
Provision for Income Taxes
The provision for first quarter fiscal 1997 income taxes reflects a consolidated
effective rate of approximately 50% as compared to approximately 38% for the
same period of fiscal 1996. The higher tax rate is due to the effect of
permanent differences, including goodwill related to the acquisition of Deltec.
The Company anticipates that its effective tax rate for fiscal year 1997 will be
approximately 50%.
Net Income
Net income for the first quarter of fiscal 1997 was $1.0 million, or $0.06 per
fully diluted share, as compared to net income of $0.4 million, or $0.04 per
fully diluted share, for the same period of fiscal 1996.
Quarterly Operating Results
The Company's quarterly operating results have fluctuated significantly.
Quarterly results depend upon the timing of product shipments and major systems
implementation services, which can be influenced by a number of factors. Some of
these factors are beyond the Company's control. The fourth quarter typically has
produced the largest portion of the Company's revenues and income. The Company
believes that the fourth quarter results reflect increased shipments resulting
from management incentives that are tied to annual sales performance, and
increased sales prompted by weather-related power disturbances during the spring
and summer months. The first quarter has typically produced the smallest portion
of the Company's revenues and income, so that there has been a historical
reduction in the Company's first quarter results as compared to the previous
fiscal year's fourth quarter. During fiscal years 1996, 1995, and 1994, revenues
generally increased for each quarter within the applicable year, but revenues
for the first quarter were lower than revenues for the fourth quarter of the
prior year.
Selling, general and administrative, and research and development expenditures
are incurred to support projected annual revenues. These expenses do not
necessarily vary proportionately with revenues on a quarterly basis. As a
result, variations in quarterly revenues may not be accompanied by an equivalent
change in expenses. Operating margins, therefore, may vary significantly between
quarters.
16
<PAGE>
Liquidity and Financial Condition
At December 31, 1996, the Company had $107.8 million of working capital, as
compared to $115.9 million at September 30, 1996 and $135.5 million at March 31,
1996 (immediately after the acquisition of Deltec). The decrease of
approximately $8.1 million in working capital from September 30, 1996 is
primarily the result of an increase in short-term debt, accounts payable and
other current liabilities. Working capital decreased $27.7 million since March
31, 1996, reflecting amortization of certain short-lived intangible assets
recognized in the Deltec acquisition, lower inventory levels, and increased
short-term debt levels reflecting increases in the current portion of the term
loan used to finance the Deltec acquisition. In addition, working capital has
been used to reduce the Company's long-term debt balance, which decreased $38.2
million since March 31, 1996. Cash generated from operations was $5.7 million in
the first quarter of fiscal 1997, as compared to cash used in operations of $0.5
million in the first quarter of fiscal 1996.
During the first quarter of fiscal 1997, the Company invested approximately $2.1
million in capital expenditures, as compared to approximately $3.9 million in
the same period of fiscal 1996. Capital expenditures were higher in fiscal 1996
as the Company consolidated its headquarters and integrated the facilities of
previously acquired companies. Capital expenditures for fiscal 1997 are expected
to approximate $12 to $14 million.
The Company's domestic bank credit facilities (the "Credit Facility") consist of
a revolving credit facility and a term loan in the original amounts of $125
million and $50 million, respectively. The Company had outstanding borrowings of
$59.0 million on the revolving credit facility and $46.3 million on the term
loan at December 31, 1996. Borrowings under the revolving credit facility are
limited to specified amounts of eligible accounts receivable and inventories, as
well as compliance with all applicable financial covenants. Remaining borrowing
capacity under the Credit Facility at December 31, 1996 is approximately $4.0
million. Outstanding borrowings are secured by substantially all the inventories
and accounts receivable of the Company, and the pledge of all of the capital
stock of all of the Company's material domestic subsidiaries and 66% of the
capital stock of its foreign subsidiaries.
Under the Credit Facility, the Company is subject to certain financial
covenants, including maintaining specified fixed charge coverage and leverage
ratios, and minimum net worth and earnings before interest, taxes, depreciation
and amortization ("EBITDA"). At December 31, 1996, the Company was in compliance
with all applicable covenants. The EBITDA covenant was $45.0 million for the
period ending Decemeber 31, 1996, as defined. The Company's actual EBITDA for
that period was $45.2 million.
Under the terms of the Credit Facility, the Company is required to hedge its
interest rate risk. As of April 30, 1996, the Company had entered into several
two-year interest rate cap agreements for a combined notional principal amount
of $65 million, which capped the Company's floating rate LIBOR index to a
weighted average rate of 6.5%. Premiums paid for the interest rate cap
agreements have been capitalized and are amortized and shown as interest expense
over the terms of the caps. Unamortized premiums are included with other assets
in the accompanying consolidated balance sheet. There are no receivables under
the cap agreements at December 31, 1996. In the future, such amounts, if any,
will be accrued as a reduction of interest expense.
In March 1996, the Company issued 125,000 units (the "Units") comprised of $125
million of 11.5% senior subordinated notes (the "Notes") and warrants (the
"Warrants") to purchase 643,750 shares of the Company's common stock. Each Unit
consisted of one $1,000 Note and one detachable Warrant to acquire 5.15 shares
of the Company's common stock at an exercise price of $13.475 per share, subject
to adjustment in certain events. Interest on the Notes is payable semi-annually
on March 15 and September 15, commencing on September 15, 1996. The Notes are
callable at the option of the Company, in whole or in part, on or after March
15, 2001, at predetermined redemption prices. The Notes are due and the Warrants
expire on March 15, 2006. The holders of the Warrants have no voting rights, no
right to receive dividends, and no liquidation rights in the event of a
liquidation, dissolution, or winding-up of the Company.
The Credit Facility and the Notes contain restrictive covenants which, among
other things, limit the Company's ability to incur additional debt, pay
dividends, consummate certain acquisitions, make certain asset sales, and permit
certain liens.
17
<PAGE>
The Company expects to finance its capital requirements in the future through
existing cash balances, cash generated from operations, and borrowings under its
credit facilities. Based on the current level of operations and anticipated
growth, management believes that cash flow from operations, together with
available borrowings under its credit facilities and other sources of liquidity,
will be adequate to meet the Company's anticipated future requirements for
working capital, capital expenditures, and scheduled payments of principal of
and interest on its indebtedness. The Company believes that its cash flow from
operations and its bank facilities will be sufficient to meet its short-term
requirements for working capital and capital expenditures, however, no
assurances can be given that the Company's business will generate sufficient
cash flow from operations or that future working capital borrowings will be
available in an amount sufficient to enable the Company to service its
indebtedness, or make necessary capital expenditures.
As a result of the Deltec acquisition, revenues generated and assets located
outside the U.S. have increased significantly. The Company may be limited in its
ability to repatriate offshore profits without incurring a substantial tax
liability. Therefore, while legally available to meet the Company's cash
requirements, such funds may not be economically available.
Litigation
The Company is involved in various litigation proceedings incidental to its
business. The defense of most of these matters is handled by the Company's
insurance carriers. The Company believes that the outcome of such pending
litigation in the aggregate will not have a material adverse effect on its
financial statements. See Item 1, "Legal Proceedings" elsewhere in this Form
10-Q.
Contingencies
Government Contract Matters
Sales to the United States Federal government accounted for approximately 8% and
19% of total revenues for the quarter ended December 31, 1996 and 1995,
respectively, and approximately 13% and 27% of total revenues for fiscal years
1996 and 1995, respectively. The Company's contracts with the Federal government
have no significant minimum purchase commitments, and the government may cease
purchases under these contracts at any time for any reason. These contracts are
subject to termination at the convenience of the government pursuant to the
terms of the contracts. The Company's compliance with government contract
regulations is audited or reviewed from time to time by government auditors, who
have the right to audit the Company's records and the records of its
subcontractors during and after completion of contract performance, and may
recommend that certain charges be treated as unallowable and reimbursement be
made to the government. The Company provides for estimated unallowable charges
and voluntary refunds in its financial statements, and believes that its
provisions are adequate as of December 31, 1996.
During the fourth quarter of fiscal 1996, the Company was awarded a follow-on
contract with the Air Force Air Logistics Center (the "ALC II Contract"). The
requirements contract, which has a base term of three years and a two-year
renewal option, was awarded to the Company as a result of a new bid process
following a protest of an earlier award to the Company of a similar contract in
June 1995. In October 1996, the Company was notified by the Air Force that a
competitor had filed a protest with the General Accounting Office ("GAO")
contesting the award of this contract to Exide Electronics. As required by the
rules governing government contract protests, work under the contract was
automatically suspended. In January 1997, the Company was notified by the Air
Force that the GAO had advised the Air Force that all claims in the protest had
been denied. A motion seeking reconsideration of the denial of the protest of
the contract award has been filed with the GAO by the competitor and is pending
GAO review. However, this motion does not impact the Company's ability to begin
performance under the ALC II Contract. The GAO may decide on the motion for
reconsideration at any time. It is unknown whether further appeals will be made
by the competitor who filed the protest. There have been no material purchases
to date under the ALC II Contract. There can be no assurances that the ALC II
Contract will remain in effect for any definite period or that the Air Force
will place orders with the Company against such contract.
18
<PAGE>
Foreign Currency Exposures
International sales accounted for approximately 42% and 33% of total revenues
for the three months ended December 31, 1996 and 1995, respectively, and
approximately 37% and 31% of total revenues for fiscal years 1996 and 1995,
respectively. A significant portion of the Company's international sales are
denominated in foreign currencies. As of December 31, 1996, approximately 33% of
the Company's total assets were located outside the United States, primarily in
Europe. Significant fluctuations in foreign currency exchange rates can result
in gains or losses on foreign currency transactions, which are recorded in the
consolidated statement of operations. Fluctuations in the recorded value of the
Company's net investment in its international subsidiaries resulting from
changes in foreign exchange rates are recorded in the cumulative translation
adjustments component of common shareholders' equity. The Company hedges these
risks using a combination of natural hedges such as foreign currency denominated
borrowings and, from time to time, foreign currency financial instruments.
European, Japanese and Latin American currencies have been especially volatile
over the last two years. As of December 31, 1996, the Company had accounts
receivable and accounts payable totaling approximately $9.1 million that were
exposed to fluctuations in exchange rates. These balances are spread among
various currencies, primarily the French franc. No material foreign currency
instruments were outstanding to cover these balances.
Environmental Matters
The Company's operations are subject to Federal, state, local, and foreign
environmental laws and regulations relating to the storage, handling, and
disposal of hazardous or toxic materials and discharge into the environment of
regulated pollutants. In the last three fiscal years, the Company's capital
expenditures for environmental compliance have not been significant. To the best
of the Company's knowledge, there are no known existing or potential
environmental claims against the Company that are likely to have a material
adverse effect on the Company's business and the financial statements of the
Company and its subsidiaries taken as a whole.
Disclosure Regarding Forward-Looking Statements
The disclosures included in this Form 10-Q, including documents incorporated by
reference herein and therein, contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These statements are
identified by words such as "expect," "anticipate," "should" and words of
similar import. Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of which
might not even by anticipated. Future events and actual results, financial and
otherwise, may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in this Form 10-Q and other matters
detailed from time-to-time in the Company's Securities and Exchange Commission
filings, including the Company's Forms 10-Q and 10-K.
19
<PAGE>
PART II - OTHER INFORMATION
DECEMBER 31, 1996
ITEM 1. Legal Proceedings
On August 21, 1995, a case entitled National Broadcasting Company, Inc. and
CNBC, Inc. vs. International Power Machines/Lortec Systems Inc. et al, was filed
against International Power Machines ("IPM") in the Supreme Court of New York,
New York County. The plaintiffs allege that IPM negligently manufactured and
installed a UPS product that caused them property and compensatory damages when
the equipment malfunctioned during the installation of the product by
third-party contractors. The plaintiffs have filed seven causes of action, each
of which seeks damages in the amount of $1.1 million. Three of those causes of
action also seek $3 million in punitive damages. Claims of this nature are
generally covered by the Company's insurance and its insurer has accepted
general defense of the matter. The insurer has notified the Company that while
claims based on IPM's negligent manufacture or design are covered by the
insurance policy, damages, if any, caused by IPM's intentional or careless
decision to install a known defective and dangerous product would be subject to
certain exclusions under the policy. While discovery is in progress, the
Company believes at this time, based on the advice of of its defense counsel,
that no evidence has yet been presented that supports any allegation of
intentional or careless conduct. IPM also believes that it has meritorious
defenses and counter-claims against the third-party co-defendants, who the
Company alleges defectively installed the UPS product. The Company believes that
the final outcome of this matter will not have a material adverse effect on the
business or the financial statements of the Company and its subsidiaries taken
as a whole.
The Company is involved in various litigation proceedings incidental to its
business. The defense of most of these matters is handled by the Company's
insurance carriers. The Company believes that the outcome of such other pending
litigation in the aggregate will not have a material adverse effect on its
financial statements.
20
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Description
11 Statement of Computation of Per Share Earnings.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a report under Item 5, Other Events, on Form 8-K on
October 28, 1996, relating to the filing of a press release announcing the
Company's earnings for the fourth quarter and fiscal year ended September
30, 1996.
21
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXIDE ELECTRONICS GROUP, INC.
(Registrant)
Date: February 14, 1997 By: /s/Marty R. Kittrell
Marty R. Kittrell
Vice President and
Chief Financial Officer
22
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
EXHIBIT INDEX - FORM 10-Q
DECEMBER 31, 1996
Exhibit
Number Description
11 Statement of Computation of Per Share Earnings.
27 Financial Data Schedule.
EXHIBIT 11
EXIDE ELECTRONICS GROUP, INC.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share data)
PRIMARY
Three Months Ended
Dec. 31,
------------------
1996 1995
---- ----
Net income $ 959 $ 413
Preferred stock dividends and accretion 342 -
--- ---
Net income applicable to common shareholders $ 617 $ 413
======= =======
Net income per common and equivalent share $ 0.06 $ 0.04
======= =======
Primary Share Base:
Weighted average number of common shares
outstanding 9,983 9,091
Weighted average number of common
stock equivalents 39 120
--- ---
Weighted average number of common and
equivalent shares outstanding 10,022 9,211
====== =====
<PAGE>
FULLY DILUTED(1)
Three Months Ended
Dec. 31,
------------------
1996 1995
---- ----
Net income $ 959 $ 413
======= =======
Net income per common and equivalent share $ 0.09 $ 0.04
======= =======
Fully Diluted Share Base:
Number of common shares outstanding,
end of period 10,049 9,380
Assumed conversion of preferred stock 1,000 --
Weighted average number of common
stock equivalents 40 120
--- ---
Weighted average number of common and
equivalent shares outstanding 11,089 9,500
====== ======
(1) This calculation is submitted in accordance with Regulation S-K item
601 (b)(11), although it is contrary to APB Opinion No. 15 because it
includes the conversion of all convertible securities, even though the
conversion of certain of these securities produces an anti-dilutive effect
on fully diluted earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE EXIDE
ELECTRONICS GROUP, INC. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CAPTION>
<S> <C>
<MULTIPLIER> 1000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3460
<SECURITIES> 0
<RECEIVABLES> 124285
<ALLOWANCES> 0
<INVENTORY> 99519
<CURRENT-ASSETS> 246840
<PP&E> 48648
<DEPRECIATION> 41946
<TOTAL-ASSETS> 486521
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0
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