Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended March 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number 1-11263
EXIDE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 23-0552730
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
645 Penn Street
Reading, Pennsylvania 19601
Telephone: (610) 378-0500
(Address, including zip code, and telephone number, including
area code, of Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
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 [_].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [_].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 23, 2000 was approximately $172,568,000. There were
21,403,831 outstanding shares of the Registrant's common stock as of June 23,
2000.
(DOCUMENTS INCORPORATED BY REFERENCE)
Portions of the Proxy Statement relating to the Annual Meeting of
Stockholders to be held August 11, 2000, are incorporated into Part III of this
report.
EXIDE CORPORATION
PART I
Item 1. Business
(a) General Discussion of Business
Exide is a Delaware corporation organized in 1966 to succeed to the
business of a New Jersey corporation founded in 1888. Our principal executive
offices are located at 645 Penn Street, Reading, Pennsylvania 19601 and our
telephone number is (610) 378-0500.
We are the largest producer of lead acid batteries in the world, with
fiscal 2000 net sales of approximately $2.2 billion. Through acquisitions,
including GNB Technologies, Inc. discussed below, and internal growth, we hope
to become the world leader in electric energy storage solutions. We manufacture
automotive batteries in North America and automotive and industrial batteries in
Europe. We market our automotive batteries to a broad range of retailers and
distributors of replacement batteries and automotive original equipment
manufacturers. Our industrial batteries consist of traction batteries, such as
those for use in forklift trucks and other electric vehicles, and standby
batteries used for back-up power applications, such as those for
telecommunications systems.
Prior to 1994, we operated primarily in North America. As a result of an
acquisition program, we have become the largest battery manufacturer in Europe.
Our European and North American operations represented 64% and 36%,
respectively, of our fiscal 2000 net sales. Our customers include NAPA,
DaimlerChrysler, CSK, Kmart, The Pep Boys, and John Deere International in the
North American market and Volkswagen, Fiat, PSA, Renault, Telefonica and the
Linde Group in the European market.
Beginning in April 2000, we reorganized into the following six global
business units to better serve our customers worldwide:
. Transportation: Original Equipment
. Transportation: Aftermarket
. Motive Power
. Standby
. Military
. Emerging Technologies
Robert A. Lutz, Chairman and Chief Executive Officer, leads our new Office
of the Chairman, which includes Craig H. Muhlhauser, our newly appointed
President and Chief Operating Officer, and Kevin R. Morano, our newly appointed
Executive Vice President and Chief Financial Officer. Mr. Lutz was most recently
the Vice Chairman, President and Chief Operating Officer of Chrysler
Corporation.
Pending Acquisition of GNB
On May 9, 2000, we announced an agreement to acquire global battery maker
GNB Technologies, Inc. ("GNB") from Pacific Dunlop Limited. Headquartered in
Atlanta, Georgia with sales of approximately $1 billion annually, GNB is a
leading U.S. and Pacific Rim manufacturer of both automotive and industrial
batteries. GNB has operations in the U.S., Australia, New Zealand, Canada,
Europe, Japan, South Asia, China, India and the Middle East. GNB produces
automotive batteries under the Champion, Stowaway and National brands, among
others, and is a major supplier to automotive manufacturers in North America and
Australia. GNB also supplies
1
industrial batteries in North America, including those used in both motive and
standby-power applications. The acquisition, for consideration of approximately
$368 million (including $333 million in cash and four million Exide common
shares) plus the assumption of liabilities, cleared U.S. antitrust review in
June 2000 and is expected to close in fiscal 2001, subject to financing and
other foreign regulatory approvals and settlement of certain non-compete
agreements.
(2) Financial Information About Segments
During fiscal 2000, we were primarily engaged in one industry segment,
namely, the manufacture, distribution and sale of lead acid batteries within
North America and Europe. See Note 16 to the Company's Consolidated Financial
Statements appearing elsewhere herein.
(3) Narrative Description of Business
Exide is the largest producer of lead acid batteries in the world, with
fiscal 2000 net sales of approximately $2.2 billion. We manufacture automotive
batteries in North America and automotive and industrial batteries in Europe.
Beginning in fiscal 2001, we began a strategic focus to address existing and
potential customer needs on a global basis with the creation of six global
business units:
. Transportation: Original Equipment
. Transportation: Aftermarket
. Motive Power
. Standby
. Military
. Emerging Technologies
Transportation: Original Equipment and Aftermarket
Transportation batteries include batteries for cars, trucks, off-road
vehicles, agricultural and construction vehicles, motorcycles, recreational
vehicles, boats, and other similar applications. Transportation batteries
represented approximately 64% of our net sales for fiscal 2000. We believe we
have the most complete and technologically innovative line of transportation
batteries in the North American and European markets. We market our products
under various trademarks including Exide, Willard, Tudor, DETA, Centra, Fulmen
and Prestolite. We also produce and market the Exide Select, including the
Orbital Battery, and NASCAR Select lines of batteries that are officially
licensed by NASCAR.
In North America, we are the second largest manufacturer of transportation
batteries. The market is divided between sales to original equipment
manufacturers and aftermarket sales.
The North American transportation battery market experienced significant
consolidation in the early 1990s, resulting in four principal battery
manufacturers. In recent years, aggressive price competition has been the
defining characteristic of this market. We believe this was the result of
increased buying power among our customers resulting from industry
consolidation. The aftermarket battery market in North America has a more
concentrated customer base than the European battery market.
In Europe, we are the largest manufacturer of transportation batteries.
The European transportation battery market was fragmented until Exide purchased
four automotive battery manufacturers beginning in 1994. As a result of its
acquisitions, Exide now has the largest combined automotive battery market share
in Europe.
2
Transportation: Original Equipment
The original equipment manufacturer market consists of the sales of
batteries to manufacturers of automobiles and trucks, buses and off-road
agricultural and construction vehicles.
The following represents the most important factors affecting the original
equipment manufacturer market:
. The strength of the market for passenger cars, light trucks and sports
utility vehicles
. Significant consolidation in the automotive industry (e.g. DaimlerChrysler,
Renault/Nissan, Ford/Volvo, GM/Saab/Fiat)
. Globalization of original equipment manufacturer procurement activities,
which pressure suppliers to do likewise and result in product
standardization and lower prices
. Movement of several original equipment manufacturers into the aftermarket
business (i.e. Ford/Kwik Fit)
. Emergence of multi-battery and managed electrical energy systems
Exide plans to address these factors by taking advantage of our:
. strong market position,
. global manufacturing and distribution system,
. knowledge of lead-acid and advanced battery technologies, and
. advanced research and development.
Our original equipment manufacturer customers in North America include
DaimlerChrysler, for whom we are the primary battery-supplier, as well as John
Deere International, Mitsubishi, Case/New Holland, and Navistar.
Our principal European original equipment manufacturer customers are Fiat,
VW/Audi, the PSA group (Peugeot S.A./Citroen), the Renault group, BMW and Ford.
Transportation: Aftermarket
We sell aftermarket batteries principally through retail automotive parts
chains and mass merchandisers, car and truck dealers, and wholesale distributors
who supply service stations, repair shops, automotive and farm-equipment
dealers, and small retailers. We also produce automotive-type transportation
batteries for commercial applications, such as trucks, farm equipment, tractors
and other off-road vehicles, as well as specialty batteries for marine and
garden tractor applications. We believe the market for these specialty
batteries is increasing faster than the market for conventional automotive
batteries.
Demand for conventional automotive replacement batteries is influenced by
the following principal factors: (1) the number of vehicles in use, (2) average
battery life, (3) the average age of vehicles and their condition, (4) seasonal
weather conditions and (5) general population growth and economic conditions.
The ratio of battery usage to vehicles in use has increased slightly in recent
years, reflecting higher average miles of vehicle usage and an increasing number
of vehicles used in warm climates. Aftermarket demand is more stable than the
original equipment market since it is not affected by the cyclical nature of new
vehicle demand. The replacement market is also larger in general than the
original equipment segment, since automotive batteries tend to require
replacement every three to five years.
We market our aftermarket batteries to a broad range of retailers and
distributors. We are the leading supplier for NAPA Distribution Centers as
3
well as many of the largest battery retailers in the United States, including
Kmart, Pep Boys and CSK Inc. We are also the largest supplier of authorized
replacement batteries for DaimlerChrysler and John Deere International, and we
began supplying to Briggs & Stratton in the fourth quarter of fiscal year 2000.
Our North American aftermarket operations includes our branch division.
Our wholesale distribution branches throughout the United States and Canada sell
and distribute batteries and other products to local auto parts retailers,
service stations, repair shops, fleet operators, battery jobbers and other
smaller volume customers. The branches also deliver batteries to our national
account customers' stores and collect used and spent batteries for recycling.
Our branch system is supplemented by regional accounts, small battery
wholesalers, and installers.
We are constantly striving to improve our aftermarket battery products. We
are emphasizing our more profitable products, such as our NASCAR-licensed Exide
Select and Orbital Select product lines, and have selectively instituted price
increases for some products. During fiscal 2000, we introduced our "Fresh Check"
seal and plain language dating on every North American manufactured aftermarket
battery.
Our principal North American automotive battery products include the
following:
Product Description
Exide standard, heavy-duty This is our principal product line and includes
and premium a comprehensive range of maintenance-free lead-
acid batteries from our basic low-cost battery
with average power and cold cranking amps and a
50-60 month warranty to our premium battery with
enhanced power and a 72-month warranty. We sell
these batteries under the Exide brand name and
various private labels.
Exide Select, officially Our Exide Select batteries are officially
licensed by NASCAR licensed by NASCAR, and sell for a premium over
ordinary batteries due to their exceptional
quality and the strong brand loyalty of NASCAR
fans. Exide Select batteries include a number of
features differentiating them from ordinary
batteries, including their increased durability,
resistance to vibration and premature failure,
and extended battery performance and life.
Exide Select Orbital We recently introduced this innovative spiral
wound battery in North America as the Exide
Select Orbital/NASCAR. Through its patented
technology and state-of-the-art recombinant
design, this battery holds its charge longer,
has a shelf life of up to 18 months (compared to
three to six months for conventional batteries),
can be recharged in a fraction of the time
needed for conventional batteries, has greater
power output and resists vibration better than
any standard lead-acid battery, including our
NASCAR Select line. This battery is totally
sealed, which completely eliminates leaks and
spills and allows it to be shipped via overnight
carrier.
We also produce automotive-type batteries for commercial applications, such
as trucks, farm equipment, tractors and other off-road vehicles, as well as
specialty batteries for marine and garden tractor applications for the
recreational vehicle market. We produce the Full Timer battery, which employs
advanced technology as the large engines, sophisticated electronics and
extensive on-board accessories common in today's recreational vehicles require
increased power. For the marine market, we produce the Exide Select Orbital
Marine, which brings all the advantages of Exide's patented Orbital technology
4
to the marine market. The Orbital Marine maintains nearly a full charge during
the off season, and can be easily recharged when necessary by most conventional
charging systems, unlike typical marine gel-cell batteries that often require
specialized charging equipment and long charging times. This battery is also
totally sealed, making it ideal for closed environments (such as inside a boat
hull). The Exide Select Orbital Marine starting battery will even deliver full
power if accidentally submerged. We also produce the Nautilus Gold Dual Purpose,
a combination battery, replacing separate starting and deep cycle batteries in
two-battery marine and recreational vehicle systems, and the Nautilus Mega
Cycle, a high performance, dual terminal battery. We believe that the markets
for these specialty batteries are increasing faster than the market for
conventional automotive batteries.
We have a leading position in the automotive aftermarket in most European
countries and our customers include ADI, KWIK FIT and many other leading
aftermarket battery distributors. We sell our aftermarket batteries in Europe
under a variety of well-known brand names, including Exide, Fulmen, DETA, Tudor,
SONNAK, and Centra.
Sales of automotive batteries in the European aftermarket are affected by
the same major factors influencing the aftermarket in North America. In Europe,
mass merchandisers are not yet as important as they are in North America, but
they have gained market share in recent years. Also, buying groups representing
smaller battery resellers have grown and begun to expand to cover multiple
countries. Nonetheless, the European aftermarket is still much less concentrated
than that in North America. We believe Exide's worldwide operations have made us
the best-positioned manufacturer to supply mass merchandisers, buying groups and
individual resellers.
Our European operations distribute their aftermarket automotive batteries
primarily through battery wholesalers, OEM dealer networks, hypermarkets,
European purchasing centers and oil companies. Wholesalers and OEM dealers have
traditionally represented the majority of this market, but supermarket chains,
replacement-parts stores (represented by purchasing associations) and
hypermarkets have become increasingly important. Battery wholesalers now sell
and distribute batteries to a network of automotive parts retailers, service
stations, independent retailers, and supermarkets throughout Europe.
Our European product offerings vary by market. We generally offer a basic
model, an upgrade model, a premium model and various niche products in each
market. The following describes our product offerings in the United Kingdom and
is representative of our product offerings elsewhere in Europe:
Product Description
Basic This is our standard low-cost battery. It uses traditional
lead-acid technology, has average power and cold-cranking
capabilities, carries a 12-month warranty and is adequate for
most conventional automotive uses. The same or similar battery
is marketed under private label brand names in France, Germany
and Spain, under the Basic name in Italy and under various
other names in other markets.
5
Classic This is our upgrade model. It still uses traditional lead-acid
technology, but has increased power and cold-cranking
capabilities. This battery carries a 24-month warranty and
sells for an approximately 15% premium over our Basic battery.
The Classic is our best-selling battery in the European market.
The same or similar batteries are marketed under the Equipe
name in France, the Classic name in Germany, the Leader name in
Italy, the Tudor name in Spain and under various other names in
other markets.
Ultra This is our premium model. It has a number of features that
differentiate it from ordinary batteries, including 30% more
power and a 36-month warranty. The Ultra sells for an
approximately 25% premium over our Basic battery. The same or
similar batteries are marketed under the Formula name in
France, the Top Start Plus name in Germany, the Ultra name in
Italy, the Millennium 3 name in Spain and under various other
names in other markets.
STR/STE Our STR batteries use recombination technology to allow a lead
acid battery to be installed in the passenger compartment of an
automobile with no risk of fluid loss or acid fumes. We
recently announced the introduction of batteries using our new
STE (sealed technology evolution) technology, which uses a gas
permeable membrane to prevent leakage of battery fluid while
permitting gas to escape. Our STE technology has been approved
for use by BMW and was included in some models beginning with
the 2000 model year.
Maxxima This is the equivalent of the Exide Select Orbital described
above. We will market this battery under the Maxxima brand name
throughout Europe.
Industrial Batteries: Motive Power and Standby
Sales of industrial batteries represented approximately 33% of our net
sales for fiscal 2000. Industrial batteries include motive power batteries and
standby batteries. In Europe, we believe we have the leading position in both
the motive power and standby segments of the industrial battery market.
Technical expertise and assistance and customer service are more important
in the industrial battery market than in the transportation battery market. We
have technical service agreements with a number of our customers. As with
transportation batteries, we work closely with our customers as they develop new
products, designing batteries to meet their individual needs. We built our
European industrial battery business primarily by acquiring existing
manufacturers with established brand names, and we continue to market our
products under these brands, as they each have an established reputation for
quality and expertise in particular technologies.
Motive Power Batteries
Our motive power batteries are fundamentally two-volt cells assembled in
numerous combinations and sizes to provide capacities ranging from 30 Ah to 1500
Ah. Apart from specializing in conventional vented lead acid technology
utilizing leading edge tubular positive-plate cell design, Exide also offers
other battery technologies to satisfy ever-changing motive power requirements.
These include maintenance-free monobloc batteries incorporating gelled
electrolyte and copper-stretched metal technology (CSM) for optimum high
performance applications.
6
The materials handling industry provides the single largest market for
motive power batteries, typically including forklifts, electric counter balance
trucks, pedestrian pallet trucks, low level order pickers, turret trucks, tow
tractors, reach trucks and VNA (very narrow aisle) trucks.
Other market segments requiring motive power products include;
scrubber/dryer and sweeper machines in the floor cleaning market, scissor lifts,
access platforms and telescopic zooms in the access market, buggies and carts in
the golf market, mobility equipment in the wheelchair market, mining
locomotives, electric road vehicles, electric boats and submarines.
Complementary to our motive power battery portfolio is an extensive range
of battery chargers, watering and maintenance equipment and battery transfer
equipment. Combined with the company's technological and service expertise, we
are well positioned, globally, to offer complete solutions for motive power
markets.
Much like the transportation battery market, the motive power battery
market is divided into the original equipment market, comprised of the
manufacturers of the electric vehicles described above, and the replacement
market, which includes large users of such electric vehicles as well as original
equipment dealer networks. Our major motive power customers in Europe include
the materials-handling operations of the Linde Group (Germany), Junghreinrich
Group (Germany), Atlet (Sweden), BT Rolatruc (Sweden) and Nacco Material
Handling (U.S.). We also sell our motive power products to a wide range of
customers in the aftermarket, ranging from large industrial concerns and retail
distributors to small warehouse and manufacturing operations. In Europe, we
generally sell customers a complete package of batteries, chargers and services
and, increasingly, are providing full service maintenance contracts. The
majority of our sales are to original equipment manufacturers, especially since
these manufacturers increasingly rent, rather than sell, their electric vehicles
to end users. This trend tends to favor us, as we have larger market shares in
the original equipment market. We sell our motive power batteries, chargers,
accessories and post-sale service primarily through our own sales organization
in each country and use distributors and agents for export from Europe. Our
service group, the largest in Europe, is an important component of our marketing
efforts, particularly as the vehicle manufacturers make up a larger part of the
market and require service assistance whenever they sell or rent their products.
We distribute motive power batteries through OEM dealers, independent
distributors and directly to large fleet users. Our European operations also
distribute traction batteries through their own branch network.
The European motive power market depends primarily on the strength of the
market for materials handling equipment, which in turn is influenced by general
economic conditions affecting the demand for this type of equipment. This
market has benefited from a trend toward electric (rather than internal
combustion) industrial vehicles and by the growth of warehousing and mass
merchandisers in Europe. The increasing domination of this market by original
equipment manufacturers of these vehicles, rather than end users, has given the
manufacturers greater buying power. Furthermore, with the advent of the Euro
and the greater price transparency that comes with it, these vehicle
manufacturers have been able to standardize prices at a lower level.
Standby Batteries
Standby (also known as stationary) batteries are used for back-up power
applications, to ensure continuous power supply in case of main (primary) power
failure or outage. In today's electronic and digital world, back-up power
devices incorporating standby batteries are used in most electric power systems,
including those used in telecommunications, computers, hospitals, airports,
traffic control, elevators, security/alarm systems, electrical power plant
systems and military equipment.
7
One of the largest and fastest growing standby segments is
telecommunications. Consumers of telecommunications batteries consist of
manufacturers of switches and other equipment, and the system operators. The
growth in the battery demand for telecommunications has been especially fueled
by the deployment in every country of multiple cellular and wireless mobile
communication systems where each transmitting base station requires a set of
standby batteries. Other telecommunications applications include central and
local switching systems (PABX), satellite stations, optical fiber repeating
boxes, cable TV boxes and radio transmission stations. In these applications,
the batteries are usually packaged with a 48V DC power system.
The next largest segment of the standby market is uninterruptable power
supplies (UPS) that are used in computer installations, such as for banks,
airlines and to back up servers for the internet. UPS battery customers consist
of the system manufacturers and end users. Growth in this area has paralleled
the growth in computer systems.
The European standby market has a diverse customer base. Our major standby
battery product customers include telecommunications companies, such as British
Telecom, France Telecom, Deutsche Telekom, Telecom Italia, Telefonica of Spain
and Vodaphone; manufacturers of telecommunications equipment, such as Ericsson,
Ascom and Alcatel; manufacturers and end users of UPS primarily for mainframe
computer systems, such as Siemens and Emerson-Liebert; electrical generating
companies and various European governments and armed forces. We sell our
products directly to these customers and promote our products by holding
seminars, participating in trade shows and distributing technical literature.
Given the importance of service and technical assistance, our European
operations generally ship standby batteries directly to system suppliers and UPS
manufacturers who include the standby batteries in their equipment and
distribute products to end users.
Our standby batteries are marketed under four well-recognized brands:
Sonnenschein, Tudor, Hagen and Fulmen. Sonnenschein is being developed as our
global standby brand while our other brands are used on a more limited local
basis. Our batteries come in a variety of shapes and sizes and are generally
categorized according to both their technology and their end use.
We produce standby batteries using three main technologies:
Technology Description
Dryfit This technology is utilized in our maintenance-free sealed
batteries (valve-regulated) using a gel electrolyte.
Maintenance-free sealed batteries have progressively
replaced other types of standby batteries in the market
because of their convenience - they can be used in both
vertical and horizontal positions. The Dryfit gel
electrolyte technology was invented by Exide (Sonnenschein)
and presents the added advantages of high reliability and a
proven operating life of up to 18 years. Our ten Dryfit
product ranges offer a wide array of features such as heat
resistance, deep discharge resistance, long shelf life, and
high cyclic performances. Dryfit is regarded by many
customers as the most reliable standby battery in the
market.
8
AGM This technology is also used in maintenance-free sealed
batteries, but differs from Dryfit in that these batteries
feature an absorbent glass mat as a separator. More
economical than Dryfit, this technology is particularly well
adapted to shorter back-up time and can feature up to a 10-
year design life. A total of five different ranges are
available to cover most of the market requirements. A number
of new product developments are currently being processed
including higher rated UPS batteries and high power density
batteries featuring exceptional volumetric performances.
Flooded This technology is used in traditional products offering
high reliability but requiring regular maintenance. The
basic construction involves positive flat or tubular
positive plates. Among other features, transparent
containers and easily accessible internal construction allow
consumers to check the precise battery status and predict
potential failures, thus enhancing reliability.
Military
Exide is one of the world's leading suppliers of submarine batteries
utilizing copper-stretched metal technology (CSM). Our customers include the
navies of France, Italy, Spain, Germany, Denmark, Norway, Sweden, Turkey,
Singapore and many other countries.
Although our core business has traditionally been lead-acid batteries, we
are also an important provider of non lead-acid batteries for high-technology
military and space applications. Our lithium primary batteries are on board
every space shuttle flight.
Emerging Technologies
Emerging Technologies is responsible for identifying new energy storage
technologies we can commercialize as part of stand-alone products or systems.
We believe we will benefit from the general trend towards increasing
requirements for stored energy, as necessitated by the rapid expansion of such
areas as mobile data transmission, mobile communications and business-to-
business use of the internet.
Developing technologies, including advanced batteries, fuel cells, ultra
capacitors, personal transportation systems and portable information systems
have the potential to be successfully commercialized by Exide through the
utilization of our in-house technology development, our joint-venture partners,
and future technology acquisitions from both private and public sources. We are
also pursuing several long-term development programs with key customers
targeting specific products.
Dual-Graphite Technology
Our dual-graphite technology is the first advanced battery technology
program in our pipeline targeted for full commercial development. In December
of 1999, we acquired a controlling interest in Lion Compact Energy, a privately
held company conducting research in dual-graphite technology. Lion Compact
Energy has produced numerous prototype batteries using dual-graphite energy
storage. We estimate that, in full production, the dual-graphite battery will
produce more than three times the power of today's most advanced batteries.
Additionally, the new batteries should occupy far less space, at about half the
weight and cost less than today's most advanced production batteries.
9
The initial applications being pursued for our dual-graphite battery
include electric vehicles and hybrid electric vehicles, standby power for
utility companies, laptop computers and portable military equipment.
Markets
In North America, we are the second largest manufacturer of automotive
batteries. The North American automotive battery market has a more concentrated
customer base than that in Europe. We compete for sales in both the aftermarket
and the original equipment market primarily with three other major battery
manufacturers. The North American automotive battery market has experienced
aggressive price competition for many years.
In Europe, we are the largest manufacturer of both automotive and
industrial batteries, with a broad range of product offerings and a pan-European
customer base. The European battery market has undergone consolidation in
recent years, and Exide has been a major participant in this process.
Historically, there was less price competition in European battery markets than
in North America. Recently, however, intense price competition has emerged as a
number of competitors have sought to increase market share. This price
competition has been made worse by an environment of low-priced imports, excess
capacity and declining lead prices.
Quality
We recognize that product performance and quality are critical to our
success and have spent the past five years in a company-wide quality improvement
effort. As a result, we now believe that our product performance and quality
are equal to or better than that of any market participant.
Our quality effort begins in the design phase. We design our batteries to
meet and exceed industry benchmark quality standards, using robust design
parameters and quality materials to achieve reliability and durability. Our
commitment to quality continues through our production process. We have quality
audit processes in each of our production facilities and our plant managers'
compensation is based, in part, on the achievement of quality objectives. We
have established an employee Lead Quality Continuous Improvement Team, and many
of our plants also give quality-related bonuses to all hourly employees. Our
quality program extends past the point of sale. We offer warranties on our
products and conduct regular customer satisfaction surveys. All of our North
American battery operations are now QS 9000 compliant.
In Europe, all of our major factories are ISO 9001 approved and we have
grade-A quality certification from Renault and PSA Group, BMW, VW/Audi and Fiat
and Q1 approval from Ford. In addition, several of our European plants are AQAP
approved by the military. We also hold individual certifications from 100% of
our major industrial battery customers, such as Deutsche Telekom, Telecom
Italia, Telefonica, French Railways (SNCF), as well as from large systems
integrators such as Siemens, Ericsson and Alcatel. All of our traction
batteries meet the applicable BSI or DIN standards.
Research and Development
We are committed to introducing new and technologically advanced products
that provide better performance and value to the customer. To support this
commitment, we dedicate significant effort to research and development. Our
research and development team benefits all of our global business units by
continually improving and advancing our existing technologies.
10
We operate five research and development facilities in the United States
and Europe. Scientists and engineers at each of these facilities are currently
focused on projects to enhance the lead-acid battery.
We also operate six product/process-development centers around the world.
These centers work cooperatively to define and improve our production processes
and are currently working on projects related to continuous grid making
processes, battery assembly automation and various other efficiency and quality
improvement programs. By maintaining these various sites, we have been able to
transfer technologies and processes among our various operating facilities,
thereby adapting best practices from around the world for use in our various
production facilities.
We believe our research and development efforts provide us with a
competitive advantage in technological innovation. We are constantly working on
new products, including smart batteries capable of indicating state of charge,
and advanced batteries with gelled electrolyte for other applications. At the
same time, original equipment manufacturers are designing vehicles with more
compact engine compartments. To compete effectively, we have to continue to
design smaller and more flexible batteries that can generate increased power.
We are also working closely with European original equipment manufacturers
to develop, and have supplied them with prototypes of, new 36- and 42-volt
batteries for the next generation of dual-battery automotive electrical systems.
As the power requirements of automotive electronics continue to increase,
automotive manufacturers are designing new vehicles that will require higher
voltage electrical systems needing larger or multiple batteries. These new
systems will generally require a 12-volt battery for lighting systems and other
low power consumption accessories within the automobile and a 36-volt or 42-volt
battery, which is needed for the next generation of combined starter
motor/alternators and for high power-consumption accessories such as AC power
and electrical heating and cooling systems. European original equipment
manufacturers plan to include high-voltage electrical systems in certain luxury
models as early as the 2002 model year. We believe our European experience with
these higher voltage electrical systems will provide us with a competitive
advantage when the North American OEM market moves toward a higher voltage
electrical system, which is anticipated by model year 2004.
Patents, Trademarks and Licenses
We own or have a license to use various trademarks that are of value in the
conduct of our business. For example, our agreement with NASCAR grants us the
exclusive right to market batteries and related accessories under the officially
licensed NASCAR name and logo until 2002, and allows us to market the Exide
Select line. While we believe such trademarks and trade names enhance the brand
recognition of our products and therefore are important to our business, we
believe our products, engineering skills, reputation for quality and
relationships with our customers are also important for the maintenance and
growth of our business. An unaffiliated firm has rights to the Exide mark in
approximately 37 foreign countries and Exide Electronics Group, Inc., an
unaffiliated company, is licensed to use the Exide name on certain devices.
We have been issued many patents worldwide, including over 200 U.S. and
European patents issued since 1994. Additionally, we have several patents in
process covering design of lead-acid batteries and battery manufacturing
equipment. The dual-graphite battery development effort has three base patents,
three pending patents and an additional twelve patent disclosures. While we
believe patents are important to our business operations, we also believe the
loss of any single patent or several patents would not have a material adverse
effect on our company. A competitor manufactures and sells a spiral wound
automotive battery, which has some similarities to our new
11
Orbital Battery. Although we believe our battery does not infringe this
competitor's patents, we cannot assure that this competitor will not claim that
it does.
Manufacturing, Raw Materials and Suppliers
Lead is the principal raw material in the manufacture of batteries,
representing approximately one-third of the cost of goods sold. We can obtain
substantially all of our domestic lead requirements through the operation of our
four secondary lead recycling plants, which reclaim lead by recycling spent
lead-acid batteries. We obtain batteries for recycling from our customers and
through our wholesale distribution outlet system.
Other key raw materials and components in the production of batteries
include lead oxide and chemicals, which are generally available from multiple
sources. We have not experienced any material stoppage or slowdown in production
as a result of the unavailability, or delays in the availability, of raw
materials.
Competition
Our North American and European markets are each very competitive and some
of our competitors are larger and have greater financial resources than Exide.
The manufacturers in these markets compete primarily on the basis of price,
quality, technical innovation, service and warranty period. Well-recognized
brand names are also important for aftermarket customers who do not purchase
batteries made under their own labels. Most sales are made without long term
contracts.
In the North American transportation aftermarket, we believe that Johnson
Controls, Inc. has the largest market position, followed by Exide. Other
principal competitors in this market are GNB, who we recently entered into an
agreement to acquire, Delphi Automotive Systems and East Penn Manufacturing Co.,
Inc. Price competition in this market has been severe in recent years.
Competition is strongest in the mass merchandiser channel where large customers
use their buying power to command lower prices. Pricing, while still important,
is less of a factor than service with smaller customers such as those served by
our branch system.
Our largest competitors in the North American original equipment market are
Delphi Automotive Systems, Johnson Controls, Inc. and GNB. Original equipment
manufacturers change battery suppliers less frequently than aftermarket
customers, but because of their size can force market participants to compete on
price and other terms.
We expect North American competition to remain intense. We seek to
maintain and grow our market positions through our branding and emphasis on
technologically advanced products, such as the Orbital battery, our branded
products and our substantially improved product quality and customer service.
Exide has the largest market position in Europe in automotive batteries,
both aftermarket and original equipment, as well as in industrial batteries.
Our closest competitor in the automotive markets is Varta, followed by Fiamm,
Hoppeke, and Autosil. In the industrial market Hawker is the next largest after
Exide, followed by Fiamm, Hoppeke and Yuasa.
The European battery markets, particularly in the automotive original
equipment and industrial areas, have undergone severe price competition.
Cost savings from our ongoing plant rationalization program will allow us
to continue to meet this strong price competition in order to maintain our
customer relationships and market positions until the competitive environment
12
improves. We will also continue to compete on the basis of our pan-European
presence and our technological capabilities, as well as our strong brands.
Environmental, Health and Safety Matters
As a result of our manufacturing and secondary lead smelting operations, we
are subject to numerous environmental laws and regulations and are exposed to
liabilities and compliance costs arising from the past and current storage,
handling, release and disposal of hazardous substances and hazardous wastes. Our
operations are also subject to occupational safety and health laws and
regulations, particularly relating to the monitoring of employee health. The
Company devotes significant resources to attaining and maintaining compliance
with environmental and occupational health and safety laws and regulations and
does not currently believe that environmental, health or safety compliance
issues will have a material adverse effect on our business or financial
condition.
North America. We have been advised by the U.S. Environmental Protection
Agency or state agencies that we are a Potentially Responsible Party under the
Comprehensive Environmental Response, Compensation and Liability Act or similar
state laws at 75 federally defined Superfund or state equivalent sites. At 44
of these sites, we have either paid or are in the process of paying our share of
liability. In most instances, our obligations are not expected to be
significant because our portion of any potential liability appears to be minor
to insignificant in relation to the total liability of all potentially
responsible parties that have been identified and are viable. Our share of the
anticipated remediation costs associated with all of the Superfund sites where
we have been named a Potentially Responsible Party, based on our estimated
volumetric contribution to each site, is included in the environmental
remediation reserves discussed below.
Because our liability under such statutes may, as a technical matter, be
imposed on a joint and several basis, our liability may not necessarily be based
on volumetric allocations and could be greater than our estimates. We believe,
however, that our Potentially Responsible Party status at these Superfund sites
will not have a material adverse effect on our business or financial condition
because, based on our experience, it is reasonable to expect that our liability
will be roughly proportionate to our volumetric contribution of waste to the
sites.
We currently have greater than 50% liability at only one Superfund site,
discussed below. Other than this site, our allocation exceeds 5% at only six
sites at which our share of liability has not been paid as of March 31, 2000.
The current allocation at these six sites averages approximately 18%.
We are the primary Potentially Responsible Party at the Brown's Battery
Breaking Superfund site located in Pennsylvania. The site was operated by
third-party owners in the 1960s and early 1970s. In 1992, the Environmental
Protection Agency issued a Record of Decision identifying several alternate
remedies. During fiscal 1997, we signed a consent decree and paid $3.0 million
of the Environmental Protection Agency's past costs and we are not responsible
for any other past costs. We have established reserves based upon our estimates
of the remediation cost.
We are also involved in the assessment and remediation of various other
properties, including certain Exide-owned or operated facilities. Such
assessment and remedial work is being conducted pursuant to a number of state
and federal environmental laws and with varying degrees of involvement by state
and federal authorities. Where probable and reasonably estimable, the costs of
such projects have been reserved as discussed below. In addition, certain
environmental matters concerning our Company are pending in federal and state
courts or with regulatory agencies.
We are involved in certain legal proceedings in Indiana in which state
13
authorities allege that we have improperly characterized and handled plastic
wastes generated in connection with our materials recycling program (see below).
While the final resolution of these proceedings is not yet known, we may incur
civil penalties in connection with such resolution, which could in some cases
exceed $100,000. We do not expect that the resolution of any of these
proceedings will substantially affect either the continued functioning of our
recycling program or our operations generally.
Environmental conditions at our properties could lead to claims for
personal injury, property damage or damages to natural resources. We are
currently subject to a number of such claims, including matters alleging illness
arising from exposures to lead in the vicinity of our former facility in Greer,
South Carolina and property damage and personal injury claims associated with
our Reading, Pennsylvania facilities. We have established reserves based upon
our estimates of exposure associated with these matters, which are included in
the environmental reserves discussed below.
During fiscal 1998, we reached an agreement with former owners of our
company whereby we agreed to release and indemnify the former owners from all
environmental matters relative to certain sites. We have received $8.17 million
under this agreement through fiscal 2000 with an additional $1.83 million to be
received in fiscal 2001.
We have taken an active role in addressing environmental issues associated
with our business focusing on environmental, safety and health matters. We
maintain numerous permits with the Environmental Protection Agency, various
state agencies and provincial regulatory authorities which allow us to
transport, store and recycle spent lead acid batteries, lead-bearing hazardous
wastes and certain other hazardous wastes within and between the United States
and Canada.
To protect the environment, minimize future liability and help ensure a
stable supply of lead to our battery manufacturing facilities, we have developed
a comprehensive materials recycling program. Under this program, we obtain spent
lead-acid batteries through our wholesale distribution outlet system and lead
bearing materials from third parties. These materials are transported to our
secondary lead smelting facilities. Batteries are separated at the smelters into
three constituent units: lead, dilute sulfuric acid and plastic casing material.
The lead is reclaimed and refined into lead alloys for use at our battery
manufacturing facilities. The plastic from battery cases is broken into pieces
and extruded into pellets by adding strengtheners and other additives. The
pellets are sold or used at our battery casing molding facility to make new
battery cases. The dilute sulfuric acid solution is neutralized and discharged
in accordance with federal, state and provincial permits.
Europe. We are subject to numerous environmental, health and safety
requirements and are exposed to differing degrees of liabilities, compliance
costs, and cleanup requirements arising from our past and current activities in
various European countries. The laws and regulations applicable to such
activities differ from country to country and also substantially differ from
U.S. laws and regulations. We expect that our European operations will continue
to incur capital and operating expenses in order to maintain compliance with
evolving environmental, health and safety requirements or for more stringent
enforcement of existing requirements in each country. In addition, accelerated
consolidation of our European operations could increase our expenditures.
During fiscal 1999, we sold our plant in Soest, Germany to an unrelated
entity. As part of that sale, Exide indemnified the purchasers against certain
environmental liabilities. Also during fiscal 2000, we completed an assessment
of the environmental condition of our Cubas de Sangre smelter in Spain, and were
advised by the Madrid regional authorities that a cleanup would be required.
Exide has proposed remediating the Cubas site with an advanced
14
technology that would remove lead impacts over an extended period of time. We
have established reserves for the Soest and Cubas sites, as part of our global
environmental reserves.
While the ultimate outcome of the foregoing environmental matters is
uncertain, after consultation with legal counsel, we do not believe the
resolution of the foregoing matters, individually or in the aggregate, will have
a material adverse effect on our financial condition or results of operations,
although quarterly operating results may be materially affected. We have
established reserves for onsite and offsite environmental remediation costs and
litigation exposures and believe that such reserves are adequate. These reserves
consist of amounts accrued for our active facilities, closed facilities, and
specifically for 22 of the Superfund sites. While we believe our current
estimates of future remediation costs are reasonable, future findings or changes
in estimates could have a material effect on the recorded reserves. The Company
has established reserves for on-site and off-site environmental remediation
costs and believes that such reserves are adequate. As of March 31, 2000, the
amount of such reserves on the Company's consolidated balance sheet was $34.2
million. Of this amount, $23.4 million was included in other noncurrent
liabilities. Because environmental liabilities are not accrued until a liability
is determined to be probable and reasonably estimable, not all potential future
environmental liabilities have been included in the Company's environmental
reserves and, therefore, additional earnings charges are possible.
Employees
Total worldwide employment was approximately 16,100 at March 31, 2000.
North America. As of March 31, 2000, we employed approximately 1,500
salaried employees and approximately 3,700 hourly employees in North America.
Approximately 60% of such salaried employees are engaged in sales, service and
marketing and approximately 40% in manufacturing and engineering. Approximately
26% of our hourly employees are represented by unions. Relations with the unions
are generally good. Contracts covering approximately 500 and 200 of our union
employees expire in fiscal 2001 and 2002, respectively, and the remainder
thereafter.
Europe. As of March 31, 2000, we employed approximately 3,800 salaried
employees and approximately 7,100 hourly employees in Europe. Approximately 75%
of such salaried employees are engaged in sales, service and marketing and
approximately 25% in manufacturing and engineering. Our hourly employees are
generally represented by unions. Relations with the unions are generally good.
Contracts covering most of our European union employees expire on various dates
through calendar year 2000.
Backlog
We do not have a material amount of backlog orders.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
See Note 16 to the Company's Consolidated Financial Statements appearing
elsewhere herein.
15
Item 2. Properties
The chart below lists the location of our principal facilities. All of the
facilities are owned unless otherwise indicated. All owned properties and the
leases for the leased properties are subject to liens under our credit
agreement. The leases for leased facilities expire at various dates through
2015.
Approximate
Location Square Footage Use
- -------------------------------- ----------------------------- -------------------------------------
North America:
Baton Rouge, LA 176,000 Secondary Lead Smelting
Bristol, TN 631,000 Battery Manufacturing
Burlington, IA 190,000 Battery Manufacturing
Cannon Hollow, MO 137,000 Secondary Lead Smelting
Cooper, TX 115,000 (leased) Starter and Alternator
Lampeter, PA 82,000 Battery Plastics Manufacturing
Manchester, IA 286,000 Battery Manufacturing
Maple, Ontario, Canada 169,000 Battery Manufacturing,
Distribution and Administration
Muncie, IN 174,000 Secondary Lead Smelting
Reading, PA 125,000 Secondary Lead Smelting and
Poly Reprocess
Reading, PA 135,000 Executive Offices
Reading, PA 280,000 Battery Manufacturing
Reading, PA 77,000 Distribution Center
Salina, KS 260,000 (leased) Battery Manufacturing
Salina, KS 100,000 (leased) Distribution Center
Europe and Other:
Bolton, England 274,000 Industrial Battery Manufacturing
Auxerre, France 176,000 Automotive Battery Manufacturing
Gennevilliers, France 55,000 (leased) Executive Offices
Lille, France 484,000 Industrial Battery Manufacturing
Nanterre, France 169,000 Automotive Battery Manufacturing
Pont Ste Maxence, France 71,000 Secondary Lead Smelting
Bad Lauterberg, Germany 458,500 Manufacturing, Administrative
and Warehouse
Budingen, Germany 278,000 Industrial Battery Manufacturing
Weiden, Germany 208,000 Industrial Battery Manufacturing
Casalnuovo, Italy 483,000 Industrial Battery Manufacturing
Romano Di Lombardia, Italy 266,000 (leased) Automotive Battery Manufacturing
Poznan, Poland (five) 887,000 Automotive Battery Manufacturing
Castaheira do Riatejo, Portugal 471,000 Automotive and Industrial Battery
Manufacturing
Cubas, Spain 323,000 Secondary Lead Smelting
Azuqueca de Henares, Spain 434,000 Automotive Battery Manufacturing
and Research
Malpica, Zaragoza, Spain 213,000 Automotive Battery Manufacturing
Manzanares, Spain 438,000 Automotive Battery Manufacturing
Madrid, Spain 7,244 (leased) Executive Offices
Zaragoza, Spain 248,000 Industrial Battery Manufacturing
Manisa, Turkey 145,000 Automotive Battery Manufacturing
Cwmbran, Wales 105,000 Automotive Battery Manufacturing
In addition, we also lease distribution outlets in the U.S. and Europe.
We believe that our facilities are in good operating condition, adequately
maintained, and suitable to meet our present needs and future plans.
16
Item 3. Legal Proceedings
Exide is now or recently has been involved in several lawsuits pending in
state and federal courts in Alabama, California, Mississippi, Pennsylvania,
South Carolina, Tennessee and Texas, some of which were brought as purported
class actions. These actions allege that Exide sold old or used batteries as
new batteries, sold defective and mislabeled batteries and improperly credited
customer accounts. The plaintiffs in these cases are seeking compensatory and
punitive damages and injunctive relief.
In May 2000, Exide and counsel for the plaintiffs agreed to a settlement,
subject to several material contingencies, applicable notice, and court
approval, in the following battery quality cases: Martin v. Exide, filed July
12, 1998 in the United States District Court for the District of South Carolina
(the "Martin case"); Lush et al. v. Exide, filed November 18, 1999 in the
Circuit Court for Claiborne County, Mississippi; Gamma Group, et al. v. Exide,
filed January 29, 1999 in the United States District Court for the Eastern
District of Pennsylvania and Exide v. East Alabama Auto Parts Anniston, Inc.,
filed April 24, 1996 in the Circuit Court of Calhoun County Alabama (the "East
Alabama case"). In May 2000, Exide also reached an agreement in principle on a
settlement of a claim in intervention brought by the Attorney General for the
State of Alabama (the Alabama Attorney General had intervened in the East
Alabama case in November 1999). Exide has reserved approximately $ 13.4 million
for the settlement of the private claims and the Alabama Attorney General claim.
Mathis Battery Company, et al. v. Exide, filed September 4, 1998 in the
Chancery Court for Weakley County, Tennessee (the "Mathis case") and Mills v.
Exide, filed December 6, 1999 in the United States District Court for the
Central District of California (the "Mills case") are battery quality claims
that are still pending against Exide. The Mathis case is a putative class
action filed by lawyers who represent the plaintiff in the Martin case and
alleges substantially the same claims alleged in the Martin case. The court has
not certified the Mathis case and the case has been stayed. Exide expects that
if the settlement of the Martin case is approved, the Mathis case will be
dismissed.
The Mills case arises under an unusual provision of California law, which
was recently limited by a decision of the California Supreme Court, and Exide
intends to defend that matter vigorously.
Additionally, the settlements do not resolve two putative class actions,
both styled Dynamic Enterprises, Inc. et al. v. Exide Corp., which were filed in
1998 in the United States District Court for the Eastern District of Texas and
are still pending. In the first case, the plaintiffs seek to represent battery
resellers alleging used-as-new claims. Exide has opposed a motion for class
certification in that case and awaits a ruling. The second case, also a
putative class action, involves allegations that Exide has improperly converted
or withheld customer credit balances. Exide recently began a nationwide
campaign to issue checks for outstanding credit balances and has moved for
summary judgment in that case. Exide has asked the court to rule on the motion
for summary judgment prior to hearing argument on a pending class certification
motion. Exide expects a ruling in the second case after July 13, 2000.
In December 1999, the Mississippi Attorney General issued a subpoena to
Exide. The Attorney General is investigating the sale of alleged defective and
used batteries, alleged mislabeling of batteries, alleged improper crediting of
customer accounts and alleged provision of misleading investor information.
Exide fully and completely responded to the subpoena in January 2000, and there
is no action by the Mississippi Attorney General against Exide to date.
17
As previously reported, Exide voluntarily brought certain issues to the
attention of the Securities and Exchange Commission (the "SEC"), and has
cooperated with its investigation.
On September 17, 1999, Exide sued Sears, Roebuck and Co. in the Circuit
Court of Cook County, Illinois seeking damages for breach of contract in an
amount not less than $15 million. On November 12, 1999, Sears filed a
counterclaim against Exide and a claim against a former Sears purchasing
employee alleging inducement to breach his fiduciary duty to Sears, common law
fraud, aiding and abetting and conspiracy. On December 17, 1999, Exide
responded to Sears' counterclaim and filed a third-party complaint against
former Chief Executive Officer Arthur Hawkins, former Chief Financial Officer
Alan Gauthier, and former Executive Vice President Douglas Pearson. The third-
party defendants have moved to dismiss Exide's third-party complaint, asserting
that the claims can be heard in other pending litigation involving the parties
(discussed below). That motion is pending before the court.
Exide is currently involved in litigation with certain former members of
senior management relating to their separation agreements. One of these cases,
Arthur M. Hawkins v. Exide, filed July 6, 1999 in the U.S. District Court for
the Eastern District of Michigan, involves a claim by Mr. Hawkins to enforce his
separation agreement with Exide. Exide has filed a counterclaim asserting
fraud, breach of fiduciary duty, misappropriation of corporate assets and civil
conspiracy. Messrs. Gauthier and Pearson have filed actions in the U.S.
District Court for the Eastern District of Pennsylvania alleging breach of
contract; these actions are respectively titled Gauthier v. Exide and Pearson v.
Exide, and were respectively filed on August 17, 1999 and July 9, 1999. Exide
has filed counterclaims against Messrs. Gauthier and Pearson as well, asserting
fraud, breach of fiduciary duty, misappropriation of corporate assets and civil
conspiracy. Pearson v. Exide and Gauthier v. Exide were consolidated for pre-
trial proceedings; discovery in these cases is ongoing and they are currently
scheduled to be called in the August 18, 2000 trial pool.
Exide is now involved in several lawsuits pending in state and federal
courts in South Carolina and Pennsylvania. These actions allege that Exide and
its predecessors allowed hazardous materials used in the battery manufacturing
process to be released from certain of its facilities, allegedly resulting in
personal injury and/or property damage. The following lawsuits of the above
type were filed on August 25, 1999 in the Circuit Court for Greenville County,
South Carolina and are currently pending: Joshua Lollis v. Exide; Buchanan v.
Exide; Agnew v. Exide; Patrick Miller v. Exide; Kelly v. Exide; Amanda Thompson
v. Exide; Jonathan Talley v. Exide; Smith v. Exide; Lakeisha Talley v. Exide;
Brandon Dodd v. Exide; Prince v. Exide; Andriae Dodd v. Exide; Dominic Thompson
v. Exide; Snoddy v. Exide; Antoine Dodd v. Exide; Roshanda Talley v. Exide;
Fielder v. Exide; Rice v. Exide; Logan Lollis v. Exide and Dallis Miller v.
Exide. Finally, the following lawsuits of this type are currently pending in
the Court of Common Pleas for Berks County, Pennsylvania: Grillo v. Exide, filed
on May 24, 1995; Blume v. Exide, filed on March 4, 1996; Esterly v. Exide, filed
on May 30, 1995 and Saylor v. Exide, filed on October 18, 1996. Discovery in
these cases is ongoing.
On June 26, 2000, Johnson Controls, Inc. ("JCI") filed a lawsuit in the
United States District Court for the Northern District of Illinois, Eastern
Division, against Exide and three of its former officers. The suit alleges
commercial bribery relating back to JCI's loss of a contract to Exide in 1994.
Allegations of improper payments to a Sears employee were made public over a
year ago as part of the Florida Attorney General Investigation and subsequently
in several civil cases. JCI has stated that its complaint is based on "public
records". Exide believes that JCI's allegations and conclusions are not
supported by publicly available information and that the lawsuit was threatened
and subsequently filed to pressure Exide into commercial concessions and to
potentially interfere with the GNB acquisition. Exide does not believe that the
suit will have any material adverse effect on its financial condition. Exide
will file a civil counter-claim and is considering referring the matter to the
appropriate authorities for possible criminal prosecution.
18
The Company is involved in various other claims and litigation incidental
to the conduct of its business. Based on consultation with legal counsel,
management does not believe that any such claims or litigation to which the
Company is a party, both individually and in the aggregate, will have a material
adverse effect on the Company's financial condition or results of operations,
although quarterly or annual operating results may be materially affected.
Item 4 Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock is listed and traded on The New York Stock Exchange under
the symbol "EX". The following table presents the high and low sales prices for
our common stock as reported on The New York Stock Exchange Composite Tape and
dividends paid for the quarters indicated.
SALES PRICES DIVIDENDS
FISCAL YEAR ENDING MARCH 31 HIGH LOW DECLARED
----------- --------- --------
(per share)
1998:
First Quarter $23.125 $14.625 $0.02
Second Quarter 23.125 18.750 0.02
Third Quarter 34.250 20.563 0.02
Fourth Quarter 27.000 16.313 0.02
1999:
First Quarter $21.750 $16.625 $0.02
Second Quarter 19.125 9.125 0.02
Third Quarter 20.938 5.375 0.02
Fourth Quarter 21.500 11.000 0.02
2000:
First Quarter $16.375 $10.000 $0.02
Second Quarter 14.625 9.375 0.02
Third Quarter 11.125 7.438 0.02
Fourth Quarter 17.500 7.438 0.02
The last reported sale price of the common stock on The New York Stock
Exchange on June 23, 2000 was $8.0625 per share. As of June 23, 2000, we had
approximately 21,403,831 shares of our common stock outstanding and there were
600 record holders of common stock.
19
Item 6. Selected Financial Data (In thousands, except per share data):
The following table sets forth selected financial data for Exide. You
should read this information in conjunction with our consolidated financial
statements and notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that appear elsewhere in this document.
The selected financial information for the fiscal years ending March 31, 1996,
1997, 1998 and 1999 has been restated. See Note 1 to the Consolidated Financial
Statements herein.
Fiscal Year Ended March 31
-------------------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(Restated) (Restated) (Restated) (Restated)
Income Statement Data
Net sales $2,342,616 $2,333,230 $2,273,126 $2,374,278 $2,194,447
Gross profit 552,806 590,976 604,091 559,256 532,492
Selling, marketing and 276,076 290,076 311,683 334,638 319,476
advertising expenses
General and 137,086 145,869 135,606 169,744 145,770
administrative expenses
Goodwill amortization 15,969 17,853 16,922 20,016 17,165
Operating income (loss) 123,675 137,178 139,880 34,858 (3,517)
Interest expense, net 120,600 118,837 112,301 111,679 103,988
Income taxes 6,300 14,197 14,010 23,001 10,769
Income (loss) before extraordinary 939 15,227 19,535 (126,693) (136,042)
loss
Extraordinary loss (1)(2)(3)(4) (9,600) (2,767) (28,513) (301) --
Net income (loss) $ (8,661) $ 12,460 $ (8,978) $ (126,994) $ (136,042)
Basic net income (loss) per share $(0.44) $0.61 $(0.44) $(5.98) $(6.40)
Diluted net income (loss) per share $(0.42) $0.59 $(0.42) $(5.98) $(6.40)
Other Financial Data
EBITDA (5) $ 230,131 $ 263,009 $ 260,925 $ 141,653 $ 90,104
Cash provided by (used in):
Operating activities 36,058 78,126 167,499 77,219 95,648
Investing activities (499,830) (61,652) (76,182) (22,356) (12,623)
Financing activities 449,473 (17,000) (95,446) (70,238) (73,987)
Capital expenditures 106,385 84,200 87,315 76,211 63,953
Ratio of earnings to fixed charges (6) 1.0x 1.2x 1.3x 0.2x 0.0x
Balance Sheet Data (at period end)
Working capital $ 581,828 $ 595,296 $ 518,922 $ 301,663 $ 213,468
Property, plant and equipment, net 578,722 521,836 535,113 543,702 443,344
Total assets 2,694,362 2,436,275 2,331,549 2,195,816 1,901,461
Total debt 1,340,025 1,289,682 1,248,983 1,205,806 1,118,385
Common stockholders' equity (deficit) 422,333 350,578 274,954 134,135 (66,376)
1. During fiscal 1996, the Company recorded a loss of $9,600 (net of a
tax benefit of $5,958) from the early retirement of debt under the
U.S. Credit Agreement.
2. During fiscal 1997, the Company recorded a loss of $2,767 with no
income tax effect resulting from a modification of debt in connection
with entering into a series of bond swap agreements for $38,000
(principal amount) of its 10% and 10 3/4% Senior Notes.
20
3. During fiscal 1998, the Company recorded a loss of $28,513 (net of a tax
benefit of $3,667) resulting from a modification of debt in connection with
entering a bond swap agreement for $21,000 (principal amount) of its 10%
Senior Notes; the retirement of its 10.75% Senior Notes and the remainder
of its 12.25% Senior Subordinated Deferred Coupon Debentures; the
retirement of the U.S. Credit Agreements and European Facilities Agreement
in connection with entering into the Senior Secured Global Credit
Facilities Agreement; a modification of debt in connection with reducing
the maximum commitment on the European Facilities Agreement; and the
redemption of $108,119 (face value) of its outstanding 12.25% Zero-Coupon
Bonds.
4. During fiscal 1999, the Company recorded a loss of $301 with no income tax
effect resulting from a modification of debt in connection with entering
into bond swap agreements for $4,430 (principal amount) of its 10% Senior
Notes.
5. Represents earnings before interest, taxes, depreciation of property, plant
and equipment, goodwill and other amortization and losses on sales of
receivables. EBITDA should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
6. For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income (loss) before income taxes plus fixed charges (excluding
capitalized interest) and amortization of capitalized interest. Fixed
charges consist of interest expense, amortization of debt expense,
capitalized interest, and one-third of rent expense, deemed representative
of the interest factor.
21
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Factors Which Affect Our Financial Performance
In the last three fiscal years, our financial performance has been affected
by several major factors including:
Lead. Lead is the principal raw material used in the manufacture of
batteries, representing approximately one-third of our cost of goods sold. The
market price of lead fluctuates significantly. Generally, when lead prices
decrease, many of our customers seek disproportionate price reductions from us,
and when lead prices increase, customers tend to be more accepting of price
increases. Lead market prices declined substantially over the last three fiscal
years.
Competition. The automotive battery market in North America and the
automotive and industrial battery markets in Europe are highly competitive. In
recent years, competition has increased and we have come under increasing
pressure for price reductions. Price competition in Europe has been particularly
intense. This price competition has been exacerbated by an environment of low-
priced Asian imports, excess capacity and declining lead prices.
Exchange Rates. We are exposed to foreign currency risk in most European
countries, principally Germany, France, United Kingdom, Spain, and Italy.
Movements of exchange rates against the U.S. dollar can result in variations in
the U.S. dollar value of our non-US sales. In some instances gains in one
currency may be offset by losses in another. Our results for the periods
presented were adversely impacted by the overall weakness in European
currencies.
Weather. Unusually cold winters or hot summers accelerate battery failure
and increase demand for automotive replacement batteries. During the periods
discussed below, unusually warm winters resulted in fewer automotive battery
failures in North America and Europe and this adversely affected our aftermarket
sales.
Results of Operations
Year Ended March 31, 2000 Compared with Year Ended March 31, 1999
Excluding non-recurring or unusual charges, the Company reported net income
of $6.5 million, or $.31 per diluted share, for the fiscal year ended March 31,
2000, as compared to a restated net loss, excluding non-recurring or unusual
charges, of $8.5 million, or $.40 per diluted share, for the previous fiscal
year.
Earnings in fiscal 2000 were favorably impacted by:
. strong Industrial battery market demand in Europe, particularly in the
telecommunications sector in the latter part of the year.
. increases in average selling prices in the U.S. due to our continued focus
on a "better mix of customers".
. reduced costs in Europe due to general efficiency improvements.
22
These operating improvements were offset in part by:
. the negative impact of the weak Euro, which affected pre-tax earnings by
approximately $8.6 million.
. automotive aftermarket sales volume reductions in North America and Europe
due to unusually warm winter weather.
. continued pricing pressure in the European automotive aftermarket and OEM
businesses.
. increased selling, general and administrative costs in North America.
Including non-recurring or unusual items, the Company reported a net
loss of $136.0 million, or $6.40 per diluted share, for fiscal 2000, compared to
a net loss of $127.0 million, or $5.98 per diluted share, for fiscal 1999. The
Company recorded certain unusual or non-recurring charges aggregating $142.6
million in fiscal 2000, including $125.1 million in the fourth quarter. In
fiscal 1999, the Company recorded $118.4 million of non-recurring or unusual
charges described in the fiscal 1999 and fiscal 1998 comparison below. No tax
benefits were recorded on the non-recurring or unusual charges in fiscal 2000 or
fiscal 1999. The charges in fiscal 2000 consisted of:
. $13.4 million provision to cover resolution of "used as new" claims
litigation. The Company reached a tentative settlement covering the most
significant of our cases and we now believe the remaining claims can be
settled. The cash portion including legal fees, is less than $10 million.
The balance of the provision is in coupons that can be redeemed, for the
purchase of a new battery. The tentative agreement remains subject to court
approval and final negotiation.
. $39.3 million of restructuring charges, related primarily to the Company's
realignment to a customer-focused global business unit strategy, including
severance charges of $20.0 million and $19.3 million in asset write-downs
and closure costs related to planned closures of manufacturing operations
and other facilities including the Reading, Pennsylvania battery plant,
certain U.S. branch locations and the Company's ongoing consolidation of
European operations.
Additional restructuring charges may be recorded over the next several
years as additional plant closures and consolidation of administrative
functions are identified as part of the Company's program to improve our
cost structure.
. $18.4 million of write-downs to net realizable value related to the ongoing
divestiture of non-core businesses.
. An increase to the Company's environmental reserves of $3.0 million.
. Non-cash charges of $51.0 million related to asset write-downs and
adjustments of balance sheet reserves, including $23.9 million in warranty
reserves.
. The Company also recorded $17.5 million of unusual items in the third
fiscal quarter of fiscal 2000, including a charge for in-process research
and development of $14.3 million for the acquisition of Lion Compact Energy
and additional divestiture related charges of $3.2 million.
23
The Company restated results for fiscal 1999 and fiscal 1998 as a result of
the Company's former management team's improper authorization of the deferral of
a pre-fiscal 1998 charge until fiscal 1998 and 1999. This resulted in an
increase in earnings of $.14 per diluted share and $.03 per diluted share in
fiscal 1999 and fiscal 1998, respectively. This impact is reflected in the
discussion and reported results herein. There is no impact in fiscal 2000.
The Company changed its method of valuing inventory for U.S. battery
inventories from the last-in, first-out ("LIFO") method to the first-in, first-
out ("FIFO") method. This change did not impact the Company's earnings for any
of the periods presented. Generally accepted accounting principles require the
Company to restate for this particular accounting change. As such, retained
earnings for the earliest period presented have been restated herein.
The fiscal 2000 non-recurring or unusual charges discussed above, and the
fiscal 1999 charges specified in the fiscal 1999 and fiscal 1998 comparison
below, were the main factors impacting fiscal 2000 and fiscal 1999 as reported
operating results. Comparative results were as follows:
Net Sales. Net sales decreased $179.9 million or 7.6% to $2,194.4 million
as compared to $2,374.3 million in fiscal 1999. Included in this reduction is
the $23.9 million of warranty non-cash charge previously discussed. Unusual
charges of $10.3 million were recorded in fiscal 1999. Approximately $126
million or 70% of the fiscal 2000 decrease related to weakened currency rates in
Europe. The remaining decrease relates to the global automotive aftermarket
sales volume reduction along with continued automotive pricing pressure in
Europe, partially offset by average selling price increases in the U.S. and the
strong European Industrial market. Industrial battery sales (included above)
were $707.2 million in fiscal 2000 versus $730.7 million in fiscal 1999.
Gross Profit. Gross profit for fiscal 2000 decreased $26.8 million or 4.8%
to $532.5 million. Besides non-recurring or unusual charges of $35.7 million in
fiscal 2000 and $64.0 million in fiscal 1999, gross profit was favorably
impacted by the strong European Industrial market, average selling price
increases in the U.S. and reduced European manufacturing costs. These
improvements were mitigated by the weak Euro, the overall volume reductions in
the automotive aftermarket business and the European automotive pricing
pressures.
Operating Expenses. Operating expenses increased $11.6 million or 2.2% to
$536.0 million. Besides non-recurring or unusual charges of $69.7 million in
fiscal 2000 and $35.9 million in fiscal 1999, operating expenses were favorably
impacted by European general and administrative cost reductions and the weak
Euro, offset by increased expenses in North America.
Interest Expense, net. Interest expense, net decreased $7.7 million or 6.9%
to $104.0 million versus $111.7 million in 1999 as a result of lower borrowing
levels and the impact of weaker European currencies. Also included in interest
expense in fiscal 2000 was a non-recurring charge of $0.7 million.
Other (Income) Expense, net. Other (income) expense, net in fiscal 2000
was $16.0 million versus $28.9 million in 1999. Besides non-recurring or
unusual charges of $12.6 million in fiscal 2000 and $8.2 million in fiscal 1999,
other income was favorably impacted in fiscal 2000 by gains on certain sales of
land of approximately $4.5 million.
24
Income Tax Provision. Income tax expense decreased $12.2 million to $10.8
million. The U.S. and European non-recurring or unusual charges in both fiscal
years were not tax benefited.
Year Ended March 31, 1999 Compared with Year Ended March 31, 1998
Net Sales. Net sales increased $101.2 million or 4.4% to $2,374.3 million
as compared to $2,273.1 million in fiscal 1998. The increase was primarily
attributable to the following factors:
. The inclusion of DETA (a German industrial and automotive battery
manufacturer) acquired on September 1, 1997 for 12 months of fiscal 1999
versus 7 months of fiscal 1998 ($75.5 million).
. Higher automotive battery volumes in North America of 5.2% ($40.0
million)offset by higher sales deductions of $11.7 million.
Along with a full year of DETA sales, European sales were also
favorably impacted by exchange rates ($17.8 million) and slightly higher
automotive unit volume. These increases were partially offset by unfavorable
automotive battery pricing/mix in Europe, lower industrial sales (excluding the
full year effect of DETA) and a reduction in other European sales. Industrial
battery sales (included above) for fiscal 1999 were $730.7 million for fiscal
1999 versus $691.4 million in 1998.
Gross Profit. Gross profit for fiscal 1999 decreased $44.8 million or
7.4% to $559.3 million. The decrease in gross profit is largely a result of the
items discussed above and the following:
. A $44.3 million charge related to write-downs associated with exiting non-
core business activities and the closure of certain facilities,
. A $6.6 million loss on lead hedging contracts in North America,
. A $6.1 million charge for an adverse appellate court ruling in a patent
infringement lawsuit,
. A $3.7 million charge for the write-off of inventory and equipment related
to an abandoned project, and
. A $2.1 million charge for the write-off of unsaleable inventory specified
for the Russian market.
These decreases were partially offset by reduced manufacturing costs,
particularly in Europe, along with the impact of sales volume increases
mentioned above and a greater emphasis on sales of higher profit margin
batteries.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $60.2 million or 13.0% to $524.4 million. The
impact of including DETA for 12 months in fiscal 1999 versus only 7 months in
fiscal 1998 resulted in approximately $19.3 million of the increase. Also
contributing to this increase was:
. Charges of $8.8 million related to specific legal expenses, including
settlement of the Florida Attorney General investigation,
. A $8.5 million charge for increased bad debt reserves primarily related to
North American customers who have filed for bankruptcy,
25
. A $7.1 million charge related to separation packages of 25 executives and
additional retirement charges,
. A $4.8 million charge for uncollectable receivables from sales in Russia,
. The unfavorable impact of foreign exchange rates ($3.9 million) and
. A $2.4 million charge relating to write-downs associated with existing non-
core business activities.
Goodwill amortization increased $3.1 million or 18.3% to $20.0 million from
$16.9 million in 1998, resulting primarily from the write-off of goodwill
associated with the closure of a smelter operation and the write-off of impaired
goodwill from certain branch acquisitions of $2.4 million.
Operating Income. Operating income decreased $105.0 million as a result of
the matters discussed above.
Interest Expense. Interest expense decreased $0.6 million or 0.6% to $111.7
million versus $112.3 million in 1998 as a result of lower rates achieved
through debt restructuring completed in the third and fourth quarters of fiscal
year 1998.
Other (Income) Expense, net. Other (income) expense, net in 1999 was $28.9
million versus ($5.9) million in 1998 for a change of $34.8 million.
Contributing to this change was:
. Currency transaction losses in 1999 of $8.6 million versus currency
transaction gains of $6.8 million in 1998,
. A $6.0 million charge in 1999 recorded for an amendment fee related to
interest rate swap agreements and
. Fiscal 1998 included a $5.6 million gain from an involuntary conversion due
to a fire.
Income Tax Provision. Income tax expense increased $9.0 million to $23.0
million despite the $139.1 million reduction in pre-tax earnings. U.S. tax
losses and certain European tax losses were not tax benefited in fiscal 1999.
Net Income/Loss. The net loss increased from $9.0 million in fiscal 1998 to
$127.0 million in fiscal 1999 primarily as a result of the matters discussed
above offset by a $28.2 million reduction in extraordinary loss relating to the
early retirement of debt.
Seasonality and Weather
We sell most of our automotive aftermarket batteries during the fall and
early winter (our second and third fiscal quarters). Retailers buy automotive
batteries during these periods so they will have enough inventory when cold
weather strikes. In addition, many of our industrial battery customers in
Europe do not place their battery orders until the end of the calendar year.
The seasonality of our business increases our working capital requirements.
Demand for automotive aftermarket batteries is significantly affected by
the weather. Unusually cold winters or hot summers accelerate battery failure
and increase demand for automotive replacement batteries. Mild winters and
26
cool summers have the opposite effect. As a result, if our sales are reduced by
an unusually warm winter or cool summer, it is not possible for us to recover
these sales in later periods. Further, if our sales are adversely affected by
the weather, we cannot make offsetting cost reductions to protect our gross
margins in the short-term because a large portion of our manufacturing and
distribution costs are fixed.
Pending Acquisition of GNB
As discussed in Item 1, on May 9, 2000, the Company entered into an
agreement to acquire the global battery business of GNB for consideration of
approximately $368 million (including $333 million in cash and four million
Exide common shares) plus assumed liabilities. GNB is a leading U.S. and Pacific
Rim manufacturer of both automotive and industrial batteries with annual sales
of approximately $1.0 billion. The acquisition, which is expected to close in
fiscal 2001, is subject to foreign regulatory review, financing and settlement
of certain non-compete agreements. Financing is currently being arranged and is
expected to be sourced through a combination of debt and certain asset
securitizations.
Liquidity and Capital Resources
Our liquidity requirements arise primarily from the funding of seasonal
working capital needs, obligations on our indebtedness and capital expenditures.
Historically, we have met these liquidity requirements through operating cash
flows, borrowed funds and the proceeds of sales of accounts receivable and sale
leaseback transactions. Additional cash has been generated in the current year,
and will be generated in fiscal 2001 from the sale of non-core businesses. We
have a U.S. receivables purchase agreement and a European receivables purchase
agreement under which the other parties have committed (subject to certain
exceptions) to purchase selected accounts receivable from us, up to a maximum
commitment of $75.0 million and $175.0 million, respectively.
Because of the seasonality of our business, more cash is typically
generated in our third and fourth fiscal quarters than the first and second
quarters. Our greatest cash demands from operations occur during the months of
June through October. We believe we will be able to meet our requirements for
liquidity with cash generated from operations, reduced working capital
requirements, borrowings under the revolving credit portion of our credit
agreement, the proceeds from sales of accounts receivable under our
securitization facilities and/or sales of non-core businesses and assets.
EBITDA, excluding non-recurring or unusual items and discounts on
receivables sold, was $227.5 million for the current fiscal year versus $260.1
million in the prior year. Our cash flow from operating activities was $167.5
million (including $134.2 million related to sales of receivables), $77.2
million (including $29.3 million related to sales of receivables) and $95.6
million (net of a $23.5 million decrease related to sales of receivables) in
fiscal 1998, 1999 and 2000, respectively. Primary working capital year on year
is down approximately $118.6 million, due primarily to inventory reductions of
approximately $50.3 million and approximately $41.0 million from currency
effects.
Our capital expenditures were $87.3 million, $76.2 million and $64.0
million in fiscal 1998, 1999 and 2000, respectively. Our credit agreement
restricts the amount of capital expenditures which we can make, but we believe
that such restrictions will not adversely effect our capital expenditure
programs. Capital expenditures are estimated to be approximately $60.0 million
in fiscal 2001.
27
The Company generated more than $80.0 million in cash and assumed
liabilities from the sale of non-core businesses and other assets in fiscal
2000. Proceeds were used primarily to reduce debt. Businesses now planned to
be sold in fiscal 2001 are expected to generate cash in excess of $100 million.
In fiscal 2000 we recorded $39.3 million of restructuring charges, related
primarily to the Company's realignment to a customer-focused global business
unit strategy, including severance charges of $20.0 million and $19.3 million in
asset write-downs and closure costs related to planned closures of manufacturing
operations and other facilities including the Reading, Pennsylvania battery
plant, certain U.S. branch locations and the Company's ongoing consolidation of
European operations.
Additional restructuring charges may be recorded over the next several
years as additional plant closures and consolidation of administrative functions
are identified as part of the Company's program to improve our cost structure.
The expected cash portion of the charge, largely related to severance, will
be paid out primarily in fiscal 2001. These cash outlays will be offset by
prospective operating cost savings.
Debt levels decreased year on year by $88 million from $1.206 billion to
$1.118 billion principally due to reductions in inventory levels and cash
proceeds from the sale of non-core businesses in fiscal 2000. As of March 31,
2000, we had $344.1 million outstanding and $205.5 million available under our
credit agreement after consideration of $7.5 million of outstanding letters of
credit. The use of such availability may be limited by certain covenants in the
credit agreement. Increases in interest rates on such obligations could
adversely affect our results of operations and financial condition.
We have an interest rate collar agreement which reduces the impact of
changes in interest rates on a portion of our floating rate debt. The collar
agreement effectively limits the PIBOR (Paris Interbank Offered Rate) base
interest rate on 593.1 million French francs (U.S. $100 million) of borrowings
to no more than 6.6% and no less than 3.5% through December 23, 2000.
We have three currency and interest rate swap agreements which effectively
convert $175 million of borrowings under the credit agreement and certain inter-
company loans into 406.2 million French Francs (U.S. $68.5 million), 66.8
million Euros (U.S. $64.5 million) and 25.2 million British pounds sterling
(U.S. $42 million). We receive LIBOR and pay PIBOR and pounds sterling LIBOR.
Effective March 9, 2000 the Company assigned 382.5 million French Francs (U.S.
$64.5 million) of its existing currency and interest rate swap agreement to a
new counterparty and received a cash payment of Euro 8.5 million.
Simultaneously, the Company entered into a new 66.8 million Euro (U.S. $64.5
million) one-year currency and interest rate hedge agreement. The company
receives LIBOR plus 2.25% and pays Euro LIBOR plus 2.27%.
As of March 31, 2000, we have significant net operating loss carryforwards
in Europe and in the United States which are available, subject to certain
restrictions, to offset future U.S. and certain European countries' taxable
income. (See Note 9 to our Consolidated Financial Statements).
Our net deferred tax assets include certain amounts of net operating loss
carryforwards, principally in the U.S., which management believes are realizable
through a combination of anticipated tax planning strategies and forecasted
future taxable income. Failure to achieve forecasted future taxable income
might affect the ultimate realization of any remaining recorded net deferred tax
assets.
28
Effects of Inflation
Inflation has not had a material impact on our operations during the past
three years. We generally have been able to offset the effects of inflation
with price increases, cost-reduction programs and operating efficiencies.
Future Environmental Developments
We are subject to extensive federal, state, local and foreign
environmental, health and safety laws and regulations. Future environmental,
health and safety standards may be more stringent. We anticipate that such
potential standards could cause an increase in our capital expenditures and
operating costs. Unless and until the standards are adopted it is not possible
to estimate these costs with any certainty or to predict whether they will have
a material effect on our financial condition or results of operations. See
"Business-Environmental, Health and Safety Matters".
Year 2000 Issue
We successfully achieved Year 2000 compliance during the third quarter of
fiscal 2000. We are not aware of any open matters, however, we continue to
monitor Year 2000 compliance internally and with our vendors. Costs for Year
2000 remediations were approximately $4.3 million, which was consistent with
prior estimates. These costs were expensed as incurred with the exception of
capitalizable replacement hardware.
Conversion to the Euro Currency
On January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and a
common currency, the Euro. We conduct significant business in these member
countries. The transition period for the introduction of the Euro is between
January 1, 1999 and June 30, 2002. We have addressed the issues involved with
the introduction of the Euro and continue to address related issues with its
ongoing implementation. The more important issues facing us include:
. converting information technology systems,
. reassessing currency risk,
. negotiating and amending contracts, and
. processing tax and accounting records.
Based upon progress to date, we believe that use of the Euro has not and
will not have a significant impact on the manner in which we conduct our
business affairs and process our business and accounting records. Accordingly,
conversion to the Euro has not and is not expected to have a material effect on
our financial condition or results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
We are exposed to market risks from changes in foreign currency exchange
rates, certain commodity prices and interest rates. In order to manage these
risks, we participate in a risk management program, which includes entering into
certain foreign exchange and commodity forward contracts and options.
29
A discussion of our accounting policies for derivative instruments is
provided in Notes 1 and 5 to the financial statements. We maintain risk
management control systems to monitor foreign exchange, commodity and interest
rate risks, and related hedge positions. Positions are monitored using a variety
of analytical techniques including market value, sensitivity analysis, and
value-at-risk models. The following analyses are based on sensitivity analysis
tests which assume instantaneous, parallel shift in exchange rates and commodity
prices. For options and instruments with non-linear returns, appropriate models
are utilized to determine the impact of sensitivity shifts.
Foreign Currency Exchange Rate Risk
We have foreign currency exposures related to buying, selling and financing
in currencies other than the local currencies in which we operate. More
specifically, we are exposed to foreign currency risk related to uncertainty to
which future earnings or assets and liability values are exposed due to
operating cash flows and various financial instruments that are denominated in
foreign currencies. Currently, our most significant foreign currency exposures
relate to France, Italy, United Kingdom, Spain and Germany.
As of March 31, 2000, the net gain based on fair value of financial
instruments with exposure to foreign currency risk was about $10.2 million. The
potential loss in fair value liability for such financial instruments from a
hypothetical 10% adverse change in quoted foreign currency exchange rates would
be about $29.5 million. The model assumes a parallel shift in foreign currency
exchange rates; however, exchange rates rarely move in the same direction. The
assumption that exchange rates change in a parallel fashion may overstate the
impact of changing exchange rates.
Commodity Price Risk
We enter into commodity forward and option contracts. These contracts are
executed to offset our exposure to the potential change in prices mainly for
various metals used in the manufacturing of our lead acid batteries. No such
contracts were outstanding at March 31, 2000.
Interest Rate Risk
We have historically entered into interest rate swaps and other interest
sensitive forward and option contracts. Such contracts are executed to offset
our exposure to interest rate risk on our debt.
Certain Hedging Activities
On May 11, 1998, we entered into an interest rate bond swap agreement for
$4.4 million (principal amount) of our 10% Senior Notes. Under the agreement,
we paid LIBOR plus 1.75% to a counterparty and received from the counterparty
the fixed coupon rate payments we made. At the end of the agreement, the
counterparty was guaranteed repayment of its open market purchase price of the
notes, which exceeded face value by $233,000. This debt modification was
accounted for as an extinguishment of debt, and the related write-off of
unamortized deferred financing costs, along with the premium paid by the
counterparty, resulted in an extraordinary loss of $301,000.
In October 1998, we paid an amendment fee of $6.0 million to the
counterparty to the interest rate swap agreements related to $45.1 million of
our 10% Senior Notes due 2005. This fee was recorded as other expense in the
third fiscal quarter of 1999. In November 1998, we terminated the $45.1 million
interest rate swap agreements. In connection with such termination, we made a
cash payment of $4.6 million, of which $2.5 million was recorded as a
30
bond discount. In January 1999, we amended certain provisions (effective
December 27, 1998) of our existing credit agreement.
Recently Issued Accounting Pronouncements
SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that entities recognize derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Company is currently evaluating the impact of the statement and will be required
to adopt it in the first quarter of fiscal 2002.
Item 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements and Schedule at page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following sets forth certain biographical data regarding our current
directors and executive officers as of March 31, 2000:
Robert A. Lutz, 68, has served as Chairman and Chief Executive Officer of
Exide since December 1998 and a member of the Office of the Chairman since May
2000. Mr. Lutz retired in July 1998 as Vice Chairman of Chrysler. Previously,
Mr. Lutz was Chrysler's President and Chief Operating Officer responsible for
its car and truck operations worldwide, Mr. Lutz became President of Chrysler in
January 1991. Prior to joining Chrysler, Mr. Lutz held senior executive and
operating positions with Ford, GM and BMW. Mr. Lutz is also a director of
Northrop Grumman, ASCOM, a Swiss telecommunications and electronics company,
Silicon Graphics Incorporated and Kepner-Tregoe.
Craig H. Muhlhauser, 51, will begin his tenure as Exide's President and
Chief Operating Officer and a member of the Office of the Chairman effective
July 2000. Mr. Muhlhauser will also serve as the interim leader for Exide's
Transportation: Aftermarket Global Business Unit. From 1997 until shortly
before joining Exide, Mr. Muhlhauser held several senior executive positions
with Ford Motor Company and Visteon Automotive Systems, a $17.8 billion auto
systems and components supplier. Mr. Muhlhauser served as Vice President of
Global Marketing Sales and Service for Visteon before becoming a vice president
at Ford and President of Visteon. Before his tenure at Ford and Visteon, Mr.
Muhlhauser served as Senior Vice President of Sales and Services for United
Technologies Corporation, a global supplier of propulsion systems; he held this
position from 1995 until 1997.
31
Kevin R. Morano, 46, has served as Exide's Executive Vice President and
Chief Financial Officer and a member of the Office of the Chairman since May
2000. Before joining Exide, Morano served in a variety of executive positions
for ASARCO Incorporated, a copper mining, specialty chemicals and aggregates
producer. Mr. Morano held the position of President and Chief Operating Officer
of ASARCO from April 1999 until December 1999. Prior to serving as President and
Chief Operating Officer, Mr. Morano held the positions of ASARCO's Executive
Vice President and Chief Financial Officer from January 1998 until April 1999.
Mr. Morano also served as ASARCO's Vice President and Chief Financial Officer
from April 1993 until January 1998. Mr. Morano is a director of Apex Silver
Mines Limited.
Neil S. Bright, 53, has served as Exide's Executive Vice President, Motive
Power Global Business Unit since April 2000. Mr. Bright joined Chloride, a
subsidiary of Exide, in 1969 and has held a variety of positions with Chloride
and other Exide subsidiaries since that time.
Albrecht M. Leuschner, 62, has been Exide's Executive Vice President,
Standby Global Business Unit since April 2000. Dr. Leuschner joined Exide in
1997 as Managing Director for Exide's German Group. From 1983 until 1997, Dr.
Leuschner served as Chairman of CEAG AG and as Chief Executive Officer of DETA
Akkumulatorenwerk GmbH, a German battery maker.
Ronald J. Gardhouse, 53, has been Exide's Executive Vice President,
Transportation: Original Equipment Global Business Unit since April 2000. Mr.
Gardhouse was appointed Chairman of Exide Holding Europe in June 2000. Mr.
Gardhouse joined Exide in April 1999 as Executive Vice President and Chief
Financial Office of Exide Holding Europe. These positions with Exide followed
Mr. Gardhouse's retirement from a 24-year career with Chrysler. During his
tenure at Chrysler, Mr. Gardhouse served as President, Asia Pacific Operations
from July 1996 to April 1999 and Assistant Treasurer from 1993 to 1996.
Jack J. Sosiak, 61, has been Exide's senior executive in charge of human
resources since 1983, most recently as Executive Vice President, Human Resources
since February 1995.
John R. Van Zile, 48, has been Exide's Vice President, General Counsel and
Secretary since October 1996. Prior to joining Exide, Mr. Van Zile was
Assistant General Counsel/Assistant Secretary of Coltec Industries, a
manufacturer of commercial, industrial and aerospace products, a position he
held since January 1985.
Francois J. Castaing, 55, has served as a director of Exide since March
1999. Mr. Castaing is President of Castaing & Associates, an automotive
industry consulting firm, he began consulting shortly after his 1997 retirement
from Chrysler. From 1987 until his retirement from Chrysler, Mr. Castaing was
an executive with Chrysler. Among the positions that Mr. Castaing held with
Chrysler was that of Vice President of Vehicle Engineering, a position he held
from 1988 until 1996. In 1996, Mr. Castaing was promoted to Executive Vice
President of Chrysler.
Lynne V. Cheney, 58, has served as a director of Exide since February 2000.
Ms. Cheney is a Senior Fellow at the American Enterprise Institute for Public
Policy Research, which she joined in 1993. From 1986 until 1993, Ms. Cheney
served as Chairperson for the National Endowment for the Humanities.
Additionally, Ms. Cheney serves as a director for Lockheed Martin Corporation,
Reader's Digest Association, Inc., American Express/IDS Mutual Fund Group, and
Union Pacific Resources Group, Inc.
32
John A. James, 58, became a director of Exide in March 1999. Mr. James is
Chairman of the Board and Chief Executive Officer of The O-J Group, a group of
transportation-related companies, which he co-founded in 1971. Mr. James is
also a director of the Hartford Development Foundation and a member of the
National Association of Black Automotive Suppliers.
Jody G. Miller, 42, became a director of Exide in December 1999. Ms.
Miller is a Venture Partner with Maveron LLC, a Seattle-based venture capital
firm that she joined in February 2000. Before joining Maveron, from 1995 until
January 1999, Ms. Miller served in several senior executive positions with
Americast, a digital video and interactive services partnership between
Ameritech, BellSouth, GTE, SNET and the Walt Disney Company. While at
Americast, Ms. Miller served as Acting President and Chief Operating Officer,
Executive Vice President and Senior Vice President for Operations. In the
period between her tenures at Americast and Maveron, Ms. Miller served as a
consultant. Ms. Miller also served in the White House as special assistant to
the President from 1993 to 1995, where she was involved with matters such as
healthcare, welfare reform and NAFTA.
Heinz C. Prechter, 58, became a director of Exide in March 1999. Mr.
Prechter is Chairman of Prechter Holdings, a holding company he founded in 1965
that owns various manufacturing companies, one of which is a supplier of the
automobile industry. Mr. Prechter is also the Founding Chairman and Director of
Automotive Supplier Co-Operative. Mr. Prechter also sits on the Boards of The
Budd Company and Comerica Incorporated.
John E. Robson, 70, became a director of Exide in March 1999. Mr. Robson
is a Senior Advisor with Robertson Stephens, an investment banking firm, and has
been with Robertson Stephens since 1993. From 1989 to 1993, Mr. Robson served
as Deputy Secretary of the United States Treasury. Mr. Robson also served
previously as President and Chief Executive Officer of G D Searle, a global
pharmaceutical company, and Dean of Emory University's School of Business
Administration. Mr. Robson is also a director of ProLogis Trust, a global
provider of distribution services and facilities, Pharmacia Corporation and
Northrop Grumman Corporation.
ITEM 11. Executive Compensation
The information under the heading Executive Compensation in the Company's
definitive Proxy Statement for its annual meeting of stockholders to be held on
August 11, 2000, is hereby incorporated by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The information under the heading Stock Ownership in the Company's
definitive Proxy Statement for its annual meeting of stockholders to be held on
August 11, 2000, is hereby incorporated by reference.
ITEM 13. Certain Relationships and Related Transactions
The information under the heading Ce