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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(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, 1998
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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 (IRS Employer
incorporation or organization) Identification No.)
1400 N. Woodward Avenue
Bloomfield Hills, Michigan 48304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 258-0080
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $.01 par value 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 .
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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. [X]
. Aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 26, 1998 was approximately $314,000,000.
. 21,345,492 outstanding shares of the Registrant's common stock as of June 26,
1998.
(DOCUMENTS INCORPORATED BY REFERENCE)
Portions of the Proxy Statement relating to the Annual Meeting of Stockholders
to be held August 12, 1998, are incorporated into Part III of this report.
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DRAFT - June 26, 1998 (6:59 pm)
EXIDE CORPORATION
TABLE OF CONTENTS
Page
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PART I
Item 1 Business 1
Item 2 Properties 14
Item 3 Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security Holders 17
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 18
Item 6 Selected Financial Data 19
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 8 Financial Statements and Supplementary Data 26
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 26
PART III
Item 10 Directors and Executive Officers of the Registrant 26
Item 11 Executive Compensation 27
Item 12 Description of Capital Stock 27
Item 13 Certain Relationships and Related Transactions 27
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 27
SIGNATURES 29
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE F-1
EXIDE CORPORATION
PART I
Item 1. Business
(a) General Development of Business
The Company is a Delaware corporation organized in 1966 to succeed to the
business of a New Jersey corporation founded in 1888. The principal executive
offices of the Company are located at 1400 North Woodward Avenue, Bloomfield
Hills, Michigan 48304, telephone number (248) 258-0080. Principal
administrative offices are located at 645 Penn Street, Reading, Pennsylvania
19612-4205.
Exide Corporation (together with its subsidiaries, "Exide" or the
"Company") is the leading manufacturer and marketer of starting, lighting and
ignition ("SLI") batteries in the world. During 1994 and 1995 through its
acquisitions of B.I.G. Batteries Group Limited ("BIG"), Sociedad Espanola del
Acumulador Tudor, S.A. ("Tudor") and Compagnie Europeenne d'Accumulateurs S.A.
("CEAc"), as well as its assumption of the customers of Gemala Battery Company
Limited ("Gemala Battery"), the Company became Europe's largest producer and
marketer of SLI batteries and industrial batteries. In addition, in 1997 Exide
also acquired DETA Akkumulatorenwerk GmbH, MAREG Accumulatoren GmbH and FRIWO
SILBERKRAFT GmbH, (together "DETA"), three related German companies which
produce and market both SLI and industrial batteries.
Rationalization and Consolidation
The Company is continuing to implement a comprehensive overall European
rationalization and consolidation strategy with respect to its European
businesses, including its acquisition of DETA, effective September 1, 1997. The
Company plans to lower fixed and variable production costs through plant
closings, thereby increasing capacity utilization at the remaining plants,
shifting production to lower cost areas and reducing overhead largely due to
headcount reductions. In conjunction with its plant closings, the Company
continues to rationalize its distribution system, reducing the number of
warehouses and improving its delivery systems. In addition, the Company is
rationalizing its product range, significantly reducing the number of
stockkeeping units and improving inventory management. The Company anticipates
that this consolidation will produce significant cost savings. Exide is also
rationalizing its SLI battery brand strategy in Europe and will concentrate its
sales and marketing efforts on its strongest brands, including Exide, Tudor,
Fulmen, Sonnenschein, Magneti Marelli and Hagen.
At June 30, 1995, the Company had 30 automotive and industrial battery
producing plants in Europe. The DETA acquisition added four more manufacturing
plants. The Company's strategy is to reduce the number of automotive and
industrial plants to fourteen by the year 2000. As of March 31, 1998, fourteen
European plants have been closed.
The Company plans to continue rationalizing its manufacturing and
production facilities in North America as well. The Company has closed four
manufacturing facilities in North America within the last three fiscal years.
1
North America
Exide and its affiliates have the leading market share position in SLI
batteries in the United States and Canada, based on information provided by an
industry trade association. The Company believes that it is the lowest cost
major producer in its North American markets. The Company's brands including
among others Exide, Prestolite, Willard, Exide NASCAR Select and Nautilus are
well recognized in the marketplace.
The Company has realized significant cost savings through consolidations of
operations, particularly after it doubled its size by acquiring General Battery
Corporation in 1987, the installation of more efficient equipment and processes
and continued vertical integration. The Company's relatively high level of
vertical integration, through lead smelting, plastics reprocessing and separator
production, reduces the effects on Exide of changes in the market prices of raw
materials and can result in substantial raw material cost savings. In February
1998, the Company acquired Refined Metals Corporation, a U.S. company that
operates two secondary lead smelters. Exide continues to increase production at
its Bristol, Tennessee battery manufacturing facility, which the Company intends
to be similar to its Salina, Kansas plant, which the Company believes is the
highest volume and one of the lowest cost automotive battery plants in the
world.
For the fiscal year ended March 31, 1998, Exide's North American operations
accounted for approximately 37% of Exide's consolidated net sales.
Europe
Exide targeted the European market as an attractive opportunity because it is
the largest battery market outside of North America and because the Company
believes that its experience with rationalization and consolidation of
manufacturing and distribution operations can be successfully applied in Europe.
The Company believes the battery manufacturing industry in Europe is undergoing
rationalization and consolidation activity similar to that which has occurred in
the United States over the last twenty years. The key components of the
Company's European strategy include maintaining or improving (i) strong market
shares, (ii) broad geographic coverage, (iii) low production costs, (iv)
distribution systems, (v) strong customer relationships and (vi) experienced
management.
In implementing this strategy, the Company acquired two European battery
manufacturers in 1994, one in 1995 and one in 1997 (DETA). In May 1995, the
Company acquired 99.7% of the stock of CEAc (subsequently increased to 100%),
one of the largest SLI producers and the largest industrial battery manufacturer
in Europe, for approximately $425.0 million in cash. In October 1994, Exide
acquired for approximately $229.0 million 89.4% (subsequently increased to
95.8%) of the outstanding capital stock and 25% of the convertible bonds of
Tudor, headquartered in Madrid, Spain, which was the third largest lead acid
battery producer in Western Europe. In March 1994, the Company acquired BIG, an
SLI battery manufacturer based in Wales, for approximately $35.0 million. In
addition, in September 1994, the Company assumed the customers of, and began to
temporarily operate the facilities of, Gemala Battery, a battery producer based
in England. In exchange, the owner of Gemala Battery received an 18.5% interest
in the combined operations of BIG and Gemala Battery. In 1997, Exide purchased
DETA for approximately $34 million, plus approximately $64.6 million of assumed
debt.
2
Exide is the leading manufacturer and marketer of SLI and industrial
batteries in Europe with major market presence in most European countries. The
Company believes it is one of the lowest cost, highest quality suppliers of SLI
and industrial batteries in Europe. SLI batteries and industrial batteries
accounted for approximately 52% and 46%, respectively, of the net sales of
Exide's European operations for the fiscal year ended March 31, 1998. The
Company plans to focus its SLI battery marketing efforts on certain of its
strong brands. The Company's battery brands, including Exide, Hagen Batterie,
Tudor, Fulmen, Sonnenschein, Chloride Motive Power, Magneti Marelli and BIG, are
well recognized in their markets.
The Company's European operations are vertically integrated (although to a
lesser extent than its North American operations), with four secondary lead
smelters in Europe. The Company supplies a large part of its own European needs
for plastic components.
For the fiscal year ended March 31, 1998, Exide's European operations
accounted for approximately 63% of Exide's consolidated net sales.
(b) Financial Information About Industry Segments
The Company is primarily engaged in one industry segment, namely, the
manufacture, distribution and sale of lead acid batteries and related
accessories. See Note 16 to the Company's Consolidated Financial Statements
appearing elsewhere herein.
(c) Narrative Description of Business
Exide is the leading manufacturer and marketer of SLI batteries in the
world. The Company's acquisitions of BIG, Tudor, CEAc, and more recently, DETA,
as well as its assumption of the customers of Gemala Battery, have made it
Europe's largest producer and marketer of SLI batteries and industrial
batteries.
Products
SLI Batteries. SLI batteries represented 67% of consolidated revenues of
Exide for the fiscal year ended March 31, 1998. In the United States and
Canada, Exide believes it has the most complete line of automotive batteries,
and the Company has introduced numerous new products, including batteries for
superior performance in hot and cold climates, such as the Exide Heat Guard
battery, the first climatized battery, Exide maintenance-free batteries that
require no watering and have an extended shelf life and the Exide 911 Emergency
Vehicle Battery that employs patented technology to provide the high performance
required for emergency vehicles. In fiscal 1997, the Company introduced its
Exide NASCAR Select batteries which provide substantially higher gross profit
per battery due to their premium quality and the strong brand loyalty of NASCAR
fans. In addition, the Company has introduced a sealed recombinant battery in
Europe, which the Company believes will present a significant opportunity as it
has a longer shelf life and is the first battery sealed in such a manner that
allows the battery to be relocated from the engine to the passenger compartment
of the vehicle.
3
The Company also produces SLI 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 marine
market, Exide has introduced the Nautilus Mega Cycle high performance, dual
terminal battery and the Power Probe battery which allows boaters to instantly
check their battery power.
Industrial Batteries. Sales of industrial batteries represented 29% of
consolidated revenues of Exide for the fiscal year ended March 31, 1998. Exide
is the largest manufacturer and marketer in Europe of industrial batteries.
Standby (also known as "stationary") batteries are used primarily for backup
power for applications such as telecommunications, security and emergency
systems and uninterruptible power systems. Exide is one of Europe's leading
suppliers of submarine batteries and its customers include the navies of Norway,
Israel, Turkey, Sweden, Greece, Germany and Spain. Exide's European operations
have developed the Dry Safe line of maintenance-free standby batteries, an
improvement over existing sealed batteries. Traction batteries are used to power
electric vehicles such as forklifts and mine locomotives. The traction battery
market is divided into the OEM market, comprised of the manufacturers of
electric vehicles, and the replacement market, which includes large users of
electric vehicles as well as OEM dealer networks.
In 1991 Exide sold its North American industrial battery product line to
Yuasa, Inc., an entity in which the Company has a 13.5% interest. Yuasa, which
is a leading manufacturer of industrial batteries in North America, supplies the
Company with motorcycle batteries built to Exide's specifications. See Note 13
to the Company's Consolidated Financial Statements appearing elsewhere herein.
Other Products. The Company also produces battery chargers and has expanded
its presence in the North American automotive market by adding its Speed Clip
line of battery related accessories and wheel weights and its Sure Start line of
remanufactured starters and alternators. Its European operations also
manufacture and market other products such as battery chargers and accessories,
plastic components and nickel-cadmium and lithium batteries. Sales of products
other than SLI and industrial batteries represented 4% of consolidated revenues
of Exide for the fiscal year ended March 31, 1998.
4
Markets and Marketing
North America. Over 80% of all automotive batteries sold in the United States
and Canada are sold in the aftermarket, which is the Company's principal market.
The aftermarket is influenced more by the age and number of vehicles in service
than new production levels and tends to be less cyclical than the OEM market.
In April 1994, Sears Roebuck and Co. ("Sears"), one of the largest retailers of
SLI batteries in the United States, selected the Company as the primary supplier
of its batteries, including the Die Hard brand and in June 1997, the
relationship was expanded. The Company is now the principal battery supplier to
Sears and affiliated companies including Sears Auto Centers, Sears Hardware and
the new NTB National Tire and Battery stores. Exide is the leading supplier for
most of the 20 largest battery retailers in the United States, including Sears,
NAPA Distribution Centers, Kmart Corp., CSK Inc., Paccar and The Pep Boys-Manny,
Moe & Jack. The Company also produces SLI batteries for the OEM market in North
America. Customers include Chrysler Corporation, for whom the Company is the
primary battery supplier, as well as Central Tractor, John Deere, E-Z-GO, Ford
New Holland, NAVISTAR and others.
Current management, which is led by Arthur M. Hawkins, Chairman, President
and Chief Executive Officer, who joined Exide in 1985, has transformed the
Company into a marketing-driven business by developing a new customer base
focused on leading mass-merchandisers, auto supply chains and wholesalers and
introducing merchandise displays, innovative packing and programs to assist
customers in marketing and inventory management. To support and expand this
customer base, Exide has expanded its Company-owned distribution system from 12
wholesale branch outlets in 1985 to approximately 130 today. These outlets,
which distribute Exide batteries to both large accounts and local dealers and
other small volume customers, also allow Exide to collect used batteries for
recycling in the Company's lead smelters as part of its recycling program aimed
at reducing costs and protecting the environment. In addition, in recent years
the Company has introduced several new products including an advanced line of
maintenance-free batteries and an emergency vehicle battery. The Company, which
markets its products under various trademarks including Exide, Willard and
Prestolite, has strengthened its brand recognition through promotional
activities, including sponsoring a NASCAR Winston Cup racing team. The Company
also produces and markets, under license from NASCAR, the Exide NASCAR Select
line of batteries, battery chargers, battery cables and remanufactured starters
and alternators.
Europe. The Company's European revenues are diversified across many European
countries. The Company has a leading position in the aftermarket in most
European countries. Exide's replacement SLI battery brands include Fulmen,
Sonnenschein, Tudor, Hagen Batterie, LYAC Power, SONNAK, Anker, BIG and Exide.
In addition to the markets in which it has a direct presence through
manufacturing subsidiaries, the Company markets batteries in and exports
batteries to approximately 50 other countries.
The Company is one of the major suppliers to Fiat S.p.A. ("Fiat"), the
Volkswagen group (Volkswagen AG/AUDI AG/Seat/Skoda Automobilova AS), the PSA
group (Peugeot S.A./Citroen), the Renault group and Volvo. By assuming the
customers of Gemala Battery, the Company is also a supplier to Ford Motor Co. in
Europe. As development supplier to the PSA group and several other automobile
manufacturers, Exide works closely with such customers as they develop new
models with varying requirements. As in the United States, OEM battery sales
are closely linked to new vehicle sales.
5
The Company has the leading market share in industrial batteries in western
Europe. The Company's standby batteries are used for telecommunications,
uninterruptible power supplies, security systems, submarines, power plants,
railways and miscellaneous mobile applications (such as wheelchairs and golf
carts). Major standby battery customers include telecommunications companies
and European armed forces. Major traction battery customers in Europe include
the electric vehicle operations of the Linde group (Still GmbH, LL Fenwicks,
Fiat and Lansing), Clark and Jungheinrich, and to a wide variety of customers in
the aftermarket, ranging from large industrial concerns to small warehouses.
Technical expertise and assistance and customer service are more important in
the industrial battery markets than in the SLI battery markets and the Company
has technical service agreements with a number of its customers.
Customers. The Company has a number of major retail and OEM customers, both
in North America and Europe. No single customer accounted for more than 10% of
consolidated net sales. The Company does not believe that a material part of
its business is dependent upon a single customer the loss of which would have a
material impact on the long-term business of the Company. However, the loss of
one or more of the Company's largest customers would have a negative short-term
impact on the Company's results of operations. See Note 1 to the Company's
Consolidated Financial Statements appearing elsewhere herein.
Distribution Networks
North America. As part of its program to improve its customer base and its
service to such customer base, the Company has developed a network of over 130
Company-owned wholesale distribution outlets throughout the United States and
Canada that sell and distribute Exide batteries to local auto parts retailers,
service stations, local repair shops and other smaller volume customers as well
as collect used and spent batteries for recycling in the Company-owned lead
smelters. The Company's wholesale outlet distribution system has grown to
constitute the third largest distribution system of SLI batteries in the United
States. The development of its wholesale outlet distribution system, which is
supplemented by regional accounts, small battery wholesalers and battery
specialists, has been a key component in the Company's success and has enabled
the Company to provide cost effective product distribution to the Company's
national accounts.
Europe. Exide's European operations distribute their aftermarket SLI
batteries primarily through battery wholesalers, OEM dealer networks,
hypermarkets, European purchasing centers and oil companies, although on a
country by country basis distribution strategy varies greatly. Battery
wholesalers sell and distribute batteries to a network of automotive parts
retailers, service stations, independent retailers and supermarkets throughout
Europe. Wholesalers, who sell to repair shops and service stations, and OEM
dealers represent the large majority of this market, but supermarket chains,
replacement parts stores (who are represented by purchasing associations) and
hypermarkets have become increasingly important. The Company's distribution
network will be enhanced as certain manufacturing facilities closed, pursuant to
the ongoing rationalization and consolidation, are converted to use as
distribution centers.
6
Given the importance of service and technical assistance, Exide's European
operations generally ship standby batteries directly to system suppliers and
uninterruptible power supply manufacturers who include the standby batteries in
the equipment and distribute products to end users. Traction batteries are
distributed through OEM dealers, independent distributors and directly to large
fleet users. Exide's European operations also distribute both standby and
traction batteries through their own branch network.
Research and Development; Quality
The Company's commitment to research and development has allowed the Company
to introduce many new products in the last five years, including the Exide
NASCAR Select line featuring superior performance and durability
characteristics. Exide has received over 100 new patents since 1985 and is now
working on the next generation of power solutions. The Company's presence in
the North American OEM markets for automobiles and commercial vehicles,
particularly its close working relationship with Chrysler Corporation, helps it
to remain current with technological innovations. Similarly, Exide through its
European operations, devotes substantial efforts to research and development and
benefits from its appointment as development supplier to several major
automobile manufacturers. The Company has received the maximum research and
development rating from the PSA group and similar ratings from most of the other
European automobile companies it serves. For the SLI market, Exide is
developing lighter batteries which will result in lower fuel consumption and
recently developed a new line of very low maintenance batteries with higher
starting power as well as a wound cell design with significantly higher power
density than conventional lead acid batteries. With respect to industrial
batteries, Exide has focused on improving efficiency and reducing maintenance.
Exide continues to devote substantial efforts to research and development for
batteries for electric cars and other vehicles. These efforts include not only
research with lead acid batteries but also more exotic battery technologies such
as lithium ion. The Company participated in the development of an electric
vehicle which has set various speed and endurance records and was demonstrated
at the 1994 Indianapolis 500. The Company is participating in electric vehicle
battery research projects funded by the European Union and a consortium of
battery manufacturers and by the Spanish Ministry of Industry and Energy. The
Company is also running a demonstration fleet in conjunction with the Tennessee
Valley Authority ("TVA").
Exide's performance and product quality has been widely recognized by its
customers. In the United States, Exide has received the "Desert Storm"
Commendation from the United States military, Carport Vendor of the Year Award,
Chrysler Quality Excellence Award, Chrysler Preferred Supplier Evaluation, Ford
Q1 Award, Navistar QA 7 Award, NAPA Excellence Through Performance Award, Kmart
Innovation of Products and Marketing Award, Ford New Holland Quality Award, and
the ADAP Stores Vendor of the Year. In 1998, an independent testing laboratory
of national repute subjected SLI batteries in the North American market to
rigorous tests designed to simulate conditions that those batteries would
experience in actual use. The reported results of those tests indicated that
Exide's batteries were superior to the other batteries tested.
In 1997, Exide's North American quality systems achieved another milestone by
being recognized for their compliance to QS-9000 standards.
7
Exide's European operations have received awards for quality automotive OEM
production, including the Formel Q and Most Value to Customer awards from
Volkswagen, and one of the Company's batteries was chosen as the best
replacement battery in France in a study conducted by Auto Plus, a French
automobile magazine. In the industrial market, the Company's standby batteries
have received quality approval certificates from such major telecommunications
companies as the Deutsches Bundespost Telekom and from European defense
organizations. Many of the Company's European facilities have been recognized
for meeting ISO standards.
Manufacturing, Raw Materials and Suppliers
North America. The major reasons for the Company's emergence as the low-cost
producer in the United States and Canadian automotive battery industry have been
the achievement of economies of scale through strategic acquisitions, the
consolidation of facilities, the Company's relatively low labor costs and
increased vertical integration in the areas of lead smelting, plastics and
battery separators. Since 1985 and following the acquisition of General Battery
in May 1987, the Company consolidated the operations of nine plants and eight
distribution centers into larger, more efficient locations with lower labor
costs. This has led to a significant reduction in unit costs and improved labor
productivity. The Company also is a leader in developing advanced production
techniques, such as continuous plate processing, statistical process control and
computer-aided design and manufacturing. The Company's manufacturing plant in
Salina, Kansas is the highest volume and one of the lowest cost automotive
battery plants in the world. The Company continues to increase production at its
manufacturing facility in Bristol, Tennessee, a modern, highly efficient battery
manufacturing plant similar to the Company's Salina, Kansas facility.
Exide believes its overall unit conversion costs (production costs other than
raw materials) are significantly below the conversion costs of its major United
States and Canadian competitors. These cost efficiencies result from the
Company's high volume of production, emphasis on cost control and competitive
labor costs. The Company's relatively high level of vertical integration
reduces the effects of changes in the market prices of raw materials on
production costs and, when lead market prices are higher, may result in
substantial raw material cost savings. Lead is the principal raw material in
the manufacture of batteries, representing approximately one-third of the cost
of goods sold. The Company can obtain substantially all of its domestic lead
requirements through the operation of six secondary lead smelters, which reclaim
lead by recycling spent lead-acid batteries. Prior to its acquisition of two
such smelters in August 1995 through its purchase of Schuylkill, the Company was
purchasing a larger portion of its lead requirements, making the cost of its
batteries more sensitive to lead price changes. The Company obtains batteries
for recycling from its customers and through its wholesale distribution outlet
system. The Company believes it has a significant competitive advantage from
its in-house lead smelting and from back hauling of spent batteries for
recycling through its distribution network and wholesale distribution outlets.
When lead market prices decline, the Company's lead cost advantage from vertical
integration can be reduced or eliminated. Because Exide adjusts its pricing to
a substantial number of customers pursuant to a formula based on a published
price of lead, if market prices were to decline below the Company's lead
production cost for an extended period of time, the Company could be forced to
obtain more of its requirements from third parties.
The Company also produces most of its U.S. plastic molding requirements
utilizing plastic obtained through in-house reclamation of spent battery cases
as part of its recycling program.
8
Other key raw materials and components in the production of batteries include
lead oxide and chemicals, which are generally available from multiple sources.
The Company currently produces substantially all of its North American
requirements of battery separators. The Company has not experienced any
material stoppage or slowdown in production as a result of the unavailability,
or delays in the availability, of raw materials.
Europe. The Company operates manufacturing plants in France, Italy, Spain,
Portugal, Germany, the United Kingdom and elsewhere in Europe. Through CEAc's
investment in Turkey and its subsidiary in Poland, and Tudor's investment in
India, the Company has a presence in Eastern Europe and Asia as well.
Exide has four secondary lead smelters in Europe that supply approximately
one-third of its European lead requirements (with a plan to bring that figure to
50% by the year 2000). The Company's European operations are affected by changes
in lead prices more than its North American operations because European
operations are less vertically integrated. Major investments have been made in
these plants in recent years to improve lead treatment and recycling processes.
The Company produces most of its own plastic components.
The Company is implementing a cohesive overall rationalization and
consolidation strategy with respect to its European acquisitions. The Company
continues to lower fixed and variable production costs through plant closings,
thereby increasing capacity utilization at the remaining plants, shifting
production to lower cost areas and reducing overhead. In conjunction with its
plant closings, the Company is rationalizing its distribution system, reducing
the number of warehouses and improving its delivery systems. In addition, the
Company is reducing administrative expenses by eliminating duplicate functions
and services and plans to rationalize its product range, significantly reducing
the number of stock keeping units and improving inventory management. The
Company anticipates that this consolidation and rationalization will produce
significant cost savings.
Competition
North America. The United States and Canadian market for SLI and specialty
batteries is mature and highly competitive. Battery manufacturers compete
primarily on the basis of price, quality, service, warranty period and
timeliness of delivery. Generally, sales are made without long-term contracts.
Because the domestic industry has had excess capacity, competition and increased
pressure for cost reduction from SLI battery customers in the SLI aftermarket
and from automotive OEMs and other customers in the OEM markets for SLI
batteries have resulted in declining prices in the last several years and some
smaller competitors were unable to survive.
The Company's primary domestic competitors are Johnson Controls, Inc., Delco
Remy and GNB Incorporated (a subsidiary of Pacific Dunlop, Ltd.). Regional
manufacturers are also significant, accounting for approximately 13% of the
United States market based on information provided by an industry trade
association.
9
Europe. The automotive and industrial battery markets are very competitive.
Reduced demand due to European economic conditions in the recent past caused
excess capacity and resulted in more intense competition. As in the North
American automotive and industrial battery markets, European manufacturers
compete primarily on the basis of price, quality, warranty and service. The
excess capacity caused pressure from large customers in both the automotive and
industrial battery markets for price concessions. Exide's strategy to
consolidate manufacturing and excess capacity, while lowering unit costs, has
resulted in more stable pricing. Higher lead prices in 1997 resulted in higher
battery prices on pass-through pricing. Lead prices were much lower and more
stable in 1998. Currency fluctuations among the European countries, depending on
where competitors manufacture, can have considerable competitive effects. Among
Exide's competitors in Europe are VB Autobatterie GmbH ("Varta/Bosch"), Hawker
Batteries, Fiamm, Delco Remy, Autosil, Hoppecke, Yuasa and Matsushita.
Backlog
The Company does not have a material amount of backlog orders.
Employees
North America. As of March 31, 1998, the Company employed approximately
1,604 salaried employees and approximately 4,447 hourly employees in North
America. Approximately 48% of such salaried employees are engaged in sales,
service and marketing and approximately 43% in manufacturing and engineering.
Approximately 30% of its hourly employees are represented by unions. Relations
with the unions are generally good. Contracts covering approximately 185 and
207 of the Company's union employees expire in fiscal 1999 and 2000,
respectively, and the remainder thereafter.
Europe. As of March 31, 1998, the Company employed approximately 4,076
salaried employees and approximately 7,056 hourly employees in Europe.
Approximately 32% of such salaried employees are engaged in sales, service and
marketing and approximately 58% in manufacturing and engineering. The Company's
hourly employees are generally represented by unions. Relations with the unions
are generally good. Contracts covering the Company's European union employees
expire on various dates through 1999.
Trademarks and Patents
The Company owns or has a license to use various trademarks which are of
value in the conduct of its business. Illustrative of the licenses the Company
entered into is an agreement with the National Association for Stock Car Auto
Racing, Inc. ("NASCAR") pursuant to which Exide has the exclusive rights to
market batteries and related accessories bearing the NASCAR name and logo. In
1997, the Company launched a program to market a line of very high quality
batteries and accessories bearing the name Exide NASCAR Select. The market
acceptance of these products has been encouraging. While the Company believes
such trademarks and trade names enhance the brand recognition of its products
and therefore are important to its business, the Company also believes that its
products, engineering skills, reputation for quality and relationships with its
customers are equally important for the maintenance and growth of its business.
An unaffiliated firm has rights to the Exide mark in approximately 37 foreign
countries. In addition, Exide Electronics Group, Inc., an unaffiliated company,
is licensed to use the Exide name on certain devices.
10
Exide has been issued many patents worldwide, some of which are active, with
several additional patents in process covering design of lead acid batteries and
battery manufacturing equipment. While the Company believes that patents are
important to its business operations, it also believes that the loss of any
single patent or several patents would not have a material adverse effect on the
Company.
Environmental, Health and Safety Matters
The Company, particularly as a result of its manufacturing and secondary lead
smelting operations, is subject to numerous environmental laws and regulations
and is exposed to liabilities and compliance costs arising from its past and
current handling, processing, recycling, storing and disposing of hazardous
substances and hazardous wastes. The Company's operations are also subject to
occupational safety and health laws and regulations, particularly relating to
the monitoring of employee health in North America and, to a lesser extent, in
Europe. Except as disclosed herein, the Company believes that it is in
substantial compliance with all material environmental, health and safety
requirements.
North America. The Company has been advised by the U.S. Environmental
Protection Agency ("EPA") or state agencies that it is a "Potentially
Responsible Party" ("PRP") under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or similar state laws at 75
federally defined Superfund or state equivalent sites. At 35 of these sites,
the Company has either paid or is in the process of paying its share of
liability. In most instances, the Company's obligations are not expected to be
significant because its portion of any potential liability appears to be minor
to insignificant in relation to the total liability of all PRPs that have been
identified and are viable. The Company's share of the anticipated remediation
costs associated with all of the Superfund sites where it has been named a PRP,
based on the Company's estimated volumetric contribution to each site, is
included in the environmental remediation reserves discussed below.
Because the Company's liability under such statutes may, as a technical
matter, be imposed on a joint and several basis, the Company's liability may not
necessarily be based on volumetric allocations and could be greater than the
Company's estimates. Management believes, however, that its PRP status at these
Superfund sites will not have a material adverse effect on the Company's
business or financial condition because, based on the Company's experience, it
is reasonable to expect that the liability will be roughly proportionate to its
volumetric contribution of waste to the sites.
The Company currently has greater than 50% liability at only one Superfund
site, discussed below. Other than this site, the Company's volumetric
allocation exceeds 5% at only five sites at which the Company's share of
liability has not been paid as of March 31, 1998. The current volumetric
allocation at these five sites averages 13.1%
The Company is the primary PRP 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 EPA issued a Record of Decision ("ROD")
identifying several alternate remedies. During fiscal 1997, the Company signed a
consent decree and paid $3.0 million of the EPA's past costs and is not
responsible for any other past costs. The Company has established its reserves
based upon its estimates of the remediation cost using the approved remedy.
11
The Company is also involved in the assessment and remediation of various
other properties, including certain Company-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 reasonably estimable, the costs of such projects
have been accrued in reserves established by the Company, as discussed below.
In addition, certain environmental matters concerning the Company are pending in
federal and state courts or with regulatory agencies.
While the ultimate outcome of the foregoing environmental matters is
uncertain, after consultation with legal counsel, management does not believe
the resolution of these matters will have a material adverse effect on the
Company's business, cash flows, financial condition or results of operations.
The Company's policy is to accrue for environmental costs when it is probable
that a liability has been incurred and the amount of such liability is
reasonably estimable. While the Company believes its 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 onsite and offsite environmental
remediation costs and believes that such reserves are adequate. These reserves
consist of amounts accrued for active Company facilities, closed facilities, and
specifically for 16 of the Superfund sites. Because environmental liabilities
are not accrued until 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.
In fiscal 1997, the Company reached a settlement with most of its insurance
carriers, whereby the insurance companies reimbursed and indemnified the Company
for certain response costs, property damage and bodily injury claims allegedly
resulting from environmental conditions.
During fiscal 1998, the Company reached an agreement with former owners
of the Company whereby the Company agreed to release and indemnify the former
owners from all environmental matters relative to certain sites. In exchange for
this release the Company received $4,500 in the third quarter and remaining
$5,500 will be received in three annual installments.
The Company has taken an active role in addressing environmental issues
associated with its business and has a staff of more than 70, not including
consultants, focusing on environmental, safety and health matters. The Company
maintains numerous permits with the EPA, various state agencies and provincial
regulatory authorities which allow the Company to transport, store and recycle
spent lead acid batteries, lead-bearing hazardous wastes and certain other
hazardous wastes in the United States.
12
To protect the environment, minimize future liability and help ensure a
stable supply of lead to its battery manufacturing facilities, the Company has
developed a comprehensive materials recycling program. Under this program, the
Company obtains spent lead-acid batteries through its wholesale distribution
outlet system and lead-bearing materials from third parties. These materials
are transported to the Company's 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 the Company's 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 then used at the
Company's 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. The Company is investigating methods of recycling
spent battery acid.
Europe. The Company is subject to numerous environmental, health and
safety requirements and is exposed to differing degrees of liabilities and
compliance costs arising from its past and current manufacturing and recycling
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. Except as disclosed herein, the Company
believes, based upon reports from its foreign subsidiaries and/or independent
qualified opinions, that it is in substantial compliance with all material
environmental, health and safety requirements in each country, except as noted
below.
Certain facilities in France, Germany and Spain are not in compliance
with certain limits contained in air and wastewater treatment discharge permits.
In every case, the Company is working cooperatively with appropriate authorities
to come into compliance. It is possible that the Company could be subject to
fines or penalties with regard to these violations, although management believes
any such fines/penalties will not be material. The cost to upgrade the
facilities to attain compliance is not expected to be material. The violations
are not expected to interfere with continued operations at the subject
facilities.
The Company expects that its European operations will continue to incur
capital and operating expenses in order to maintain compliance with evolving
environmental, health and safety requirements or more stringent enforcement of
existing requirements in each country.
As a result of the Company's plans to consolidate its European
manufacturing operations, it is probable that certain environmental costs will
be incurred. An estimate of the probable liability has been included in the
Tudor and CEAc purchase price allocations.
The Company expects that its overseas operations will continue to incur
capital and operating expenses in order to maintain compliance with evolving
environmental, health and safety requirements or more stringent enforcement of
existing requirements in each country. In addition, accelerated consolidation
of Exide's European operations could increase its expenditures. See Note 12 to
the Company's Consolidated Financial Statements appearing elsewhere herein.
13
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
See Note 16 to the Company's Consolidated Financial Statements appearing
elsewhere herein.
Item 2. Properties
The chart below lists the location of the principal facilities of the
Company. All of the facilities are owned unless otherwise indicated. All owned
properties and the leases for the leased properties are subject to liens under
the Senior Secured Global Facilities Credit Agreement. See Note 5 to the
Company's Consolidated Financial Statements appearing elsewhere herein. The
leases for leased facilities expire at various dates through 2015. In addition
to these properties, Tudor holds a portfolio of undeveloped land totaling
approximately 39 acres of which it divests portions from time to time.
Approximate
Location Square Footage Use
- -------------------- ------------------------- ---------------------------
North America:
Auburn Hills, MI 5,000 (leased) OEM Engineering and Sales
Baton Rouge, LA 176,000 Secondary Lead Smelting
Beechgrove, IN 77,000 Secondary Lead Smelting
Bloomfield Hills, MI 10,000 (leased) Executive Offices
Bristol, TN 220,000 (leased) Automotive Accessory
Manufacturing
Bristol, TN 631,000 (leased) Battery Manufacturing
Burlington, IA 193,000 Battery Manufacturing
Cannon Hollow, MO 137,000 Secondary Lead Smelting
Cooper, TX 30,000 (leased) Starter and Alternator
Manufacturing
Corydon, IN 161,000 Separator Manufacturing
Drummondville, 90,000 Distribution Center
Quebec, Canada
Frankfort, IN 211,000 Distribution Center
Hamburg, PA 30,000 Distribution Center
Lampeter, PA 82,000 Battery Plastics
Manufacturing
Logansport, IN 197,000 Battery Manufacturing
Manchester, IA 286,000 Battery Manufacturing
Maple, Ontario, Canada 169,000 Distribution and
Administration
Memphis, TN 41,382 Secondary Lead Smelting
Muncie, IN 174,000 Secondary Lead Smelting
North Bay, Ontario, 30,000 Battery Charger
Manufacturing
Canada
Reading, PA 72,000 (leased) Engineering and Research
and Development
Reading, PA 125,000 Secondary Lead Smelting
and Poly Reprocess
Reading, PA 15,000 (leased) Technical Center
Reading, PA 135,000 Administrative Offices
Reading, PA 280,000 Battery Manufacturing
Reading, PA 77,000 Distribution Center
14
Approximate
Location Square Footage Use
- -------------------- ------------------------- ---------------------------
Salina, KS 260,000 (leased) Battery Manufacturing
Salina, KS 100,000 Distribution Center
Sumner, WA 56,000 (leased) Distribution Center
Europe and Other:
Florival, Belgium 290,000 Distribution Center
Herlev, Denmark 15,000 Executive Offices
Bolton, England 274,000 Industrial Battery
Manufacturing
Bristol, England 4,800 Warehouse
Corbyl, England 44,000 SLI Battery Manufacturing
Auxerre, France 176,000 SLI Battery Manufacturing
Gennevilliers, France 55,000 Executive Offices
Lille, France 484,000 Industrial Battery
Manufacturing
Nanterre, France 169,000 SLI Battery Manufacturing
Nimes, France 120,000 SLI Battery Manufacturing
Perrone, France 96,000 Battery Plastics
Manufacturing
Pont Ste Maxence, 71,000 Secondary Lead Smelting
France
Vierzon, France 174,000 Industrial Battery
Manufacturing
Bad Lauterberg, 458,500 Manufacturing,
Administrative and
Germany Warehouse
Budingen, Germany 258,000 Industrial Battery
Manufacturing
Budingen, Germany 15,000 Lithium Cells Manufacturing
Duisburg, Germany 48,387 Manufacturing,
Administrative and
Warehouse
Kassel, Germany 212,000 Distribution Center
Soest, Germany 386,000 Industrial Battery
Manufacturing
Weiden, Germany 208,000 Industrial Battery
Manufacturing
Schimitari, Greece 69,000 SLI Battery Manufacturing
Maarssen, Holland 26,000 Executive Offices
Vlaardingen, Holland 51,000 Industrial Battery Assembly
Avellino, Italy 35,000 Lids and Containers
Manufacturing
Bergamo, Italy 203,000 Lids, Containers and
Separators Manufacturing
Casalnuovo, Italy 483,000 Industrial Battery
Manufacturing
Fumane, Italy 65,000 SLI Battery Manufacturing
Romano Di Lombardia, 266,000 (leased) SLI Battery Manufacturing
Italy
Horten, Norway 108,000 (leased) Industrial Battery
Manufacturing
Poznan, Poland (five) 887,000 SLI Battery Manufacturing
Warsaw, Poland 34,100 Industrial Battery
Manufacturing and Offices
Ilhavo, Portugal 54,000 Manual Tools Manufacturing
Azambuja (Sonalur), 21,000 Secondary Lead Smelting
Portugal
Azambuja (Azai), 21,000 Lids and Containers
Portugal Manufacturing
15
Approximate
Location Square Footage Use
- -------------------- ------------------------- ---------------------------
Lisbon, Portugal 12,000 Executive Offices
Cubas, Spain 323,000 Secondary Lead Smelting
Azuqueca de Henares, 434,000 SLI Battery Manufacturing
Spain and Research
Torrejon de Ardoz, 54,000 Industrial Battery and
Spain NiCad Manufacturing
Loeches, Spain 12,000 (leased) Traction Chargers
Manufacturing
Malpica, Zaragoza, 213,000 SLI Battery Manufacturing
Spain
Manzanares, Spain 438,000 SLI Battery Manufacturing
Bonmati, Spain 57,000 Recycling Facilities
S. Esteban de Gormaz, 63,000 Secondary Lead Smelting
Spain
Madrid, Spain 7,200 (leased) Executive Offices
Zaragoza, Spain 269,000 Industrial Battery
Manufacturing
Nol, Sweden 447,000 SLI and Industrial Battery
Manufacturing
Manisa, Turkey 145,000 SLI Battery Manufacturing
Cwmbran, Wales 105,000 Executive Offices and SLI
Battery Manufacturing
In addition, the Company temporarily operates an SLI battery manufacturing
facility in Dagenham, England, which includes some executive offices. The
Company also leases distribution outlets in Europe.
The Company believes that its facilities are in good operating condition,
adequately maintained, and suitable to meet its present needs and future plans.
Item 3. Legal Proceedings
In August 1996, a Portland, Oregon jury found that the Company infringed a
patent relating to a device for inserting battery plates into battery
separators, and awarded damages of $5.0 million. Later, the Court, acting on
the jury's verdict, entered a judgment against the Company for $5.4 million. On
April 28, 1997, the Court denied the Company's post-trial motions relating to
the judgment. On May 16, 1997, the Company filed its Notice of Appeal and five
days later plaintiffs filed a cross appeal. The appeal was argued before the
U.S. Court of Appeals for the Federal Circuit Court on March 5, 1998.
Management and its outside patent counsel remain confident that the jury verdict
and the court's judgment relating to the patent asserted at trial will be
reversed and that the cross appeal is without merit and, therefore, shall be
rejected. The Company anticipates receiving a decision on the appeal during
fiscal 1999. No reserve has been established for this matter.
16
The Company is now or recently has been involved in several related lawsuits
containing similar allegations pending in state and federal courts in Alabama,
North Carolina, South Carolina and Texas, two of which were brought as purported
class actions. These actions contain allegations that the Company sold old or
used batteries as new batteries. In all of the cases, submitted for judicial
determination the Company has prevailed. In others, the Company has not been
obliged to present a defense. The remaining actions seek compensatory and
punitive damages and, in one case, injunctive relief. The Company disputes the
material legal claims in these matters and will vigorously defend itself.
Five purported class action lawsuits have recently been filed against the
Company and three of its senior officers who are also directors alleging
violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5
promulgated thereunder. Specifically, the complaints allege that the market
price of the Company's stock was artificially inflated over a period from June
27, 1995 through April 3, 1998 as a result of alleged misstatements and
omissions. The named plaintiff in each case seeks to represent a class of
persons who purchased Exide stock on the open market during the period in which
the stock was allegedly artificially inflated. Plaintiffs in each case seek
compensatory damages in an unspecified amount. The Company has not yet answered
the complaints and no discovery has occurred. The Company denies any wrongdoing
and plans to vigorously defend itself against these charges.
Under its civil investigative authority, the Florida Attorney General issued
subpoenas to the Corporation on March 3, 1998 and May 21, 1998. The Attorney
General has focused this inquiry into allegations including the sale of
defective and used batteries, mislabeling of batteries and improper crediting of
customer accounts. No action has been taken and the matter is pending under
review by the Florida Attorney General. The Corporation is actively cooperating
with the Attorney General and does not believe that it has acted improperly.
The Board of Directors has asked its non-management members to look into
matters raised in the class actions and Florida investigation referred to above.
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 claims or litigation to which the Company
is a party will have a material adverse effect on the Company's financial
condition or results of operations. In the fourth quarter of fiscal 1996, the
Company paid $5.5 million as a result of an unfavorable verdict from the U.S.
Court of Appeals in a patent infringement matter. Such amount was recorded as
cost of sales.
Item 4. Submission of Matters to a Vote of Security Holders
None
17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock is listed and traded on the New York Stock Exchange under
the symbol EX. The reported range of the high and low prices of the Common
Stock on the New York Stock Exchange Composite Tape and dividends paid are shown
in the following table for the periods indicated.
Sales Prices Quarterly
----------------- Cash
High Low Dividends
-------- ------- ---------
(per share)
Fiscal 1997:
First Quarter $30-1/4 $ 18-7/8 $ 0.02
Second Quarter 28-1/2 22-1/2 0.02
Third Quarter 28-7/8 22-5/8 0.02
Fourth Quarter 25-1/2 16 0.02
Fiscal 1998:
First Quarter $23-1/8 $ 14-5/8 $ 0.02
Second Quarter 23-1/8 18-3/4 0.02
Third Quarter 34-1/4 20-9/16 0.02
Fourth Quarter 27 16-5/16 0.02
At June 26, 1998 the reported last sale price of the stock was $ 17-1/8. As
of June 17, 1998, there were 473 record holders of Common Stock.
18
Item 6. Selected Financial Data (In thousands, except per-share data):
Fiscal Year Ended March 31
---------------------------------------------------------------------------
1994 1995 1996 1997 1998
---------- -------------- -------------- -------------- ---------------
Income Statement Data:
Net sales $679,649 $ 1,198,546 $ 2,342,616 $ 2,333,230 $ 2,273,126
Gross profit 161,003 264,018 552,806 595,276 602,718
Operating expenses 99,245 199,856 429,131 453,798 464,211
Operating income 61,758 64,162 123,675 141,478 138,507
Interest expense, net 33,150 52,565 120,600 118,837 112,301
Income taxes 10,794 5,160 6,300 14,732 13,475
Income before extraordinary loss
and cumulative effect of
accounting change 17,217 4,491 939 18,992 18,697
Extraordinary loss -- (3,597)/(1)/ (9,600)/(2)/ (2,767)/(3)/ (28,513)/(4)/
Cumulative effect of accounting
change/(5)/ (12,711) -- -- -- --
Net income (loss) 4,506 894 (8,661) 16,225 (9,816)
Basic net income (loss) per share 0.44 0.06 (0.44) 0.79 (0.48)
Diluted net income (loss) per share 0.41 0.06 (0.42) 0.77 (0.45)
Balance Sheet Data (at end of
year):
Working capital 153,711 395,875 598,895 616,128 538,916
Property, plant and equipment, net 181,147 423,876 578,722 521,836 535,113
Total assets 629,090 1,637,589 2,711,429 2,452,807 2,348,616
Total debt 291,821 645,135 1,340,025 1,289,682 1,248,983
Common stockholders' equity 164,450 413,230 439,400 371,410 294,948
Other Data:
EBITDA/(6)/ 91,465 110,759 230,131 267,309 259,552
Ratio of earnings to fixed
charges/(7)/ 1.7x 1.2x 1.0x 1.2x 1.2x
Capital expenditures 47,164 61,257 106,385 84,200 87,315
Net cash provided by (used in)
operating activities 49,364 (69,134) 36,058 78,126 187,723
Net cash used in investing
activities (54,859) (322,896) (499,830) (61,652) (96,406)
Net cash provided by (used in)
financing activities 38,701 418,314 449,473 (17,000) (95,446)
(1) During fiscal 1995, the Company recorded a loss of $3,597 (net of a tax
benefit of $2,300) resulting from the early retirement of the former U.S.
Credit Agreement in connection with entering into a new U.S. Credit
Agreement.
(2) 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.
(3) 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.
19
(4) During fiscal 1998, the Company recorded a loss of $28,513 (net of tax
benefit of $3,667) resulting from a modification of debt in connection with
entering a bond swap agreement for $7,500 (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; a modification of debt in connection with
entering into a series of bond swap agreements for $13,500 (principal
amount) of its 10% Senior Notes; and the redemption of $108,119 (face value)
of its outstanding 12.25% Zero-Coupon Bonds.
(5) Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 106, "Accounting for Postretirement
Benefits Other Than Pensions," which resulted in a charge of $12,700 with no
income tax effect because of the uncertainty of deductibility at that time.
(6) Represents earnings before interest, taxes, depreciation of property, plant
and equipment, amortization of goodwill and equity in earnings of joint
ventures. 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."
(7) 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). Fixed charges consist of interest expense,
amortization of debt expense, capitalized interest, and one-third of rent
expense, representative of the interest factor.
20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The mild winters of the past three years had a substantial adverse effect on
the Company's results of operations for fiscal 1996, 1997 and 1998. See
"Seasonality and Weather."
The Company through its European operations is exposed to foreign currency
risk in most Western European countries, principally France, Spain, Germany,
Italy and the U.K. The Company does not have material operations in countries
whose economies can be classified as hyper-inflationary. Movements of exchange
rates vis-a-vis the U.S. dollar can result in both unrealized and realized
exchange gains or losses. In some instances gains in one currency may be offset
by losses in another as all currencies may not move in unison vis-a-vis the U.S.
dollar. It is the policy of the Company to reduce foreign currency risk by
balancing net foreign currency positions where possible. In addition, the
Company enters into foreign exchange contracts, including forward and purchased
option contracts. The Company enters into forward exchange contracts to reduce
the exposure to foreign currency fluctuations associated with certain monetary
assets and liabilities, as well as certain firm commitments and highly
anticipated cash flows. The Company also enters into purchased option contracts
which, if exercised, involve the sale or purchase of foreign currency at a fixed
exchange rate for a specified time. As of March 31, 1998, the net fair value of
open foreign exchange contracts and the related gains and losses were not
material.
During fiscal 1998, $67.9 million of the decrease in stockholders' equity was
due to foreign currency translation adjustments associated with the continued
weakening of most European currencies relative to the U.S. dollar.
Results of Operations
Year Ended March 31, 1998 Compared With Year Ended March 31, 1997
Net sales decreased 2.6% ($60.1 million) to $2,273.1 million in fiscal 1998
from $2,333.2 million in fiscal 1997. The decrease was principally attributable
to the impact of changes in foreign exchange rates ($171.4 million) and the
fiscal 1997 divestiture of Evanite ($27.3 million) offset by the fiscal 1998
acquisition of DETA ($123.5 million). See Note 2 to the Company's Consolidated
Financial Statements appearing elsewhere herein. Industrial battery sales
(included above) for fiscal year 1998 were $691.4 versus $631.1 million in
fiscal 1997.
Although sales decreased 2.6% in fiscal 1998 as compared to fiscal 1997,
gross profit actually increased $7.4 million in fiscal 1998 versus 1997. The
gross profit margin was 26.5% in fiscal 1998 versus 25.5% in fiscal 1997. The
increase in gross profit is largely the result of the acquisition of DETA in
fiscal 1998 ($34.9 million), manufacturing cost reductions related to the
continuing European rationalization/consolidation process and the favorable
effects of certain environmental developments during fiscal 1998. These
favorable items were offset in part by the effects of weaker European currencies
($52.4 million) and the fiscal 1997 divestiture of Evanite which contributed
$5.7 million of gross profit in fiscal 1997. The gross profit was also favorably
affected by the higher gross margins (28.3%) of the DETA acquisition and product
mix, including the higher margin Exide NASCAR Select products.
21
Selling, marketing and advertising expenses increased $21.6 million or 7.4%
largely due to the acquisition of DETA ($17.6 million), higher U.S. advertising
costs for the launch of the Exide NASCAR Select line of products and higher
provisions ($2.4 million) for accounts receivable losses primarily as a result
of the bankruptcy filings by certain major U.S. retailers mostly during the
fourth fiscal quarter. Offsetting these increases were the effects of weaker
currencies ($24.1 million), the 1997 Evanite divestiture ($0.6 million) and
savings from headcount reductions in Europe resulting from the rationalization/
consolidation. General and administrative expenses decreased $10.3 million or 7%
in fiscal 1998 versus 1997 due to the effects of weaker currencies ($10.4
million), the 1997 Evanite divestiture ($3.0 million) and savings from headcount
reductions in Europe resulting from rationalization/consolidation offset by the
increase due to DETA ($10.8 million). Goodwill amortization decreased slightly
as a result of the weakening of European currencies offset by the increased
amortization resulting from the DETA acquisition. See Note 2 to the Company's
Consolidated Financial Statements appearing elsewhere herein.
Operating income decreased $3.0 million, or 2.1%, as a result of the matters
discussed above.
Interest expense decreased $6.5 million, or 5.5%, primarily due to the effect
of changes in foreign exchange rates ($5.5 million) and to the lower rates
related to the refinancing of debt in fiscal 1998 (see Note 5 to the Company's
Consolidated Financial Statements appearing elsewhere herein), offset by the
increased expense for the borrowing related to the acquisition of DETA.
Other income, net was $5.9 million for fiscal 1998 versus $12.4 million for
fiscal 1997. The $6.5 million decrease principally relates to the fiscal 1997
gain on sale of Evanite ($8.3 million), increased losses on the sales of
accounts receivable and associated fees in Europe in fiscal 1998 ($7.6 million)
(see Note 10 to the Company's Consolidated Financial Statements appearing
elsewhere herein), offset by a gain from an involuntary conversion due to a fire
in fiscal 1998 ($5.6 million).
Net income decreased $26.0 million to a loss of $9.8 million in fiscal 1998,
primarily as a result of a $28.5 million extraordinary loss (net of income tax
benefit of $3.7 million) related to the early retirement of debt. See Note 5 to
the Company's Consolidated Financial Statements appearing elsewhere herein.
Year Ended March 31, 1997 Compared With Year Ended March 31, 1996
Net sales decreased less than 1% ($9.4 million) to $2,333.2 million in fiscal
1997 from $2,342.6 million in fiscal 1996. This net decrease principally
represents the adverse impact of changes in foreign exchange rates versus the
U.S. dollar ($93.0 million) and lower automotive and non-battery sales ($87.0
million), offset by the incremental effect related to the inclusion of CEAc for
the entire twelve months of fiscal 1997 (ten months in fiscal 1996) of $123.0
million and higher selling prices in North America and Europe of approximately
$50.0 million. Industrial battery sales (included above) for fiscal year 1997
were $631.1 million versus $613.6 million in fiscal 1996.
22
Gross profit increased $42.5 million (7.7%) and gross profit margin increased
by 1.9 percentage points in fiscal 1997 versus 1996. The increases in gross
profit and gross profit margin were principally the result of the inclusion of
CEAc for the entire twelve months of fiscal 1997 ($29.0 million), cost
reductions from the European manufacturing rationalization/consolidation
process, North American and European selling price increases, and the absence of
a $5.5 million judgment recognized in fiscal 1996 related to a patent
infringement claim, offset by higher lead costs ($36.0 million), the adverse
impact of foreign exchange rates ($25.0 million) and the margin associated with
the decline in automotive and non-battery revenues.
Operating expenses increased $24.7 million, or 5.7% in fiscal 1997 versus
1996, primarily due to the inclusion of CEAc for the entire twelve months of
fiscal 1997 ($33.9 million), offset by the impact of foreign exchange rates
($16.0 million).
Operating income increased $17.8 million, or 14.4%, as a result of the
matters discussed above.
Interest expense decreased $1.8 million, or 1.5% primarily due to lower
European interest rates and borrowing levels associated with reduced working
capital levels related to the rationalization / consolidation process, offset by
the incremental interest cost attributable to the inclusion of CEAc for the
entire twelve months of fiscal 1997.
Other income, net was $12.4 million for fiscal 1997 versus $3.7 million for
fiscal 1996. This $8.7 million increase principally relates to the $8.3 million
gain on the sale of Evanite.
Income before income taxes, minority interest and extraordinary loss
increased $28.3 million as a result of the matters discussed above.
Provision for income taxes increased $8.4 million due to the higher level of
earnings.
Net income increased $24.9 million, primarily as a result of the matters
discussed above and a $6.8 million reduction from fiscal 1996 to 1997 in the
extraordinary loss related to the early retirement of debt.
Seasonality and Weather
The automotive aftermarket is seasonal as retail sales of replacement
batteries are generally higher in the fall and winter (the Company's second and
third fiscal quarters). Accordingly, demand for the Company's automotive
batteries is generally highest in the fall and early winter as retailers build
inventories in anticipation of the winter season. European sales are
concentrated in the fourth calendar quarter (the Company's third quarter), due
to the shipment of batteries for the winter season and the practice of many
industrial battery customers (particularly governmental and quasi governmental
entities) of deferring purchasing decisions until the end of the calendar year.
Demand for automotive batteries is significantly affected by weather conditions.
Unusually cold winters or hot summers accelerate battery failure and increase
demand for automotive replacement batteries.
23
Liquidity and Capital Resources
The Company's liquidity requirements arise primarily from the funding of its
seasonal working capital needs, obligations on its indebtedness and capital
expenditures. Historically, the Company has met these liquidity requirements
through operating cash flows, with borrowed funds and the proceeds of sales of
accounts receivable. The Company is party to 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 of the Company, up to a maximum commitment of $75.0 million
and $175.0 million, respectively. See Note 10 to the Company's Consolidated
Financial Statements appearing elsewhere herein. The Company's greatest cash
demands from operations occur during the months of June through October. During
fiscal 1999 and beyond, the Company also expects to meets its liquidity
requirements in the same manner.
Cash flows from operating activities were $36.1 million, $78.1 million and
$187.7 million in 1996, 1997, and 1998, respectively. Because of the seasonality
of the Company's business, more funds are typically generated in its third and
fourth fiscal quarters. During fiscal 1998, $136.7 million of cash provided from
operations was due to sales of European accounts receivable. Offsetting this was
the payment of $40.3 million for the Company's European restructuring
activities, primarily severance associated with plant closures. During fiscal
1998, the Company closed five plants in Europe. All of this is part of the
Company's long-term strategy of reducing its manufacturing and distribution cost
structure, especially in Europe. In the next several years, the Company will
continue to complete the closure of various European plants which will
necessitate cash payments for severance and other closure costs. While the
Company believes that a large portion of its cash requirements for its European
consolidation activities will be generated from operations, it has substantial
liquidity and capital resources through its Senior Secured Global Credit
Facilities Agreement, as discussed below.
The Company's capital expenditures were $106.4 million in fiscal 1996, $84.2
million in fiscal 1997, and $87.3 million in fiscal 1998. Capital expenditures
in fiscal 1996, 1997, and 1998 were principally due to the European acquisitions
and the acquisition of Schuylkill Metals in fiscal 1996 and on-going capital
expenditures in Europe and North America. The Senior Secured Global Credit
Facilities Agreement restricts the amount of capital expenditures which may be
made by the Company and its subsidiaries. See Note 5 to the Company's
Consolidated Financial Statements appearing elsewhere herein. However, the
Company believes that it has sufficient resources for its capital expenditure
programs from operating cash flows and borrowing availability under its existing
credit agreements.
24
As of March 31, 1998, the Company had $503.0 million outstanding on its
Senior Secured Global Credit Facilities Agreement, including letters of credit.
Obligations under the Senior Secured Global Credit Facilities Agreement bear
interest at fluctuating rates. Increases in interest rates on such obligations
could adversely affect the Company's results of operations and financial
condition. The Senior Secured Global Credit Facilities Agreement is fully
secured by guarantees of the European subsidiaries and certain fixed assets,
inventory and receivables. The Company has an interest rate collar agreement
which reduces the impact of changes in interest rates on a portion of the
Company's floating rate debt. The collar agreement effectively limits the PIBOR
base interest rate on 593.1 million French francs (U.S. $100.0 million) of
borrowings to no more than 6.6% and no less than 3.5% through December 23, 2000.
The Company has two currency and interest rate swap agreements which effectively
converts $175 million of borrowings under the Senior Secured Global Credit
Facilities Agreement into 778.8 million French francs (U.S. $133 million) and
25.2 million British pound sterling (U.S. $42 million). The Company receives
LIBOR and pays PIBOR and pound sterling LIBOR. Additionally, the Company
entered into a series of bond swaps agreements which effectively converted $40.6
million (principal amount) of the 10% Senior Notes into a variable LIBOR
interest rate through April 15, 2000. The Company has the right to terminate
the $40.6 million bond swap agreements at any time before maturity.
As of March 31, 1998, the Company had $135.4 million available under its
Senior Secured Global Credit Facilities Agreement after consideration of $30.9
million of outstanding letters of credit. See Note 5 to the Company's
Consolidated Financial Statements appearing elsewhere herein.
As of March 31, 1998, the Company has significant NOL carryforwards in Europe
and in the United States which are available, subject to certain restrictions,
to offset future U.S. and European taxable income. See Note 9 to the Company's
Consolidated Financial Statements appearing elsewhere herein.
Year 2000 Issue
The Year 2000 issue results from the fact that some computer systems and
applications utilizing two-digit date fields to designate years may not
correctly interpret the year 2000. As a result, some date-sensitive systems may
recognize the year 2000 as 1900, or not at all, which may cause systems to
process financial and operational information incorrectly. The Company has
assessed the impact of the Year 2000 issue, including cost estimates to complete
required changes. Plans to address the Year 2000 issue have been developed and
are being implemented. Currently, the Company does not expect that the costs to
be incurred will be material to the results of operations or financial
condition, and expects all affected systems and applications to be modified or
replaced in advance of the year 2000.
25
Recently Issued Accounting Standards
In the second quarter of fiscal 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." In the fourth quarter of
fiscal 1998, the FASB issued SFAS No. 132, "Employer's Disclosure about Pensions
and Other Postretirement Benefits." The Company will be required to adopt these
new standards in fiscal 1999. These new pronouncements will be a change in the
currently required disclosures to the consolidated financial statements, which
the Company is currently in the process of determining.
Effect of Inflation
Inflation has not had a material impact on the operations of the Company
during the past three years. The Company generally has been able to offset the
effects of inflation with price increases, cost-reduction programs and operating
efficiencies.
Future Environmental Developments
The Company is subject to extensive federal, state, local and foreign
environmental, health and safety laws and regulations. In the future
environmental, health and safety standards may be more stringent. The Company
anticipates that such potential standards could cause an increase in the
Company's 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 the
Company's financial condition or results of operations.
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 biographical information under the heading Election of Directors in the
Company's definitive Proxy Statement for its annual meeting of stockholders to
be held on August 12, 1998, is hereby incorporated by reference.
In addition to the executive officers named in the biographical section,
Messr. William J. Rankin is an executive officer.
26
Mr. Rankin (age 60), Executive Vice President of the Company, has been
primarily responsible for operations since June 1987. Mr. Rankin was formerly
on the Board of Directors. His prior experience was with Monroe Automotive
Equipment Company where he served as Vice President of Manufacturing as well as
Vice President of Product Engineering.
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 12, 1998, is hereby incorporated by reference.
Item 12. Description of Capital Stock
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 12,
1998, is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
The information under the heading Certain Transactions in the Company's
definitive Proxy Statement for its annual meeting of stockholders to be held on
August 12, 1998, is hereby incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Index to Financial Statements
See Index to Consolidated Financial Statements and Schedule at page F-1.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
(c) Exhibits Required by Item 601 of Regulation S-K
See Index to Exhibits.
(d) Financial Statement Schedules
See Index to Consolidated Financial Statements and Schedule at page F-1.
27
CAUTIONARY STATEMENT FOR PURPOSES OF THE
SAFE HARBOR PROVISION OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information, this report may be deemed to contain
"forward-looking" statements. The Company desires to avail itself of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") and is including this cautionary statement for the express purpose of
availing itself of the protection afforded by the Act.
Examples of forward-looking statements include, but are not limited to (a)
projections of revenues, cost of raw materials, income or loss, earnings or loss
per share, capital expenditures, growth prospects, dividends, the effect of
currency translations, capital structure and other financial items, (b)
statements of plans of and objectives of the Company or its management or Board
of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulating
authorities, (c) statements of future economic performance and (d) statements of
assumptions, such as the prevailing weather conditions in the Company's market
areas, underlying other statements and statements about the Company or its
business.
The Company's core business, the design, manufacture and sale of lead acid
batteries, and the Company's structure involves risk and uncertainty. Important
factors that could affect the Company's results include, but are not limited to
(i) unseasonable weather (warm winters and cool summers) which adversely affects
demand for automotive and some industrial batteries, (ii) the Company's
substantial debt and debt service requirements which restrict the Company's
operational and financial flexibility, as well as imposing significant interest
and financing costs, (iii) the Company's assets include the tax benefits of net
operating loss carry forwards, realization of which are dependent upon future
taxable income, (iv) lead, which experiences significant fluctuations in market
price and which, as a hazardous material, may give rise to costly environmental
and safety claims, can affect the Company's results because it is a major
constituent in most of the Company's products, (v) the battery markets in North
America and Europe are very competitive and, as a result, it is often difficult
to maintain margins, (vi) the Company's consolidation and rationalization of
recently acquired European entities requires substantial management time and
financial and other resources and is not without risk, and (vii) foreign
operations involve risks such as disruption of markets, changes in import and
export laws, currency restrictions and currency exchange rate fluctuations.
Therefore, the Company cautions each reader of this report to carefully consider
those factors hereinabove set forth, because such factors have, in some
instances, affected and in the future could affect, the ability of the Company
to achieve its projected results and may cause actual results to differ
materially from those expressed herein.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EXIDE CORPORATION
By: /s/ Arthur M. Hawkins
------------------------
Arthur M. Hawkins,
President
By: /s/ Alan E. Gauthier
------------------------
Alan E. Gauthier
Principal Financial and
Accounting Officer
Date: June 29, 1998
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
By: /s/ Arthur M. Hawkins By: /s/ Douglas N. Pearson
-------------------------- ------------------------------
Arthur M. Hawkins, President Douglas N. Pearson, Executive
Chairman of the Board and Vice President, President - North
Director American Operations and Director
By: /s/ Alan E. Gauthier By: /s/ Earl Dolive
-------------------------- ------------------------------
Alan E. Gauthier, Executive Earl Dolive
Vice President and Director Director
By: /s/ Robert H. Irwin By: /s/ Thomas J. Reilly, Jr.
-------------------------- ------------------------------
Robert H. Irwin Thomas J. Reilly, Jr.
Director Director
By: /s/ Arthur R. Taylor By: /s/ James T. Watson
-------------------------- ------------------------------
Arthur R. Taylor James T. Watson
Director Director
29
Exhibits:
- --------
3.1 Restated Certificate of Incorporation of the Registrant, incorporated by
reference to Exhibit 4.1 of the Registrant's Registration Statement on Form
S-3 (No. 333 - 29991).
3.2 Restated Bylaws of the Registrant, incorporated by reference to Exhibit of
same number to the 1993 Registration Statement.
4.1 Registration Rights Agreement among the Registrant, Wilmington Securities,
Inc. and certain other holders of the Registrant's Common Stock,
incorporated by reference to Exhibit 4.14 to the 1993 Registration
Statement.
4.2 Indenture dated as of April 28, 1995, between the Registrant and The Bank
of New York, as trustee, incorporated by reference to Exhibit 99.3 of the
Registrant's Form 8-K dated June 2, 1995.
4.3 Indenture dated as of December 15, 1995 between the Registrant and The Bank
of New York, as trustee, incorporated by reference to Exhibit 4.7 to the
1996 Form 10-K.
4.4 Fiscal and Paying Agency Agreement, dated April 23, 1997, by and among
Exide Holding Europe S.A., Exide Corporation, The Bank of New York and
Deutsche Bank Aktiengesellschaft, incorporated by reference to Exhibit 4.9
to the 1997 Form 10-K.
10.1 Receivables Purchase Agreement, dated as of March 31, 1997, among Exide
U.S. Funding Corporation, Three Rivers Funding Corporation and the
Registrant, incorporated by reference to Exhibit 10.1 to the 1997 Form 10-
K.
10.2 Sale Agreement, dated March 31, 1997, between the Registrant and Exide U.S.
Funding Corporation, incorporated by reference to Exhibit 10.2 to the 1997
Form 10-K.
10.3 Employment Agreement dated June 15, 1985 between the Registrant and Arthur
M. Hawkins, incorporated by reference to Exhibit 10.4 of the Registrant's
Registration Statement on Form S-1 (No. 33-13632), as amended (the "S-1
Registration Statement").
10.4 Employment Agreement dated June 15, 1985 between the Registrant and Douglas
N. Pearson, incorporated by reference to Exhibit 10.5 to the S-1
Registration Statement.
10.5 Employment Agreement dated June 1, 1987 between the Registrant and William
J. Rankin.
10.6 Amendment dated July 7, 1988 to Employment Agreement between the Registrant
and Douglas N. Pearson, incorporated by reference to Exhibit 10.2 to the
Registrant's Form 10-Q for the quarter ended October 2, 1988.
10.7 Lease Agreement dated July 1, 1988 between the Registrant and an officer of
the Registrant pertaining to Chippewa Trail Lodge, incorporated by
reference to Exhibit 10.28 to the 1989 10-K.
30
10.8 Amendment to Lease Agreement dated October 24, 1988 between the Registrant
and Chippewa Trail Lodge, Inc., incorporated by reference to Exhibit 10.29
to the 1989 10-K.
10.9 Assignment of Lease dated July 1, 1988 between an officer of the
Registrant and Chippewa Trail Lodge, Inc., incorporated by reference to
Exhibit 10.30 to the 1989 10-K.
10.10 Assignment and Assumption of Lease dated October 24, 1988 between an
officer of the Registrant and Chippewa Trail Lodge, Inc., incorporated by
reference to Exhibit 10.31 to the 1989 10-K.
10.11 Second Amendment to Lease Agreement dated July 1, 1995 between the
Registrant and Chippewa Trail Lodge, Inc.
10.12 Lease Agreements (Series A and Series B) dated September 1, 1976
pertaining to the Salina, Kansas manufacturing facilities, incorporated by
reference to Exhibit 10.22 to the S-1 Registration Statement.
10.13 Lease Agreement dated August 1, 1978, pertaining to the Reading,
Pennsylvania engineering facilities, incorporated by reference to Exhibit
10.23 to the S-1 Registration Statement.
10.14 Lease Agreement dated January 5, 1978, pertaining to the City of
Industry, California distribution facilities, incorporated by reference to
Exhibit 10.24 to the S-1 Registration Statement.
10.15 Lease Agreement dated August 11, 1986, pertaining to the Sumner,
Washington Distribution facilities, incorporated by reference to Exhibit
10.27 to the S-1 Registration Statement.
10.16 Lease Agreement beginning December 1, 1987, pertaining to the Travelers
Rest, South Carolina distribution facilities, incorporated by reference to
Exhibit 10.27 to the Registrant's Form 10-K for the fiscal year ended
March 31, 1988.
10.17 Asset Purchase Agreement, dated as of June 10, 1991, between the
Registrant and Yuasa Battery (America), Inc., incorporated by reference to
Exhibit 1 to the Registrant's Form 8-K dated June 25, 1991.
10.18 EC Acquisition, Inc. 1993 Stock Award Plan, incorporated by reference to
Exhibit 10.23 to the 1993 Registration Statement.
10.19 Exide 1993 Long Term Incentive Plan, incorporated by reference to Exhibit
10.25 to the 1993 Registration Statement.
10.20 Exide 1997 Stock Option Plan
31
10.21 Agreement dated September 30, 1994, among Gemala (Isle of Man)
Limited, PT Sapta Panji Manggala, and B.I.G. Batteries Group Limited.
Deed dated September 30, 1994, among Euro Exide Corporation Limited,
Gemala (Isle of Man) Limited and B.I.G. Batteries Group Limited.
Master Agreement dated September 30, 1994 among Euro Exide
Corporation Limited, Gemala (Isle of Man) Limited, B.I.G. Batteries
Group Limited and PT Sapta Panji Manggala, incorporated by reference
to Exhibit 10.24 of the December 1994 Registration Statement.
10.22 Credit and Guarantee Agreement dated December 19, 1997 among the
Registrant, certain of the Registrant's subsidiaries, Lehman Brothers
Inc., Credit Suisse First Boston, Lehman Commercial Paper Inc. and
other lenders and related amendment dated May 27, 1998.
10.23 Receivables Sale Agreement, dated June 3, 1997 among CMP Batteries
Limited, Exide (Dagenham) Limited, Fulmen (U.K.) Limited, B.I.G.
Batteries Limited and Exide Europe Funding LTD.
10.24 Lease Agreement dated February 7, 1994, pertaining to the Bristol,
Tennessee manufacturing facility and related amendment dated May 1995
incorporated by reference to Exhibit 10.27 to the 1996 Form 10-K.
21.1 Subsidiaries of the Registrant.
23.1 Consent of independent public accountants.
27.1-27.8 Financial data schedules.
32
EXIDE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED BALANCE SHEETS F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
CONSOLIDATED SUPPORTING SCHEDULE FILED:
II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES F-36
All other schedules are omitted because they are not applicable, not required,
or the information required to be set forth therein is included in the
Consolidated Financial Statements or in the Notes thereto.
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Exide Corporation:
We have audited the accompanying consolidated balance sheets of Exide
Corporation (a Delaware corporation) and subsidiaries as of March 31, 1997 and
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three fiscal years in the period ended
March 31, 1998. These financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Exide Corporation and
subsidiaries as of March 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
March 31, 1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index to consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
June 26, 1998
F-2
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per-share data)
For the Fiscal Year Ended March 31
---------------------------------------------
1996 1997 1998
------------ ------------ ------------
NET SALES $ 2,342,616 $ 2,333,230 $ 2,273,126
COST OF SALES 1,789,810 1,737,954 1,670,408
------------ ------------ ------------
Gross profit 552,806 595,276 602,718
------------ ------------ ------------
OPERATING EXPENSES:
Selling, marketing and advertising 276,076 290,076 311,683
General and administrative 137,086 145,869 135,606
Goodwill amortization 15,969 17,853 16,922
------------ ------------ ------------
429,131 453,798 464,211
------------ ------------ ------------
Operating income 123,675 141,478 138,507
INTEREST EXPENSE, net 120,600 118,837 112,301
OTHER INCOME, net (3,655) (12,382) (5,852)
------------ ------------ ------------
Income before income taxes, minority
interest and extraordinary loss 6,730 35,023 32,058
INCOME TAX PROVISION 6,300 14,732 13,475
------------ ------------ ------------
Income before minority interest
and extraordinary loss 430 20,291 18,583
MINORITY INTEREST (509) 1,299 (114)
------------ ------------ ------------
Income before extraordinary loss 939 18,992 18,697
EXTRAORDINARY LOSS RELATED TO EARLY
RETIREMENT OF DEBT, net of income tax
benefit of $5,958, $0 and $3,667 (9,600) (2,767) (28,513)
------------ ------------ ------------
Net income (loss) $ (8,661) $ 16,225 $ (9,816)
============ ============ ============
BASIC EARNINGS PER SHARE:
Income before extraordinary loss $ 0.05 $ 0.92 $ 0.91
Extraordinary loss (0.49) (0.13) (1.39)
------------ ------------ ------------
Net income (loss) $ (0.44) $ 0.79 $ (0.48)
============ ============ ============
DILUTED EARNINGS PER SHARE:
Income before extraordinary loss $ 0.05 $ 0.90 $ 0.87
Extraordinary loss (0.47) (0.13) (1.32)
------------ ------------ ------------
Net income (loss) $ (0.42) $ 0.77 $ (0.45)
============ ============ ============
WEIGHTED AVERAGE SHARES:
Basic 19,586,594 20,502,014 20,587,782
============ ============ ============
Diluted 20,384,805 21,204,241 21,641,786
============ ============ ============
The accompanying notes are an integral part of these statements.
F-3
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share data)
March 31
--------------------------
ASSETS 1997 1998
------ ----------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 42,706 $ 35,613
Receivables, net of allowance for doubtful
accounts of $38,486 and $37,488 569,683 434,679
Inventories 533,514 572,188
Prepaid expenses and other 21,889 32,455
Deferred income taxes 23,667 14,896
----------- -----------
Total current assets 1,191,459 1,089,831
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 50,873 50,401
Buildings and improvements 205,826 221,168
Machinery and equipment 500,883 419,242
Construction in progress 40,190 53,354
----------- -----------
797,772 744,165
Less- accumulated depreciation and amortization (275,936) (209,052)
----------- -----------
Property, plant and equipment, net 521,836 535,113
----------- -----------
OTHER ASSETS:
Goodwill, net 596,254 570,251
Investments in affiliates 24,016 24,620
Deferred financing costs, net 26,770 20,050
Deferred income taxes 54,618 61,461
Other 37,854 47,290
----------- -----------
739,512 723,672
----------- -----------
Total assets $ 2,452,807 $ 2,348,616
=========== ===========
The accompanying notes are an integral part of these statements.
(Continued)
F-4
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands, except share and per-share data)
March 31
-------------------------------
1997 1998
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 16,123 $ 17,953
Current maturities of long-term debt 37,488 35,112
Accounts payable, trade and other 236,889 255,952
Accrued interest 24,671 26,865
Accrued compensation 98,316 66,160
Product warranty reserve 36,243 35,192
Other current liabilities 125,601 113,681
----------- -----------
Total current liabilities 575,331 550,915
----------- -----------
LONG-TERM DEBT 1,236,071 1,195,918
----------- -----------
NONCURRENT RETIREMENT OBLIGATIONS 107,756 114,480
----------- -----------
OTHER NONCURRENT LIABILITIES 142,791 173,051
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 12 and 14)
MINORITY INTEREST 19,448 19,304
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 60,000,000 shares authorized;
21,336,757 and 21,328,439 shares issued and outstanding 213 213
Additional paid-in capital 489,427 489,851
Accumulated deficit (21,569) (33,084)
Notes receivable--stock award plan (1,696) (1,609)
Unearned compensation (516) (322)
Minimum pension liability adjustment (4,993) (2,767)
Cumulative translation adjustment (89,456) (157,334)
----------- -----------
Total stockholders' equity 371,410 294,948
----------- -----------
Total liabilities and stockholders' equity $ 2,452,807 $ 2,348,616
=========== ===========
The accompanying notes are an integral part of these statements.
F-5
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED MARCH 31, 1996, 1997 and 1998
(In thousands, except per-share data)
Notes Minimum
Additional Receivable- Pension Cumulative
Common Paid-In Accumulated Stock Award Unearned Liability Translation
Stock Capital Deficit Plan Compensation