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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 Adjustment Adjustment
--------- --------- --------- --------- --------- --------- ---------
Balance at March 31, 1995 $ 200 $ 443,446 $ (25,837) $ (1,774) $ (1,806) $ (5,527) $ 4,528
Net loss for fiscal 1996 -- -- (8,661) -- -- -- --
Common stock issued for
acquisitions 9 48,135 -- -- -- -- --
Common stock issued under
employee stock purchase plan -- 100 -- -- -- -- --
Forfeiture of common stock grants -- (762) -- 78 709 -- --
Amortization of unearned
compensation -- -- -- -- 387 -- --
Cash dividends paid ($0.08/share) -- -- (1,623) -- -- -- --
Minimum pension liability
adjustment -- -- -- -- -- (429) --
Translation adjustment -- -- -- -- -- -- (11,773)
--------- --------- --------- --------- --------- --------- ---------
Balance at March 31, 1996 209 490,919 (36,121) (1,696) (710) (5,956) (7,245)
Net income for fiscal 1997 -- -- 16,225 -- -- -- --
Common stock issued for
acquisitions 4 (1,741) -- -- -- -- --
Common stock issued under
employee stock purchase plan -- 211 -- -- -- -- --
Common stock issued pursuant
to Board of Directors grants -- 38 -- -- -- -- --
Amortization of unearned
compensation -- -- -- -- 194 -- --
Cash dividends paid ($0.08/share) -- -- (1,673) -- -- -- --
Minimum pension liability
adjustment -- -- -- -- -- 963 --
Translation adjustment -- -- -- -- -- -- (82,211)
--------- --------- --------- --------- --------- --------- ---------
Balance at March 31, 1997 213 489,427 (21,569) (1,696) (516) (4,993) (89,456)
Net loss for fiscal 1998 -- -- (9,816) -- -- -- --
Common stock issued under
employee stock purchase plan -- 172 -- -- -- -- --
Common stock issued pursuant
to Board of Directors grants -- 318 -- -- -- -- --
Forfeiture of common stock grants -- (66) -- 66 -- -- --
Payment for common stock grants -- -- -- 21 -- -- --
Amortization of unearned
compensation -- -- -- -- 194 -- --
Cash dividends paid ($0.08/share) -- -- (1,699) -- -- -- --
Minimum pension liability
adjustment -- -- -- -- -- 2,226 --
Translation adjustment -- -- -- -- -- -- (67,878)
--------- --------- --------- --------- --------- --------- ---------
Balance at March 31, 1998 $ 213 $ 489,851 $ (33,084) $ (1,609) $ (322) $ (2,767) $(157,334)
========= ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these statements.
F-6
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Fiscal Year Ended March 31
---------------------------------------------
1996 1997 1998
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (8,661) $ 16,225 $ (9,816)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation and amortization 106,717 115,308 109,167
Extraordinary loss 9,600 2,767 28,513
Gain on sale of business -- (8,344) --
Deferred income taxes 300 6,255 6,515
Original issue discount on notes 12,411 19,502 10,080
Provision for losses on accounts receivable 4,016 4,638 7,060
Minority interest (509) 1,299 (114)
Net proceeds from sale of European receivables -- -- 136,666
Changes in assets and liabilities excluding effects
of acquisitions and divestitures-
Receivables (24,973) (27,382) (10,553)
Inventories 46,832 22,717 (29,871)
Prepaid expenses and other 16,522 (6,766) (7,801)
Payables and accrued expenses (131,035) (72,424) (32,899)
Other, net 4,838 4,331 (19,224)
--------- --------- ---------
Net cash provided by operating activities 36,058 78,126 187,723
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of certain businesses (401,325) (15,057) (40,455)
Capital expenditures (106,385) (84,200) (87,315)
Equipment purchase held for sale -- -- (8,015)
Proceeds from sales of assets 7,880 37,605 50,303
Insurance proceeds from fire damage -- -- 9,300
Costs incurred related to fire damage -- -- (20,224)
--------- --------- ---------
Net cash used in investing activities (499,830) (61,652) (96,406)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings (71,701) 9,080 2,743
Borrowings under Global Credit Facilities Agreement -- -- 540,022
Repayments under Global Credit Facilities Agreement -- -- (67,886)
Borrowings under U.S. Credit Agreement -- 17,000 272,500
Repayment of U.S. Credit Agreement borrowings (194,500) -- (289,500)
Repayment of Former European Facilities Agreement (156,873) -- --
Borrowings under European Facilities Agreement 436,940 -- 151,884
Repayment of European Facilities Agreement -- (25,329) (474,854)
Repayment of European Term Loans (51,265) (11,138) --
Repayment of Guaranteed Unsecured Loan Notes (35,282) -- --
Repayment of Spanish Convertible Notes (23,675) -- --
Repayment of Acquired Debt -- -- (64,644)
Issuance of 9.125% Senior Notes -- -- 102,130
Issuance of 2.9% Convertible Senior Subordinated Notes 287,797 -- --
Issuance of 10% Senior Notes 300,000 -- --
Retirement of 10.75% Senior Notes -- -- (150,000)
Retirement of 12.25% Senior Subordinated Notes -- -- (106,002)
Increase (decrease) in other debt (9,455) (3,445) 7,002
Debt issuance costs (30,890) (1,495) (17,142)
Dividends paid (1,623) (1,673) (1,699)
--------- --------- ---------
Net cash provided by (used in) financing activities 449,473 (17,000) (95,446)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (1,803) (4,027) (2,964)
--------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (16,102) (4,553) (7,093)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 63,361 47,259 42,706
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 47,259 $ 42,706 $ 35,613
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for -
Interest (net of amounts capitalized) $ 86,557 $ 92,726 $ 96,415
Income taxes $ 9,243 $ 15,224 $ 6,423
The accompanying notes are an integral part of these statements.
F-7
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per-share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of Exide Corporation
and all of its majority-owned subsidiaries (collectively the "Company"). All
significant intercompany transactions have been eliminated.
Investments in affiliates largely represents investments accounted for by the
cost method. Investments in 20%- to 50%-owned companies are included in the
consolidated financial statements on the basis of the equity method of
accounting. The Company's equity in the net income (loss) of these companies is
not material.
Nature of Operations
The Company is a leading manufacturer and marketer of starting, lighting and
ignition ("SLI") batteries. The Company produces SLI batteries for both the
aftermarket and original equipment manufacturers ("OEM") in North America and
Europe. The Company also manufactures and markets industrial batteries in
Europe. Industrial sales include both standby and traction battery lines.
Individual customers include telecommunication companies, European navies and
the electric vehicle operations of large European companies. Other products
manufactured include batteries for trucks, farm equipment and other off-road
vehicles, boats, garden tractors and golf carts, battery chargers and
accessories, wheel weights, and remanufactured starters and alternators.
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 fiscal 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.
F-8
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Major Customers and Concentration of Credit
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. During fiscal 1998 three of the
Company's North American retail customers declared bankruptcy. In connection
with these bankruptcies, the Company recorded additional provisions of $6,300.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries and affiliates are
translated into U.S. dollars at the current rate of exchange existing at year-
end, and revenues and expenses are translated at average monthly exchange rates.
Translation gains or losses are recorded in a separate component of
stockholders' equity, and transaction gains and losses are included in other
income, net. The Company recorded transaction gains of $6,453, $5,796 and $6,815
in fiscal 1996, 1997 and 1998, respectively.
For disclosure purposes, foreign currency amounts have been translated into U.S.
dollars using the March 31, 1998 spot rate.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories, which consist of material, labor and overhead, are stated at the
lower of cost or market. Cost is determined by the last-in, first-out
("LIFO") method for most U.S. inventories and by the first-in, first-out
("FIFO") method for all remaining inventories.
Prepaid expenses and other
Prepaid expenses and other consists principally of the current portion of
deferred financing costs, the current portion of customer incentives, deferred
sponsorship costs and equipment purchased for subsequent sale and leaseback.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is calculated by
the straight-line method over the estimated useful lives of depreciable assets.
Accelerated methods are used for tax purposes. Useful lives of depreciable
assets, by class, are as follows:
Buildings and improvements 5 to 40 years
Machinery and equipment 3 to 10 years
F-9
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cost and accumulated depreciation for property retired or disposed of are
removed from the accounts, and any gain or loss on disposal is credited or
charged to earnings. Expenditures for maintenance and repairs are charged to
expense as incurred. In connection with constructing certain property and
equipment, the Company capitalized $2,341, $2,444 and $1,277 of interest costs
during fiscal years 1996, 1997 and 1998, respectively. Depreciation expense was
$77,397, $82,842 and $78,097 for fiscal years 1996, 1997 and 1998, respectively.
The Company recorded a gain of $5,600 on an involuntary conversion of certain
property and equipment due to fire damage in fiscal 1998. Such gain is reflected
in other income in the accompanying statements of operations.
Goodwill
Goodwill is amortized over 40 years on a straight-line basis. Accumulated
amortization as of March 31, 1997 and 1998, was $44,229 and $58,379,
respectively. It is the Company's policy to review goodwill (and other long-
lived assets) for possible impairment when an indication of impairment exists on
the basis of whether the carrying amount of such assets is fully recoverable
from projected, undiscounted net cash flows of the related business. If such
review would indicate that the carrying amount of goodwill and/or other long-
lived assets is not recoverable, then the Company's policy is to reduce the
carrying amount of such assets to fair value. No such reductions are reflected
in the accompanying financial statements.
Other Assets
Other assets consist principally of prepaid pension costs related to overfunded
pension plans and noncurrent receivables.
Estimated Warranty Costs
The Company recognizes the estimated cost of warranty obligations in the period
in which the related products are sold. These estimates are based on historical
trends.
Interest Rate Agreements
The Company enters into currency and interest rate hedge agreements to manage
interest costs associated with long-term debt. The differential to be paid or
received on these agreements is accrued as interest rates change and is
recognized monthly over the life of the agreements.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, which requires the use of the
liability method in accounting for deferred taxes. If it is more likely than
not that some portion or all of a deferred tax asset will not be realized, a
valuation allowance is recognized.
F-10
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Noncurrent Retirement Obligations
Noncurrent retirement obligations consist principally of reserves for pension
obligations, postretirement health care and other retirement benefits.
Other Noncurrent Liabilities
Other noncurrent liabilities consist principally of reserves for environmental
cleanup, the deferred gain related to the sale/leaseback of machinery and
equipment (see Note 14) and severance associated with restructurings and plant
closures.
Earnings Per Share
During 1997, the Financial Accounting Standards Board ("FASB"), issued SFAS No.
128, "Earnings per Share," which specifies the computation, presentation and
disclosure requirements for earnings per share ("EPS") for public companies.
Basic EPS is computed using only the weighted average number of common shares
outstanding for the period while diluted EPS is computed assuming conversion of
all dilutive securities such as options. The Company adopted this statement in
the third quarter of fiscal 1998 and earlier periods presented have been
restated. Included below is a reconciliation of shares for the basic and diluted
EPS computations.
1996 1997 1998
---------- ---------- ----------
Basic EPS Shares 19,586,594 20,502,014 20,587,782
Effect of Dilutive Securities 798,211 702,227 1,054,004
---------- ---------- ----------
Diluted EPS Shares 20,384,805 21,204,241 21,641,786
========== ========== ==========
There is no difference between the basic and diluted EPS calculations for income
before extraordinary loss. The Effect of Dilutive Securities in the above table
is primarily comprised of stock options and grants.
Options to purchase 496,000 shares ranging from $25-7/8 to $50 were outstanding
at March 31, 1998 but were not included in the computation of diluted EPS
because the option's exercise price was greater than the average market price of
the common shares. These options expire in the years 2000 to 2006.
The Convertible Senior Subordinated Notes (see Note 5), which if converted would
result in an additional 4,992,571 shares, have not been included in the diluted
EPS calculation for all periods presented since the effect would be
antidilutive.
Revenue Recognition
The Company records sales upon product shipment.
F-11
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Advertising
The Company generally expenses advertising costs as incurred. The Company is
party to certain sponsorship agreements, whereby they recognize the related
costs over the life of the agreement. Unamortized amounts under such agreements
are not material at March 31, 1997 and 1998.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Risks Associated with International Operations and Currency Risk
The Company's international operations are subject to risks normally associated
with foreign operations, including, but not limited to, the disruption of
markets, changes in export or import laws, restrictions on currency exchanges
and the modification or introduction of other government policies with
potentially adverse effects. The majority of the Company's sales and expenses
are denominated in currencies other than U.S. dollars, and changes in exchange
rates may have a material effect on the Company's reported results of operations
and financial position. In addition, a significant portion of the Company's
indebtedness relating to foreign acquisitions is denominated in U.S. dollars
whereas the related sales are denominated in foreign currencies. During fiscal
1997 and 1998, major European currencies weakened significantly which resulted
in large reductions of stockholders' equity.
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 is also party to purchased option contracts
which, if exercised, involve the sale or purchase of foreign currency at a fixed
exchange rate for a specified period of time. As of March 31, 1998 the net value
of open forward exchange and purchased option contracts and the related gains
and losses were not material.
Reclassifications
Certain prior period amounts have been reclassified to conform to the fiscal
1998 presentation.
F-12
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Recently Issued Accounting Standards
In the second quarter of fiscal 1997, the FASB issued 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 and restate prior periods presented. The effect of
adopting 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.
2. ACQUISITIONS AND DIVESTITURES:
Effective September 1, 1997, the Company acquired three related German producers
and marketers of starter, lighting and ignition ("SLI") batteries and industrial
batteries, DETA Akkumulatorenwerk GmbH, MAREG Accumulatoren GmbH and FRIWO
SILBERKRAFT GmbH (together "DETA") for approximately $34,000 plus assumed debt
of approximately $64,600. This acquisition was accounted for as a purchase and
the results of DETA's operations are included in the Company's consolidated
statements of operations effective September 1, 1997. The cost of the
acquisition has been allocated on the basis of the estimated fair value of the
assets acquired and the liabilities assumed. With respect to the acquisition of
DETA, the Company recorded liabilities of $27,800, related to severance benefits
to be paid to certain employees who will be terminated as a result of targeted
DETA plant closings and other associated closing costs. Through March 31, 1998,
$400 of severance benefits have been paid. Remaining expenditures are expected
to occur over the next several years as the Company is required to comply with
European Union and other applicable regulations. This acquisition resulted in
goodwill of approximately $33,600.
In May 1995, the Company acquired 99.7% of the outstanding stock of Compagnie
Europeene d'Accumulateurs S.A. ("CEAc"), which was one of the largest SLI
producers and largest industrial battery manufacturer in Europe, for
approximately $425,000 in cash ($553,500 less assumed debt of $131,900 plus
interest from March 31, 1995, of $3,400). This acquisition was accounted for as
a purchase, and the results of CEAc's operations are included in the Company's
consolidated statements of operations effective June 1, 1995. Subsequent open
market purchases of CEAc stock have increased the ownership to 100%. The cost
of the acquisition has been allocated on the basis of the estimated fair value
of the assets acquired and the liabilities assumed. In accordance with Emerging
Issues Task Force Issue No. 87-11 ("EITF 87-11"), reserves of $12,000 were
established in fiscal 1996 for the expected 12-month operating losses
attributable to certain manufacturing and distribution facilities acquired that
were identified for closure and sale, all of which have been utilized.
In October 1994, and through subsequent purchases, the Company acquired
approximately 95.8% of the outstanding capital stock and approximately 25% of
the convertible bonds of Sociedad Espanola del Acumulador Tudor, S.A.
("Tudor") for approximately $241,000 (before fees and expenses).
F-13
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In January 1996, the Company acquired the remaining 25% minority interest in a
subsidiary of CEAc, in exchange for 350,000 shares of the Company's common
stock. Pursuant to the purchase, the holder of these shares received 366,009
additional shares of the Company's common stock in 1997 as an adjustment in the
number of shares issued for changes in the Company's stock price.
With respect to its CEAc and Tudor acquisitions, the Company recorded
liabilities of $153,000, related to severance benefits to be paid to certain
employees who will be terminated as a result of the consolidation and targeted
plant closings. Through March 31, 1998, $95,000 of severance benefits have been
paid. Remaining expenditures will occur over the next several years as the
Company is required to comply with European Union and other applicable
regulations. Based on exchange rates at the acquisition dates, total goodwill
resulting from the CEAc and Tudor acquisitions was $585,000.
On August 31, 1995, the Company acquired Schuylkill Holdings, Inc. ("SHI")
from Heller Financial, Inc. ("Heller") through a merger, and purchased all of
SHI's stock options and subordinated notes from various holders and the secured
debt of SHI's operating subsidiary, Schuylkill Metals Corporation, the owner of
two lead smelters in Louisiana and Missouri. The Company paid $2,000 in cash
for SHI's stock, options and notes; for the secured debt, it issued 593,210
shares of its common stock valued at $31,000, paid $3,700 in cash and issued a
contingent note, the value of which will be based on future market lead prices.
Under the terms of the purchase agreement, the Company is required to make an
additional payment to Heller in fiscal 2000 if lead prices for the four-and-one-
half-year period subsequent to the acquisition date reach defined levels. Based
on the Company's projection of lead prices for such period, in the fourth
quarter of fiscal 1996, the Company increased goodwill by $10,000. The Company
and Heller also entered into an agreement to share certain tax liabilities of
SHI. The purchase price was allocated primarily to receivables, inventories and
fixed assets and resulted in $22,000 of goodwill, including the $10,000 recorded
in the fourth quarter of fiscal 1996.
In June 1996, the Company sold certain assets related to a division of Evanite
for $13,000 cash. On December 27, 1996, the Company sold substantially all of
the remaining net assets, except for certain assets related to the battery
separator business, of Evanite for approximately $23,000 (subject to final
adjustments) and recorded a gain of approximately $8,300, which was included in
other income
F-14
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
in the accompanying consolidated statements of operations in fiscal 1997.
The following summarized unaudited pro forma consolidated results of operations
for the fiscal year ended March 31, 1996, illustrate the estimated effects of
the CEAc and SHI acquisitions, as if the transactions were consummated as of
April 1, 1995.
1996
------------
Net sales $2,474,640
==========
Loss before extraordinary item $ (5,271)
==========
Net loss $ (14,871)
==========
Pro forma basic and diluted earnings per share:
Loss before extraordinary item $ (0.27)
==========
Net loss $ (0.76)
==========
Pro forma adjustments include only the effects of events directly attributable
to a transaction that are factually supportable and expected to have a
continuing impact. Pro forma adjustments reflecting anticipated "efficiencies"
in operations resulting from a transaction are not permitted and, therefore, are
not reflected herein. The above unaudited pro forma financial information is not
necessarily indicative of the results that would actually have been obtained if
the transactions had been effected on the dates indicated or that may be
obtained in the future.
The pro forma effects of the fiscal 1997 and 1998 acquisitions are not material.
3. INVENTORIES:
March 31,
-------------------
1997 1998
--------- ---------
Raw materials $117,038 $143,652
Work-in-process 70,805 78,004
Finished goods 345,671 350,532
-------- --------
$533,514 $572,188
======== ========
At March 31, 1997 and 1998, inventories valued by the LIFO method were
approximately 33% and 30% of consolidated inventories, respectively. If all
inventories had been determined using the first-in, first-out method, such
inventories would have been $516,447 and $555,121 at March 31, 1997 and 1998,
respectively. The carrying amount of inventories on a LIFO basis exceeds
replacement cost. LIFO inventories primarily reflect the fair value of
inventories as of August 31, 1989, when all of the outstanding common shares of
the Company were acquired in a leveraged buyout, as inventories subsequently
produced cost less to manufacture. The Company believes that no write-down of
the carrying amount of inventories to replacement cost is necessary, as no loss
will be realized upon their final sale.
In connection with the purchase of lead for anticipated manufacturing
requirements, the Company enters into commodity forward and futures contracts.
These contracts are used as a hedging strategy to help protect against
volatility in lead prices. The Company remains at risk for
F-15
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
possible changes in the market value of the commodity contracts; however, such
risk should be mitigated by price changes in lead. The contracts are accounted
for as hedges and, accordingly, gains or losses are deferred and recognized in
inventory upon execution of the contract. At March 31, 1998, the Company had
outstanding contracts hedging lead purchases through December 31, 1998 at fixed
prices of approximately $5,914 for 10.9 metric tons.
4. SHORT-TERM BORROWINGS:
At March 31, 1997 and 1998, short-term borrowings consisted of various operating
lines of credit and working capital facilities maintained by certain of the
Company's foreign subsidiaries. These borrowings are secured by receivables,
inventories and/or property. These facilities, which are typically for one-year
renewable terms, generally bear interest at the current market rates plus up to
4.5%. As of March 31, 1997 and 1998, the weighted average interest rate on
these borrowings was 12.0% and 15.8%, respectively.
F-16
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. LONG-TERM DEBT:
Following is a summary of the Company's long-term debt at March 31, 1997 and
1998:
1997 1998
----------- -----------
Senior Secured Global Credit Facilities Agreement
borrowings primarily at LIBOR plus 2.0% - 2.25%
(at a weighted average rate of 7.85% at March 31, 1998) $ -- $ 472,136
U.S. Credit Agreement borrowings primarily
at LIBOR plus 2.5% at March 31, 1997 (8.2%) 17,000 --
9.125% Senior Notes, (Deutsche mark
denominated) due April 15, 2004 -- 94,644
10% Senior Notes, due April 15, 2005 300,000 300,000
10.75% Senior Notes, due December 15, 2002 150,000 --
12.25% Senior Subordinated Deferred Coupon
Debentures, due December 15, 2004 101,187 --
Convertible Senior Subordinated Notes, due
December 15, 2005 298,295 307,036
European Facilities Agreement borrowings
primarily at LIBOR plus 2% (ranging from
4.8% to 7.8% at March 31, 1997) 356,865 --
Other, including capital lease obligations and
short-term loans at interest rates ranging from
2.25% to 23.0% due in installments through 2015 50,212 57,214
----------- -----------
1,273,559 1,231,030
Less- Current maturities (37,488) (35,112)
----------- -----------
$ 1,236,071 $ 1,195,918
=========== ===========
On February 27, 1998, the Company entered into a bond swap agreement for $7,500
(principal amount) of its 10% Senior Notes. Under the agreement, the Company
pays LIBOR plus 1.75% to a counterparty and receives from the counterparty the
fixed coupon rate payments made by the Company. At the end of the agreement, the
counterparty is guaranteed repayment of its open market purchase price of the
Notes which exceeded face value by $497. This debt modification was accounted
for as an extinguishment of debt, and the related write-off of unamortized
deferred financing costs along with the premium paid by the counterparty
resulted in an extraordinary loss of $619. No income tax benefit on the
extraordinary loss was recognized.
On January 21, 1998, the Company retired all $150,000 of its 10.75% Senior Notes
and the remaining $1,881 of its 12.25% Senior Subordinated Deferred Coupon
Debentures. The Company recognized a $10,800 extraordinary loss related to these
retirements which included unamortized deferred financing costs and premium
costs for early retirement, reduced by benefits from the retirement of all swaps
related to the 10.75% Senior Notes. No income tax benefit on the extraordinary
loss was recognized.
F-17
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
On December 23, 1997, the Company replaced the existing U.S. Credit Agreement
and European Facilities Agreement with a $650,000 Senior Secured Global Credit
Facilities Agreement. This facility has three borrowing Tranches: a $150,000 six
year multi-currency term A loan, a $250,000 seven and one-quarter year U.S.
dollar term B loan, and a $250,000 six year multi-currency revolving credit
line. The new facility contains a number of financial and other covenants
customary for such agreements including restrictions on new indebtedness, liens,
leverage rates, acquisitions and capital expenditures. After consideration of
amendments entered into after year end, which were effective March 31, 1998, the
Company was in compliance with all these covenants. Payment on non-revolving
debt started March 1998 and will continue through March 2005. The Senior Secured
Global Credit Facilities Agreement is fully secured by guarantees of the
European subsidiaries and certain fixed assets, inventory and receivables. As of
March 31, 1998 the Company has $30,900 of letters of credit outstanding which
reduce availability under the Senior Secured Global Credit Facilities Agreement.
The write-off of the remaining deferred financing costs related to the debt
retired resulted in an extraordinary loss of $8,336 (net of income tax benefit
of $2,899).
On July 10, 1997, the European Facilities Agreement was amended to reduce the
maximum commitment to 1,718 million French francs (U.S. $277,000) from the
original 2,569 million French francs (U.S. $415,000). The write-off of the
related unamortized deferred financing costs associated with this early
retirement of debt resulted in an extraordinary loss of $1,364 (net of income
tax benefit of $768).
In June 1997, the Company entered into a series of bond swap agreements for
$13,150 (principal amount) of its 10% Senior Notes. Under the agreements, the
Company pays LIBOR plus 1.75% to a counterparty and receives from the
counterparty the fixed coupon rate payments made by the Company. At the end of
the agreements, the counterparty is guaranteed repayment of its open market
purchase price of the Notes which exceeded face value by $653. This debt
modification was accounted for as an extinguishment of debt, and the related
write-off of unamortized deferred financing costs along with the premium paid by
the counterparty resulted in an extraordinary loss of $902. No income tax
benefit on the extraordinary loss was recognized.
On May 7, 1997, the Company redeemed its outstanding 12.25% Zero-Coupon Bonds
for $104,095. The Company financed the tender offer through borrowings under
the U.S. Credit Agreement, $50,000 of which was from the Tranche D variable rate
term loan and the balance from the revolver. This redemption resulted in an
extraordinary loss of $6,492 related to the write-off of unamortized deferred
financing costs and the premium paid associated with the early extinguishment of
substantially all of the 12.25% Senior Subordinated Deferred Coupon Debentures.
No income tax benefit on the extraordinary loss was recognized.
On April 23, 1997, the Company issued 175 million Deutsche mark (U.S. $94,675)
9.125% Senior Notes due on April 15, 2004. The Company used the funds to repay
indebtedness under the European Facilities Agreement.
In December 1995, the Company issued 2.9% Convertible Senior Subordinated Notes
due December 15, 2005, with a face amount of $397,000 discounted to $287,797,
after the underwriters' exercise of their overallotment option. These notes
have a coupon rate of 2.9% with a yield to maturity of 6.75%. The notes are
convertible into the Company's common stock at a conversion rate of 12.5473
shares per $1,000 principal amount at maturity, subject to adjustments in
certain events. The Company used the funds to repay indebtedness under the
F-18
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
former U.S. Credit Agreement.
In April 1995, the Company issued $300,000 in aggregate principal amount of 10%
Senior Notes, the net proceeds of which were used, along with borrowings under
the U.S. Credit Agreement, to finance the CEAc acquisition. The 10% Senior
Notes are redeemable at the option of the Company, in whole or in part, at any
time on or after April 15, 2000, initially at 105% of the principal amount, plus
accrued interest, declining to 100% of the principal amount, plus accrued
interest on or after April 15, 2002.
In fiscal 1996, deferred financing costs were written off due to early repayment
of the former European Facilities Agreement, European Term Loans, Spanish
Convertible Debentures and Term Loan A and Term Loan B under the U.S. Credit
Agreement, as well as permanent reductions in the Revolving Credit Facility
under the U.S. Credit Agreement, resulting in an extraordinary loss of $9,600
net of $5,958 income tax benefit.
During fiscal 1997, the Company entered into a series of bond swap agreements
for $19,975 (principal amount) of its 10% Senior Notes and $18,000 (principal
amount) of its 10.75% Senior Notes. Under the agreements, the Company pays
LIBOR plus 1.75% to a counterparty and receives from the counterparty the fixed
coupon rate payments made by the Company. At the end of the agreements, the
counterparty is guaranteed repayment of its open market purchase price of the
Notes which exceeded face value by $1,848. This debt modification was accounted
for as an extinguishment of debt, and the related write-off of unamortized
deferred financing costs along with the premium paid by the counterparty
resulted in an extraordinary loss of $2,767. No income tax benefit on the
extraordinary loss was recognized.
The Company enters into currency and interest rate hedge agreements to manage
interest costs associated with long-term debt. Effective December 23, 1997, the
Company entered into two three-year currency interest rate swap agreements.
These agreements effectively converted $175,000 of the Tranche B loan into
788,756 French francs (U.S. $133,000) and 25,225.2 Pounds sterling (U.S.
$42,000) under the Global Credit Facilities Agreement. The Company will receive
an interest rate of LIBOR plus 2.25% and pay PIBOR plus 2.27% and Pounds
sterling LIBOR plus 2.28%, respectively. Additionally, effective December 23,
1997, the Company entered into two three-year interest rate collar agreements
that reduce the impact of changes in interest rates on a portion of the
Company's floating rate debt. These agreements effectively limit the PIBOR base
interest rate on 593,050 French francs (U.S. $100,000) of borrowing under the
Global Credit Facilities Agreements to no more than 6.6% and no less than 3.5%.
During fiscal 1998, the Company recognized $3,171 of additional interest expense
related to these swap and collar agreements.
Effective December 1994, the Company entered into two interest rate collar
agreements that reduce the impact of changes in interest rates on a portion of
the Company's floating rate debt. These agreements effectively limit the LIBOR
base interest rate on $100,000 of borrowings under the U.S. Credit and European
Facilities Agreements to no more than 8.0% and no less than 5.5% graduating up
to 7.5% through December 30, 1997. Effective May 17, 1995, the Company entered
into an interest rate swap agreement that fixed the LIBOR base interest rate on
a notional amount of $50,000 at 6.21% for two years. Additionally, effective
March 29, 1997, the Company entered into two interest rate collar agreements
which reduce the impact of changes in
F-19
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
interest rates on a portion of the Company's floating rate debt. The agreements
effectively limit the MIBOR base interest rate on 11,000,000 Spanish pesetas
(U.S. $70,000) of borrowings and the PIBOR base interest rate of 575,000 French
francs (U.S. $93,000) of borrowings under the European Facilities Agreement to
no more than 7.5% and 6.0%, respectively, and no less than 3.5% and 2.0%,
respectively. These agreements expired before year end. During fiscal 1996, 1997
and 1998, the Company recognized $580, $1,952 and $1,444, respectively, of
additional interest expense related to these swap and collar agreements.
Counterparties to bond swap transactions and interest rate hedge agreements are
major financial institutions. Management believes the risk of incurring losses
related to credit risk is remote and any losses would be immaterial.
Annual principal payments required under long-term debt obligations at March 31,
1998 are as follows:
Fiscal Year Amount
----------- ------
1999 $ 35,112
2000 29,904
2001 34,200
2002 36,288
2003 336,721
Thereafter 758,805
6. EMPLOYEE BENEFIT PLANS:
The Company has noncontributory defined benefit pension plans covering
substantially all hourly employees in North America. Plans covering hourly
employees provide pension benefits of stated amounts for each year of credited
service. Substantially all salaried employees in North America are covered
under a defined contribution plan, which requires the Company to contribute 4%
of eligible employees' salaries on an annual basis.
European subsidiaries of the Company sponsor several defined benefit plans that
cover substantially all employees who are not covered by statutory plans. For
defined benefit plans, charges to expense are based upon costs computed by
independent actuaries. In most cases, the defined benefit plans are not funded;
book reserves are maintained. Benefit formulas are similar to those used by the
North America plans.
F-20
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
The components of net periodic pension cost for the defined benefit plans and
pension expense for the defined contribution plans for the fiscal years ended
March 31, 1996, 1997 and 1998, are as follows:
1996 1997 1998
--------- --------- ---------
Defined benefit plans:
Service cost of current period $ 2,119 $ 3,112 $ 5,213
Interest cost on projected benefit obligation 9,718 11,841 14,261
Actual return on plan assets (11,721) (7,980) (37,595)
Net amortization and deferrals 7,274 2,280 26,705
-------- ------- --------
Net defined benefit pension expense 7,390 9,253 8,584
Defined contribution plan 2,167 2,150 2,058
-------- ------- --------
Total pension expense $ 9,557 $11,403 $ 10,642
======== ======= ========
It is the Company's policy to make contributions sufficient to meet the minimum
contributions required by law and regulation.
The following table sets forth the funded status and the amounts recognized in
the consolidated balance sheets for the Company's defined benefit pension plans:
March 31, 1997 March 31, 1998
------------------------------ -------------------------------
Accumulated Assets Exceed Accumulated Assets Exceed
Benefits Accumulated Benefits Accumulated
Exceed Assets Benefits Exceed Assets Benefits
-------------- -------------- -------------- ---------------
Actuarial present value of:
Vested benefit obligation $112,837 $54,745 $117,445 $105,117
======== ======= ======== ========
Accumulated benefit obligation $117,946 $68,330 $121,457 $107,750
======== ======= ======== ========
Actuarial present value of:
Projected benefit obligation $124,672 $69,243 $125,108 $125,565
Plan assets at fair value 43,225 84,198 32,341 135,474
-------- ------- -------- --------
Plan assets (less) greater than projected
benefit obligation (81,447) 14,955 (92,767) 9,909
Prior service cost 1,354 203 618 1,853
Unrecognized net loss (gain) 7,735 (2,093) 2,879 4,463
Unrecognized initial obligation (423) 123 2,276 (5,660)
Additional minimum liability recognized (9,106) -- (6,454) --
-------- ------- -------- --------
Prepaid (accrued) pension cost $(81,887) $13,188 $(93,448) $ 10,565
======== ======= ======== ========
The weighted average discount rate used in determining the projected benefit
obligation ranged from 6.5% to 8.5% and from 6.0% to 7.75% as of March 31, 1997
and March 31, 1998, respectively. The rate of increase in future compensation
levels and the expected long-term rate of return on plan assets ranged from 3.5%
to 7.0% and 9.0% to 9.5%, respectively, as of March 31, 1997 and from 2.5% to
6.0% and 7.5% to 9.5%, respectively, as of March 31, 1998.
SFAS No. 87 requires that underfunded pension plans reflect an additional
balance sheet liability if the excess of the accumulated benefit obligation over
the plan assets exceeds the accrued pension liability. However, SFAS No. 87
also permits the Company to establish an intangible asset, not to exceed the
unrecognized prior service cost, as an offsetting entry. Any remaining
F-21
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
amount of additional liability that is not offset by the intangible asset must
be offset through a charge against equity. Accordingly, the Company's minimum
additional pension liability of $9,106 and $6,454 consists of intangible assets
of $1,424 and $2,197 and charges against equity of $7,682 and $4,257 (tax
effected to $4,993 and $2,767) at March 31, 1997 and 1998, respectively.
7. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS:
The Company provides certain health care and life insurance benefits for a
limited number of retired employees in the U.S. In addition, a limited number
of the Company's active U.S. employees may become eligible for those benefits if
they reach normal retirement age while working for the Company. The Company
accrues the estimated cost of providing postretirement benefits during the
employees' applicable years of service.
The following table sets forth the plan's postretirement benefit liability as of
March 31:
1997 1998
------- -------
Accumulated postretirement benefit obligation:
Retirees, beneficiaries and dependents $13,203 $14,322
Fully eligible actives 534 552
Not fully eligible actives 1,552 1,763
------- -------
Total 15,289 16,637
Unrecognized loss (2,410) (3,937)
------- -------
Accrued postretirement benefit cost $12,879 $12,700
======= =======
The net periodic postretirement benefit cost for fiscal 1996, 1997 and 1998
included the following components:
1996 1997 1998
------ ------ ------
Service cost $ 95 $ 102 $ 79
Interest cost 1,032 1,121 1,185
------ ------ ------
Net periodic postretirement benefit cost $1,127 $1,223 $1,264
====== ====== ======
The significant assumptions used to calculate the net periodic postretirement
benefit cost and the accumulated postretirement benefit obligation as of March
31, 1997 and 1998, were a discount rate of 7.75% and 7.25%, respectively, and
medical costs that are assumed to increase at a rate of 8% per year grading down
to 5% per year by 2004. The effect of a one-percentage-point increase in the
assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation as of March 31, 1998, by approximately $1,326,
and the aggregate of the service and interest cost components of net periodic
postretirement benefit cost by approximately $113.
F-22
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
8. STOCK GRANTS AND OPTIONS:
On April 29, 1993, the Board of Directors adopted an Incentive Compensation
Plan, under which certain members of the Company's management were granted
811,662 shares of the Company's common stock. These shares vest after five
years and have certain restrictions related to sale, transferability, and
employment within the Company. Upon completion of vesting, participants must
pay $2.25 per share, the estimated fair value at the grant date, prior to the
transferring of such shares. In fiscal 1996 and 1997, the Board of Directors
approved accelerated vesting periods for certain employees.
In October, 1993, the Board of Directors adopted the Long Term Incentive Plan
("Incentive Stock Plan"), which may grant awards to key employees in the form of
incentive stock options, nonqualified stock options, restricted shares of common
stock or units valued on the basis of long-term performance of the Company
("Performance Units"). Options may be accompanied by stock appreciation rights
("Rights"). All of the awards to date have been nonqualified stock options,
none of which were accompanied by Rights. All awards vest ratably over periods
ranging from four to five years, with the maximum term of the awards ranging
from five years and three months to ten years. The maximum aggregate number of
shares of common stock with respect to options, restricted shares, Performance
Units or Rights granted without accompanying options that may be granted
pursuant to the Incentive Stock Plan is 700,000 shares.
During fiscal 1995, a total of 40,000 restricted shares of the Company's common
stock were granted to certain employees. The market value of the shares awarded
on the date of grant ($1,935) was recorded as unearned compensation and shown as
a separate component of stockholders' equity. In fiscal 1996, 20,000 of these
shares were canceled. Unearned compensation is being amortized to expense over
the five year vesting period and amounted to $387, $194 and $194 in fiscal 1996,
1997 and 1998, respectively.
On May 23, 1996, the Board of Directors adopted the 1996 Non-Employee Directors
Stock Plan (the "Directors Stock Plan") whereby Directors of the Company are
granted common stock as part of their compensation. The maximum aggregate
number of shares of common stock that may be granted pursuant to the Directors
Stock Plan as amended May 1, 1997 is 32,210 shares. Under this plan, 1,500 and
17,608 shares were granted during fiscal 1997 and 1998, respectively. The market
value of the shares awarded on the date of the fiscal 1997 and fiscal 1998
grants was $39 and $319, respectively, and was charged to expense at the grant
date.
The May 1, 1997 Stock Option Plan authorizes the granting of stock options to
key employees of the Company covering up to 2,000,000 shares of common stock. No
options become vested or exercisable before May 1, 2007 unless the market price
of the common stock increases to certain levels. If the market price increases
to $30.00 per share, 40% of the granted options become vested, if it reaches
$50.00, another 40% become vested and if it achieves $75.00 the remainder will
become vested, provided, that in the case of each such percentage which so
vests, the vested options are then only exercisable as follows; 40% on the date
of vesting and 20% each on the first, second and third anniversaries. The
exercise price for each share is equal to the fair market value of the common
stock on the date of the grant of the option ($16.625). These options will
expire on June 1, 2007.
F-23
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
Stock grant and option transactions are summarized as follows:
Weighted
Average
Incentive Exercise Price
Compensation Stock of Stock
Plan Options Options
------------- --------- --------------
Shares under option:
Outstanding at April 1, 1995 788,472 --
Granted -- 102,000 $ 31.91
Exercised (10,822) --
Forfeited (23,972) --
------------ ---------
Outstanding at April 1, 1996 753,768 102,000 $ 31.91
Granted -- 577,000 $ 26.59
Exercised -- --
Forfeited -- --
------------ ---------
Outstanding at April 1, 1997 753,768 679,000 $ 27.39
Granted -- 2,000,000 $ 16.625
Exercised (9,275) --
Forfeited (34,013) (206,500) $ 26.68
------------ ---------
Outstanding at March 31, 1998 710,390 2,472,500 $ 18.69
============ =========
Options available for grant
at March 31, 1998 -- 21,000
============ =========
Exercisable at April 1, 1996 -- 17,850 $ 31.91
Exercisable at April 1, 1997 -- 95,917 $ 28.71
Exercisable at March 31, 1998 -- 439,040 $ 19.69
Options for 12,000 shares granted in fiscal 1996 have an exercise price of $50
with a market value of $29.50 on the date of the grant. The grant-date market
value of all other options granted is equal to their respective exercise prices.
Outstanding stock options have an average remaining contractual life of nine
years at March 31, 1998 with the exercise prices for these options ranging from
$16.63 to $50.00.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 encourages a fair-value-based method of accounting
for employee stock options and similar equity instruments. SFAS No. 123 also
allows an entity to continue to account for stock-based employee compensation
using the intrinsic value for equity instruments using APB Opinion No. 25. As
provided for in SFAS No. 123, the Company elected to continue the intrinsic
value method of expense recognition. Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation expense for the stock
option plans been determined consistent with the provisions of SFAS No. 123, the
Company's net income (loss) and net income (loss) per share would have been the
pro forma amounts indicated below:
F-24
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Fiscal Year Ended
March 31
------------------------------------------------
1996 1997 1998
----------- ------------- ------------
Net income (loss):
As reported $ (8,661) $ 16,225 $ (9,816)
Pro forma $ (8,858) $ 15,617 $ (19,596)
Basic net income (loss) per share:
As reported $ (0.44) $ 0.79 $ (0.48)
Pro forma $ (0.45) $ 0.76 $ (0.95)
Diluted net income (loss) per share:
As reported $ (0.42) $ 0.77 $ (0.45)
Pro forma $ (0.45) $ 0.74 $ (0.95)
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following range of assumptions used
for the six option grants which occurred during fiscal 1996, 1997 and 1998:
Fiscal Year Ended
March 31
------------------------------------------------
1996 1997 1998
----------- ------------- ------------
Volatility 34.3% 31.3% - 33.5% 31.0%
Risk-free interest rate 6.4% 6.3% - 6.5% 6.8%
Expected life in years 5.5 5.25 - 10.0 10
Dividend yield 0.4% 0.4% 0.4%
9. INCOME TAXES:
The provision for income taxes includes federal, state and foreign taxes
currently payable and those deferred because of temporary differences between
the financial statement and tax bases of assets and liabilities. The components
of the provision for income taxes for the fiscal years ended March 31, 1996,
1997 and 1998, are as follows:
1996 1997 1998
-------- -------- --------
Current:
Federal $ -- $ -- $ --
State 700 -- (1,040)
Foreign 5,300 8,477 8,000
-------- -------- --------
6,000 8,477 6,960
-------- -------- --------
Deferred:
Federal (23,838) -- 1,334
State (2,347) -- --
Foreign 26,485 6,255 5,181
-------- -------- --------
300 6,255 6,515
-------- -------- --------
Total provision $ 6,300 $ 14,732 $ 13,475
======== ======== ========
F-25
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Major differences between the federal statutory rate and the effective tax rate
are as follows:
1996 1997 1998
------ ----- -----
Federal statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit (22.6) -- (2.7)
Nondeductible goodwill 87.1 16.6 19.2
Difference in rates on foreign subsidiaries 11.5 (6.8) (0.4)
Other, net (17.4) (2.7) (9.1)
----- ---- ----
Effective tax rate 93.6% 42.1% 42.0%
===== ==== ====
During fiscal 1998, the Company finalized a state tax audit which resulted in a
favorable adjustment of $600.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of March 31, 1997 and 1998:
1997 1998
---------- ----------
Deferred tax assets:
Operating loss and tax credit carryforwards $ 146,199 $ 184,211
Compensation reserves 45,572 30,486
Environmental reserves 15,507 12,811
Interest 14,155 --
Retirement benefits 11,740 9,095
Self-insurance 3,805 19,574
Warranty 3,212 3,044
Other 13,664 12,915
Valuation allowance (152,718) (157,569)
--------- ---------
101,136 114,567
--------- ---------
Deferred tax liabilities:
Depreciation/property basis (12,695) (22,134)
Inventory basis difference (7,183) (7,378)
Other (4,180) (9,917)
-------- --------
(24,058) (39,429)
-------- --------
Net deferred tax assets $ 77,078 $ 75,138
======== ========
Included in other noncurrent liabilities is $1,207 and $1,219 of deferred tax
liabilities at March 31, 1997 and 1998, respectively.
As of March 31, 1998, the Company has net operating loss carryforwards for U.S.
income tax purposes of approximately $107,300, which expire in years 2005
through 2018. For financial reporting purposes, a valuation allowance has been
recognized to reduce the deferred tax assets for which it is more likely than
not that the benefits will not be realized.
F-26
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of March 31, 1998, certain of the Company's European subsidiaries have net
operating loss carryforwards for income tax purposes of approximately $303,262,
of which $108,128 expire in years 1999 through 2005. Most of these carryforwards
are preacquisition tax attributes, which will reduce goodwill if realized. For
financial reporting purposes, a valuation allowance has been recognized to
reduce the deferred tax assets related to these preacquisition tax attributes
and certain nondeductible reserves for which it is more likely than not the
related tax benefits will not be realized.
Non-U.S. pre-tax income of the Company was $71,900, $72,300 and $73,858 in
fiscal 1996, 1997 and 1998, respectively (see Note 16). The increase in the
valuation allowance in fiscal 1998 is due to the DETA acquisition offset, in
part by the effects of currency.
The Company's net deferred tax assets include certain amounts of net operating
loss carryforwards principally in the U.S., which management believes are
realizable through a combination of anticipated tax planning strategies and
forecasted future taxable income. In fiscal 1997 and fiscal 1998, the Company
implemented certain tax planning strategies which utilized a portion of such
deferred tax assets. Failure to achieve forecasted future taxable income might
affect the ultimate realization of any remaining recorded net deferred tax
assets.
As of March 31, 1998, the Company has not provided for withholding or U.S.
federal income taxes on undistributed earnings of foreign subsidiaries since
such earnings are expected to be reinvested indefinitely or substantially offset
by available foreign tax credits.
10. RECEIVABLES SALE AGREEMENTS:
In July 1997, certain of the Company's European subsidiaries sold selected
receivables to a wholly-owned bankruptcy remote subsidiary of the Company, Exide
Europe Funding Ltd., who in turn established a multi-currency receivable sale
facility (collectively the "European Agreement") with a financial institution,
whereby the financial institution has committed to purchase, with limited
recourse, all right, title and interest in these receivables up to a maximum net
investment of $175,000. The net proceeds from the initial sale of accounts
receivable under the European Agreement were used to repay borrowings under the
European Facilities Agreement. As of March 31, 1998, net uncollected receivables
sold under the multi-currency receivable sale facility was $136,666. Losses and
expenses related to receivables sold under this agreement for fiscal 1998 were
$7,550, and are included in other income, net in the Consolidated Statements of
Operations.
The Company entered into a Receivables Sale Agreement (the "U.S. Agreement")
with certain banks (the "Purchasers"), and under this agreement, the Purchasers
have committed to purchase, with limited recourse, all right, title and interest
in selected accounts receivable of the U.S. Company, up to a maximum net
investment of $75,000 (increased from $40,000 effective December 20, 1995). In
connection with the U.S. Agreement, during fiscal 1997 the Company established a
wholly owned, bankruptcy remote subsidiary, Exide U.S. Funding Corporation, to
purchase accounts receivable at a discount from the Company on a continuous
basis, subject to certain limitations as described in the U.S. Agreement. Exide
U.S. Funding Corporation
F-27
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
simultaneously sells the accounts receivable at the same discount to the
Purchasers. As of March 31, 1997 and 1998, net uncollected receivables sold
under the U.S. Agreement were $68,161 and $65,682, respectively. Losses and
expenses related to receivables sold under this agreement for fiscal years 1996,
1997 and 1998 were $2,554, $4,290 and $4,084, respectively, and are included in
other income, net in the Consolidated Statements of Operations.
The above transactions qualify as sales under the provisions of SFAS No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities."
11. RELATED-PARTY TRANSACTIONS:
The Company purchased $20,290, $4,920 and $5,979 of product from Yuasa, Inc.,
("Yuasa"), a 13.5%-owned affiliate, during fiscal 1996, 1997 and 1998,
respectively. The Company also sold $10,618, $6,580 and $2,601 of product to
Yuasa during fiscal 1996, 1997 and 1998, respectively. In addition, the Company
provides certain administrative services and pays certain expenses for Yuasa.
Yuasa reimbursed the Company for these costs totaling $2,282, $1,753 and $1,673
during fiscal 1996, 1997 and 1998, respectively. As of March 31, 1997 and 1998,
the Company had a net receivable of $5,051 and $2,342, respectively from Yuasa.
12. ENVIRONMENTAL 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.
F-28
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 $3,000 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.
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 probable and reasonably estimable, the costs of
such projects have been reserved 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 on-site and off-site environmental
remediation costs and believes that such reserves are adequate. As of March 31,
1998, the amount of such reserves on the Company's balance sheet was $29,805. Of
this amount, $20,389 was included in Other Noncurrent Liabilities. Because
environmental liabilities are not accrued until a liability is determined to be
probable and reasonably estimable, not all potential future environmental
liabilities have been included in the Company's environmental reserves and,
therefore, additional earnings charges are possible.
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,
F-29
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
property damage and bodily injury claims allegedly resulting from environmental
conditions. In connection with these settlements, the Company received $17,309
which was reflected as an offset to cost of sales, a reduction of legal costs
incurred in fiscal 1997 and elimination of $7,000 of legal fees deferred in
fiscal 1996. During the fourth quarter of fiscal 1997, the Company recorded a
$5,250 receivable from the remaining insurance carrier based on the status of
negotiations, and during fiscal 1998, the Company received $5,800 from this
carrier.
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 environmental matters relative to certain sites. In exchange for this
release the Company received $4,500 in the third quarter and a remaining $5,500
will be received in three annual installments.
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.
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 consolidation of its European manufacturing
operations, it is probable that certain environmental costs will be incurred. An
estimate of the probable liability was included in the Tudor and CEAc purchase
price allocations.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of financial instruments has been determined by the
Company using available market information and appropriate methodologies;
however, considerable judgment is required in interpreting market data to
develop the estimates for fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. Certain of these financial instruments are
with major financial institutions and expose the Company to market and credit
risks and may at times be
F-30
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
concentrated with certain counterparties or groups of counterparties. The
creditworthiness of counterparties is continually reviewed, and full performance
is anticipated.
The methods and assumptions used to estimate the fair value of each class of
financial instruments are set forth below:
. Cash and cash equivalents, accounts receivable and accounts payable--The
carrying amounts of these items are a reasonable estimate of their fair
values at March 31, 1998.
. Investments in affiliates--The estimated fair value of these investments
could not be obtained without incurring excessive costs as they have no
quoted market price.
. Long-term receivables--The carrying amounts of these items are a
reasonable estimate of their fair value.
. Short-term borrowings--Borrowings under the line of credit arrangements
have variable rates that reflect currently available terms and
conditions for similar debt. The carrying amount of this debt is a
reasonable estimate of its fair value.
. Long-term debt--Borrowings under the Senior Secured Global Credit
Facilities have variable rates that reflect currently available terms
and conditions for similar debt. The carrying amount of this debt is a
reasonable estimate of its fair value.
The 9.125% and 10% Senior Notes and Convertible Senior Subordinated
Debentures are traded occasionally in public markets. The carrying
values and estimated fair values of these obligations are as follows at
March 31, 1998:
Estimated
Carrying Fair
Value Value
-------- ---------
10.00% Senior Notes $300,000 $309,750
9.125% Senior Notes (Deutsche Mark Denominated) 94,644 97,010
2.90% Convertible Senior Subordinated Notes 307,036 247,295
Interest rate protection agreements and bond swap agreements have no
carrying value; however, if the Company were to terminate these
agreements at March 31, 1998, the Company would have collected $5,502,
based on quotes from financial institutions.
. Lead forward and futures contracts--The estimated fair value of the
outstanding contracts at March 31, 1998, exceeds the contract value by
$346, based on quotes from brokers.
F-31
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
. Foreign currency contracts--The fair value is based on quotes obtained
from financial institutions. As of March 31, 1998, the fair value of
foreign currency contracts approximated contract value.
14. COMMITMENTS AND CONTINGENCIES:
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 $5,000. Later, the Court, acting on the
jury's verdict, entered a judgment against the Company for $5,456. 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 independent 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. Based
on the above, the Company has not recorded a reserve related to this matter. The
Company anticipates receiving a decision on the appeal during fiscal 1999.
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.
The Company is involved in various other claims and litigation incidental to the
conduct of its business. Based on consultation with legal counsel, management
does not believe that any such claims or litigation to which the Company is a
party both individually and in the aggregate will have a material adverse effect
on the Company's financial condition or results of operations. In the fourth
quarter of fiscal 1996, the Company paid $5,548 as a result of an unfavorable
verdict from the U.S. Court of Appeals in a patent infringement matter. Such
amount was recorded in cost of sales.
F-32
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On December 23, 1997, the Company entered into a Sale / Leaseback transaction,
where the Company sold certain machinery and equipment with a book value of
$16,400 for $49,500 and leased the same machinery and equipment back over eight
years. The gain of $33,100 has been deferred and will be recognized ratably over
the life of the lease.
Future minimum lease payments under operating and capital leases that have
initial or remaining noncancelable lease terms in excess of one year at March
31, 1998, are:
Fiscal Year Operating Capital
----------- --------- -------
1999 $ 44,484 $ 2,103
2000 30,131 2,115
2001 21,086 1,918
2002 15,304 1,722
2003 12,019 1,501
Thereafter 27,930 15,359
--------- -------
Total minimum payments $ 150,954 24,718
=========
Less- Interest on capital leases (6,917)
-------
Total principal payable on capital
leases (included in Note 5) $17,801
=======
Rent expense amounted to $47,837, $52,701 and $48,973 for fiscal years 1996,
1997 and 1998, respectively.
The Company has various purchase commitments for materials, supplies and other
items incident to the ordinary course of business. In the aggregate, such
commitments are not at prices in excess of current market.
F-33
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of the Company's unaudited quarterly consolidated
results of operations for fiscal years 1997 and 1998:
Fiscal Quarter Ended
-----------------------------------------------------------------------
June 30, September 29, December 29, March 31,
1996 1996 1996 1997
----------- ----------- ----------- -----------
Net sales $ 556,020 $ 587,403 $ 677,544 $ 512,263
Gross profit 130,701 155,816 179,174 129,585
Income (loss) before extraordinary loss (11,119) 11,691 26,205 (7,785)
Net income (loss) (11,119) 11,691 26,205 (10,552)
Basic earnings per share:
Income (loss) before extraordinary item (0.54) 0.57 1.28 (0.38)
Extraordinary loss -- -- -- (0.13)
----------- ----------- ----------- -----------
Net income (loss) (0.54) 0.57 1.28 (0.51)
Diluted earnings per share:
Income (loss) before extraordinary item (0.54) 0.55 1.24 (0.38)
Extraordinary loss -- -- -- (0.13)
----------- ----------- ----------- -----------
Net income (loss) $ (0.54) $ 0.55 $ 1.24 $ (0.51)
=========== =========== =========== ===========
Fiscal Quarter Ended
-----------------------------------------------------------------------
June 29, September 28, December 28, March 31,
1997 1997 1997 1998
----------- ----------- ----------- -----------
Net sales $ 490,365 $ 552,389 $ 691,715 $ 538,657
Gross profit 124,308 148,346 189,715 140,349
Income (loss) before extraordinary loss (7,445) 8,154 23,050 (5,062)
Net income (loss) (14,758) 6,709 14,714 (16,481)
Basic earnings per share:
Income (loss) before extraordinary item (0.36) 0.40 1.12 (0.25)
Extraordinary loss (0.36) (0.07) (0.41) (0.55)
----------- ----------- ----------- -----------
Net income (loss) (0.72) 0.33 0.71 (0.80)
Diluted earnings per share:
Income (loss) before extraordinary item (0.36) 0.38 1.05 (0.25)
Extraordinary loss (0.36) (0.07) (0.38) (0.55)
----------- ----------- ----------- -----------
Net income (loss) $ (0.72) $ 0.31 $ 0.67 $ (0.80)
=========== =========== =========== ===========
F-34
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION:
The Company is primarily engaged in one industry segment, namely, the
manufacture, distribution and sale of lead acid batteries and related
accessories. Financial information, summarized by geographic area, is as
follows:
North Intercompany
America Europe Other Eliminations Consolidated
---------- ---------- ---------- ---------- ----------
Year ended March 31, 1997:
Sales to unaffiliated
customers $ 872,985 $1,460,346 $ -- $ (101) $2,333,230
Income (loss) before income
taxes, minority interest
and extraordinary loss (891) 75,914 -- (40,000) 35,023
Identifiable assets 863,210 1,656,758 171,777 (238,938) 2,452,807
Year ended March 31, 1998:
Sales to unaffiliated
customers 844,411 1,432,542 -- (3,827) 2,273,126
Income (loss) before income
taxes, minority interest
and extraordinary loss 2,081 74,213 -- (44,236) 32,058
Identifiable assets 800,607 1,632,206 160,742 (244,939) 2,348,616
Other includes cash and cash equivalents, deferred tax assets, investments and
deferred financing costs.
F-35
SCHEDULE II
EXIDE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in thousands)
Balance at Additions Balance
Beginning Charged to at End of
of Period Expense Write-offs Other /(1)/ Period
---------- ---------- ----------- ------------- ---------
Year ended March 31, 1998:
Allowance for doubtful accounts $38,486 $7,060 $(5,484) $(2,574) $37,488
======= ====== ======= ======= =======
Year ended March 31, 1997:
Allowance for doubtful accounts $45,350 $4,638 $(7,531) $(3,971) $38,486
======= ====== ======= ======= =======
Year ended March 31, 1996:
Allowance for doubtful accounts $23,274 $4,016 $(7,423) $25,483 $45,350
======= ====== ======= ======= =======
/(1)/Represents primarily acquisitions of certain businesses in fiscal 1996 and
1998 and currency translation in fiscal 1997.
F-36