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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended March 31, 2001
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
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EXIDE CORPORATION
(doing business as Exide Technologies)
(Exact Name of Registrant as Specified in Its Charter)
Delaware 23-0552730
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
210 Carnegie Center, Suite 500
Princeton, New Jersey 08540
Telephone: (609) 919-4946
(Address, including zip code, and telephone number, including
area code, of Registrant's Principal Executive Offices)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_] .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [X] .
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 27, 2001 was approximately $265,962,856. There were
25,450,991 outstanding shares of the Registrant's common stock as of June 27,
2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Annual Meeting of Stockholders
to be held August 10, 2001, are incorporated into Part III of this report.
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EXIDE CORPORATION
TABLE OF CONTENTS
Page
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PART I
ITEM 1 BUSINESS....................................................... 2
ITEM 2 PROPERTIES..................................................... 16
ITEM 3 LEGAL PROCEEDINGS.............................................. 17
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 19
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................... 20
ITEM 6 SELECTED FINANCIAL DATA........................................ 21
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................... 22
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.... 33
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 34
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................... 34
PART III
ITEM 10 DIRECTORS OF THE REGISTRANT.................................... 35
ITEM 11 EXECUTIVE COMPENSATION......................................... 35
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................... 35
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 35
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-
K.............................................................. 36
SIGNATURES.............................................................. 38
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE................. F-1
1
EXIDE CORPORATION
PART I
ITEM 1. BUSINESS
(1) General Discussion of Business
Exide Corporation, doing business as Exide Technologies, ("Exide" or "the
Company") is a Delaware corporation organized in 1966 to succeed to the
business of a New Jersey corporation founded in 1888. Our principal executive
offices are located at 210 Carnegie Center, Suite 500, Princeton, NJ 08540. We
are changing our name to Exide Technologies before August 10, 2001, the date
of our annual shareholders' meeting.
We are the largest producer of lead acid batteries in the world, with
fiscal 2001 net sales of approximately $2.4 billion. Through acquisitions and
internal growth, we hope to become the world leader in electrical energy
storage solutions. We manufacture industrial and automotive batteries in North
America, Europe, the Middle East, India, Australia and New Zealand. Our
industrial batteries consist of motive power batteries, such as those for use
in forklift trucks and other electric vehicles, and network power batteries
used for back-up power applications, such as those used for telecommunications
systems. We market our automotive batteries to a broad range of retailers and
distributors of replacement batteries and automotive original equipment
manufacturers ("OEM").
As a result of acquisitions, including most recently GNB Technologies,
Inc., discussed below, and prior acquisitions in Europe, we have become the
largest battery manufacturer in the world. Our European, North American and
the Pacific Rim operations represented 52%, 45% and 3%, respectively, of our
fiscal 2001 net sales.
Robert A. Lutz, Chairman and Chief Executive Officer, leads our Office of
the Chairman, which includes Craig H. Muhlhauser, our President and Chief
Operating Officer, and Kevin R. Morano, our Executive Vice President and Chief
Financial Officer.
Acquisition of GNB
On September 29, 2000, we acquired GNB Technologies, Inc. and related
entities and assets ("GNB"), a leading U.S. and Pacific Rim manufacturer of
both industrial and automotive batteries, from Pacific Dunlop Limited. GNB has
operations in the U.S., Australia, New Zealand, Canada, Europe, Japan, South
Asia, China, India and the Middle East. GNB produces industrial batteries in
North America, including those used in both motive and network power
applications under various brands such as Absolyte(R), Marathon(R),
Sprinter(R), Champion(R) and Pacific Chloride(R). GNB also produces automotive
batteries under the Champion(R), Stowaway(R) and National(R) brands, among
others including many private label brands, and is a major supplier to
automotive manufacturers in North America and the Pacific Rim.
(2) Financial Information about Segments
For the year ended March 31, 2001 ("fiscal 2001"), we were primarily
engaged in two industry segments, namely, the manufacture, distribution and
sale of lead acid batteries within the Industrial and Transportation business
segments. See Note 16 to the Company's Consolidated Financial Statements
appearing elsewhere herein.
(3) Narrative Description of Business
The Company is the largest producer of lead acid batteries in the world,
based on management's estimate of current market share. The Company's fiscal
2001 net sales were approximately $2.4 billion. Our strategic focus is based
on customer needs on a global basis and we manage the business accordingly. We
have two primary
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segments: the Industrial segment and the Transportation segment. As described
below, our key markets in the Industrial segment are motive power and network
power. Our key markets in the Transportation segment are automotive
aftermarket and automotive original equipment.
Industrial Segment
Sales of industrial batteries represented approximately 37% of our net
sales for fiscal 2001. Industrial batteries include motive power batteries and
network power (standby) batteries. We believe we have the leading position in
both the motive power and network power segments of the industrial battery
market in the world, based on our estimate of current market share.
Technical expertise and assistance and customer service are very important
in the industrial battery market. We have technical service agreements with a
number of our customers. We work closely with our customers as they develop
new products, designing batteries to meet their individual needs. While we
built our industrial battery business primarily by acquiring existing
manufacturers with established brand names, we plan to continue to market our
products under consolidated global brands based on our established reputation
for quality and expertise in particular technologies.
Industrial: Motive Power Market
Our motive power batteries are fundamentally two-volt cells assembled in
numerous combinations and sizes to provide capacities ranging from 30 Ah to
1500 Ah. We also manufacture and market a range of 6 and 12 volt monobloc
batteries used on smaller forklifts, access equipment and electrically powered
wheelchairs. Apart from specializing in conventional vented lead acid
technology utilizing leading edge tubular positive-plate or the proven pasted
plate cell design, Exide also offers other battery technologies to satisfy
ever-changing motive power requirements. These include maintenance-free
monobloc batteries incorporating gelled electrolyte and copper-stretched metal
technology (CSM) for optimum high performance applications. In addition, we
provide maintenance-free sealed batteries incorporating absorbed glass mat
(AGM) technology under the Champion(R) brand name.
The materials handling industry provides the single largest market for
motive power batteries, typically including forklifts, electric counter
balance trucks, pedestrian pallet trucks, low level order pickers, turret
trucks, tow tractors, reach trucks and very narrow aisle (VNA) trucks.
Other market segments requiring motive power products include:
scrubber/dryer and sweeper machines in the floor cleaning market, scissor
lifts, access platforms and telescopic zooms in the access market, buggies and
carts in the golf market, mobility equipment in the wheelchair market, mining
locomotives, electric road vehicles, electric boats and non-military
submersible vehicles.
Complementary to our motive power battery portfolio is an extensive range
of battery chargers, watering and maintenance equipment and battery transfer
equipment. Combined with our technological and service expertise, we are well
positioned, globally, to offer complete solutions for motive power markets.
The motive power battery market in Europe is divided into the original
equipment market, comprised of the manufacturers of the electric vehicles
described above, and the replacement market, which includes large users of
such electric vehicles as well as original equipment dealer networks. Our
major motive power customers in Europe include the materials handling
operations of the Linde Group (Germany), Junghreinrich Group (Germany), Atlet
(Sweden) and BT Rolatruc (Sweden). We also sell our motive power products to a
wide range of customers in the aftermarket, ranging from large industrial
concerns and retail distributors to small warehouse and manufacturing
operations. In Europe, we generally sell customers a complete package of
batteries, chargers and services and, increasingly, are providing full service
maintenance contracts. The majority of our sales are to original equipment
manufacturers, especially since these manufacturers increasingly rent, rather
than sell, their electric vehicles to end users. We sell our motive power
batteries, chargers, accessories and after-sales service
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primarily through our own sales organization in each country in Europe and use
distributors and agents for export from Europe. Our service group, the largest
in Europe, is an important component of our marketing efforts, particularly as
the vehicle manufacturers make up a larger part of the market and require
service assistance whenever they sell or rent their products. We distribute
motive power batteries through OEM dealers, independent distributors and
directly to large fleet users. Our European operations also distribute motive
power batteries through their own branch network.
The European motive power market depends primarily on the strength of the
market for materials handling equipment, which in turn is influenced by
general economic conditions affecting the demand for this type of equipment.
This market has benefited from a trend toward electric (rather than internal
combustion) industrial vehicles and by the growth of warehousing and logistics
service providers in Europe. The increasing domination of this market by
original equipment manufacturers of these trucks, rather than end users, has
given the manufacturers greater buying power. Furthermore, with the advent of
the Euro and the greater price transparency that comes with it, these truck
manufacturers have been able to standardize prices at a lower level.
In North America, the motive power business is channeled primarily through
independent lift truck dealers or sold directly to large national accounts.
Our customers include Nacco, Crown, Wal-Mart, Kroger and Ford Motor Company.
The North American product range includes the traditional flat plate
flooded batteries, recently added tubular plate flooded batteries using
technology from our European motive power business, Champion sealed
maintenance-free batteries and chargers. The Champion product is sold at a
significant premium in the market and has a dominant position compared to
competitive sealed products.
Motive power products are sold in North America through a sales force
consisting of a combination of Company-owned sales and service shops and
independent manufacturers' representatives who provide local service on their
own behalf.
Industrial: Network Power Market
Network power (also known as standby or stationary) batteries are used for
back-up power applications, to ensure continuous power supply in case of main
(primary) power failure or outage. In today's electronic and digital world,
back-up power devices incorporating standby batteries are used in most
electric power systems, including those used in telecommunications, computers,
hospitals, process control, air traffic control, elevators, security/alarm
systems, electrical power plant systems and military equipment.
One of the largest standby segments is telecommunications. Consumers of
telecommunications batteries consist of manufacturers of switches and other
equipment and the system operators. The growth in battery demand for
telecommunications has been especially fueled by the growth in internet
broadband connections and deployment in every country of multiple cellular and
wireless mobile communication systems where each repeater system and base
transceiver station requires a set of standby batteries. Other
telecommunications applications include central and local switching systems
(PABX), satellite stations, optical fiber repeating boxes, cable TV boxes and
radio transmission stations. In these applications, the batteries are usually
packaged with a 48V DC power system. The telecommunications industry has been
experiencing a slowdown in activity in recent months.
The next largest portion of the standby market is uninterruptable power
supplies (UPS) used in computer installations, such as for banks, airlines and
to back up servers for the internet. UPS battery customers consist of system
manufacturers and end users. Growth in this area has paralleled the growth in
computer systems.
The network power battery market has global product applications and, in
many cases, a global customer base. Customers include all channels in
telecommunication networks. Our major network power battery customers include:
. telecommunications companies, such as AT&T, British Telecom, China
Telecom, China Unicom, Deutsche Telekom, France Telecom, GTE, Nippon
Telephone and Telegraph (NTT), Qwest, Singapore Telecom, Telecom Italia,
Telefonica of Spain and Verizon;
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. manufacturers of telecommunications equipment, such as Alcatel, Ascom,
Ericsson, Lucent, Marconi, Motorola and Nokia;
. manufacturers and end users of UPS primarily for mainframe computer
systems, such as Emerson-Liebert, MGE and Siemens;
. electrical generating companies and various European governments and
armed forces.
We sell our products directly to these customers and promote our products
by holding seminars, participating in trade shows and distributing technical
literature.
Given the importance of service and technical assistance, we generally ship
network power batteries directly to system suppliers and UPS manufacturers who
include the standby batteries in their equipment and distribute products to
end users. A small portion of batteries are directly shipped to end users to
replace aged batteries.
Since the acquisition of GNB, we adopted a global product line which is
being marketed under the following five brands associated with product type
and technology:
. Absolyte(R): Large 2-volt sealed cells, incorporating AGM technology,
for long duration (e.g. telecom) and short duration applications.
. Marathon(R): Multi-cell AGM monobloc batteries for long duration
applications
. Sprinter(R): Multi-cell AGM monobloc batteries for short duration
applications
. Sonnenschein(R): Multi-cell monoblocs and 2-volt cells, incorporating
Gel technology, primarily for long duration applications
. Classic(TM): Multi-cell monoblocs and 2-volt cells, using traditional
flooded construction, primarily for large installation and long back up
time
There are two main standby battery technologies: valve-regulated lead acid
(VRLA, or sealed) and vented (flooded). There are also two types of VRLA
technologies--GEL and AGM.
These technologies are described as follows:
Technology Description
VRLA: GEL This technology is utilized in about a third of our sealed
batteries using a gel electrolyte. Sealed batteries have
progressively replaced other types of standby batteries in
the market because of their convenience--they can be used in
both vertical and horizontal positions. The gel electrolyte
technology was invented by Exide's Sonnenschein subsidiary
and presents the added advantages of high reliability and a
proven operating life of up to 18 years. The gel product
ranges offer a wide array of features such as heat
resistance, deep discharge resistance, long shelf life, and
high cyclic performances. Many customers have informed us
they regard the Sonnenschein brand as one of the most
reliable standby batteries in the market.
VRLA: AGM This technology is used in about two-thirds of our sealed
batteries and has electrolyte immobilized in an absorbent
glass mat separator. More economical than gel, this
technology is particularly well adapted to shorter back-up
time and can feature up to a 20-year design life. Many
customers regard our Absolyte(R) brand as one of the most
reliable standby batteries in the market. The AGM product
ranges cover most of the market requirements. A number of new
product developments are underway including UPS batteries
with high volumetric power density.
Flooded (Vented) This technology is used in traditional products offering high
reliability but requiring regular maintenance. The basic
construction involves positive flat or tubular positive
plates. Transparent containers and easily accessible internal
construction are features of these batteries that allow end
users to check the battery's physical condition and predict
potential failures, thus enhancing perceived reliability.
5
The Company is also one of the world's leading suppliers of military
batteries including submarine batteries. In Europe, we produce submarine
batteries utilizing copper-stretched metal technology (CSM). Our customers
include the navies of Denmark, France, Germany, Italy, Norway, Singapore,
Spain, Sweden, Turkey, and many other countries. We are the sole supplier to
the U.S. Navy for submarine batteries which are produced in the U.S.
Our core business has traditionally been lead acid batteries which are used
in many diverse applications--tanks, armored personnel carriers, material
handling equipment and military control systems on bases as well as aboard
ships. We are also an important provider of non lead acid batteries for high-
technology military and space applications. For example, our lithium primary
batteries are on board every space shuttle flight.
Transportation Segment
Transportation batteries include batteries for cars, trucks, off-road
vehicles, agricultural and construction vehicles, motorcycles, recreational
vehicles, boats, and other similar applications. Transportation batteries
represented approximately 63% of our net sales for fiscal 2001. We believe we
have the most complete and technologically innovative line of transportation
batteries in the North American and European markets. We market our products
under various trademarks including Exide(R), Champion, Stowaway, SubZero(R),
Trailblazer(R), Willard(R), Tudor(R), DETA(R), Centra(R), Fulmen(R) and
Prestolite(R) and many private label brands for customers. We also produce and
market the Exide Select(R), including the Exide Select Orbital(R) battery, and
NASCAR Select(R) lines of batteries.
In North America, we are the second largest manufacturer of transportation
batteries, based on our estimate of current market share. The market is
divided between sales to original equipment manufacturers and aftermarket
sales.
The North American transportation battery market has experienced
significant consolidation resulting in four principal battery manufacturers.
In recent years, aggressive price competition has been the defining
characteristic of this market. The North American battery aftermarket has a
more concentrated customer base than the European battery market.
In Europe, we are the largest manufacturer of transportation batteries,
based on our estimate of current market share. The European transportation
battery market was fragmented until Exide purchased four automotive battery
manufacturers beginning in 1994. As a result of its acquisitions, Exide now
has the largest automotive battery market share in Europe.
Transportation: Original Equipment Market
The original equipment manufacturer market consists of the sale of
batteries to manufacturers of automobiles and trucks, buses and off-road
agricultural and construction vehicles.
The following represents the most important factors affecting the original
equipment manufacturer market:
. The competitive market for passenger cars, light trucks and sports
utility vehicles
. Significant consolidation in the automotive industry (e.g.,
Daimler/Chrysler, Renault/Nissan, Ford/Volvo, GM/Saab/Fiat)
. Globalization of original equipment manufacturer procurement activities,
which pressures suppliers to do likewise and results in product
standardization and lower prices
. Movement of several original equipment manufacturers into the
aftermarket business (i.e., Ford/Kwik Fit)
. Emergence of multi-battery and managed electrical energy systems
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Exide has been addressing these factors by taking advantage of our:
. strong market position
. global manufacturing and distribution system
. knowledge of lead acid and advanced battery technologies
. new product development
Our original equipment manufacturer customers in North America include
Daimler/Chrysler, for whom we are the primary battery supplier, as well as
Ford Motor Company, Toyota, Mack Trucks, Kenworth, Peterbilt, John Deere
International, Volvo Cars of NA and Case/New Holland.
Our principal European original equipment manufacturer customers are Fiat,
VW/Audi, the PSA group (Peugeot S.A./Citroen), the Renault group, BMW and
Ford.
Transportation: Aftermarket
We sell aftermarket batteries principally through retail automotive parts
chains and mass merchandisers, car and truck dealers, and wholesale
distributors who supply service stations, repair shops, automotive and farm-
equipment dealers, and small retailers. We also produce automotive-type
transportation batteries for commercial applications, such as trucks, farm
equipment, tractors and other off-road vehicles, as well as batteries for
marine and other applications. We believe the market for these specialty
batteries is increasing faster than the market for conventional automotive
batteries.
Demand for conventional automotive replacement batteries is influenced by
the following principal factors: (1) the number of vehicles in use, (2)
average battery life, (3) the average age of vehicles and their condition,
(4) seasonal weather conditions and (5) general population growth and economic
conditions. The ratio of battery usage to vehicles in use has increased
slightly in recent years, reflecting higher average miles of vehicle usage and
an increasing number of vehicles used in warm climates. Aftermarket demand is
more stable than the original equipment market since it is not affected by the
cyclical nature of new vehicle demand. The replacement market is also larger
in general than the original equipment segment, since automotive batteries
tend to require replacement every three to five years.
We market our aftermarket batteries to a broad range of retailers and
distributors. We are the leading supplier for NAPA Distribution Centers as
well as many of the largest battery retailers in the United States, including
Wal-Mart, Sam's Club, Les Schwab Tire, Kmart, and CSK Inc. We are also the
largest supplier of authorized replacement batteries for Daimler/Chrysler,
Mopar, Freightliner and John Deere International.
Our North American aftermarket operations include our branch division. Our
wholesale distribution branches throughout the United States and Canada sell
and distribute batteries and other products to local auto parts retailers,
service stations, repair shops, fleet operators, battery jobbers and other
smaller volume customers. The branches may also deliver batteries to our
national account customers' stores and collect used and spent batteries for
recycling. Our branch system is supplemented by regional retailers, small
battery wholesalers, and installers.
We are constantly striving to improve our aftermarket battery products. We
are emphasizing our more profitable products, such as our Champion
Trailblazer(R), and Exide Select Orbital(R) product lines, and have
selectively instituted price increases for some of these premium products.
During fiscal 2000, we introduced our "Fresh Check" seal and plain language
dating on every North American manufactured aftermarket battery.
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Our principal North American automotive battery products include the
following:
Product Description
Exide(R) standard, These are our principal product lines and include a
heavy-duty and comprehensive range of maintenance-free lead acid
premium batteries from our basic low-cost battery with average
Champion(R) standard, power and cold cranking amps and a 50-60 month warranty
advantage and to our premium battery with enhanced power and a 72-
premium month warranty. We sell these batteries under the
Champion(R) and Exide(R) brand name as well as various
private labels.
Champion(R) Our Exide NASCAR Select(R) batteries are officially
Trailblazer(R), Exide licensed by NASCAR. Our Champion Trailblazer(R)
NASCAR Select(R), batteries are primarily targeted at Light Trucks and
officially licensed SUV vehicles, the fastest growing automobile segment.
by NASCAR
ExideSelect Orbital(R) We introduced this innovative spiral wound battery in
North America as the Exide Select Orbital(R). Through
its patented technology and state-of-the-art
recombinant design, this battery holds its charge
longer, has a shelf life of up to 18 months (compared
to twelve months for conventional batteries), can be
recharged in a fraction of the time needed for
conventional batteries, has greater power output and
resists vibration better than any standard lead acid
battery. This battery is totally sealed, which
eliminates leaks and spills.
Batteries used for other applications include the Stowaway(R) and
Nautilus(R) batteries, which employ advanced technology to satisfy the power
demand from large engines, sophisticated electronics and extensive on-board
accessories common in today's recreational vehicles. For the marine market, we
produce the Exide Select Orbital(R) Marine, which brings all the advantages of
Exide's patented Orbital technology to the marine market. The Exide Select
Orbital(R) Marine maintains nearly a full charge during the off-season, and
can be quickly recharged. This battery is also totally sealed, making it ideal
for closed environments (such as inside a boat hull). The Exide Select
Orbital(R) Marine starting battery will even deliver full power if
accidentally submerged. The Exide Select Orbital(R) Marine battery is
complemented by the Stowaway Powercycler(R), which was the first sealed, AGM
battery introduced in the marine battery market. The Stowaway Powercycler(R)
is a completely sealed, VRLA battery with AGM technology and prismatic plates
that offers features and benefits similar to the Exide Select Orbital(R). We
also produce the Nautilus(R) Gold Dual Purpose and the Stowaway(R) Dual
Purpose, a combination battery, replacing separate starting and deep cycle
batteries in two-battery marine and recreational vehicle systems, and the
Nautilus(R) Mega Cycle and Stowaway(R) Deep Cycle, a high performance, dual
terminal battery.
We have a leading position in the automotive aftermarket in most European
countries and our customers include ADI, KWIK FIT and many other leading
aftermarket battery distributors. We sell our aftermarket batteries in Europe
under a variety of well-known brand names, including Exide, Fulmen, DETA,
Tudor, SONNAK, and Centra.
Sales of automotive batteries in the European aftermarket are affected by
the same major factors influencing the aftermarket in North America. In
Europe, mass merchandisers are not yet as important as they are in North
America, but they have gained market share in recent years. Also, buying
groups representing smaller battery resellers have grown and begun to expand
to cover multiple countries. Nonetheless, the European aftermarket is still
much less concentrated than in North America. We believe Exide's worldwide
operations make us very well positioned to supply mass merchandisers, buying
groups and individual resellers.
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Our European operations distribute their aftermarket automotive batteries
primarily through battery wholesalers, OEM dealer networks, hypermarkets,
European purchasing centers and oil companies. Wholesalers and OEM dealers
have traditionally represented the majority of this market, but supermarket
chains, replacement-parts stores (represented by purchasing associations) and
hypermarkets have become increasingly important. Battery wholesalers now sell
and distribute batteries to a network of automotive parts retailers, service
stations, independent retailers, and supermarkets throughout Europe.
Our European product offerings vary by market. We generally offer a basic
model, an upgrade model, a premium model and various niche products in each
market.
The following describes our product offerings in the United Kingdom and is
representative of our product offerings elsewhere in Europe:
Product Description
Basic(TM) This is our standard low-cost battery. It uses traditional lead
acid technology, has average power and cold-cranking capabilities,
carries a 12-month warranty and is adequate for most conventional
automotive uses. The same or similar battery is marketed under
private label brand names in France, Germany and Spain, under the
Basic name in Italy and under various other names in other
markets.
Classic(TM) This is our upgrade model. It still uses traditional lead acid
technology, but has increased power and cold-cranking
capabilities. This battery carries a 24-month warranty and sells
for a premium over our Basic battery. The Classic is our best-
selling battery in the European market. The same or similar
batteries are marketed under the Equipe name in France, the
Classic name in Germany, the Leader name in Italy, the Tudor name
in Spain and under various other names in other markets.
Ultra(TM) This is our premium model. It has a number of features that
differentiate it from ordinary batteries, including 30% more power
and a 36-month warranty. The Ultra sells for a premium over our
Basic battery. The same or similar batteries are marketed under
the Formula name in France, the Top Start Plus name in Germany,
the Ultra name in Italy, the Millennium 3 name in Spain and under
various other names in other markets.
STR/STE(TM) Our STR batteries use recombination technology to allow a lead
acid battery to be installed in the passenger compartment of an
automobile with no risk of fluid loss or acid fumes. We recently
announced the introduction of batteries using our new STE (sealed
technology evolution) technology, which uses a gas permeable
membrane to prevent leakage of battery fluid while permitting gas
to escape. Our STE technology has been approved for use by BMW and
was included in some models beginning with the 2000 model year.
Maxxima(TM) This is the equivalent of the Exide Select Orbital(R) described
above. We market this battery under the Maxxima brand name
throughout Europe.
Markets
Industrial Segment
Network Power
We are the leader in the world network power market which has experienced
substantial growth in the last three years primarily driven by the
communications and data segment, where the increasing use of Internet and
wireless services has created a huge demand for bandwidth and other
infrastructure including back-up batteries. We have a strong position in
Europe and North America and a significant position in the Asia-Pacific
region. In Japan, we have been the only non-Japanese supplier to NTT since
1989 and believe we have provided more large sealed batteries to NTT than any
other supplier. Prices have been relatively stable in this market.
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Motive Power
We are the global leader in the motive power market as well. We have strong
positions in Europe, North America and Australia/New Zealand, where we offer a
comprehensive range of battery products as well as motive power battery
chargers. In Europe, we have a substantial service business. Over the last
year, prices have been relatively stable in this market.
Transportation Segment
In North America, we are the second largest manufacturer of automotive
batteries. The North American automotive battery market has a more
concentrated customer base than in Europe. We compete for sales in both the
aftermarket and the original equipment market primarily with three other major
battery manufacturers. The North American automotive battery market has
experienced aggressive price competition for many years.
In Europe, we are the largest manufacturer of automotive batteries with a
broad range of product offerings and a pan-European customer base. The
European battery market has undergone consolidation in recent years, and Exide
has been a major participant in this process. Historically, there was less
price competition in European battery markets than in North America. Recently,
however, intense price competition has emerged as a number of competitors have
sought to increase market share. This price competition has been made worse by
an environment of low-priced imports and excess capacity.
Quality
We recognize that product performance and quality are critical to our
success and have spent the past five years in a company-wide quality
improvement effort. As a result, we now believe our product performance and
quality are equal to or better than that of any market participant.
Our quality effort begins in the design phase. We design our batteries to
meet and exceed industry benchmark quality standards, using robust design
parameters and quality materials to achieve reliability and durability. Our
commitment to quality continues through our production process. We have
quality audit processes in each of our production facilities. We have
established an employee Lead Quality Continuous Improvement Team, and many of
our plants also give quality-related bonuses to all hourly employees. Our
quality program extends past the point of sale. We offer warranties on our
products and conduct regular customer satisfaction surveys. All of our North
American battery operations are now QS 9000 compliant.
All of our major factories are approved under ISO 9000, QS 9000 or
equivalent quality standards generally acceptable to large customers. Also, we
have obtained ISO 14001 certification at eight of our manufacturing plants,
including TS16949 certification at three of these plants. We have received
grade-A quality certification from Renault and PSA Group, BMW, VW/Audi and
Fiat and Q1 approval from Ford. In addition, several of our plants are AQAP
approved by the military organizations of different countries. We also hold
individual certifications from 100% of our major industrial battery customers,
such as AT&T, Deutsche Telekom, Emerson, Marconi, Motorola, Nokia, NTT,
Telecom Italia, Telefonica, French Railways (SNCF), as well as from large
systems integrators such as Siemens, Ericsson and Alcatel. All of our motive
power batteries meet the applicable standards in the countries where we sell
these products.
Research and Development
We conduct research and development activities for identifying new energy
storage technologies we can commercialize as part of stand-alone products or
systems. We believe we will benefit from the general trend towards increasing
requirements for stored energy, as necessitated by the rapid expansion of such
areas as mobile data transmission, mobile communications and business-to-
business use of the Internet.
10
Research and development work, including advanced batteries, fuel cells,
ultra capacitors, personal transportation systems and portable information
systems have the potential to be successfully commercialized by Exide through
the utilization of our in-house technology development, our joint-venture
partners, and future technology acquisitions from both private and public
sources. We are also pursuing several long-term development programs with key
customers targeting specific products.
On May 17, 2001 the Company announced a multi-year development and supply
agreement with Maxwell Technologies, Inc. (Maxwell) to develop and market
advanced, integrated stored energy systems for military, commercial and
certain types of passenger vehicles. This alliance is expected to produce
high-tech battery/ultracapacitor systems that incorporate the Company's Exide
Select Orbital(R) batteries and Maxwell's PowerCache(R) Ultracapacitors, a new
energy storage and power-delivery device. Applications are anticipated to
include cold-starting and 42-volt systems for hybrid internal-
combustion/electric vehicles, commercial medium- and heavy-duty trucks and
military ground, surface and sub-surface vehicles.
We are committed to introducing new and technologically advanced products
that provide better performance and value to the customer. To support this
commitment, we dedicate significant effort to research and development. Our
research and development team benefits all of our global business units by
continually improving and advancing our existing technologies.
We operate five research and development facilities in the United States
and Europe. Scientists and engineers at these facilities are currently focused
on projects to enhance the lead acid battery.
We also operate six product/process-development centers around the world.
These centers work cooperatively to define and improve our production
processes and are currently working on projects related to continuous grid
making processes, battery assembly automation and various other efficiency and
quality improvement programs. By maintaining these various sites, we have been
able to transfer technologies and processes among our various operating
facilities, thereby adapting best practices from around the world for use in
our various production facilities.
We believe our research and development efforts provide us with a
competitive advantage in technological innovation. We are constantly working
on new products, including smart batteries capable of indicating state of
charge, and advanced batteries with gelled electrolyte for other applications.
At the same time, original equipment manufacturers are designing vehicles with
more compact engine compartments. To compete effectively, we have to continue
to design smaller and more flexible batteries that can generate increased
power.
We have been working closely with European original equipment manufacturers
to develop, and have supplied them with, prototypes of new 36- and 42-volt
batteries for the next generation of dual-battery automotive electrical
systems. As power requirements of automotive electronics continue to increase,
automotive manufacturers are designing new vehicles that will require higher
voltage electrical systems needing larger or multiple batteries. These new
systems will generally require a 12-volt battery for lighting systems and
other low power consumption accessories within the automobile and a 36-volt or
42-volt battery, which is needed for the next generation of combined starter
motor/alternators and for high power-consumption accessories such as AC power
and electrical heating and cooling systems. European original equipment
manufacturers plan to include high-voltage electrical systems in certain
luxury models as early as the 2003 model year. We believe our European
experience with these higher voltage electrical systems will provide us with a
competitive advantage when the North American OEM market moves toward a higher
voltage electrical system, which is anticipated by model year 2004.
Patents, Trademarks and Licenses
We own or have a license to use various trademarks that are valuable to our
business. While we believe such trademarks and trade names enhance the brand
recognition of our products and therefore are important to our business, we
believe our products, engineering skills, reputation for quality and
relationships with our
11
customers are also important for the maintenance and growth of our business.
An unaffiliated company has rights to the Exide(R) mark in approximately 37
foreign countries and Exide Electronics Group, Inc., an unaffiliated company,
is licensed to use the Exide(R) name on certain devices.
We have been issued numerous patents worldwide and have several patents in
process covering design of lead acid batteries and battery manufacturing
equipment. The dual-graphite battery development effort has three base patents
with an additional four patents pending. While we believe patents are
important to our business operations, we also believe the loss of any single
patent or several patents would not have a material adverse effect on our
company.
Manufacturing, Raw Materials and Suppliers
Lead is the principal raw material in the manufacture of batteries,
representing approximately one-fifth of the cost of goods produced. We can
obtain substantially all of our North American lead requirements through the
operation of our six secondary lead recycling plants, which reclaim lead by
recycling spent lead acid batteries. We obtain batteries for recycling from
our customers and through our wholesale distribution outlet system.
Other key raw materials and components in the production of batteries
include lead oxide and chemicals, which are generally available from multiple
sources. We have not experienced any material stoppage or slowdown in
production as a result of the unavailability, or delays in the availability,
of raw materials.
Competition
Industrial Segment
Exide is the largest among the various competitors in the global market.
UK-based Invensys' Hawker battery group is a strong second followed by C&D
Technologies in the U.S. and Yuasa in Japan. In Europe, other competitors
include Fiamm, Hoppeke and Oerlikon. In the U.S., other competitors are
EnerSys (formerly Yuasa-Exide) and East Penn. In Asia, JSB, Panasonic, Yuasa
and Hitachi are the major competitors. In countries like Brazil, China and
India, local manufacturing is required and Exide is positioning itself to
start or expand manufacturing activity. While competition in the industrial
markets is intense, pricing has been relatively stable because of market
growth, which has been particularly strong in the network power portion.
Quality, reliability and price are important differentiators in the industrial
market along with technical innovation and responsive service. Well-known
brands are also important and Exide's Absolyte, Sonnenschein, Chloride Motive
Power and Deta are among the leading ones in the world.
Transportation Segment
Our North American and European markets are very competitive. The
manufacturers in these markets compete primarily on price, quality, technical
innovation, service and warranty period. Well-recognized brand names are also
important for aftermarket customers who do not purchase batteries made under
their own labels. Most sales are made without long term contracts.
In the North American Transportation aftermarket, we believe Johnson
Controls has the largest market position, followed by Exide. Other principal
competitors in this market are Delphi Automotive Systems and East Penn. Price
competition in this market has been severe in recent years. Competition is
strongest in the mass merchandiser channel where large customers use their
buying power to command lower prices.
Our largest competitors in the North American original equipment market are
Delphi Automotive Systems and Johnson Controls. Original equipment
manufacturers change battery suppliers less frequently than aftermarket
customers, but because of their size can force market participants to compete
on price and other terms.
12
We expect North American competition to remain intense. We seek to maintain
and grow our market positions through our branding and emphasis on
technologically advanced products, such as the Orbital battery, other branded
products and improved product quality and customer service.
Exide has the largest market position in Europe in automotive batteries,
both aftermarket and original equipment. Our closest competitor in the
automotive markets is Varta, followed by Fiamm and Hoppeke.
The European battery markets, particularly in the automotive original
equipment and industrial areas, have undergone severe price competition.
Cost savings from our ongoing plant rationalization program will allow us
to continue to meet this strong price competition in order to maintain our
customer relationships and market positions. We will also continue to compete
on the basis of our pan-European presence and our technological capabilities,
as well as our strong brands.
Environmental, Health and Safety Matters
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, releasing, 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
monitoring of employee health. The Company devotes significant resources to
attaining and maintaining compliance with environmental and occupational
health and safety laws and regulations and does not currently believe
environmental, health or safety compliance issues will have a material adverse
effect on the Company's long-term business, cash flows, financial condition or
results of operations. 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 89 federally defined Superfund or state
equivalent sites (including 16 GNB sites). At 60 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 or
insignificant in relation to the total liability of all PRPs that have been
identified and are financially 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 of waste
to each site, is included in the environmental remediation reserves discussed
below.
Because the Company's liability under such statutes may 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 five Superfund
sites. Other than these sites, the Company's allocation exceeds 5% at seven
sites for which the Company's share of liability has not been paid as of March
31, 2001. The current allocation at these seven sites averages approximately
22%.
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
13
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 accrued by the Company, as
discussed below. In addition, certain environmental matters concerning the
Company are pending in federal and state courts or with certain environmental
regulatory agencies.
Europe
The Company is subject to numerous environmental, health and safety
requirements and is exposed to differing degrees of liabilities, compliance
costs, and cleanup requirements arising from its past and current activities
in various European countries. The laws and regulations applicable to such
activities differ from country to country and also substantially differ from
U.S. laws and regulations. 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.
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.
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, individually or in the aggregate, will have a
material adverse effect on the Company's long-term business, cash flows,
financial condition or results of operations.
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, 2001 the amount of such reserves on the Company's consolidated balance
sheet was $88.1 million, including $62.0 million related to GNB facilities. Of
this amount, $68.2 million was included in other noncurrent liabilities. The
reserve recorded in the GNB purchase accounting is based on a preliminary
assessment and may change upon determination of existing environmental
contingencies prior to the finalization of the opening balance sheet.
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. Also,
future findings or changes in estimates could have a material effect on the
recorded reserves.
Employees
Total worldwide employment was approximately 20,000 at March 31, 2001.
North America. As of March 31, 2001, we employed approximately 2,100
salaried employees and approximately 6,300 hourly employees in North America.
Approximately 30% of such salaried employees are engaged in sales, service,
marketing and administration and approximately 70% in manufacturing and
engineering. Approximately 31% of our hourly employees are represented by
unions. Relations with the unions are generally good. Contracts covering
approximately 1,400 of our union employees expire in fiscal 2002, and the
remainder thereafter.
Europe. As of March 31, 2001, we employed approximately 4,400 salaried
employees and approximately 6,500 hourly employees in Europe. Approximately
65% of such salaried employees are engaged in sales, service, marketing and
administration and approximately 35% in manufacturing and engineering. Our
hourly employees are generally represented by unions. Relations with the
unions are generally good. Contracts covering most of our European union
employees expire on various dates through calendar year 2002.
14
Backlog
Our industrial order backlog at March 31, 2001 was approximately $240
million. We expect to fill virtually all of the March 31, 2001 backlog during
fiscal 2002. Our transportation backlog is not significant.
Financial Information About Foreign and Domestic Operations and Export Sales
See Note 16 to the Company's Consolidated Financial Statements appearing
elsewhere herein.
15
ITEM 2. PROPERTIES
The chart below lists the location of our principal facilities. All of the
facilities are owned unless otherwise indicated. All owned properties and the
leases for the leased properties are subject to liens under our credit
agreement. The leases for leased facilities expire at various dates through
2016.
Approximate
Location Square Footage Use
-------- -------------- ---
North America:
Alpharetta, GA 73,000 (leased) Executive Offices
Baton Rouge, LA 176,000 Secondary Lead Smelting
Bristol, TN 631,000 Battery Manufacturing
Battery Manufacturing
Burlington, IA 190,000 and Distribution Center
Cannon Hollow, MO 137,000 Secondary Lead Smelting
City of Industry, CA 120,000 Battery Manufacturing
City of Industry, CA 159,000 (leased) Distribution Center
Columbus, GA 120,000 Distribution Center
Dunmore, PA 232,000 Battery Manufacturing
Florence, MS 138,000 Battery Manufacturing
Fort Erie, Canada 90,000 Distribution Center
Industrial Battery
Fort Smith, AR 223,000 (leased) Manufacturing
Frisco, TX 132,000 Secondary Lead Smelting
Injection-molded-
Jackson, MS 58,000 Plastics Facility
Industrial Battery
Kanakee, IL 270,000 Manufacturing
Industrial Battery
Kansas City, KS 140,000 Manufacturing
Battery Plastics
Lampeter, PA 82,000 Manufacturing
Lombard, IL 62,000 (leased) Executive Offices
Battery Manufacturing
Manchester, IA 286,000 and Distribution Center
Industrial Battery
Manufacturing,
Distribution and
Maple, Ontario, Canada 169,000 administration
Michigan City, IN 75,000 (leased) Distribution Center
Muncie, IN 174,000 Secondary Lead Smelting
Princeton, NJ 18,000 (leased) Executive Offices
Secondary Lead Smelting
Reading, PA 125,000 and Poly Reprocess
Reading, PA 280,000 Battery Manufacturing
Reading, PA 77,000 Distribution Center
Rollingbrook, IL 55,000 (leased) Distribution Center
Salina, KS 260,000 (leased) Battery Manufacturing
Salina, KS 100,000 (leased) Distribution Center
Shreveport,LA 280,000 Battery Manufacturing
Sumner, WA 50,000 Distribution Center
Vernon, CA 220,000 Secondary Lead Smelting
Injection-molded-
Vicksburg, MS 88,000 Plastics
Europe and Other:
Industrial Battery
Manufacturing/
Sydney, Australia 230,000 Distribution Center
Automotive Battery
Elizabeth, South Australia 145,000 Manufacturing
Industrial Battery
Bolton, England 274,000 Manufacturing
Automotive Battery
Auxerre, France 176,000 Manufacturing
Gennevilliers, France 55,000 (leased) Executive Offices
Industrial Battery
Lille, France 484,000 Manufacturing
Automotive Battery
Nanterre, France 169,000 Manufacturing
Pont Ste Maxence, France 71,000 Secondary Lead Smelting
Manufacturing,
Administrative and
Bad Lauterberg, Germany 459,000 Warehouse
Industrial Battery
Budingen, Germany 278,000 Manufacturing
Industrial Battery
Weiden, Germany 208,000 Manufacturing
Industrial Battery
Casalnuovo, Italy 483,000 Manufacturing
Automotive Battery
Romano Di Lombardia, Italy 266,000 (leased) Manufacturing
Automotive Battery
Lower Hutt, New Zealand 90,000 Manufacturing
Automotive Battery
Poznan, Poland (five) 887,000 Manufacturing
Industrial Battery
Castanheira do Riatejo, Portugal 471,000 Manufacturing
Automotive Battery
Manufacturing and
Azuqueca de Henares, Spain 434,000 Research
Bonmati, Spain 63,000 Secondary Lead Smelting
La Cartuja, Spain 1,670,000 Industrial Battery
Cubas de la Sagra, Spain 1,860,000 Secondary Lead Smelting
Automotive Battery
Malpica, Spain 213,000 Manufacturing
Automotive Battery
Manzanares, Spain 438,000 Manufacturing
San Esteban de Gormaz 63,000 Secondary Lead Smelting
Automotive Battery
Manisa, Turkey 145,000 Manufacturing
Automotive Battery
Cwmbran, Wales 105,000 Manufacturing
In addition, we also lease distribution outlets in the U.S. and Europe.
We believe that our facilities are in good operating condition, adequately
maintained, and suitable to meet our present needs and future plans.
16
ITEM 3. LEGAL PROCEEDINGS
In fiscal year 2001, Exide made substantial progress in resolving the
majority of claims against it relating to the conduct of its former management
team.
In March 2001, the Court in Martin v. Exide, filed July 13, 1998 in the
United States District Court for the District of South Carolina, Columbia
Division, approved the settlement of this case in which plaintiffs alleged
that Exide sold old or used batteries as new batteries, sold defective and
mislabeled batteries and improperly credited customer accounts. As a result of
the Martin settlement, Exide's settlements in the following three related
cases became effective: Lush et al. v. Exide, filed November 18, 1999 in the
Circuit Court for Claiborne County, Mississippi; Gamma Group, et al. v. Exide,
filed January 29, 1999 in the United States District Court for the Eastern
District of Pennsylvania; and Exide v. East Alabama Auto Parts Anniston, Inc.,
filed April 24, 1996 in the Circuit Court of Calhoun County Alabama. Pursuant
to these four settlements, Exide paid approximately $7.0 million and agreed to
provide the Martin plaintiffs with 25% discounts on the purchase of new
batteries until April 2004.
Exide also reached, in June 2001, a settlement-in-principle with the
Mississippi Attorney General, resolving the last open enforcement action by a
governmental agency, relating to the conduct of former management.
The sole remaining action with allegations similar to the settled cases
referenced above is Houlihan v. Exide, brought under a unique California
statute, filed December 6, 1999 in the Superior Court for the State of
California, County of Los Angeles. In March 2001, the original plaintiff in
this action, Thomas M. Mills, purported to assign his "claim" to Ms. Houlihan.
Trial is set for August 13, 2001.
The Company reserved $13.4 million for the above matters in fiscal 2000.
On March 23, 2001, Exide also reached a plea agreement with the U.S.
Attorney for the Southern District of Illinois, resolving an investigation of
the conduct of former management. Under the terms of that settlement Exide
will pay a fine of $27.5 million over five years, and agrees to cooperate with
the U.S. Attorney in his prosecution of certain members of the former
management team. The payment terms are dependent upon the Company's compliance
with the plea agreement during the five-year period. The plea agreement has
been lodged with the U.S. District Court for the Southern District of
Illinois, which may accept or reject the plea agreement. Although the court's
decision is not expected until later this year, management does not believe
that the final plea agreement will materially differ from the plea agreement
reached with the U.S. Attorney.
On March 22, 2001, the U.S. Attorney unsealed the indictments of Arthur M.
Hawkins, former Chairman, President & Chief Executive Officer of Exide,
Douglas N. Pearson, the former President, North American Operations of Exide,
and Alan E. Gauthier, the former Chief Financial Officer of Exide, for their
conduct during the time they served as officers of Exide. Exide is cooperating
fully with the U.S. Attorney in the criminal prosecution of these former
officers.
Exide is currently involved in litigation with the former members of its
management referenced above. One of these cases, Hawkins v. Exide, filed July
6, 1999 in the U.S. District Court for the Eastern District of Michigan,
involves a claim by Mr. Hawkins to enforce his separation agreement with Exide
and causes of action for violation of ERISA and breach of contract. Exide has
filed a counterclaim asserting fraud, breach of fiduciary duty,
misappropriation of corporate assets and civil conspiracy. Mr. Hawkins also
alleges in Hawkins v. Exide, filed April 3, 2000, in the United States
District for the Eastern District of Michigan, cancellation without notice of
240,406 shares of restricted stock. Exide's answer denied the substantive
allegations. The parties agreed to seek consolidation of these two actions. At
the request of Mr. Hawkins, both actions were stayed January 24, 2001. On
May 25, 2001, Exide filed a suit in the Circuit Court of Oakland County, MI,
for a determination that Exide is not obligated to advance attorney's fees and
expenses to Hawkins for claims arising in past and pending civil and criminal
matters. Mr. Hawkins has not yet answered Exide's complaint. In June 2001,
Hawkins filed motions in federal court to lift the stay for the purposes of
seeking his litigation expenses and for partial summary judgment for those
expenses. A July 13, 2001 hearing has been scheduled for his motion to lift
the stay.
17
Messrs. Gauthier and Pearson have filed actions in the U.S. District Court
for the Eastern District of Pennsylvania alleging breach of contract; these
actions are respectively titled Gauthier v. Exide and Pearson v. Exide, and
were respectively filed on August 17, 1999 and July 9, 1999. Exide has filed
counterclaims against Messrs. Gauthier and Pearson as well, asserting fraud,
breach of fiduciary duty, misappropriation of corporate assets and civil
conspiracy. Pearson v. Exide and Gauthier v. Exide were consolidated for pre-
trial proceedings on January 18, 2000. Both cases were stayed at the request
of Messrs. Pearson and Gauthier on October 10, 2000. In April and June 2001,
Exide was ordered to advance reasonable litigation expenses and undetermined
copying costs incurred by Messrs. Gauthier and Pearson in connection with the
grand jury investigation.
On September 17, 1999, Exide sued Sears, Roebuck and Co. in the Circuit
Court of Cook County, Illinois seeking damages for breach of contract in an
amount not less than $15.0 million. On November 12, 1999, Sears filed a
counterclaim against Exide and a claim against a former Sears purchasing
employee alleging inducement to breach his fiduciary duty to Sears, common law
fraud, aiding and abetting and conspiracy. In April 2001, the parties reached
a settlement-in-principle which will not require any payments to either party.
Exide is now involved in several lawsuits pending in state and federal
courts in South Carolina, Pennsylvania, Indiana, and Tennessee. These actions
allege that Exide and its predecessors allowed hazardous materials used in the
battery manufacturing process to be released from certain of its facilities,
allegedly resulting in personal injury and/or property damage. The following
lawsuits of the above type were filed on August 25, 1999 in the Circuit Court
for Greenville County, South Carolina and are currently pending: Joshua
Lollis v. Exide; Buchanan v. Exide; Agnew v. Exide; Patrick Miller v. Exide;
Kelly v. Exide; Amanda Thompson v. Exide; Jonathan Talley v. Exide; Smith v.
Exide; Lakeisha Talley v. Exide; Brandon Dodd v. Exide; Prince v. Exide;
Andriae Dodd v. Exide; Dominic Thompson v. Exide; Snoddy v. Exide; Antoine
Dodd v. Exide; Roshanda Talley v. Exide; Fielder v. Exide; Rice v. Exide;
Logan Lollis v. Exide and Dallis Miller v. Exide. The following lawsuits of
this type are currently pending in the Court of Common Pleas for Berks County,
Pennsylvania: Grillo v. Exide, filed on May 24, 1995; Blume v. Exide, filed on
March 4, 1996; Esterly v. Exide, filed on May 30, 1995 and Saylor v. Exide,
filed on October 18, 1996. The following lawsuit of this type is currently
pending in the United States District Court for the Southern District of
Indiana: Strange v. Exide. Finally, the following lawsuit of this type is
pending in the Circuit Court of Shelby County, Tennessee: Cawthon v. Exide,
et al. Discovery in the South Carolina and Pennsylvania cases is ongoing;
discovery has not yet begun in the Indiana and Tennessee cases.
On June 26, 2000, Johnson Controls, Inc. ("JCI") filed a lawsuit in the
United States District Court for the Northern District of Illinois, Eastern
Division, against Exide and three of its former officers. JCI alleges that
Exide, through Messrs. Hawkins, Gauthier, Pearson and Calio, paid bribes to a
Sears employee, Gary Marks, to induce him to award Sears' 1994 battery supply
contract to Exide rather than JCI. JCI asserts claims against Exide for
violation of section 2(c) of the Robinson-Patman Act and tortious interference
with a prospective business opportunity. JCI asserts claims against Hawkins,
Gauthier and Pearson for violation of the Racketeer Influenced and Corrupt
Organizations Act and tortious interference with a prospective business
opportunity. On February 2, 2001, the Court granted Exide's motion to dismiss
JCI's Robinson-Patman Act claims; the Court reaffirmed this result on April 2,
2001, after JCI filed its First Amended Complaint. JCI has since filed a
Second Amended Complaint, which introduces new factual and legal theories.
Exide has filed a motion to dismiss four of these new claims. That motion is
currently pending before the Court.
During fiscal 2001, the Company was involved in a dispute with a customer
over a battery supply contract entered into by GNB Technologies in January
2000. An investigation by the Company into the circumstances surrounding the
contract disclosed evidence that caused the Company to repudiate the contract.
The customer subsequently sued the Company over the repudiation. Based on the
Company's projections, performance of the contract through its full term would
have resulted in substantial losses. During the litigation, the Company
supplied product to the customer on an interim basis at increased selling
prices. In March 2001, the Company and the customer reached a settlement of
their respective claims, resulting in the Company paying a net amount of
$9.5 million. The net settlement amount factored in the increased selling
prices received by the Company during the interim period. The contract in
question was terminated and the parties agreed to release all related claims
against each other.
18
The Company is involved in various other claims and litigation incidental
to the conduct of its business. Based on consultation with legal counsel,
management does not believe that any such claims or litigation to which the
Company is a party, either individually or in the aggregate, will have a
material adverse effect on the Company's financial condition, cash flows or
results of operations, although quarterly or annual operating results may be
materially affected.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers of the Registrant
The following sets forth certain biographical data regarding our current
executive officers as of March 31, 2001:
Robert A. Lutz, 69, has served as Chairman and Chief Executive Officer of
Exide since December 1998 and as a member of the Office of the Chairman since
May 2000. Mr. Lutz also served as President of Exide Corporation from December
1998 through May 2000. Previously, Mr. Lutz was Chrysler's President and Chief
Operating Officer responsible for its car and truck operations worldwide.
Mr. Lutz became President of Chrysler in January 1991. Mr. Lutz is also a
director of Northrop Grumman, Silicon Graphics and Kepner-Tregoe. Mr. Lutz is
also a co-founder of the Cunningham Motor Company and is assisting in product
development.
Craig H. Muhlhauser, 52, joined Exide Technologies as President & Chief
Operating Officer and a member of the Office of the Chairman in July 2000.
Before joining Exide, Mr. Muhlhauser was Vice President of Ford Motor Company
and President, Visteon Corporation. Prior to joining Ford Motor Company in
July 1997, Mr. Muhlhauser served as Senior Vice President, Sales & Service--
Americas and Vice President--Aftermarket for Pratt & Whitney, a division of
United Technologies from June 1995 to July 1997. Prior to UTC, Mr. Muhlhauser
held senior management positions at Lucas Aerospace, Asea Brown-Boveri and
General Electric.
Kevin R. Morano, 47, has served as Exide's Executive Vice President and
Chief Financial Officer and a member of the Office of the Chairman since May
2000. Before joining Exide, Mr. Morano served in a variety of executive
positions for ASARCO Incorporated, a copper mining, specialty chemicals and
aggregates producer. Mr. Morano held the position of President and Chief
Operating Officer of ASARCO from April 1999 until December 1999. Prior to
serving as President and Chief Operating Officer, Mr. Morano held the
positions of ASARCO's Executive Vice President and Chief Financial Officer
from January 1998 until April 1999. Mr. Morano also served as ASARCO's Vice
President and Chief Financial Officer from April 1993 until January 1998.
Mr. Morano is a director of Apex Silver Mines Limited.
Jack J. Sosiak, 62, has been Exide's senior executive in charge of human
resources since 1983, most recently as Executive Vice President, Human
Resources since February 1995.
John R. Van Zile, 49, has been Exide's Executive Vice President, General
Counsel and Secretary since September 2000, when he was promoted from Vice
President, General Counsel and Secretary, a position held since October 1996.
Prior to joining Exide, Mr. Van Zile was Assistant General Counsel/Assistant
Secretary of Coltec Industries, a manufacturer of commercial, industrial and
aerospace products, a position he held since January 1985.
19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is listed and traded on The New York Stock Exchange under
the symbol "EX". The following table presents the high and low sales prices
for our common stock as reported on The New York Stock Exchange Composite Tape
and dividends declared for the quarters indicated.
Sales Prices
--------------- Dividends
Fiscal Year Ending March 31 High Low Declared
--------------------------- ------- ------- -----------
(per share)
1999:
First Quarter.................................... $21.750 $16.625 $0.02
Second Quarter................................... 19.125 9.125 0.02
Third Quarter.................................... 20.938 5.375 0.02
Fourth Quarter................................... 21.500 11.000 0.02
2000:
First Quarter.................................... $16.375 $10.000 $0.02
Second Quarter................................... 14.625 9.375 0.02
Third Quarter.................................... 11.125 7.438 0.02
Fourth Quarter................................... 17.500 7.438 0.02
2001:
First Quarter.................................... $12.063 $ 7.750 $0.02
Second Quarter................................... 10.500 6.875 0.02
Third Quarter.................................... 10.188 6.875 0.02
Fourth Quarter................................... 10.906 7.297 0.02
The last reported sale price of the common stock on The New York Stock
Exchange on June 27, 2001 was $10.45 per share. As of June 27, 2001 we had
approximately 25,450,991 shares of our common stock outstanding and there were
615 record holders of common stock.
20
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA):
The following table sets forth selected financial data for Exide. You
should read this information in conjunction with our consolidated financial
statements and notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that appear elsewhere in this document.
The selected financial information for the fiscal years ending March 31, 1997,
1998 and 1999 has been restated. See Note 1 to the Consolidated Financial
Statements herein.
Fiscal Year Ended March 31
----------------------------------------------------------
1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ----------
Statement of Operations
Data
Net sales............... $2,333,230 $2,273,126 $2,374,278 $2,194,447 $2,432,102
Gross profit............ 590,976 604,091 559,256 532,492 582,779
Selling, marketing and
advertising expenses... 290,076 311,683 334,638 319,476 340,616
General and
administrative
expenses............... 145,869 135,606 169,744 145,770 157,459
Goodwill amortization... 17,853 16,922 20,016 17,165 14,949
Operating income
(loss)................. 137,178 139,880 34,858 (3,517) (43,411)
Interest expense, net... 118,837 112,301 111,679 103,988 117,652
Income taxes............ 14,197 14,010 23,001 10,769 8,632
Income (loss) before
extraordinary loss..... 15,227 19,535 (126,693) (136,042) (164,585)
Extraordinary loss
(1)(2)(3).............. (2,767) (28,513) (301) -- --
Net income (loss)....... $ 12,460 $ (8,978) $ (126,994) $ (136,042) $ (164,585)
Basic net income (loss)
per share.............. $ 0.61 $ (0.44) $ (5.98) $ (6.40) $ (7.02)
Diluted net income
(loss) per share....... $ 0.59 $ (0.42) $ (5.98) $ (6.40) $ (7.02)
Other Financial Data
EBITDA (4).............. $ 263,009 $ 260,925 $ 141,653 $ 90,104 $ 79,355
Cash provided by (used
in):
Operating activities.. 78,126 167,499 77,219 95,648 90,190
Investing activities.. (61,652) (76,182) (22,356) (12,623) (355,920)
Financing activities.. (17,000) (95,446) (70,238) (73,987) 259,468
Capital expenditures.... 84,200 87,315 76,211 63,953 69,495
Cash dividends per
share.................. $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08
Balance Sheet Data (at
period end)
Working capital......... $ 595,296 $ 518,922 $ 301,663 $ 213,468 $ 183,618
Property, plant and
equipment, net......... 521,836 535,113 543,702 443,344 632,935
Total assets............ 2,436,275 2,331,549 2,195,816 1,901,461 2,298,925
Total debt.............. 1,289,682 1,248,983 1,205,806 1,118,385 1,347,046
Common stockholders'
equity (deficit)....... 350,578 274,954 134,135 (66,376) (256,639)
- --------
(1) 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.
(2) During fiscal 1998, the Company recorded a loss of $28,513 (net of a tax
benefit of $3,667) resulting from a modification of debt in connection
with entering a bond swap agreement for $21,000 (principal amount) of its
10% Senior Notes; the retirement of its 10.75% Senior Notes and the
remainder of its 12.25% Senior Subordinated Deferred Coupon Debentures;
the retirement of the U.S. Credit Agreements and European Facilities
Agreement in connection with entering into the Senior Secured Global
Credit Facilities Agreement; a modification of debt in connection with
reducing the maximum commitment on the European Facilities Agreement; and
the redemption of $108,119 (face value) of its outstanding 12.25% Zero-
Coupon Bonds.
21
(3) During fiscal 1999, the Company recorded a loss of $301 with no income tax
effect resulting from a modification of debt in connection with entering
into bond swap agreements for $4,430 (principal amount) of its 10% Senior
Notes.
(4) Represents earnings before interest, taxes, depreciation of property,
plant and equipment, goodwill and other amortization and losses on sales
of receivables. EBITDA should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity, both as determined in accordance with
generally accepted accounting principles. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Factors Which Affect Our Financial Performance
Competition. The Transportation and Industrial battery markets in North
America and Europe are highly competitive. In recent years, competition has
continued to intensify and we continue to come under increasing pressure for
price reductions. This competition has been exacerbated by excess capacity and
fluctuating lead prices as well as low-priced Asian imports impacting our
European markets.
Exchange Rates. We are exposed to foreign currency risk in most European
countries, principally Germany, France, the United Kingdom, Spain, and Italy.
We are also exposed, although to a lesser extent, to foreign currency risk in
Australia and the Pacific Rim as a result of the GNB acquisition. Movements of
exchange rates against the U.S. dollar can result in variations in the U.S.
dollar value of our non-U.S. sales. In some instances, gains in one currency
may be offset by losses in another. Our results for the periods presented
herein were adversely impacted by the overall weakness in European currencies.
Weather. Unusually cold winters or hot summers accelerate automotive
battery failure and increase demand for automotive replacement batteries.
Interest rates. We are exposed to fluctuations in interest rates on our
variable rate debt.
Lead. Lead is the principal raw material used in the manufacture of
batteries, representing approximately one-fifth of our cost of goods sold. The
market price of lead can fluctuate significantly. Generally, when lead prices
decrease, many of our customers seek disproportionate price reductions from
us, and when lead prices increase, customers tend to be more accepting of
price increases.
Energy Costs. We are exposed to fluctuations in the cost of energy used in
our manufacturing and shipping activities.
Results of Operations
Fiscal Year Ended March 31, 2001 Compared with Fiscal Year Ended March 31,
2000.
The Company reported a net loss of $164.6 million, or $7.02 per diluted
share, for fiscal 2001, compared to a net loss of $136.0 million, or $6.40 per
diluted share, for fiscal 2000. These reported results include certain
nonrecurring or unusual pre-tax charges aggregating $169.0 million in fiscal
2001 and $142.6 million in fiscal 2000.
On September 29, 2000 the Company acquired GNB for total consideration of
$379 million. This acquisition was important to the Company's strategy as it
provided the opportunity for a significant restructuring and integration of
the combined North American Transportation businesses and allowed the Company
to reenter the North American Industrial business as a result of GNB's strong
presence in that market.
Excluding non-recurring or unusual charges, the Company reported net income
of $1.3 million, or $0.06 per diluted share, for the fiscal year ended March
31, 2001, as compared to net income, excluding non-recurring or unusual
charges, of $6.5 million, or $0.31 per diluted share, for the previous fiscal
year.
22
The net charges in fiscal 2001 primarily relate to the Company's
restructuring and integration initiatives program related to the GNB
acquisition and include:
. $40.2 million of costs recorded in cost of sales comprised of:
. $29.0 million related to commitments for future purchases of
materials in excess of current expected requirements
. $7.8 million related to the earnings effect of recording inventory
at market value as part of the acquisition of GNB
. $3.4 million of inventory write-offs associated with the Company's
restructuring and integration initiatives program
. $1.9 million of costs recorded in selling, marketing and advertising for
bad debt write-offs.
. $31.0 million of costs recorded in general and administrative expense
for the fine and associated costs resulting from the plea agreement with
the U.S. Attorney of the Southern District of Illinois related to past
improper business practices of the Company's former management.
. $113.2 million of costs recorded in restructuring and other expense
related to the Company's restructuring and integration initiatives
program. These charges include restructuring charges of $97.4 million,
$6.8 million of professional fees related to the merger and integration
and $9.0 million of other merger and integration costs. The
restructuring charges include:
. $63.1 million related to actions taken in the fourth quarter for:
. the closure of an automotive battery plant in the US
. workforce reductions at two manufacturing facilities in Europe
. the reorganization of the Company's European Transportation
business sales force
. $9.2 million related to actions taken in the third quarter for:
. the closing or sale of 27 of the Company's distribution
facilities
. the consolidation of the Company's European accounting activities
into a shared services operation
. $25.1 million in the second quarter for:
. the closure of the Maple, Ontario automotive manufacturing
operations
. the closure of branches and offices
. severance and other costs for reductions in staff
. $17.3 million of income recorded in other (income) expense, net,
including gains on sales of investments including a gain of $13.0
million related to the sale of the Company's stake in Yuasa, Inc.
The charges in fiscal 2000 consisted of:
. $23.9 million of costs recorded in net sales for non-cash charges
related to warranty reserves
. $14.1 million of costs recorded in cost of sales including:
. non-cash charges of $11.1 million related to asset write-downs
. an increase to the Company's environmental reserves of $3.0 million
. $21.6 million of costs recorded in net loss on asset sales for write-
downs to net realizable value related to the divestiture of non-core
businesses, including the estimated cost of commitments for future
purchases of materials in excess of expected requirements
23
. $13.4 million of costs recorded in general and administrative expense to
cover resolution of "used as new" claims litigation
. $39.3 million of restructuring charges, related primarily to the
Company's realignment to a customer-focused global business unit
strategy, including severance charges of $20.0 million and $19.3 million
in asset write-downs and closure costs related to closures of
manufacturing operations and other facilities including the Reading,
Pennsylvania battery plant, certain U.S. branch locations and the
Company's ongoing consolidation of European operations
. $14.3 million for an in-process research and development charge related
to the acquisition of Lion Compact Energy
. other non-cash charges of $16.0 million (with $2.7 million recorded in
operating expenses, $12.6 million in other (income) expense, net and
$0.7 million in interest expense, net) related to asset write-downs and
adjustments of balance sheet reserves
Comparative fiscal 2001 and fiscal 2000 reported results were as follows:
Net Sales. Net sales increased 10.8% or $237.7 million to $2,432.1 million
for fiscal 2001 versus $2,194.4 million last year. Included in current year
net sales is the addition of GNB's operations beginning in the third fiscal
quarter. GNB's net sales in the third and fourth quarters of fiscal 2000 were
$460.1 million. The increase resulted from the inclusion of GNB's operations
in the third and fourth quarters of fiscal 2001, along with increased
Industrial sales, offset by lower Transportation volume levels and lower
average selling prices. Net sales in fiscal 2001 were also negatively impacted
by $177.5 million due to weak European currencies versus the U.S. dollar. Net
sales in fiscal 2000 were reduced by $23.9 million due to non-cash charges for
warranty reserves discussed above.
Industrial battery sales for fiscal 2001 were $909.6 million versus $707.6
million in fiscal 2000. GNB's net sales in its Industrial business were $187.0
million in the third and fourth quarters of fiscal 2000. Currency negatively
impacted Industrial net sales in fiscal 2001 by approximately $95.7 million.
The improvement on a constant currency basis resulted from strong European
demand in our network power markets throughout fiscal 2001, as well as strong
demand in North America in the third and fourth quarters of fiscal 2001,
particularly related to telecommunication applications, as well as generally
strong demand in our Motive Power markets. The telecommunications industry has
been experiencing a slowdown in activity in recent months. Industrial net
sales in fiscal 2000 were reduced by $2.1 million due to non-cash charges for
warranty reserves discussed above.
Net sales in the Transportation segment for fiscal 2001 increased 2.4% to
$1,522.5 million versus $1,486.9 million last year. GNB's net sales in its
Transportation business were $273.1 in the third and fourth quarters of fiscal
2000. The addition of GNB's operations were offset primarily by volume
declines in the aftermarket sector, particularly in North America and lower
average selling prices. Also, currency unfavorably impacted Transportation net
sales in fiscal 2001 by approximately $81.8 million. Net sales in fiscal 2000
were reduced by $21.8 million in the Transportation segment due to non-cash
charges for warranty reserves discussed above.
Gross Profit. Gross profit increased 9.4% to $582.8 million for fiscal 2001
compared to $532.5 million in the prior year. GNB's gross profit was $70.2
million in the third and fourth quarters of fiscal 2000. The weaker Euro
negatively impacted gross profit by approximately $51.3 million. The gross
profit margin decreased to 24.0% for fiscal 2001 from 24.3% for fiscal 2000
due to weaker Transportation gross profit margins offset by strong Industrial
battery operations and cost reduction measures. Gross profit was also
negatively impacted in the current year due to the $7.8 million earnings
effect of recording Industrial inventory at market value for the GNB
acquisition discussed above. As also discussed above, fiscal 2000 gross profit
included $21.6 million for non-core business divestitures, $11.1 million of
asset write-downs and $3.0 million of environmental charges plus $23.9 million
of non-cash charges for warranty reserves.
24
Industrial gross profit was $280.5 million this year versus $210.6 million
last year. GNB's Industrial gross profit was $53.9 million in the third and
fourth quarters of fiscal 2000. Strong Industrial demand in the current year
was offset by $28.8 million in negative currency impact and by the $7.8
million inventory charge described above and $0.5 million of asset write-
downs. Gross margin as a percent of net sales was 30.8% in the current year
versus 29.8% last year. Gross margin in the prior year was reduced by the $2.1
million of warranty non-cash charges and $0.5 million of asset write-downs
previously discussed.
Transportation gross profit was $302.3 million this year versus $321.9
million last year with the negative impact of volume declines, particularly in
the North American aftermarket sector, primarily causing this decrease, along
with a currency impact of $22.5 million. GNB's gross profit was $16.2 million
in the third and fourth quarters of fiscal 2000. Gross margins were 19.9% in
the current year versus 21.7% in the prior year with the decrease primarily
attributable to the inclusion of lower GNB profit margins in the third and
fourth quarters of fiscal 2001. As discussed above, the Transportation
segment's results were impacted in fiscal 2000 by $21.8 million of non-cash
charges for warranty reserves, $21.6 million for the divestiture of certain
non-core businesses, $10.6 million of asset write-downs and $3.0 million of
additional environmental reserves.
Operating Expenses. Operating expenses increased $90.2 million, from $536.0
million in fiscal 2000 to $626.2 million in fiscal 2001. GNB had $58.5 million
of operating expenses in the third and fourth quarters of fiscal 2000. As
discussed above, in fiscal 2001, the Company recorded charges totaling $113.2
million for restructuring and integration initiatives and merger costs, $31.0
million for the fine and associated costs resulting from the plea agreement
related to past improper business practices of the Company's former management
and $1.9 million for bad debt write-offs related to the Company's
restructuring and integration initiatives program. As discussed above, in
fiscal 2000, the Company recorded $39.3 million of restructuring charges,
related primarily to the Company's realignment to a customer-focused global
business unit strategy, $13.4 million to cover resolution of "used as new"
claims litigation, $14.3 million for the write-off of in-process research and
development costs related to the acquisition of a controlling interest in Lion
Compact Energy and $2.7 million of other charges. Weaker European currencies
favorably impacted operating expenses by approximately $41.4 million in fiscal
2001. Fiscal 2001 operating expenses were also favorably impacted by cost-
reduction programs including the initial impact of cost reduction efforts
related to our restructuring and integration initiatives program.
Industrial operating expenses increased $27.4 million, from $167.7 million
in fiscal 2000 to $195.1 million in fiscal 2001. GNB had $32.0 million of
Industrial operating expenses in the third and fourth quarters of fiscal 2000.
The Industrial segment portion of nonrecurring charges recorded in operating
expense in fiscal 2001 and fiscal 2000 was $1.4 million and $0.5 million,
respectively. Weaker European currencies favorably impacted Industrial
operating expenses by approximately $21.4 million in fiscal 2001 as did
general cost-reduction programs.
Transportation operating expenses increased $59.5 million, from $307.9
million in fiscal 2000 to $367.4 million in fiscal 2001. GNB had $26.5 million
of Transportation operating expenses in the third and fourth quarters of
fiscal 2000. The Transportation segment portion of nonrecurring charges in
fiscal 2001 discussed above totaled $98.5 million including $65.6 million for
restructuring and integration initiatives, $31.0 million for the fine and
associated costs resulting from the plea agreement related to past improper
business practices of the Company's former management and $1.9 million for bad
debt write-offs related to the Company's restructuring and integration
initiatives. The Transportation segment portion of nonrecurring charges in
fiscal 2000 discussed above was $27.5 million. Weaker European currencies
favorably impacted Transportation operating expenses in fiscal 2001 by
approximately $15.9 million. Fiscal 2001 Transportation operating expenses
were also impacted by cost-reduction programs, particularly the initial impact
of cost reduction efforts related to our restructuring and GNB integration
initiatives program.
Non-segment operating expenses increased $3.2 million, from $60.5 million
in fiscal 2000 to $63.7 million in fiscal 2001. Non-segment charges in fiscal
2001 totaled $46.2 million for restructuring and integration initiatives and
other nonrecurring charges discussed above. In fiscal 2000, the Company
recorded $41.7 million
25
of nonrecurring charges discussed above. Fiscal 2001 non-segment operating
expenses were favorably impacted by the weak euro and by cost-reduction
programs, particularly the initial impact of cost reduction efforts related to
our restructuring and integration initiatives program, offset slightly by
additional goodwill amortization related to the GNB acquisition.
The operating loss was ($43.4) million versus ($3.5) million last year. The
higher operating loss was due to the items discussed above.
Industrial operating income was $85.4 million, or 9.4% of net sales this
year versus $42.9 million, or 6.1% of net sales last year due to the items
discussed above.
The Transportation operating loss was $65.1 million versus operating income
of $14.0 million last year due to the items discussed above.
Interest Expense, net. Interest expense increased $13.7 million from $104.0
million to $117.7 million as a result of the impact of additional interest
charges related to the GNB acquisition financing offset partially by the
impact of weaker European currencies and the fiscal 2000 nonrecurring charge
of $0.7 million.
Other (Income) Expense, net. Other (income) expense, net was $ (6.7)
million for fiscal 2001 versus $16.0 million in fiscal 2000. The change was
primarily due to the $17.3 million of gains related to investment sales,
including $13.0 million for the Company's sale of its stake in Yuasa, Inc. The
rest of the change was caused by additional losses on receivables sold related
to the GNB acquisition financing in fiscal 2001 and gains on certain land
sales in fiscal 2000 aggregating $4.5 million, offset by fiscal 2000
nonrecurring charges of $12.6 million.
Income Taxes. In fiscal 2001, income tax expense of $8.6 million was
recorded on losses of $154.3 million. In fiscal 2000, income tax expense of
$10.8 million was recorded on losses of $123.5 million. In fiscal 2001 and
fiscal 2000 valuation allowances were recorded on certain deferred tax assets
deemed not to meet the more likely than not realizable assessment of generally
accepted accounting principles. The remaining difference between the federal
statutory rate and the effective rate is primarily due to certain
nondeductible expenses, including goodwill.
Fiscal Year Ended March 31, 2000 Compared with Fiscal Year Ended March 31,
1999
The Company reported a net loss of $136.0 million, or $6.40 per diluted
share, for fiscal 2000, compared to a net loss of $127.0 million, or $5.98 per
diluted share, for fiscal 1999. These as reported results include certain
unusual or nonrecurring charges aggregating $142.6 million in fiscal 2000 and
$118.4 million in fiscal 1999. The charges in fiscal 2000 are discussed above
in the "Fiscal Year Ended March 31, 2001 Compared with Fiscal Year Ended March
31, 2000" section.
Excluding non-recurring or unusual charges, the Company reported net income
of $6.5 million, or $.31 per diluted share, for the fiscal year ended March
31, 2000, as compared to a net loss, excluding non-recurring or unusual
charges, of $8.5 million, or $.40 per diluted share, for the previous fiscal
year.
The charges in fiscal 1999 consisted of:
. $10.3 million recorded in net sales for certain non-cash charges
. $64.0 million recorded in cost of sales including:
. a $44.3 million charge related to write-downs associated with
exiting non-core business activities and the closure of certain
facilities
. a $6.6 million loss on lead hedging contracts in North America
. a $6.1 million charge for an adverse appellate court ruling in a
patent infringement lawsuit
26
. a $3.7 million charge for the write-off of inventory and equipment
related to an abandoned project
. a $2.1 million charge for the write-off of unsaleable inventory
specified for the Russian market
. $1.2 million of other nonrecurring costs
. $35.9 million of costs recorded in operating expenses including:
. $8.8 million related to specific legal expenses, including
settlement of the Florida Attorney General investigation
. $8.5 million for increased bad debt reserves primarily related to
North American customers who filed for bankruptcy
. $7.1 million related to separation packages of 25 executives and
additional retirement charges
. $4.8 million for uncollectible receivables from sales in Russia
. $2.4 million relating to write-downs associated with exiting non-
core business activities
. $2.4 million for the write-off of goodwill associated with the
closure of a smelter operation and the write-off of impaired
goodwill from certain prior branch acquisitions.
. $1.9 million of other nonrecurring costs
. $8.2 million recorded in other (income) expense, net including:
. $6.0 million for an amendment fee related to interest rate swap
agreements
. $2.2 million of other nonrecurring costs
In fiscal 2000, the Company changed its method of valuing inventory for
U.S. battery inventories from the last-in, first-out ("LIFO") method to the
first-in, first-out ("FIFO") method. This change did not impact the Company's
earnings for any of the periods presented. The Company restated retained
earnings for the earliest period presented for this particular accounting
change as required by generally accepted accounting principles.
The fiscal 2000 and fiscal 1999 non-recurring or unusual charges discussed
above were the main factors impacting fiscal 2000 and fiscal 1999 as reported
results.
Comparative fiscal 2000 and fiscal 1999 reported results were as follows:
Net Sales. Net sales decreased $179.9 million or 7.6% to $2,194.4 million
as compared to $2,374.3 million in fiscal 1999. Included in these results are
the $23.9 million of non-cash charges for warranty reserves in fiscal 2000 and
non-cash charges of $10.3 million in fiscal 1999. $126.0 million or 70% of the
fiscal 2000 decrease related to weaker currency rates in Europe. The remaining
decrease related to global automotive aftermarket sales volume reductions
along with automotive pricing pressure in Europe, partially offset by average
selling price increases in the U.S. and strong European Industrial markets,
particularly in the latter part of fiscal 2000.
Industrial sales were $707.6 million in fiscal 2000 versus $730.3 million
in fiscal 1999 with strong European Industrial markets, particularly in the
latter part of fiscal 2000, offset by weaker currency rates in Europe.
Industrial net sales in fiscal 2000 were reduced by $2.1 million due to non-
cash charges for warranty reserves discussed above.
Transportation sales were $1,486.9 million in fiscal 2000 versus $1,644.0
million in fiscal 1999 due to global automotive aftermarket sales volume
reductions, automotive pricing pressure in Europe and weaker currency rates in
Europe partially offset by average selling price increases in the U.S. Net
sales in fiscal 2000 were reduced by $21.8 million in the Transportation
segment due to non-cash charges for warranty reserves discussed above. Net
sales in fiscal 1999 were reduced by $10.3 million in the Transportation
segment due to non-cash charges discussed above.
27
Gross Profit. Gross profit for fiscal 2000 decreased $26.8 million or 4.8%
to $532.5 million. Included in these results are the nonrecurring or unusual
charges of $59.6 million in fiscal 2000 and $74.3 million in fiscal 1999
discussed above. Gross profit was favorably impacted by the strong European
Industrial market, average selling price increases in the U.S. and reduced
European manufacturing costs. These improvements were offset by the weak Euro,
the overall volume reductions in the automotive aftermarket business and the
European automotive pricing pressures.
Industrial gross profit was $210.6 million in fiscal 2000 versus $222.5
million in fiscal 1999. Included in these results are the nonrecurring or
unusual charges of $2.6 million in fiscal 2000 discussed above. Strong
European Industrial markets and reduced European manufacturing costs were
offset by weaker currency rates in Europe.
Transportation gross profit was $321.9 million in fiscal 2000 versus $336.7
million in fiscal 1999. Included in these results are the nonrecurring or
unusual charges of $57.0 million in fiscal 2000 and $64.0 million in fiscal
1999 discussed above. Fiscal 2000 results declined due to global automotive
aftermarket sales volume reductions, automotive pricing pressure in Europe and
weaker currency rates in Europe, partially offset by average selling price
increases in the U.S and reduced European manufacturing costs.
Operating Expenses. Operating expenses increased $11.6 million or 2.2% to
$536.0 million. Included in these results are the nonrecurring or unusual
charges of $69.7 million in fiscal 2000 and $35.9 million in fiscal 1999
discussed above. Operating expenses were favorably impacted by European
general and administrative cost reductions and the weak Euro, offset by
increased expenses in North America.
Industrial operating expenses decreased $9.0 million or 5.1% to $167.7
million. Included are nonrecurring charges of $0.5 million in fiscal 2000.
Industrial operating expenses were favorably impacted by European general and
administrative cost reductions and the impact of the weak Euro.
Transportation operating expenses decreased $7.0 million or 2.2% to $307.9
million. Included are the nonrecurring or unusual charges of $27.5 million in
fiscal 2000 and $28.8 million in fiscal 1999 discussed above. Transportation
operating expenses were favorably impacted by European general and
administrative cost reductions and the weak Euro.
Non-segment operating expenses increased $27.7 million, from $32.8 million
in fiscal 1999 to $60.5 million in fiscal 2000. Non-segment nonrecurring
charges in fiscal 2000 and fiscal 1999 discussed above totaled $41.7 million
and $7.1 million, respectively. Fiscal 2000 non-segment operating expenses
were favorably impacted by the weak euro.
Operating Income. The Company's operating loss was ($3.5) million in fiscal
2000 versus operating income of $34.9 million in fiscal 1999. The decrease in
operating income is due to the items discussed above.
Industrial operating income was $42.9 million in fiscal 2000 versus $45.8
million in fiscal 1999. These changes are a result of the matters discussed
above.
Transportation operating income was $14.0 million in fiscal 2000 versus
$21.9 million in fiscal 1999. These changes are a result of the matters
discussed above.
Interest Expense, net. Interest expense, net decreased $7.7 million to
$104.0 million versus $111.7 million in fiscal 1999 as a result of lower
borrowing levels and the impact of weaker European currencies. Also included
in interest expense in fiscal 2000 was a non-recurring charge of $0.7 million.
Other (Income) Expense, net. Other (income) expense, net in fiscal 2000 was
$16.0 million versus $28.9 million in 1999. Besides non-recurring or unusual
charges of $12.6 million in fiscal 2000 and $8.2 million in fiscal 1999, other
(income) expense, net was favorably impacted in fiscal 2000 by gains on
certain sales of land of approximately $4.5 million.
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Income Tax Provision. Income tax expense decreased $12.2 million to $10.8
million. In fiscal 2000 a valuation allowance was recorded on certain deferred
tax assets deemed not to meet the more likely than not realizable assessment
of generally accepted accounting principles. The remaining difference between
the federal statutory rate and the effective rate is primarily due to certain
nondeductible goodwill and differences in rates on foreign subsidiaries.
Seasonality and Weather
We sell most of our automotive aftermarket batteries during the fall and
early winter (our second and third fiscal quarters). Retailers buy automotive
batteries during these periods so they will have enough inventory when cold
weather strikes. In addition, many of our industrial battery customers in
Europe do not place their battery orders until the end of the calendar year.
The seasonality of our business increases our working capital requirements.
Demand for automotive aftermarket batteries is significantly affected by
the weather. Unusually cold winters or hot summers accelerate battery failure
and increase demand for automotive replacement batteries. Mild winters and
cool summers have the opposite effect. As a result, if our sales are reduced
by an unusually warm winter or cool summer, it is not possible for us to
recover these sales in later periods. Further, if our sales are adversely
affected by the weather, we cannot make offsetting cost reductions to protect
our gross margins in the short-term because a large portion of our
manufacturing and distribution costs are fixed.
Acquisition of GNB
As discussed in Note 3 to the consolidated financial statements herein, on
September 29, 2000, the Company acquired the global battery business of GNB
for consideration of $379.0 million (including $344.0 million in cash and four
million Exide common shares) plus assumed liabilities. GNB was a leading U.S.
and Pacific Rim manufacturer of both automotive and industrial batteries and
had annual sales of approximately $1.0 billion.
Liquidity and Capital Resources
The Company's liquidity requirements arise primarily from the funding of
seasonal working capital needs, obligations on indebtedness and capital
expenditures. Historically, we have met these liquidity requirements through
operating cash flows, borrowed funds and the proceeds of sales of accounts
receivable and sale-leaseback transactions. Additional cash was generated in
fiscal 2001 and fiscal 2000, from the sale of non-core businesses and assets.
The Company has a U.S. receivables purchase agreement and a European
receivables purchase agreement under which third parties have committed,
subject to certain exceptions, to purchase selected accounts receivable, up to
a maximum commitment of $200.0 million and $175.0 million, respectively.
Because of the seasonality of our business, more cash is typically
generated in our third and fourth fiscal quarters than the first and second
quarters. Our greatest cash demands from operations occur during the months of
June through October. We believe we will be able to meet our requirements for
liquidity with cash generated from operations, reduced working capital
requirements, borrowings under the revolving credit portion of our Senior
Secured Global Credit Facilities Agreement and/or the proceeds from sales of
accounts receivable under our securitization facilities.
As reported earnings before interest, taxes, depreciation and amortization
(EBITDA), excluding losses on sales of receivables, was $79.4 million for this
year versus $90.1 million in the prior year. Excluding the nonrecurring
charges described above, EBITDA was $248.3 million for this year versus $227.5
last year. GNB had EBITDA of $29.3 million in the third and fourth quarters of
fiscal 2000. Cash flows provided by operating activities were $90.2 million
(of which $94.9 million related to net sales of receivables, including the
sale of GNB receivables in connection with the acquisition) in fiscal 2001.
This compares to cash flows provided by operating activities of $95.6 million
(net of $23.4 million related to sales of receivables) in fiscal 2000. Primary
working capital (inventories plus receivables less accounts payable) at the
end of this year was $590.2 million,
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as compared to $524.9 million for last year. Primary working capital year on
year increased $41.2 million, excluding currency impacts, divestitures and
GNB's acquired operations which had $96.4 million in primary working capital
at the time of acquisition.