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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, 2002
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 Technologies
(Exact Name of Registrant as Specified in Its Charter)
Delaware 23-0552730
(State or Other (I.R.S. Employer
Jurisdiction of Identification No.
Incorporation or
Organization)
210 Carnegie Center, Suite 500 Princeton, New Jersey 08540
Telephone: (609) 627-7200
(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:
None.
Securities registered pursuant to Section 12(g) of the Act
Title of each Class
Common Stock, $.01 par value
Preferred Share Purchase Rights
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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 [_] No [X]
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 August 14, 2002 was approximately $15,882,188. There were
27,383,084 outstanding shares of the Registrant's common stock as of August 14,
2002.
(DOCUMENTS INCORPORATED BY REFERENCE)
None.
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EXIDE TECHNOLOGIES
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...................................................... 39
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................ 41
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................ 41
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......... 42
Item 11 EXECUTIVE COMPENSATION..................................... 44
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................. 50
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............. 51
PART IV
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K................................................... 53
SIGNATURES............................................................. 55
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE................ F-1
EXIDE TECHNOLOGIES
PART I
Item 1. Business
(1) Overview
Unless otherwise indicated references to any "fiscal year" means the year
ended March 31 of that year (e.g., "fiscal 2002" refers to the period beginning
April 1, 2001 and ending March 31, 2002, "fiscal 2001" refers to the period
beginning April 1, 2000 and ending March 31, 2001 and "fiscal 2000" refers to
the period beginning April 1, 1999 and ending March 31, 2000).
Bankruptcy Considerations
On April 15, 2002 ("Petition Date") Exide Technologies (together with its
subsidiaries unless the context requires otherwise, "Exide" or the "Company")
and three of its wholly-owned, U.S. subsidiaries (RBD Liquidation, LLC, Exide
Delaware, LLC and Exide Illinois, Inc.; together with Exide collectively, the
"Debtors") filed voluntary petitions for reorganization under Chapter 11 of the
federal bankruptcy laws ("Bankruptcy Code" or "Chapter 11") in the United
States Bankruptcy Court for the District of Delaware ("Bankruptcy Court") under
case numbers 02-11125 through 02-11128 (jointly administered for procedural
purposes before the Bankruptcy Court under case number 02-11125JCA).
The Debtors are currently operating their business as debtors-in-possession
pursuant to the Bankruptcy Code.
The Company decided to file for reorganization for itself and certain of its
subsidiaries under Chapter 11 as it offered the most efficient alternative to
restructure its balance sheet and access new working capital while continuing
to operate in the ordinary course of business. The Company has a heavy debt
burden, caused largely by a debt-financed acquisition strategy and the
significant costs of integrating those acquisitions. Other factors leading to
the reorganization included the impact of current adverse economic conditions
on the Company's markets, particularly the telecommunications industry, ongoing
competitive pressures, and recent capital market volatility. These factors
contributed to a loss of revenues and resulted in significant operating losses
and negative cash flows, severely impacting the Company's financial condition
and its ability to maintain compliance with debt covenants.
As debtors in possession under Chapter 11, the Debtors are authorized to
continue to operate as an ongoing business, but may not engage in transactions
outside the ordinary course of business without the approval of the Bankruptcy
Court. The Company's operations outside of the U.S. are not included in the
Chapter 11 proceedings. However, in connection with the Chapter 11 filing, the
Company entered into a "Standstill and Subordination Agreement" with its
Pre-Petition Senior Secured Credit Facility Lenders, whereby the lenders have
agreed to forbear collection of principal payments on foreign borrowings under
the pre-petition facility from non-debtor subsidiaries until December 2003,
subject to earlier termination upon the occurrence of certain events. A
description of the pre-petition credit agreement and certain of its conditions
appears in this Report at Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations.
On May 10, 2002 the Company received final Bankruptcy Court approval to
access its entire $250 million debtor-in-possession ("DIP") financing facility
("DIP Credit Facility"). The DIP Credit Facility will be used to supplement
cash flows from operations during the reorganization process including the
payment of post-petition ordinary course trade and other payables, the payment
of certain permitted pre-petition claims, working capital needs, letter of
credit requirements and for other general corporate purposes. A more detailed
description of the DIP Credit Facility appears in this Report at Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
2
Under Section 362 of the Bankruptcy Code, actions to collect pre-petition
indebtedness, as well as most other pending litigation, are stayed. Absent an
order of the Bankruptcy Court, substantially all pre-petition liabilities are
subject to settlement under a plan of reorganization to be approved by the
Bankruptcy Court. Although the Debtors expect to file a reorganization plan
that provides for emergence from bankruptcy as a going concern, there can be no
assurance that a reorganization plan will be proposed by the Debtors or
confirmed by the Bankruptcy Court, or that any such plan will be successfully
implemented.
Under the Bankruptcy Code, the Debtors may also assume or reject executory
contracts, including lease obligations, subject to the approval of the
Bankruptcy Court and certain other conditions. Parties affected by these
rejections may file claims with the Bankruptcy Court in accordance with the
reorganization process. Due to the timing of the Chapter 11 proceedings, the
Company cannot currently estimate or anticipate what impact the rejection and
subsequent claims of executory contracts may have on the reorganization process.
On June 14, 2002, the Company filed with the Bankruptcy Court schedules and
statements of financial affairs setting forth, among other things, the assets
and liabilities of the Debtors as shown by our books and records on the
Petition Date, subject to the assumptions contained in certain notes filed in
connection therewith. All of the schedules are subject to further amendment or
modification. The Bankruptcy Code provides for a claims reconciliation and
resolution process, although a bar date for filing claims has not yet been
established. As the ultimate number and amount of allowed claims is not
presently known, and because any settlement terms of such allowed claims are
subject to a confirmed plan of reorganization, the ultimate distribution with
respect to allowed claims is not presently ascertainable.
The United States Trustee has appointed an unsecured creditors committee.
The official committee and its legal representatives have a right to be heard
on all matters that come before the Bankruptcy Court.
At this time, it is not possible to predict the effect of the Chapter 11
reorganization process on our business, various creditors and security holders,
or when it may be possible to emerge from Chapter 11. Our future results are
dependent upon our confirming and implementing, on a timely basis, a plan of
reorganization. The Company believes, however, that under any reorganization
plan, the Company's common stock would likely be substantially if not
completely diluted or cancelled as a result of the conversion of debt to equity
or with respect to any other compromise of interests. Further, it is also
likely that the Company's senior notes and convertible subordinated notes will
suffer substantial impairment.
The ultimate recovery, if any, by creditors, security holders and/or common
shareholders will not be determined until confirmation of a plan or plans of
reorganization. No assurance can be given as to what value will be ascribed in
the bankruptcy proceedings to each of these constituencies. Accordingly, Exide
urges that appropriate caution be exercised with respect to existing and future
investments in any of these securities.
The consolidated financial statements contained herein have been prepared on
a going concern basis, which assumes continuity of operations and realization
of assets and satisfaction of liabilities in the ordinary course of business.
The ability of the Company to continue as a going concern is predicated, among
other things, on the confirmation of a reorganization plan, compliance with the
provisions of the DIP Credit Facility, the ability of the Company to generate
the required cash flows from operations and, where necessary, obtaining
financing sources sufficient to satisfy future obligations. As a result of the
Chapter 11 filing, and consideration of various strategic alternatives,
including possible assets sales, the Company expects that any reorganization
plan will likely result in material changes to the carrying amount of assets
and liabilities in the consolidated financial statements.
General Discussion of Business
Exide Technologies 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.
3
The Company is one of the largest volume producers of lead acid batteries in
the world, with fiscal 2002 net sales of approximately $2.4 billion. Our
European, North American and Pacific Rim operations represented approximately
48%, 47% and 5%, respectively, of our fiscal 2002 net sales. We manufacture and
supply industrial and transportation 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 material handling
applications and other electric vehicles, and network power batteries used for
telecommunication, industrial and military applications.
Acquisition of GNB
On September 29, 2000, the Company acquired GNB Technologies, Inc. ("GNB"),
a U.S. and Pacific Rim manufacturer of both industrial and transportation
batteries, from Pacific Dunlop Limited. The acquired GNB operations are located
in the U.S., Australia, New Zealand, Canada, Europe, Japan, South Asia, China,
India and the Middle East. The former GNB businesses manufacture 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). The former GNB operations
also manufacture transportation batteries under the Champion(R), Stowaway(R)
and National(R) brands, among others, including private label brands, and is a
supplier to automotive original equipment manufacturers in North America and
the Pacific Rim.
(2) Financial Information about Segments
For fiscal 2002, we were primarily engaged in the manufacture, distribution
and sale of lead acid batteries in three global business segments: Motive
Power, Network Power and Transportation. See Note 21 to the Company's
Consolidated Financial Statements appearing elsewhere herein.
(3) Narrative Description of Business
Our strategic focus is customer energy storage and application needs on a
global basis. We have three primary business segments: Motive Power, Network
Power and Transportation.
Motive Power Segment
Sales of Motive Power batteries represented approximately 20% of our net
sales for fiscal 2002. We believe we have a leading market position in the
motive power segment of the worldwide industrial battery market, based on our
estimate of current market share.
Product performance and customer service are very important in the Motive
Power markets. We work closely with our customers as they develop new products,
designing batteries to meet their needs. While we established our current
market position primarily by acquiring existing manufacturers with established
brand names, we plan to market our products under global brands and establish a
reputation for quality, product technology and service.
Our Motive Power batteries are composed of two-volt cells assembled in
numerous configurations 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 material handling vehicles, access equipment and
electrically-powered wheelchairs. Exide offers conventional vented lead acid
technology utilizing tubular positive-plate and flat plate cell design. Exide
also offers a range of lead acid battery technologies to meet a wide spectrum
of customer application requirements. For example, Exide provides monobloc
batteries incorporating gelled electrolyte and copper-stretched metal
technology (CSM) for high performance applications. In addition, we provide
maintenance-free sealed batteries incorporating absorbed glass mat (AGM)
technology under the Champion(R) brand name.
4
The materials handling industry is the largest market for Motive Power
batteries, 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.
In addition to our Motive Power battery products, Exide offers a range of
battery chargers, watering and maintenance equipment and battery transfer
equipment.
The motive power battery market in Europe is divided into the original
equipment manufacturer ("OEM") 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. The majority of our sales are to OEMs. Our major original equipment
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 provide Motive Power products and services through
company-owned sales and service organizations in each country and utilize
distributors and agents for export of products from Europe to the rest of the
world. In addition, we distribute Motive Power batteries through OEM dealers,
independent distributors and directly to large fleet users.
The European motive power market has developed due to a trend toward
electric (rather than internal combustion) material handling vehicles and from
the growth of warehousing and logistics service providers. This market is
served primarily through OEMs rather than end users. Additionally, with the
advent of the Euro and the attendant greater price transparency, the OEM truck
manufacturers have been able to exert additional competitive pressure by
standardizing prices throughout Europe.
In North America, the Motive Power business is served primarily through
independent lift truck dealers or sold directly to large national accounts or
end users. Our customers include Nacco, Crown, Wal-Mart, Kroger and Ford Motor
Company.
The North American product range includes the conventional vented lead acid
technology utilizing the flat plate cell design, the tubular positive-plate
design from our European Motive Power business, and Champion sealed
maintenance-free batteries and chargers.
Motive Power products and services are provided in North America through
company-owned sales and service locations which are augmented by a network of
independent manufacturers' representatives who provide local service on their
own behalf.
The European and North American motive power markets are heavily influenced
by the demand for materials handling equipment. Customer demand for materials
handling equipment has a strong historical correlation to general economic
conditions.
5
Network Power Segment
Sales of Network Power batteries represented approximately 17% of our net
sales for fiscal 2002.
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. Today's examples of where network power
batteries are used to provide backup power include telecommunications,
computers, hospitals, process control, air traffic control, security systems,
utility, railway and military applications.
One of the largest network power markets is telecommunications. Customers
for network power batteries for telecom applications include manufacturers of
switches and other equipment and the system operators. Battery demand for
telecommunications has until recently been fueled by the growth in internet
broadband connections and worldwide deployment of multiple cellular and
wireless mobile communication systems where each repeater system and base
transceiver station may require a set of standby batteries. Other
telecommunications applications include central and local switching systems
(PABX), satellite stations, optical fiber repeating boxes, cable TV
transmission boxes and radio transmission stations. In these applications, the
batteries are usually packaged with a 48V DC power system.
The telecommunications industry and network power battery demand has
experienced a significant downturn during the last year, which the Company does
not expect will reverse in the near term. As a result, during the third quarter
of fiscal 2002 the Company recorded goodwill impairment charges based upon its
assessment of the fair value of the Network Power reporting unit against book
carrying value. Further deterioration in industry performance, particularly in
Europe, could result in additional impairment charges in future periods. See
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Network power batteries also serve as uninterruptible power supplies (UPS)
used in computer installations for banks, airlines and back up servers for the
internet. UPS battery customers consist of system manufacturers and end users.
Performance in this market is impacted by the demand for computer systems.
Our major network power battery customers include:
. telecommunications companies, such as AT&T, China Unicom, Cingular,
Nippon Telegraph and Telephone (NTT), Qwest, Singapore Telecom, Telecom
Italia, Telefonica of Spain and Verizon;
. manufacturers of telecommunications equipment, such as Alcatel, Ericsson,
Marconi, Motorola and Nokia;
. manufacturers and end users of UPS, primarily for mainframe computer
systems, such as MGE and Siemens;
. electrical generating companies; and
. government and military users.
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 batteries in their original equipment and distribute products to
end users. Batteries are also shipped directly to end users for both systems
and the replacement of aged batteries.
6
Today we offer 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 duration applications.
There are two primary Network Power lead acid battery technologies:
valve-regulated (VRLA, or sealed) and vented (flooded). There are also two
types of VRLA technologies--GEL and AGM.
These technologies are described as follows:
Product Description
VRLA: GEL This technology utilizes a gel electrolyte. Sealed batteries have replaced other types of
network power batteries because they enhance safety, reduce maintenance and can be
used in both vertical and horizontal positions. The Sonnenschein gel technology offers the
advantages of high reliability and long life. The gel product range offers a wide range of
capabilities such as heat resistance, deep discharge resistance, long shelf life and high
cyclic performance.
VRLA: AGM This technology utilizes an electrolyte immobilized in an absorbent glass mat separator.
This technology is particularly well adapted to shorter back-up time and can offer up to a
20-year design life.
Vented This technology is used in applications requiring high reliability but with the ability to
(Flooded) allow for 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.
Exide is also one of the leading suppliers of submarine batteries. Our
customers include the navies of Denmark, France, Germany, Italy, Norway,
Singapore, Spain, Sweden, Turkey, and we are the sole supplier to the U.S. Navy
for submarine batteries.
Transportation Segment
Transportation batteries include starting, lighting and ignition (SLI)
batteries for cars, trucks, off-road vehicles, agricultural and construction
vehicles, motorcycles, recreational vehicles, boats, and other applications.
Transportation batteries represented approximately 63% of our net sales for
fiscal 2002.
In North America, we are the second largest manufacturer of transportation
batteries. In Europe, we are one of the largest manufacturers of transportation
batteries. The market is divided between sales to OEMs and aftermarket
customers. We market our products under various trademarks including Exide(R),
Champion(R), Stowaway(R), 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.
Transportation: Original Equipment Manufacturer (OEM) Market
The OEM market consists of the sale of batteries to manufacturers of
automobiles and trucks, buses and off-road agricultural and construction
vehicles. The factors affecting the OEM market are consumer demand for
7
passenger cars, light trucks and sport utility vehicles; significant
consolidation in the automotive industry; globalization of OEM procurement
activities and competition.
Our major OEM customers in North America include DaimlerChrysler, Ford Motor
Company, Toyota, Kenworth, Peterbilt, John Deere International, Volvo Cars of
North America and Case/New Holland.
Our major OEM customers in Europe are Fiat, Volkswagen Group, the PSA group
(Peugeot S.A./Citroen), Renault/Nissan, BMW and Ford.
Transportation: Aftermarket
We sell aftermarket batteries in North America through automotive parts
retailers 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 provide transportation
batteries for commercial applications, such as trucks, farm equipment, tractors
and off-road vehicles, as well as batteries for marine, lawn and garden and
motorcycle applications.
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 in North America to a broad range of
retailers and distributors. We are a leading supplier to NAPA, Wal-Mart, Sam's
Club, Kmart, and CSK Inc. We are also a supplier of authorized replacement
batteries for DaimlerChrysler, Mopar, Freightliner and John Deere International.
Our North American aftermarket operations include a company-owned branch
network. This branch network throughout the United States and Canada which
sells and distributes batteries and other products to local auto parts
retailers, service stations, repair shops, fleet operators, battery specialists
and installers. The branches may also deliver batteries to our national account
customers' retail stores and collect used and spent batteries for recycling.
Our primary North American transportation battery products include the
following:
Product Description
Exide(R) Champion(R) and These batteries include a comprehensive range of vented, maintenance-free lead acid
private label batteries, from a basic battery to a premium battery with enhanced power cold
cranking amps and a 72 month warranty. These batteries are sold under the
Champion(R) and Exide(R) brand name as well as various private labels.
Exide NASCAR Select(R) Our Exide NASCAR Select(R) batteries are officially licensed by NASCAR. Our
and Champion Champion Trailblazer(R) batteries are targeted at light trucks and SUV vehicles. Both
Trailblazer(R) the Champion Trailblazer(R) and the Exide NASCAR Select(R) batteries include a
number of features differentiating them from conventional batteries, including
increased durability, resistance to vibration and battery performance and life.
Exide Select Orbital(R) Through its patented spiral wound technology and state-of-the-art recombinant
design, this battery can be recharged in a fraction of the time needed for conventional
batteries, and has high power output and superior vibration resistance compared with
a conventional lead acid battery.
8
Batteries used for marine and recreational vehicles include the Stowaway(R)
and Nautilus(R) brands, which employ technology to satisfy the power
requirements of large engines, sophisticated electronics and on-board
accessories. For the marine market, we produce the Exide Select Orbital(R)
Marine, which brings all the advantages of Exide's patented spiral wound
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 sealed, making it ideal for closed environments (such as inside
a boat hull). The Exide Select Orbital(R) Marine battery is complemented by the
Stowaway(R) Powercycler(R), which was the first sealed, AGM battery introduced
in the marine battery market. The Stowaway(R) 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 sell aftermarket batteries in Europe 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.
Demand for conventional automotive replacement batteries in the European
aftermarket is affected by the same major factors influencing the aftermarket
in North America. In Europe, mass merchandisers have gained market share in
recent years. Buying groups representing smaller battery resellers have grown
and begun to expand. The European aftermarket is less concentrated than in
North America at the present time and we believe Exide is well-positioned to
supply mass merchandisers, buying groups and individual resellers.
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.
In Europe, our product offerings vary by market. We generally offer a basic
model, an upgrade model, a premium model and various niche products in each
market. Exide has five major Company-owned brands in Europe. Exide(R) and
Tudor(R) are promoted as pan-European brands, whereas Deta(R), Centra(TM) and
Fulmen(TM) have strong local awareness levels.
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 basic model. 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, and has
increased power and cold-cranking capabilities. This battery carries a 24-month
warranty. 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.
9
Product Description
Ultra(TM) This is our premium model. It has a number of added features including higher
power and a 36-month warranty. 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/STE batteries use recombination technology to allow a lead acid battery to
be installed in the passenger compartment of an automobile with little or no fluid
loss or acid fumes under normal operating conditions. Our STE technology was
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.
Quality
We recognize that product performance and quality are critical to our
success and we have undertaken a company-wide quality improvement effort. In
April 2001, the Company launched its EXCELL (Exide's Customer-focused
Excellence Lean Leadership) program to systematically eliminate waste and
implement the concepts of continuous flow and customer pull throughout the
entire Exide supply chain. The EXCELL initiative is intended to implement lean
production and other quality improvements. The system, now being implemented at
62 Exide facilities worldwide, also incorporates best practices to improve
product quality, workplace safety and regulatory compliance. The best processes
include Kaizen (continuous improvement); mistake proofing; quality control
process charting; total productive maintenance; business process
re-engineering; one piece flow; standard work; six sigma (measure of variance);
quick changover; 5S (everything has a place and everything in its place); and
visual factory.
Our quality effort begins in the design phase with an in depth understanding
of customer and application requirements. Our batteries are designed to the
required performance, industry and customer quality standards, using design
processes, tools and materials to achieve reliability and durability. Our
commitment to quality continues through our manufacturing process. We have
quality audit processes and standards in each of our production facilities. We
have established an employee Lead Quality Continuous Improvement Team, and many
of our plants have established quality-related incentive plans for hourly
employees. Our quality program extends past the point of sale. We offer
warranties on our products, inservice product evaluations, and we conduct
customer satisfaction surveys.
Most of our major production facilities are approved under ISO 9000, QS 9000
or equivalent quality standards. Also, we have obtained ISO 14001 certification
at eight of our manufacturing plants, including TS16949 certification at three
of these facilities. We have received quality certification from Renault, 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 have received quality certifications from many Network Power
customers such as NTT and Motorola.
Research and Development
We are committed to developing new and technologically advanced products,
services and systems that provide superior performance and value to our
customers. To support this commitment, we focus significant attention on
developing opportunities across our global businesses.
10
We have focused our global research and development activities into a
central facility in Europe. Scientists and engineers at this facility are
currently focused on projects to enhance the lead acid battery technology for
the benefit of the entire Company.
In addition, we also operate a number of product and process-development
centers around the world. These centers work cooperatively to define and
improve our product design and production processes.Examples of projects
currently underway include continuous grid making processes, battery assembly
automation and productivity and product improvement programs. By leveraging
this network, we have been able to transfer technologies, product and process
knowledge among our various operating facilities, thereby adapting best
practices from around the world for use throughout the Company.
In addition to our in-house efforts, we are forming alliances and
collaborative partnerships to pursue knowledge developments. One example of
this strategy is the collaborative agreement with Siemens VDO Automotive AG
announced on September 24, 2001 to develop energy-management systems for 14-
and 42-volt automotive electrical and electronic architectures for the global
OEM market. Through this partnership, the companies intend to co-develop and
market products and systems designed to optimize electrical-energy management
in vehicles, such as advanced software and state-of-charge/state-of-health
sensors. Other new vehicle technologies creating demand for 42-volt power
include electric power steering, electromechanical brakes and advanced
electrically-controlled heating and air conditioning systems.
The Company has established similar arrangements with Lear Corporation and
Valeo in the Transportation area.
Patents, Trademarks and Licenses
We own or have a license to use various trademarks that are valuable to our
business. At present we own more than 800 trademarks and license the right to
use fewer than 50 trademarks worldwide. While we believe these trademarks and
trade names enhance the brand recognition of our products and are therefore
important to our business, we do not believe any of these individually are
material to our business. An unaffiliated company has rights to use 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. These licenses are not, however, material to the conduct of
our business or results of operations.
We have generated a large number of patents in the operation of our business
and currently own all or a partial interest in more than 800 patents worldwide.
We also have more than 1,000 applications for patents pending. Although we
believe our patents and patent applications collectively are important to our
business and that technological innovation is important to our market
competitiveness, currently no patent individually is material to operation of
the business or its financial condition.
At the present time, the Company is not engaged to any significant extent in
commercialization of its technology or brand names.
Manufacturing, Raw Materials and Suppliers
Lead is the primary material by weight used in the manufacture of lead acid
batteries, representing approximately one-fourth of the cost of goods produced.
We 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. In North America, batteries are obtained
for recycling from our customers and through our Company-owned branch networks.
The Company is party to three supply agreements with Daramic, Inc.
("Daramic") expiring in December 2009 for the purchase of separators, a
critical component of battery manufacturing. The agreements restrict the
11
Company's ability to source separators from other suppliers and provide for
substantial minimum annual purchase commitments. The Company purchases
substantially all of its separator requirements from Daramic and the Company
does not believe there exists a readily available alternative source or sources
of supply for the volume of separators Daramic provides. As a result, any
substantial disruption in supply from Daramic would likely have a material
adverse impact on the Company. In May 2002, Daramic filed a motion in the
Bankruptcy Court to compel the Company to accept or reject the supply
agreements. Following negotiation with Daramic, the Company agreed to pay
approximately $10 million due with respect to the period prior to the Company's
Chapter 11 filing and, subject to Bankruptcy Court approval, to accept the
contracts with certain agreed upon amendments.
Other key raw materials and components in the production of batteries
include lead oxide, acid, plastics and chemicals, which are generally available
from multiple sources. We have not experienced any material stoppage or
disruption in production as a result of the unavailability, or delays in the
availability, of raw materials.
Competition
Motive Power Segment
Exide has the largest market share for motive power products on a global
basis. The Hawker Battery Group acquired in 2001 by EnerSys is number two in
Europe. Other competitors in Europe include Fiamm, Hoppecke, BAE and MIDAC.
Exide ranks second to Enersys in market share in North America. In North
America, the other major competitors are C&D Technologies and East Penn. In
Asia, JSB, Panasonic, Yuasa and Hitachi are the major competitors with Yuasa
being the market leader. In countries such as Brazil, China and India, local
manufacturing is required and Exide is currently serving these markets on a
limited basis through export sales.
Quality, reliability, delivery and price are important differentiators in
the motive power market along with technical innovation and responsive service.
Well-known brands are also important and Exide's Chloride Motive Power, Deta,
GNB, Tudor and Sonnenschein are among the leading brands in the world.
Network Power Segment
EnerSys, following the acquisition of Hawker Battery Group in 2001, has the
largest market share on a global basis with Exide ranking second in the world.
Exide ranks second to C&D Technologies in North America and maintains the
leading share in Europe. In Asia, Yuasa has a market leadership position.
Competition in this segment has intensified given the recent slowdown and
decline in the industry demand for batteries.
Quality, reliability, delivery and price are important differentiators in
the network power market, along with technical innovation and responsive
service. Well-known brands are also important and Exide's Absolyte(R),
Sonnenschein(R), Marathon, Sprinter and Classic are among the leading brands in
the world.
The Company is implementing a plant rationalization and overhead reduction
program, as well as lean manufacturing and strategic sourcing initiatives, to
better enable it to respond to the changing market conditions.
Transportation Segment
The North American and European transportation markets are highly
competitive. The manufacturers in these markets compete primarily on price,
quality, technical innovation, service and warranty. Well-recognized brand
names are also important for aftermarket customers who do not purchase private
label batteries. 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
12
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 OEM market are Delphi
Automotive Systems and Johnson Controls. OEMs change battery suppliers less
frequently than aftermarket customers but, because of their size, can influence
market participants to compete on price and other terms.
Exide has the largest market position in Europe in automotive batteries,
both aftermarket and original equipment. Our next largest single competitor in
the automotive markets is Varta, followed by Fiamm and Hoppecke.
The European battery markets, particularly in the automotive OEM and
industrial areas, have undergone severe price competition.
We expect competition to remain intense. We seek to maintain and grow our
market positions and customer base through strong brands, improved product
performance, quality, customer service and cost reduction.
Environmental, Health and Safety Matters
The Company, particularly as a result of its manufacturing, distribution and
recycling 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 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
business, financial condition or results of operations. The Company believes
that it is in substantial compliance with all material environmental, health
and safety requirements.
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 and cash flows.
North America
The Company has been advised by the U.S. Environmental Protection Agency or
state agencies that it is a "Potentially Responsible Party" ("PRP") under the
Comprehensive Environmental Response, Compensation and Liability Act or similar
state laws at 90 federally defined Superfund or state equivalent sites
(including 16 former GNB sites). At 61 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.
13
The Company currently has greater than 50% liability at three 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, 2002. 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 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.
International
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 international locations including Europe. 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 that
it is in substantial compliance with all material environmental, health and
safety requirements in each country.
The Company expects that its international 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.
Consolidated
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, 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,
2002 the amount of such reserves on the Company's consolidated balance sheet
were $70.5 million. Of this amount, $56.3 million was included in other
non-current liabilities.
In the United States, the Company has advised each state and federal
authority with whom we have negotiated plans for environmental investigations
or remediation of the Company's Chapter 11 filing as required by those
agreements or applicable rules. In some cases these authorities may require the
Company to undertake certain agreed remedial activities under a modified
schedule, or may seek to negotiate or require modified remedial activities.
Such requests have been received at several sites and are the subjects of
ongoing discussions. At this time no requests or directives have been received
which, individually or in the aggregate, would alter the Company's reserves or
have a material adverse effect on the Company's business, financial condition
or results of operation.
Employees
Total worldwide employment was approximately 17,300 at March 31, 2002,
compared to 20,000 at March, 2001, reflecting the impact of the Company's
ongoing restructuring actions and cost reduction efforts.
North America. As of March 31, 2002, we employed approximately 1,700
salaried employees and approximately 4,700 hourly employees in North America.
Approximately 40% of such salaried employees are engaged in sales, service,
marketing and administration and approximately 60% in manufacturing and
14
engineering. Approximately 23% of our hourly employees are represented by
unions. Relations with the unions are generally good. Contracts covering
approximately 700 of our union employees expire in fiscal 2003, and the
remainder thereafter.
Europe. As of March 31, 2002, we employed approximately 3,900 salaried
employees and approximately 6,400 hourly employees in Europe. Approximately 75%
of such salaried employees are engaged in sales, service, marketing and
administration and approximately 25% in manufacturing and engineering. Our
hourly employees are generally represented by unions. Relations with the unions
are generally good. Contracts covering most of our European union employees
expire on various dates through calendar year 2002.
Backlog
Our Network Power and Motive Power order backlog at March 31, 2002 was
approximately $72 million and $12 million, respectively. We expect to fill
virtually all of the March 31, 2002 backlog during fiscal 2003. Our
transportation backlog at March 31, 2002 was not significant.
Financial Information About Foreign and Domestic Operations and Export Sales
See Note 21 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. Substantially all of our owned
and leased properties in the U.S. are subject to liens or security interests
under the DIP Credit Facility and/or the Pre-Petition Senior Secured Credit
Facility, and two owned facilities located in England are subject to liens
under the Pre-Petition Credit Facility. The leases for leased facilities expire
at various dates through 2016.
Approximate
Location Square Footage Use
-------- -------------- ---
North America:
Alpharetta, GA............ 51,300 (leased) Executive Offices
Baton Rouge, LA........... 176,000 Secondary Lead Smelting
Bollingbrook, IL.......... 55,000 (leased) Distribution Center
Bristol, TN............... 631,000 Battery Manufacturing
Cannon Hollow, MO......... 137,000 Secondary Lead Smelting
City Of Industry, CA...... 159,000 (leased) Distribution Center
Florence, MS.............. 138,000 Battery Manufacturing
Fort Erie, Canada......... 90,000 Distribution Center
Fort Smith, AR............ 223,000 (leased) Industrial Battery Manufacturing
Frisco, TX................ 132,000 Secondary Lead Smelting
Kankakee, IL.............. 270,000 Industrial Battery Manufacturing
and Distribution
Kansas City, KS........... 140,000 Industrial Battery Manufacturing
Lampeter, PA.............. 82,000 Battery Plastics Manufacturing
Lombard, IL............... 62,000 (leased) Executive Offices
Manchester, IA............ 286,000 Battery Manufacturing
Distribution Center
Muncie, IN................ 174,000 Secondary Lead Smelting
Princeton, NJ............. 18,000 (leased) Executive Offices
Reading, PA............... 125,000 Secondary Lead smelting and Poly
Reprocess
Reading, PA............... 77,000 Distribution Center
Salina, KS................ 260,000 (leased) Battery Manufacturing
Salina, KS................ 100,000 (leased) Distribution Center
Shreveport, LA............ 280,000 (leased) Battery Manufacturing
Sumner, WA................ 50,000 Distribution Center
Vernon, CA................ 220,000 Secondary Lead Smelting
Europe and Other:
Sydney, Australia......... 230,000 Industrial Battery Manufacturing/
Distribution Center
Elizabeth, South Australia 145,000 Automotive Battery Manufacturing
Bolton, England........... 274,000 Industrial Battery Manufacturing
Auxerre, France........... 341,358 Automotive Battery Manufacturing
Gennevilliers, France..... 60,494 Executive Offices
Gennevilliers, France..... 20,149 Research and Executive Offices
Lille, France............. 409,828 Industrial Battery Manufacturing
Nanterre, France.......... 206,022 Automotive Battery Manufacturing
Peronne, France........... 106,369 Plastics Manufacturing
Bad Lauterberg, Germany... 1,303,002 Manufacturing, Administrative and
Warehouse
Budingen, Germany......... 928,171 Industrial Battery Manufacturing
and Administration
16
Approximate
Location Square Footage Use
-------- -------------- ---
Weiden, Germany................. 1,087,153 Industrial Battery Manufacturing
Avellino, Italy................. 47,000 Automotive Battery Manufacturing
Canonica d'Adda, Italy.......... 203,000 Automotive Battery Manufacturing
Casalnuovo, Italy............... 5,155,908 Industrial Battery
Fumane di Valipolicella, Italy.. 65,000 Industrial Battery Manufacturing
Romano Di Lombardia, Italy...... 266,000 (leased) Automotive Battery Manufacturing
Lower Hutt, New Zealand......... 90,000 Automotive Battery Manufacturing
Poznan, Poland (five)........... 847,500 Automotive Battery Manufacturing
Castanheira do Riatejo, Portugal 1,872,918 Industrial Battery Manufacturing
Azuqueca de Henares, Spain...... 1,782,548 Automotive Battery Manufacturing
Bontmati, Spain................. 63,000 Secondary Lead Smelting
La Cartuja, Spain............... 1,670,000 Industrial Battery Manufacturing
Cubas de la Sagra, Spain........ 1,860,000 Secondary Lead Smelting
Malpica, Spain.................. 213,000 Automotive Battery Manufacturing
Manzanares, Spain............... 438,000 Automotive Battery Manufacturing
San Esteban de Gormaz, Spain.... 63,000 Secondary Lead Smelting
Torrejon, Spain................. 64,583 Industrial Battery Manufacturing
Manisa, Turkey.................. 184,063 Automotive Battery Manufacturing
Cwmbran, Wales.................. 105,000 Automotive Battery Manufacturing
In addition, we also lease distribution outlets in the U.S. and Europe.
We believe that our facilities are in good operating condition, adequately
maintained, and suitable to meet our present needs.
Item 3. Legal Proceedings
Bankruptcy Considerations
As of the Petition Date, substantially all pending litigation against the
Debtors was stayed. We cannot predict what action, if any, the Bankruptcy Court
may take with respect to pending litigation.
Former Senior Executives of the Company: Arthur M. Hawkins, Douglas N.
Pearson and Alan E. Gauthier.
Exide established a $13.4 million reserve in fiscal 2000 to cover litigation
related to allegations that used batteries were sold as new. The Company has
resolved these claims, including the third quarter fiscal 2002 settlement of
the sole remaining "legacy" action, Houlihan v. Exide. As a result of the
Houlihan settlement, the Company recorded an additional expense in the third
quarter of fiscal 2002 of $1.4 million for reimbursement of legal fees. At
March 31, 2002, there is approximately a $2.5 million reserve remaining,
representing the Company's estimate of its remaining obligations under the
Houlihan and other "legacy" settlements.
On March 23, 2001, Exide reached a plea agreement with the U.S. Attorney for
the Southern District of Illinois, resolving an investigation of the conduct of
certain former senior executives of the Company. Under the terms of that
settlement Exide agreed to pay a fine of $27.5 million over five years, to
five-year's probation and to cooperate with the U.S. Attorney in her
prosecution of Arthur M. Hawkins, Douglas N. Pearson and Alan E. Gauthier,
former senior executives of the Company. The payment terms of the plea
agreement are dependent upon the Company's compliance with the plea agreement
during the five-year probation period. Generally, the terms of the probation
would permit the U.S. Government to reopen the case against Exide if the
Company violates the terms of the plea agreement or other provisions of law.
The plea agreement was lodged with the U.S. District Court for the Southern
District of Illinois, and accepted on February 27, 2002. The Company reserved
17
$31.0 million for this matter, including expected costs and out-of-pocket
expenses, in the first quarter of fiscal 2001, and an additional $1.0 million
in the third quarter of fiscal 2002. At March 31, 2002, approximately
$27.5 million of this reserve remains. As a result of the imposition of the
automatic stay arising upon the Company's Chapter 11 filing, the Company has
not made the first installment payment of its $27.5 million fine. The Company
is uncertain as to the effect of this non-payment and the bankruptcy filing
with respect to the plea agreement.
Exide is currently involved in litigation with the former senior executives
referenced above. The former senior executives made claims to enforce
separation agreements, reimbursements of legal fees, and other contracts, and
Exide has filed claims and counterclaims asserting fraud, breach of fiduciary
duties, misappropriation of corporate assets and civil conspiracy. In addition,
Exide has filed an action in the Bankruptcy Court against the former senior
executives to recover certain payments of legal fees Exide was required to
advance to such individuals prior to the Petition Date.
The Company has filed a claim with its insurers for reimbursement of the
amounts paid to the former executives, and believes it is entitled to obtain
substantial reimbursement for those amounts. However, the Company has not
recognized any receivable for such reimbursements at March 31, 2002.
Hazardous Materials
Exide is 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.
The Company's preliminary review of these claims suggest they are without
merit, and the Company plans to vigorously defend itself in these matters. The
Company does not believe any reserves are currently warranted for these claims.
See Critical Accounting Policies and Estimates, Litigation, in Item 7 of this
Report.
GNB Acquisition
In July 2001, Pacific Dunlop Holdings (US), Inc. ("PDH") and several of its
foreign affiliates (the "Sellers") under the various agreements through which
Exide and its affiliates acquired GNB, filed a complaint in the Circuit Court
for Cook County, Illinois alleging breach of contract, unjust enrichment, and
conversion against Exide and three of its foreign affiliates. The Sellers
maintain they are entitled to approximately $16.4 million in cash assets
acquired by the defendants through their acquisition of GNB. In December 2001,
the Court denied the defendants' motion to dismiss the complaint, without
prejudice to re-filing the same motion after discovery proceeds. The defendants
have filed an answer and a counterclaim. On July 8, 2002, the Court authorized
discovery to proceed as to all parties except Exide. To the extent this action
implicates Exide's interests, management plans to vigorously defend the action
and pursue the counterclaim.
18
In December 2001, PDH filed a separate action in the Circuit Court for Cook
County, Illinois seeking recovery of about $3.1 million for amounts allegedly
owed by Exide under various agreements between the parties. The claim arises
from letters of credit and other security for workers compensation insurance
policies allegedly provided by PDH for GNB's performance of certain of GNB's
obligations to third parties, that PDH claims Exide was obligated to replace.
Exide's answer contested the amounts claimed by PDH and Exide filed a
counterclaim. Although this action has been consolidated with the Cook County
suit concerning GNB's cash assets, the claims relating to this action are
currently subject to the automatic bankruptcy stay.
Other
On June 6, 2002, McKinsey & Company International filed suit against Exide
Holding Europe, S.A., Compagnie Europeene D'accumulateurs, S.A., Euro Exide
Corporation Ltd., Exide Italia S.r.l, Deutsche Exide GmbH and Exide
Transportation Holding Europe, S.L. in the United States District Court for the
Southern District of New York, seeking to compel arbitration of McKinsey's
request for payment of approximately $5 million in consulting fees. The Company
intends to defend the suit and denies liability thereunder.
Exide is a defendant in an arbitration proceeding initiated in October of
2001, by Margulead Limited ("Margulead"). In June of 1997, GNB, now an
operating division of Exide, entered into an agreement with Margulead to build
a facility to test and develop certain lead acid battery recycling technology
developed by Margulead. This agreement was terminated by Exide after the
Margulead technology failed to meet initial performance criteria. Margulead now
alleges breach of contract and has requested damages in the amount of
approximately $2.6 million, which represents the projected cost of building a
testing facility. Margulead has indicated that it may amend its claim to seek
up to $9.0 million in damages. Because Margulead is a foreign entity and the
arbitration is pending in London, the arbitration is currently proceeding
notwithstanding Exide's Chapter 11 proceedings. The Company intends to defend
the claim and denies liability thereunder.
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.
19
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock is currently traded on the over-the-counter market and
quoted on the OTC Bulletin Board under the symbol "EXDTQ". Prior to delisting
on February 15, 2002 the Company's common stock had been traded on the New York
Stock Exchange. The following table presents the high and low sales prices for
our common stock as reported on the consolidated transaction reporting system
and dividends declared for the quarters indicated. The Company's Board of
Directors suspended payment of dividends on the common stock on November 8,
2001.
Fiscal Year Ending March 31
---------------------------
Sales Prices
--------------- Dividends
High Low Declared
------- ------- -----------
(per share)
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
2002:
First Quarter.. $12.300 $ 7.600 $0.02
Second Quarter. 11.000 3.650 0.02
Third Quarter.. 3.890 0.390 0.00
Fourth Quarter. 1.490 0.320 0.00
The last reported sale price of the common stock on the OTC Bulletin Board
on August 14, 2002 was $0.58 per share. As of August 14, 2002 we had 27,383,084
shares of our common stock outstanding and there were 731 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, 1998 and 1999 has
been restated. See Note 2 to the Consolidated Financial Statements herein.
Fiscal Year Ended March 31,
----------------------------------------------------------
1998 1999 2000 2001 2002
---------- ---------- ---------- ---------- ----------
Statement of Operations Data
Net sales............................... $2,273,126 $2,374,278 $2,194,447 $2,432,102 $2,428,550
Gross profit............................ 604,091 559,256 533,263 584,027 510,317
Selling, marketing and advertising
expenses.............................. 311,683 334,638 319,476 340,616 337,355
General and administrative expenses..... 135,606 169,744 145,770 157,459 178,842
Restructuring and other................. -- -- 39,336 113,166 33,122
Operating income (loss)(4).............. 145,732 6,006 (19,560) (36,678) (168,556)
Interest expense, net................... 112,301 111,679 103,988 117,652 136,241
Income taxes............................ 14,010 23,001 10,769 8,632 (1,422)
Income (loss) before extraordinary loss
and cumulative effect of change in
accounting principle.................. 19,535 (126,693) (136,042) (164,585) (303,586)
Extraordinary loss (1)(2)............... (28,513) (301) -- -- --
Cumulative effect of change in
accounting principle (3).............. -- -- -- -- (496)
Net income (loss)....................... $ (8,978) $ (126,994) $ (136,042) $ (164,585) $ (304,082)
Basic net income (loss) per share....... $ (0.44) $ (5.98) $ (6.40) $ (7.02) $ (11.35)
Diluted net income (loss) per share..... $ (0.42) $ (5.98) $ (6.40) $ (7.02) $ (11.35)
Other Financial Data
Cash provided by (used in):
Operating activities................ $ 167,499 $ 77,219 $ 95,648 $ 90,190 $ (6,665)
Investing activities................ (76,182) (22,356) (12,623) (355,920) (58,462)
Financing activities................ (95,446) (70,238) (73,987) 259,468 73,720
Capital expenditures.................... 87,315 76,211 63,953 69,495 61,323
Cash dividend per Share................. $ .08 $ .08 $ .08 $ .08 $ .04
Balance Sheet Data (at period end)
Working capital (deficit) (5)........... $ 518,922 $ 301,663 $ 213,468 $ 183,618 $ (951,866)
Property, plant and equipment, net...... 535,113 543,702 443,344 632,935 530,220
Total assets............................ 2,331,549 2,195,816 1,901,461 2,298,925 1,915,868
Total debt.............................. 1,248,983 1,205,806 1,118,385 1,347,046 1,413,272
Common stockholders' equity
(deficit)............................. 274,954 134,135 (66,376) (256,639) (555,742)
- --------
(1) 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.
(2) 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.
(3) The cumulative effect of change in accounting principle resulted from the
adoption by the Company of SFAS 133 on April 1, 2001.
(4) Fiscal 2002 operating loss included goodwill impairment charges of $105,000
and loss on debt-to-equity conversion of $13,873.
(5) Working capital (deficit) is calculated as current assets less current
liabilities, which at March 31, 2002 reflects the reclassification of
certain long-term debt as current.
21
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
On April 15, 2002, the Debtors filed voluntary petitions for reorganization
under Chapter 11 of the Bankruptcy Code as it offered the most efficient
alternative to restructure its balance sheet and access new working capital
while continuing to operate in the ordinary course of business. The Company
incurred a heavy debt burden, caused largely by a debt-financed acquisition
strategy and the significant costs of integrating those acquisitions. Other
factors leading to the reorganization included the impact of current adverse
economic conditions, particularly in the telecommunications industry, ongoing
competitive pressures, and recent capital market volatility. These factors
contributed to a loss of revenues and has resulted in significant operating
losses and negative cash flows, severely impacting the Company's financial
condition and its ability to maintain compliance with debt covenants.
The Company's operations outside of the U.S. are not included in the Chapter
11 proceedings.
On May 10, 2002 the Company received final Bankruptcy Court approval of the
$250 million DIP Credit Facility. The DIP Credit Facility requires maintenance
of certain financial covenants and other restrictions on matters such as
indebtedness, guarantees and future sale of assets.
Under the Bankruptcy Code, actions to collect pre-petition indebtedness, as
well as most other pending litigation, are stayed. In addition, the Debtors may
also assume or reject executory contracts, including lease obligations, subject
to the approval of the Bankruptcy Court and certain other conditions (see, Item
1. Business, Overview in this Report).
Factors Which Affect Our Financial Performance
Competition. The global Transportation, Motive Power and Network Power
battery markets, particularly 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 markets.
Exchange Rates. We are exposed to foreign currency risk in most European
countries, principally from fluctuations in the Euro and British Pound. We are
also exposed, although to a lesser extent, to foreign currency risk in
Australia and the Pacific Rim. 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.
Markets. We are subject to concentrations of customers and sales in a few
geographic locations and are dependent on customers in certain industries,
including the automotive, telecommunications, and material handling markets.
Economic difficulties experienced in these markets and geographic locations
have and continue to impact our financial results.
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 primary material by weight used in the manufacture of
batteries, representing approximately one-fourth of our cost of goods sold. The
market price of lead fluctuates. Generally, when lead prices decrease,
customers may seek disproportionate price reductions from us, and when lead
prices increase, customers may resist price increases.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and results
of operations are based upon the Company's consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the
22
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and the related disclosure of
contingent assets and liabilities. On an ongoing basis, the Company evaluates
its estimates based on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
The Company believes the following critical accounting policies and
estimates affect the preparation of its consolidated financial statements.
Inventory Reserves. The Company writes down its inventory for estimated
obsolescence or unmarketable inventory equal to the difference between the cost
of the inventory and the estimated market value based upon assumptions of
future demand and market conditions. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required. During the third quarter of fiscal 2002 we began a
company-wide effort to reduce inventory levels. Based on those findings, the
Company concluded that it would not recover the carrying costs of certain of
this excess inventory. This excess inventory has been written down to its
estimated recoverable value. As this effort continues we may determine that
actual recoveries differ from those estimated.
Valuation of Long-lived Assets. The Company's long-lived assets include
property, plant and equipment, goodwill and identified intangible assets.
Long-lived assets (other than goodwill and indefinite lived intangible assets)
are depreciated over their estimated useful lives, and are reviewed for
impairment whenever changes in circumstances indicate the carrying value may
not be recoverable. Goodwill and indefinite-lived intangible assets are
reviewed for impairment on both an annual basis and whenever changes in
circumstances indicate the carrying value may not be recoverable. The fair
value of goodwill and indefinite-lived intangible assets are based upon our
estimates of future cash flows and other factors including discount rates to
determine the fair value of the respective assets. If these assets or their
related assumptions change in the future, we may be required to record
impairment charges. An erosion of future business results in any of our
business units could create impairment in goodwill or other long-lived assets
and require a significant write down in future periods.
Deferred Taxes. The Company records a valuation allowance to reduce our
deferred tax assets to the amount that is more likely than not to be realized.
While we have considered future taxable income and ongoing prudent and feasible
tax planning strategies in assessing the need for valuation allowances, if we
were to determine that we would be able to realize deferred tax assets in the
future in excess of our net recorded amount, an adjustment to the deferred tax
asset would increase income in the period such determination was made.
Likewise, should we determine that we would not be able to realize all or part
of our net deferred tax assets in the future, an adjustment to the deferred tax
asset would decrease income in the period such determination was made.
Warranty Reserves. The Company recognizes a provision for the estimated
cost of product warranties in the period in which the related revenue is
recognized. While we engage in product quality programs and processes,
including independent testing of product performance and compliance to ratings,
our warranty obligation is affected by product failure rates and customers'
in-store return policies and procedures. In addition, should actual product
return rates or the lag between the date of sale and claim/return date differ
from our estimates, revisions to estimated warranty reserves would be required.
Environmental Reserves. The Company is subject to numerous environmental
laws and regulations in all the countries in which it operates. In addition, we
can be held liable for investigation and clean up of sites impacted by our past
operating activities. In certain countries including the United States we
maintain reserves for the reasonable cost of addressing these liabilities.
These estimates are determined through a combination of methods, including
outside estimates of likely expense and our historical experience in the
management of these matters.
23
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 charges are possible. Also future findings
or changes in estimates could result in either an increase or decrease in the
reserves and have a significant impact on the Company's liquidity.
Purchase Commitments. The Company has three worldwide supply agreements,
expiring in December 2009 to purchase its battery separators. The supply
agreements were entered into in fiscal 2000 with Daramic, the party that
purchased the Company's battery separators manufacturing operation as a
condition of the sale of those operations. At the time of the sale, the
agreements contained minimum annual purchase commitments in excess of the
Company's requirements. Accordingly, the Company established a reserve, and
reduced the gain on sale of the manufacturing operations, for commitments in
excess of the Company's requirements and for the contractual purchase prices in
excess of market. We currently have a reserve for the incremental purchase
requirements over the remaining life of the agreement in excess of our
projected requirements. Whenever there is a significant change in our unit
volume outlook based on changes to our business plan, this reserve will be
adjusted.
Litigation. The Company has legal contingencies that have a high degree of
uncertainty. When a contingency becomes probable and estimable a reserve is
established. Numerous allegations have been made against the Company claiming
bodily harm as a result of exposure to hazardous materials used in the
manufacture of batteries. In addition, in connection with the acquisition of
GNB, certain purchase price and other disputes are outstanding. The Company
believes that liabilities for these matters are neither probable nor estimable.
Therefore, no reserves have been established. If these matters are resolved
differently, they could have a significant impact on the Company's future
results and liquidity.
Going Concern. The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.
On April 15, 2002 the Debtors filed voluntary petitions for reorganization
under Chapter 11 of the Bankruptcy Code as it offered the most efficient
alternative to restructure its balance sheet and access new working capital
while continuing to operate in the ordinary course of business. The Company has
a heavy debt burden, caused largely by a debt-financed acquisition strategy and
the significant costs of integrating those acquisitions. Other factors leading
to the reorganization included the impact of current adverse economic
conditions on the Company's markets, particularly the telecommunications
industry, ongoing competitive pressures, and recent capital market volatility.
These factors contributed to a loss of revenues and has resulted in significant
operating losses and negative cash flows, severely impacting the Company's
financial condition and its ability to maintain compliance with debt covenants.
The ability of the Company to continue as a going concern is predicated
upon, among other things, on confirmation of a bankruptcy reorganization plan,
compliance with the provisions of both the DIP Credit Facility and other
ongoing borrowing arrangements as well as the ability to generate cash flows
from operations, possible asset sales and where necessary obtaining financing
sources sufficient to satisfy the Company's future obligations. As a result of
the Chapter 11 filing, and consideration of various strategic alternatives,
including possible asset sales, the Company would expect that any
reorganization plan will likely result in material changes to the carrying
amount of assets and liabilities in the consolidated financial statements.
The consolidated financial statements do not, however, include adjustments,
if any, to reflect the possible future effects on the recoverability and
classification of recorded assets or the amounts and classifications of
liabilities that may result from the outcome of these uncertainties. In
addition, since the Company and certain of its U.S. subsidiaries filed for
protection under the Bankruptcy Code subsequent to March 31, 2002, the
accompanying consolidated financial statements have not been prepared in
accordance with SOP 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code" ("SOP 90-7"), and do not include disclosures of
liabilities subject to compromise. Consolidated financial statements prepared
subsequent to the filing date under Chapter 11 will be prepared reflecting such
amounts subject to compromise.
24
In preparing the consolidated financial statements, because the Company did
not believe it would be in compliance with certain financial covenants included
in the Company's Senior Secured Credit facility upon expiration of waivers on
April 15, 2002, the Company has classified those obligations of the Debtors
under the Senior Secured Credit Facility as short-term at March 31, 2002. In
addition, the Company classified its 10% Senior Notes and Convertible Senior
Subordinated Notes as short-term at March 31, 2002.
Results of Operations
Fiscal Year Ended March 31, 2002 compared with Fiscal Year Ended March 31, 2001
Overview
Net loss for fiscal 2002 was $304.1 million, or $11.35 per diluted share
versus net loss of $164.6 million or $7.02 per diluted share last year.
Included in the consolidated net loss for fiscal 2002 is a non-cash third
quarter charge of $105.0 million for goodwill impairment resulting from our
evaluation of results of the Network Power business and our expectations that
the current depressed telecommunication markets will not recover to fiscal year
2001 levels. Since March 31, 2002 the Company has experienced a deterioration
in the performance of its European Network Power business. The Company
evaluated the impact of these market conditions on the business and recorded a
further goodwill impairment charge in its Network Power segment in first
quarter fiscal 2003 results. Also included in Fiscal 2002 results is a non-cash
charge of $13.9 million for a debt-to-equity conversion. Results also include
restructuring and other merger related costs of $33.1 million and $113.2
million in fiscal 2002 and 2001, respectively.
Net Sales
Net sales were $2,428.6 million for fiscal 2002 versus $2,432.1 million in
fiscal 2001. On a pro-forma basis including GNB's operations for the first six
months of fiscal 2001, net sales for fiscal 2001 would have been $489.3 million
higher. This decrease resulted from lower sales volumes in all three of the
Company's business segments during fiscal 2002. Net sales were also negatively
impacted by $37.0 due to the weaker Euro.
Transportation net sales were $1,518.1 million for fiscal 2002 versus
$1,522.5 million last year. On a pro-forma basis including GNB's net sales for
the first six months of fiscal 2001, fiscal 2001 net sales would have been
$267.5 million higher. The decrease results from lower sales volume in North
America due to the following events: 1) our decision to discontinue certain
less profitable aftermarket accounts, which impacted sales volumes beginning in
the first quarter of fiscal 2001; 2) volume losses attributable to difficulties
in meeting certain second quarter fiscal 2002 customer orders as plants and
product lines continued to be integrated due to the GNB acquisition which
culminated with certain customers switching all or a portion of their
requirements to other suppliers; 3) unseasonably mild weather throughout North
America that negatively impacted consumer demand; 4) two battery retailers,
Kmart and Quality Stores experienced financial difficulties that negatively
impacted their order volumes; 5) the general downturn in the economy extenuated
by the September 11th crisis and 6) uncertainties related to the Company's
financial position. Currency negatively impacted Transportation net sales in
fiscal 2002 by approximately $17.0 million.
Motive Power net sales for the fiscal 2002 were $475.2 million versus $449.4
million last year. On a pro-forma basis including GNB's net sales for the first
six months of fiscal 2001, fiscal 2001 net sales would have been $74.3 million
higher. The decrease results from lower sales volumes due to the general
softness in the overall economies in Motive Power's two major markets: The
United States and Western Europe. Currency negatively impacted Motive Power net
sales in fiscal 2002 by approximately $11.1 million.
Network Power net sales for fiscal 2002 were $435.2 million versus $460.2
million last year. On a pro-forma basis, including GNB's net sales for the
first six months of fiscal 2001, fiscal 2001 net sales would have been $147.5
million higher. The decrease reflects significantly weaker demand, principally
in the North American telecommunications market during fiscal 2002. Currency
negatively impacted Network Power net sales in fiscal 2002 by approximately
$8.9 million.
25
Gross Profit
Gross profit was $510.3 million in fiscal 2002 versus $584.0 million last
year. On a pro-forma basis, including GNB's gross profit for the first six
months of fiscal 2001, gross profit in 2001 would have been $89.2 million
higher. The gross profit margin decreased to 21.0% in fiscal 2002 from 24.0% in
fiscal 2001, primarily due to the addition of the less profitable GNB
Transportation business, reduced sales volumes, higher production costs related
to under-absorption of fixed overheads and certain fiscal 2002 purchase
commitments and inventory charges. Weaker European currencies versus the U.S.
dollar impacted gross profit by approximately $8.5 million.
Transportation gross profit was $272.4 million in fiscal 2002 versus $303.6
million last year. On a pro-forma basis, including GNB's gross profit of $16.2
million in the first six months of fiscal 2001, gross profit in fiscal 2001
would have been $319.8 million. Lower North American sales volumes combined
with higher production and logistics costs due to plant and product line
integration, and planned reductions in the production schedule in the second
half to bring inventory levels in balance with expected future demand adversely
impacted results. Gross profit was further reduced by a $15.5 million charge to
costs of sales to increase reserves for purchase commitments (See Note 17) and
charges to write-down excess inventories of approximately $3.0 million from
ongoing inventory rationalization efforts. Gross margins were 17.9% in the
current year versus 19.9% in the prior year. Currency negatively impacted
Transportation gross profit margin by approximately $3.9 million.
Motive Power gross profit was $128.7 million in fiscal 2002 versus $137.5
million last year. On a pro-forma basis, including GNB's gross profit of $17.9
million for the first six months of fiscal 2001, gross profit for fiscal 2001
would have been $155.4 million. Gross profit was negatively impacted by lower
sales volumes and higher production costs related to under-absorption of fixed
overheads. Gross margin as a percent of net sales was 27.1% in the current year
versus 30.6% last year. The addition of higher margin GNB Motive Power products
was offset by higher production costs related to under-absorption of fixed
overheads, pricing pressures and an unfavorable product mix. Currency
negatively impacted Motive Power gross profit margin by approximately $3.3
million.
Network Power gross profit was $109.2 million this year versus $143.0
million last year. On a pro-forma basis including GNB's gross profit of $55.1
million in the first six months of fiscal 2001, fiscal 2001 gross profit would
have been $198.1 million. Lower sales volumes and higher production costs
related to under-absorption of fixed overheads negatively impacted results. In
addition gross profit was negatively affected by a $3.0 million charge to
writedown excess inventories in connection with our company-wide program to
significantly reduce inventories and a $2.2 million charge to write-off
inventory in our operation in China. Gross margin as a percent of net sales was
25.1% in the current year versus 31.1% last year. The decline in gross profit
margins was the result of higher production costs related to the under
absorption of fixed overheads, pricing pressure and an unfavorable product mix.
Currency negatively impacted Network Power gross profit margin by approximately
$1.3 million.
Operating Expenses
Operating expenses increased from $620.7 million in fiscal 2001 to $678.9
million in fiscal 2002. Fiscal 2002 operating expenses included the goodwill
impairment of Network Power of $105.0 million. Included in operating expenses
are restructuring charges of $113.2 million last year and $33.1 million this
year. GNB had $69.9 million in operating expenses in the first six months of
fiscal 2001. Fiscal 2002 operating expenses were favorably impacted by the
Company's cost-reduction programs and the elimination of goodwill amortization
due to the adoption of FAS 142. Also, weaker European currencies favorably
impacted operating expenses by approximately $13.2 million in fiscal 2002.
Transportation operating expenses decreased from $365.9 million in fiscal
2001 to $282.4 million in fiscal 2002. GNB had $31.9 million of Transportation
operating expenses in the first six months of fiscal 2001. The decrease in
operating expenses are a result of savings from the headcount reductions taken
over the past eighteen
26
months offset by a $12.6 million bad debt provision on our pre-petition
outstanding receivable as a result of Kmart's Chapter 11 bankruptcy filing in
January 2002. Currency favorably impacted Transportation operating expenses by
approximately $3.6 million.
Motive Power operating expenses increased from $108.5 million in fiscal 2001
to $112.4 million in fiscal 2002. GNB had $15.9 million of Motive Power
operating expenses in the first six months of fiscal 2001. Offsetting the
inclusion of GNB operations were savings from the headcount reductions taken
over the past eighteen months. Currency favorably impacted Motive Power
operating expenses by approximately $5.8 million.
Network Power operating expenses increased from $87.2 million in fiscal 2001
to $219.7 million in fiscal 2002. Fiscal 2002 Network Power operating expenses
include the goodwill impairment of $105.0 million. GNB had $21.7 million of
Network Power operating expenses in the first six months of fiscal 2001. The
remaining increase was due to the inclusion of GNB operations and a provision
for bad debts related to our operations in China of $3.4 million, recognized in
the third quarter of fiscal 2002. Currency favorably impacted Network Power
operating expenses by approximately $3.8 million.
Unallocated operating expenses including other (income) expense, net were
$59.1 million in fiscal 2001 versus $64.3 million in fiscal 2002. Current year
operating expenses includes a gain of $8.2 million, due to the Lion Compact
Energy agreement termination. The increase is also impacted by the elimination
of goodwill amortization in fiscal 2002. Goodwill amortization was $14.9
million in fiscal 2001. Other (income) expense, net was $32.7 million in fiscal
2002 versus ($5.5) million in the same period last year. The change was
primarily due to $13.9 million of charges related to debt for equity exchanges
in the current year, refinancing costs incurred in connection with debt waiver
obtained in the current year and prior year gains on asset sales of $18.4
million.
Operating loss was $168.6 million, or (6.9%) of net sales versus operating
loss of $36.7 million, or (1.5%) of net sales last year due to the items
discussed above.
Transportation operating loss was $10.0 million, or (0.7)% of net sales this
year, versus operating loss of $62.3 million, or (4.1)% of net sales last year,
due to the items discussed above.
Motive Power operating income was $16.3 million, or 3.4% of net sales this
year, versus operating income of $29.0 million, or 6.5% of net sales last year,
due to the items discussed above.
Network Power operating loss was $110.6 million, or (25.4)% of net sales,
this year versus operating income of $55.7 million, or 12.1% of net sales, last
year due to the items discussed above.
Interest expense, net
Interest expense, net increased $18.5 million from $117.7 million to $136.2
million due to interest charges related to the GNB acquisition financing and
the accelerated amortization of deferred financing fees recognized during the
third and fourth quarters of fiscal 2002. The additional amortization was a
result of the Company securing a waiver from its senior lenders on January 4,
2002 through April 12, 2002 of certain covenants contained in its Senior
Secured Global Credit Facility. As a result, the Company shortened the
amortization period to coincide with the expiration of the waiver.
Income Taxes
In fiscal 2002, an income tax benefit of $1.4 million was recorded on a
pre-tax loss of $304.8 million. In fiscal 2001, an income tax provision of $8.6
million was recorded on a loss of $154.3 million. The effective tax rate for
the fiscal year 2002 was impacted by the recognition of valuation allowances on
tax benefits generated from current period losses in both the United States and
certain international regions, the tax treatment of the debt for equity
exchanges and the Lion Compact Energy agreement termination as well as the
non-deductibility of the Network Power goodwill impairment charge. As a result
of certain pledges of stock of foreign subsidiaries
27
in connection with bank amendments obtained during fiscal 2002, the Company was
required to recognize certain foreign sourced income ("Subpart F Income") as a
constructive dividend for U.S. tax purposes. The constructive dividend has
otherwise reduced operating loss tax carry-forwards. During fiscal 2002 the
Company reorganized the ownership structure of certain of its foreign
subsidiaries and recorded an impairment charge on certain intercompany
investments for statutory purposes. These actions have no effect on reported
pre-tax operating results but resulted in a net tax benefit.
A net loss of $304.1 million in fiscal 2002 versus a net loss of $164.6
million in the same period last year, resulted from the items discussed above.
Fiscal Year Ended March 31, 2001 Compared with Fiscal Year Ended March 31, 2000
Overview
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 restructuring
and other merger related charges aggregating $113.2 million in fiscal 2001 and
$39.3 million in fiscal 2000.
On September 29, 2000 the Company acquired GNB for total consideration of
$379.0 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 Network and Motive Power businesses as a result of
GNB's strong presence in that market.
Net Sales
Net sales increased 10.8% or $237.7 million to $2,432.1 million for fiscal
2001 versus $2,194.4 million in fiscal 2000. Included in fiscal 2001 year net
sales was 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. Lower Transportation sales were due to reduced volumes and
average selling prices, which more than offset improvements in Motive Power and
Network segments. 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 further reduced by $23.9 million, principally in the
Transportation segment due to charges for warranty reserves recorded in the
fourth quarter.
Net sales in the Transportation segment for fiscal 2001 increased 2.4% to
$1,522.5 million versus $1,486.9 million in fiscal 2000. 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 a change in estimate of warranty reserves recorded in the fourth quarter.
Motive Power net sales for fiscal 2001 were $449.4 million versus $401.6
million in fiscal 2000. GNB's net sales in its Motive Power business were $62.6
million in the third and fourth quarters of fiscal 2000. Currency negatively
impacted Motive Power net sales in fiscal 2001 by approximately $51.3 million.
The improvement resulted from strong demand and incremental volumes in our
Motive Power markets.
Network Power net sales for fiscal 2001 were $460.2 million versus $306.0
million in fiscal 2000. GNB's net sales in its Network Power business were
$124.4 million in the third and fourth quarters of fiscal 2000. Currency
negatively impacted Network Power net sales in fiscal 2001 by approximately
$44.4 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.
28
Gross Profit
Gross profit increased 9.5% to $584.0 million for fiscal 2001 compared to
$533.3 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 Motive Power and Network
Power 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 inventory at market value for the GNB acquisition discussed above.
Fiscal 2000 gross profit also included a charge of $21.6 million for non-core
business divestitures, $11.1 million of asset write-downs and $23.9 million of
charges for changes in the estimate of warranty reserves.
Transportation gross profit was $303.6 million in fiscal 2001 versus $322.2
million in fiscal 2000 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 fiscal 2001 versus 21.7% in fiscal 2000 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 charges for
changes in estimates of warranty reserves, the divestiture of certain non-core
businesses and other asset write-downs.
Motive Power gross profit was $137.5 million in fiscal 2001, versus $133.4
million in fiscal 2000. GNB's Motive Power gross profit was $13.2 million in
the third and fourth quarters of fiscal 2000. Strong Motive Power demand in the
current year was offset by $17.2 million in negative currency impact and by the
inventory step-up described above. Gross margin as a percent of net sales was
30.6% in fiscal 2001 versus 33.2% in fiscal 2000.
Network Power gross profit was $143.0 million in fiscal 2001 versus $77.7
million in fiscal 2000. GNB's gross profit in its Network Power business was
$40.7 million in the third and fourth quarters of fiscal 2000. Strong Network
Power demand in the current year was offset by $11.6 million in negative
currency impact and by the inventory step-up described above. Gross margin as a
percent of net sales was 31.1% in fiscal 2001 versus 25.4% in fiscal 2000.
Operating Expenses
Operating expenses increased $67.9 million, from $552.8 million in fiscal
2000 to $620.7 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 restructuring and other merger related
charges totaling $113.2 million. In addition, approximately $31.0 million was
recorded for fines and associated costs resulting from the plea agreement
related to past improper business practices of the Company's former management.
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, and $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. 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.
Transportation operating expenses increased $56.1 million, from $309.8
million in fiscal 2000 to $365.9 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 restructuring and other charges in
fiscal 2001 discussed above totaled $96.6 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. The Transportation segment portion of restructuring and
other charges in fiscal 2000 discussed above was $27.5 million. Weaker European
currencies favorably impacted Transportation operating expenses in fiscal
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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.
Motive Power operating expenses increased $9.3 million, from $99.2 million
in fiscal 2000 to $108.5 million in fiscal 2001. GNB had $12.0 million of
Motive Power operating expenses in the third and fourth quarters of fiscal
2000. Weaker European currencies favorably impacted Motive Power operating
expenses by approximately $12.0 million in fiscal 2001 as did general
cost-reduction programs.
Network Power operating expenses increased $19.5 million, from $67.7 million
in fiscal 2000 to $87.2 million in fiscal 2001, resulting from both the GNB
acquisition and costs to support the increased level of activity. GNB had $20.0
million of Network Power operating expenses in the third and fourth quarters of
fiscal 2000. Weaker European currencies favorably impacted Network Power
operating expenses by approximately $9.4 million in fiscal 2001 as did general
cost-reduction programs.
Non-segment operating expenses including other (income) and expense
decreased $17.0 million, from $76.1 million in fiscal 2000 to $59.1 million in
fiscal 2001. Other segment charges in fiscal 2001 included $46.2 million for
restructuring and integration initiatives. In fiscal 2000, other segment
charges included $18.5 million for restructuring charges, the "used as new"
litigation and the write-off of in-process research and development costs.
Fiscal 2001 Other 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. Other (income) expense, net was $(5.5) million for Fiscal 2001
versus $16.8 million for 2000. The change was primarily due to higher gains on
asset sales in Fiscal 2001, including $13.0 million from the sale of the
Company's stake in Yuasa, Inc. and $12.6 million in charges related to asset
write-downs and changes in estimates to European balance sheet reserves in
Fiscal 2000.
Operating loss was $36.7 million in fiscal 2001 versus $19.6 million in
fiscal 2000. The higher operating loss was due to the items discussed above.
The Transportation operating loss was $62.3 million, or (4.1)% of net sales
in fiscal 2001 versus operating income of $12.4 million, or 0.8% of net sales
in fiscal 2000 due to the items discussed above.
Motive Power operating income was $29.0 million, or 6.5% of net sales in
fiscal 2001 versus $34.2 million, or 8.5% of net sales in fiscal 2000 due to
the items discussed above.
Network Power operating income was $55.7 million, or 12.1% of net sales in
fiscal 2001 versus $10.0 million, or 3.3% of net sales in fiscal 2000 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.
Income Taxes
In fiscal 2001, income tax expense of $8.6 million was recorded on a loss of
$154.3 million. In fiscal 2000, income tax expense of $10.8 million was
recorded on a loss 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, 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
30
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 14 to the Financial Statements, on September 29, 2000,
the Company acquired the global battery business of GNB, a leading U.S. and
Pacific Rim manufacturer of both industrial and automotive batteries, for
consideration of approximately $379.0 million (including $344.0 million in cash
and 4.0 million of the Company's common shares) plus assumed liabilities. The
4.0 million common shares issued in connection with this acquisition were
valued at approximately $9.00 per common share (or $36.0 million), which was
the closing price per share of the Company's common stock when the terms of the
acquisition were agreed to and announced on May 9, 2000.
The Company financed the cash portion of the purchase price, including
associated fees and expenses, through an additional $250.0 million term loan
under its existing Senior Facility, and $100.0 million of securitized GNB
accounts receivables. The Company also issued warrants to acquire 1,286 common
shares with an exercise price of $8.99 per share in conjunction with the term
loan financing. These warrants are immediately exercisable. The warrants were
valued using Black Scholes model with the following assumptions:
Exercise Price......... $8.99 per common share
Expected Term.......... 5.5 years
Expected Volatility.... 34%
Risk Free Interest Rate 5.92%
Annual Dividend Yield.. 0.88%
Grant Date Stock Price. $ 9.0625 per common share
Lion Compact Energy
In 2000, the Company recorded charges totaling $14.3 million for purchased
in-process research and development resulting from the acquisition of a
controlling interest in Lion Compact Energy (LCE), a privately held company
conducting research in dual-graphite technology.
Purchased in-process research and development represents the value assigned
in a purchase business combination to research and development projects of the
acquired business that were commenced, but not yet completed, at the date of
acquisition and which, if unsuccessful, have no alternative future use in
research and development activities or otherwise. In accordance with SFAS No.
2, "Accounting for Research and Development Costs," as interpreted by FASB
Interpretation No. 4, amounts assigned to purchased in-process research and
development meeting the above criteria must be charged to expense at the date
of consummation of the purchase business combination.
At the time of acquisition of its interest in LCE, the Company expected to
continue supporting this research and development effort. However, given the
uncertainties associated with successful completion of research and development
there can be no assurance that such projects will meet either technological or
commercial success. The Company does not believe that the failure of this
project would materially impact the Company's financial condition, liquidity or
results of operations.
31
The Company obtained appraisals in connection with the valuation of the
acquired assets of LCE, principally purchased in-process research and
development. The Company believes that the assumptions and forecasts used in
valuing purchased in-process research and development were reasonable at the
time. No assurance can be given, however, that future events will transpire as
estimated. As such, actual results may vary from the projected results.
The valuation was completed based on an analysis of discounted cash flow,
using assumptions and estimates about the range of possible cash flows, and
their probabilities. The cash flow model evaluated cash flows from successful
project completion (including estimated revenue and expenses), estimated future
research and development costs and return on assets employed. Risk adjusted
cash flows were discounted using a discount rate of 43%, commensurate with the
risk associated with this investment and stage of the enterprise.
During the third quarter of fiscal 2002, the Company exercised an option to
re-convey its interest in LCE to the seller in exchange for extinguishment of
the remaining purchase price obligations due. The Company recorded a credit to
income of $8.2 million, at that time, equal to the present value of the
expected future purchase price payments.
Liquidity and Capital Resources
Capital Structure
During the third quarter of fiscal 2002 the Company retained JA&A Services
LLC. JA&A Services LLC is an affiliate of Alix Partners, LLC, a financial
advisory and consulting firm specializing in corporate restructuring, which has
been retained by the Company in connection with its reorganization. A principal
of JA&A Services LLC was named Chief Financial Officer and Chief Restructuring
Officer of Exide on October 26, 2001. Additionally, the Company engaged an
investment banking firm, The Blackstone Group, to assist management in
evaluating its capital structure and related strategic alternatives.
In connection with these appointments, the Company initially developed
short-term operational reorganization plans to generate cost savings and
enhance liquidity. Initiatives included development of a five year business
plan and targeted actions designed to improve cash management, including
reduced spending, rationalization of facilities, utilization and effectiveness
of support services and refining material purchasing and overall inventory
management
Following discussions with the Company's principal lenders and evaluation of
possible capital structure alternatives, on April 15, 2002 the Company and
certain of its U.S. subsidiaries filed for reorganization under Chapter 11 as
it offered the most efficient alternative to restructure its balance sheet and
access new working capital while continuing to operate in the ordinary course
of business (see Item 1. Business, Overview in this Report). The Company's
operations outside of the U.S. are not directly affected by the Chapter 11
proceedings. However, in connection with the bankruptcy filing, the Company
entered into a "Standstill and Subordination Agreement" with the Pre-petition
Senior Secured Credit Facility Lenders, whereby the lenders agreed to forbear
collection of principal payments on foreign borrowings under this facility from
non-debtor subsidiaries until December 2003, subject to earlier termination for
the occurrence of certain events. In addition, the Company continues to accrue
and pay interest of the Debtors under the Pre-petition Senior Secured Credit
Facility subject to liquidity calculations prescribed in the DIP Credit
Facility.
On April 17, 2002 the Company received preliminary Bankruptcy Court approval
of a $250.0 million DIP Credit Facility and final Bankruptcy Court approval for
such facility on May 10, 2002 . The DIP Credit Facility was arranged by
Citicorp N.A., and Salomon Smith Barney is being used to supplement cash flows
from operations during the reorganization process including the payment of
certain permitted pre-petition claims, working capital needs, letter of credit
requirements and other general corporate purposes.
Upon closing, approximately $129.0 million of the DIP Credit Facility was
drawn down, $117.0 million being used to terminate and repurchase uncollected
securitized accounts receivable under the Company's existing U.S. receivables
sale facility and the balance for financing costs and related fees.
32
The DIP Credit Facility is a secured revolving credit and term loan facility
under which Exide Technologies is the borrower with certain U.S. subsidiaries
acting as guarantors. The DIP Credit Facility is afforded super priority claim
status in the Chapter 11 case and is collateralized by first liens on certain
eligible U.S. assets of the Company, principally accounts receivable, inventory
and property, plant and equipment.
The revolving credit tranche of the facility provides for borrowings up to
$121.0 million, of which up to $65.0 million is available to Exide Technologies
for on-lending to its foreign subsidiaries, subject to borrowing base
availability. An additional $50.0 million sub-facility is also available to the
foreign subsidiaries based on certain collateral asset values in the United
Kingdom, Canada and Australia. To the extent funds are borrowed under the DIP
Credit Facility and on-lent to foreign subsidiaries, additional liens on
certain assets of the borrowing foreign subsidiary and related guarantees are
required. Up to $40 million of the revolving credit tranche is available for
letters of credit.
Borrowings under the DIP Credit Facility bear interest at base rate plus
2.75% per annum or Libor plus 3.75% per annum. Borrowings are limited to
eligible collateral under the DIP financing. Availability to the Company is
impacted by changes in both the amounts of the collateral and qualitative
factors (such as aging of accounts receivable and inventory reserves) as well
as cash requirements of the business such as trade credit terms. The DIP Credit
Facility contains certain financial covenants requiring the Company to maintain
specified levels of monthly earnings before interest, taxes, depreciation,
amortization, restructuring and certain other defined charges, as well as
limits on capital expenditures and cash restructuring expenditures. The DIP
facility also contains other customary covenants, including certain reporting
requirements and covenants that restrict the Company's ability to incur
indebtedness, create or incur liens or guarantees, make investments or
restricted payments, enter into leases, sell or dispose of assets, change the
nature of its business or enter into related party transactions. The Company
believes it was in compliance with DIP Credit Facility Covenants as of June 30,
2002. The Company has presented to its banks an operating plan which assumes
that the Company will maintain compliance with its covenants in fiscal 2003.
Currently the Company expects to maintain adequate financial resources during
fiscal 2003 (considering both funds available under the DIP Credit facility and
cash flows generated from operations) while pursuing its strategic options and
development of a plan of reorganization. However no assurance can be given that
the Company will maintain compliance with its covenants or have adequate
financial resources available during fiscal 2003. Failure to maintain
compliance with these covenants would result in an event of default, which
absent cure within defined grace periods or obtaining appropriate waivers,
would restrict the Company's availability to funds necessary to maintain its
operations and assist in funding of our reorganization plans. The Company has
obtained waivers under the DIP Credit Facility and Standstill and Subordination
Agreement for late delivery of its audited consolidated financial statements
for the fiscal year ended March 31, 2002.
The DIP Credit Facility matures on the earlier of February 15, 2004, 30 days
before the pre-petition Revolving Credit and Tranche A Senior Secured Credit
Facility matures or the date the Company emerges from bankruptcy.
As described above, in connection with its Bankruptcy filing, the Company
also entered into a "Standstill and Subordination Agreement" with their $900
million pre-petition Senior Secured Credit Facility lenders. Under the
agreement the lenders agreed to forebear collection of any principal payments
on foreign borrowings under this facility by non-debtor subsidiaries until
December 2003, subject to earlier termination upon the occurrence of certain
events. Borrowings under the pre-petition Senior Secured Credit Facility by
debtors are subject to compromise.
Interest obligations for the non-debtor subsidiaries, will continue to be
accrued and paid when due. The Standstill and Subordination Agreement contains
essentially the same financial covenants as the DIP Credit Facility.
On May 31, 2002 the Company entered into a new $177.5 million European
accounts receivable securitization facility. This facility replaced the
Company's existing $175 million European securitization program. The new
facility will be accounted for as a secured borrowing in accordance with the
requirements of FAS 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities", whereby the accounts receivable and
related borrowings will be recorded on the Company's consolidated balance sheet.
33
In July 2001, the Company completed debt-for-equity exchanges where
approximately $30.0 million face value of convertible notes were exchanged for
approximately 1.9 millon shares of common stock. Since these exchanges involve
a convertible security, the Company recognized a non-cash charge in the second
quarter equivalent to the market value of the shares issued in excess of the
original conversion ratio of the notes of $13.9 million. The non-cash charge
was included in the "Other (income) expense, net" line of the consolidated
statement of operations. The carrying value of the notes was $25.5 million. The
Company reduced debt and increased shareholders' equity by $25.5 million as a
result of the transaction.
Sources of Cash
The Company's liquidity requirements have been met historically through
operating cash flows, borrowed funds and the proceeds of sales of accounts
receivable and sale-leaseback transactions. Additional cash has been generated
in recent years from the sale of non-core businesses and assets. At March 31,
2002, the Company had a U.S. receivables purchase agreement and a European
receivables purchase agreement under which third parties had committed, subject
to certain exceptions, to purchase selected accounts receivable, up to a
maximum commitment of $200.0 million and $175.0 million, respectively. Both
financing arrangements have been refinanced in connection with the Company's
reorganization efforts and Chapter 11 filing.
Cash flows used in operating activities were $6.7 million (net of ($35.2)
million related to the net change from sales of receivables) in fiscal 2002.
This compares to cash flows provided by operating activities of $90.2 million
(of which $94.9 million related to the net change from sales of receivables) in
the same period of fiscal 2001. Less cash was generated this year than
historically experienced due to our lower general sales volume levels. Also, we
lost 100% of the Les Schwab account and certain regional business with Wal-Mart
due to our previously discussed inability to meet certain customer orders in
the second quarter. Total lost volume for the Transportation segment is
estimated to be 1.8 million units annually. The uncertainties of the Chapter 11
could also have an impact on the Company's ability to attract and retain
customers. Since March 31, 2002, NAPA recently advised the Company of its
intent to source certain of its requirements from competitors. The Company
currently estimates that this action could result in potential lost volume of
up to 800,000 units annually.
Primary working capital (inventories plus receivables less accounts payable)
at March 31, 2002 was $419.1 million, as compared to $590.2 million at March
31, 2001. Primary working capital year on year decreased $171.1 million,
excluding currency impacts and divestitures. The reduction in working capital
resulted from weakness in each of the Company's reporting segments and
significant inventory and receivable reductions from ongoing working capital
improvement programs initiated in connection with the Company's operational and
restructuring efforts.
Prior to the Company's Chapter 11 filing and since that time the Company has
experienced a tightening of trade credit availability and terms. In the future
there can be no assurance that the Company will be able to obtain and return to
trade credit on terms traditionally obtained.
The Company generated $4.8 million and $45.5 million in cash from the sale
of non-core businesses and other assets in fiscal 2002 and fiscal 2001,
respectively. Proceeds from these sales were primarily used to reduce debt.
Total debt at March 31, 2002 was $1,413.3 million, as compared to $1,347.0
million at March 31, 2001. See Note 7 to the Consolidated Financial Statements
for composition of such debt. Indebtedness of the Debtors as of the Petition
Date, amounting to approximately $1,052.9 million, is subject to settlement
under a plan of reorganization to be voted upon by creditors and equity holders
and approved by the Bankruptcy Court.
Going forward, in addition to operating cash flows, the Company's principal
sources of liquidity will be the DIP Credit Facility, plus proceeds from any
asset sales. The Company is considering various asset sales, and in connection
therewith has engaged The Blackstone Group to evaluate potential opportunities.
No commitments have been made as to any specific asset sales.
Uses of Cash
The Company's liquidity needs arise primarily from the funding of working
capital needs, obligations on indebtedness and capital expenditures. Because of
the seasonality of our business, more cash has been typically
34
generated in our third and fourth fiscal quarters than the first and second
quarters. Greatest cash demands from operations have historically occurred
during the months of June through October.
Capital expenditures were $61.3 million and $69.5 million in fiscal 2002 and
fiscal 2001, respectively. Subject to restrictions under the DIP Credit
Facility, capital expenditures are expected to be approximately $75 million in
fiscal 2003.
The Company has noncontributory defined benefit pension plans covering
substantially all hourly employees in North America. Cash contributions to
these plans are made in accordance with the minimum requirements of ERISA.
Because of the recent down-turn in equity markets, among other factors, these
plans are currently significantly under-funded. Based upon current assumptions
and regulatory requirements the Company's minimum future cash contribution
requirements are expected to increase significantly in fiscal years 2004
through 2007.
Exide's Board of Directors suspended the Company's quarterly common stock
dividend of $0.02 per share as of November 8, 2001. Future dividends are also
prohibited by covenants under the DIP Credit Facility.
Restructuring Activities
Following the acquisition of GNB in September 2000, the Company initiated an
overall restructuring program with specific approved actions and plans
involving facility, branch and corporate office closures and consolidation,
principally in connection with overall integration plans to affect the
combination of the two organizations. Such actions impacted both existing Exide
and acquired GNB employees and facilities and were announced in three stages
since the acquisition of GNB in September 2000. The specific actions taken
under the overall restructuring plan were designed to reduce costs and improve
earnings and cash flows with an expected annual benefit of approximately $90
million. The impact of the benefits of restructuring initiatives on operating
results have been more than offset by lower volumes and related unfavorable
absorption variances.
Both the fiscal 2000 and 2001 restructuring charges relate to specific
approved actions and plans that were part of this overall restructuring
program. During fiscal 2002, the Company continued to implement operational
changes to streamline and rationalize its structure in an effort to simply the
organization and eliminate redundant and/or unnecessary costs with a goal of
reducing its salaried workforce by approximately 20%. As part of these
restructuring programs, the nature of the positions eliminated range from plant
employees and clerical workers to operational and sales management.
Fiscal 2002
During the second and third quarters the Company recognized restructuring
charges of $24.7 million representing severance and related costs of $19.3
million and $5.4 million of non-cash charges related to the write-down of
machinery and equipment at the Maple, Ontario facility, in the Statement of
Operations. Approximately 1,300 employees have been terminated as of March 31,
2002. As a result of the fiscal 2002 actions and plans, future financial
results will be benefited through lower depreciation and reduced salary costs,
favorably impacting cost of sales and other operating expenses.
In the aggregate, payments made during fiscal 2002 from operating cash flows
to terminated employees and third parties for other costs total approximately
$65.2 million.
There have been no material changes to the fiscal 2002 restructuring charge
accrued or the approved actions and plans to which this charge relates. As a
result of the unexpected downturn in the telecommunication industry and its
negative impact on the Company's network power operations, in November 2001,
the Company
35
announced that the Maple, Ontario manufacturing operations would not be
reopened as a Network Power manufacturing plant as previously announced.
During the fourth quarter the Company recognized restructuring charges of
$8.4 million, representing $3.4 million severance and related costs, and $5.0
million of non-cash charges related to the write-down of machinery and
equipment. These charges resulted from plans involving the closure of two North
American plastics manufacturing plants, a North American Network Power facility
and office consolidations in Alpharetta, Georgia and Lombard, Illinois.
Approximately 500 employees will be terminated in connection with these
plans, which are expected to be completed by the end of the second quarter of
fiscal 2003.
These actions are expected to provide annual savings through reduced wage
and salaries, lower depreciation and improved manufacturing overhead absorption.
Fiscal 2001
During fiscal 2001, the Company recognized restructuring charges of $97.4
million representing severance and related of costs of $40.0 million, $15.7
million of closure costs and $41.7 million of non cash charges related to the
write-down of machinery and equipment in the Statement of Operations. A further
$28.8 million charge was recognized in connection with the GNB purchase price
allocation. The Company originally planned to terminate approximately 1,425
employees relating to these fiscal 2001 initiatives. As a result of the Fiscal
2001 actions and plans, financial results for future years will be benefited
through lower depreciation and reduced salary costs, favorably impacting cost
of sales and other operating expenses.
In the aggregate, payments made during fiscal 2001 from operating cash flows
to terminated employees and third parties for other closure costs totaled
approximately $26.7 million.
There have been no material changes to the fiscal 2001 restructuring charge
accrued or the approved actions and plans to which this charge relates with the
exception of the Maple, Ontario automotive manufacturing operations. During the
second quarter of fiscal 2001, the Company recorded a charge of $13.4 million
related to the closure of this facility, including severance costs, asset
write-offs and other closure costs. Subsequent to the decision to close this
facility, the Company experienced an increase in the demand for its Network
Power products as well as projected demand for the foreseeable future. As a
result, the Company decided to redevelop this facility as a Network Power
manufacturing plant. Therefore, the Company reversed $7.2 million of these
charges related to asset write-offs and other closure costs during the fourth
quarter of fiscal 2001.
Fiscal 2000
During fiscal 2000 the Company recognized restructuring charges in the
Statement of Operations of $39.3 million. Of the 300 employees that the Company
originally planned to terminate, substantially all were terminated. As a result
of the Fiscal 2000 actions and plans, financial results for future years will
be benefited through lower depreciation and reduced salary costs, favorably
impacting cost of sales and other operating expenses.
In the aggregate, payments from operating cash flows to terminated employees
and third parties for other closure costs during fiscal 2000 totaled
approximately $15.1 million.
There have been no material changes to the fiscal 2000 restructuring charge
accrued or the approved actions and plans to which this charge relates.
Additional details about these restructuring programs and initiatives
implemented in prior years are contained in Note 15 to the Consolidated
Financial Statements.
36
Financial Instruments and Market Risk
The Company has used financial instruments, including fixed and variable
rate debt as well as swap, forward and option contracts to finance its
operations and to hedge interest rate currency and certain lead purchasing
requirements. The swap, forward, and option contracts are entered into for
periods consistent with related underlying exposures and do not constitute
positions independent of those exposures. The Company does not enter into
contracts for speculative purposes nor is it a party to any leveraged
instruments.
The Company's ability to utilize financial instruments has been
significantly restricted because of the Chapter 11 cases and the resultant
tightening, and or elimination of credit availability with counter-parties.
Accordingly, the Company is now exposed to greater risk with respect to its
ability to manage exposures to fluctuations in foreign currencies, interest
rates, and lead prices.
During fiscal 2001, the Company had two currency and interest rate swap
agreements, which effectively converted $110.5 million of borrowings under the
Senior Secured Global Credit Facilities Agreement and certain inter-company
loans into 406.2 million French Francs (U.S. $68.5 million) and 25.2 million
British pounds sterling (U.S. $42.0 million). We received LIBOR and paid PIBOR
and pound sterling LIBOR. The Company terminated these agreements on December
27, 2000 and received a cash payment of 13.7 million Euros and 3.3 million
British pounds sterling, respectively. There was no impact on the consolidated
statements of operations related to these terminations. Simultaneously, the
Company entered into two six-month forward contracts to continue to hedge these
transactions. During the third quarter of fiscal 2002 the Company discontinued
hedging these transactions with forward contracts.
During the fourth quarter of fiscal 2000 the Company assigned 382.5 million
French Francs (U.S. $64.5 million) of its then existing currency and interest
rate swap agreement to a new counter party and received a cash payment of 8.5
million Euros. Simultaneously, the Company entered into a new 66.8 million Euro
(U.S. $64.5 million) one-year currency and interest rate hedge agreement. The
Company terminated this agreement in the second quarter of fiscal 2001 and
received a cash payment of 6.2 million Euros. There was no impact on the
consolidated statements of operations related to these terminations.
Simultaneously, the Company entered into a new 73.1 million Euro (U.S. $64.5
million) one-year currency and interest rate hedge agreement with this same
counter party. The Company receives LIBOR plus 2.25% and pays Euro LIBOR plus
2.27%. The Euro principal amount is reset quarterly. This swap matured in
October 2001 and was replaced with a forward contract. The Company has since
discontinued hedging these transactions with forward contracts.
On October 18, 2000, we entered into a $60.0 million two year interest rate
swap agreement for which we pay a quarterly fixed rate of 6.55% and receive a
three-month LIBOR rate. The agreement was terminated during the first quarter
of fiscal 2003 in connection with the Company's Chapter 11 filing. The swap
hedged a portion of the variable interest exposure on our $900.0 million Global
Credit Facilities Agreement Tranche B Term Loans.
On January 17, 2001, we entered into an interest rate cap agreement, which
reduces the impact of changes in interest rates on a portion of our floating
rate debt. The cap agreement effectively limits the three-month LIBOR based
interest rate on $70.0 million of our U.S. borrowings to no more than 6.5%
through July 17, 2002.
In fiscal 2001, we entered into certain forward contracts and option
contracts to hedge the purchase price of lead on a portion of the Company's
lead usage being sourced through external purchases. Such contracts are
effective through the fourth quarter of fiscal 2002.
On April 1, 2001, the Company adopted SFAS 133 "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS 138 "Accounting for
Certain Derivative Instruments and Certain Hedging Activities". See Note 3 to
the Consolidated Financial Statements for further discussion.
37
Receivables Securitization Programs
The Company historically has maintained receivables securitization programs
in the United States (the "U.S. program") and Europe (the "European program").
Cash generated from these programs has been used to provide liquidity
requirements to the Company.
Under the U.S. program, the Company sold certain receivables of U.S.
entities at a discount on a continuous basis to a consolidated company which,
in turn, sold the same receivables to a third party. The maximum amount of
receivables to be sold under this program at any point in time was $200.0
million.
Under the European program, the Company's European subsidiaries sell certain
receivables on a continuous basis to a consolidated company which in turn sold
the same receivables to third parties. The maximum amount of receivables to be
sold under this program at any point in time was $175.0 million. Losses in
connection with these programs are reflected in the other (income) expense, net
line item of the consolidated statement of operations.
On May 31, 2002 the Company entered into a new $177.5 million European
accounts receivable securitization facility. This facility replaced the
Company's existing $175.0 million European accounts receivable securitization
program. The new facility will be accounted for as a secured borrowing in
accordance with the requirements of SFAS 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", whereby the
accounts receivable and related borrowings will be recorded on the Company's
consolidated balance sheet. Upon closing of the DIP Credit Facility discussed
above, on April 17, 2002, the Company terminated and repurchased uncollected
securitized accounts receivable under the U.S. Program for approximately $117.0
million.
Contractual Obligations and Commercial Commitments
Information related to the Company's contractual obligations and commercial
commitments are summarized in the following tables:
2008
Total at and
3/31/02 2003 2004 2005 2006 2007 beyond
-------- ------ ------ ------ ------ ----- ------
Long term debt, including capital
leases(b)........................... $1,402.3 $ 29.3 $260.7 $479.3 $622.2 $ 1.4 $ 9.4
Short-term borrowings................. 11.0 11.0
Operating Leases...................... 191.4 54.0 43.6 33.9 23.8 12.6 23.5
Unconditional Purchase Obligations (a) 236.2 32.8 33.1 33.4 33.7 34.0 69.2
-------- ------ ------ ------ ------ ----- ------
Total Contractual Cash Obligations.... $1,840.9 $127.1 $337.4 $546.6 $679.7 $48.0 $102.1
======== ====== ====== ====== ====== ===== ======
- --------
(a) Reflects the Company's projected annual minimum purchase commitment,
including penalties under the supply agreement entered into as a result of
the sale of the Company's separator business; amounts may vary based on
actual purchases (See Note 17).
(b) Does not reflect the classification of certain indebtedness under the
Senior Secured Credit Facility as a current obligation (See Note 7)
At March 31, 2002, the Company had outstanding letters of credit of $32.0
million and surety bonds of $58.5 million. The Company has not yet determined
the effect, if any, that its Chapter 11 filing may have with respect to the
obligors or beneficiaries of these instruments or the resultant impact that
changes in availability of these instruments from traditional sources may have
on the Company's liquidity.
Under the Bankruptcy Code, actions to collect pre-petition indebtedness of
the Debtors, as well as most other pending litigation against the Debtors, are
stayed and other contractual obligations against the Debtors may not be
enforced. In addition, the Debtors may assume or reject executory contracts,
including lease obligations. Therefore, the commitments shown in the above
table and discussed above may not reflect actual cash outlays in the future
periods.
38
Trading Activities
The Company does not have any trading activity that involves non-exchange
traded contracts accounted for at fair value.
Related Parties
The services of Lisa J. Donahue, Chief Financial Officer and Chief
Restructuring Officer, are provided to the Company pursuant to a Services
Agreement, dated October 25, 2001, between the Company and JA&A Services LLC.
Under the Services Agreement, the Company is charged an hourly fee for Ms.
Donahue's and other temporary employees' services, and Ms. Donahue, a principal
in Alix Partners, LLC, is compensated independently by JA&A Services LLC. JA&A
Services LLC is an affiliate of Alix Partners, LLC, a financial advisory and
consulting firm specializing in corporate restructuring, which has been
retained by the Company in connection with its financial restructuring. Ms.
Donahue is also a principal in Alix Partners, LLC. Fees incurred by the Company
during fiscal 2002 under the Services Agreement were $5.2 million.
Effects of Inflation
Inflation has not had a material impact on our operations during the past
three years. We generally have been able to offset the effects of inflation
with price increases, cost-reduction programs and operating efficiencies.
Future Environmental Developments
We are subject to extensive federal, state, local and foreign environmental,
health and safety laws and regulations. Future environmental, health and safety
standards may be more stringent. We anticipate that such potential standards
could cause an increase in our capital expenditures and operating costs. Unless
and until the standards are adopted it is not possible to estimate these costs
with any certainty or to predict whether they will have a material effect on
our financial condition or results of operations. See Item
1,"Business--Environmental, Health and Safety Matters".
Other Matters
Exide Technologies previously disclosed that it has been delayed in filing
this Annual Report on Form 10-K for the fiscal year ended March 31, 2002 (this
"Report"). Among the reasons for the delay were recent departures of
substantial numbers of the Company's financial and accounting employees and
increased reporting obligations in connection with Exide' April 15, 2002 filing
for protection under Chapter 11 of the U. S. Bankruptcy Code. In addition, the
following also contributed to the delay.
Retention of Independent Auditors.
PricewaterhouseCoopers LLP ("PwC") was retained by the Company to perform an
audit of its consolidated financial statements for the year ended March 31,
2002. However, upon the bankruptcy filing (April 15, 2002), the appointment
required Bankruptcy Court approval. The approval process was not completed
until July 30, 2002.
Fiscal Year 2000 Audit by Arthur Andersen LLP.
Arthur Andersen LLP was Exide's independent accountant for fiscal 2000. In
October 2001 the Company changed its organizational structure and now reports
three segments. In accordance with FAS 131, prior year segment data has been
reclassified to reflect the current year presentation. See Note 21 to the
Consolidated Financial Statements to the Report. In addition, the Company has
updated certain other disclosures in the Notes, and changed the manner of
presentation of other (income) expense in the financial statements. A copy of
the report of Arthur Andersen LLP previously issued with respect to the
financial statements of the Company for the fiscal year ended March 31, 2000
has been included in this Report but has not been reissued (See, Report of
Independent Accountants at page F-3 of the Consolidated Financial Statements to
this Report).
39
Because Arthur Andersen LLP is not available to review the Company's
presentation of information for the period covered by Arthur Andersen LLP's
audit opinion, it is not possible to obtain their consent to such presentation
and, absent a reaudit of the fiscal 2000 financial statements, this financial
information may be considered unaudited. As a result, the Company believes it
may not qualify to access the public capital markets until it has audited
financial statements for its three most recent fiscal years.
SEC Comment Letter
The SEC has issued comments on the following reports of the Company: Annual
Report on Form 10-K for the fiscal year ended March 31, 2001; Amended Form 10-K
for the fiscal year ended March 31, 2001; Quarterly Report on Form 10-Q for the
period ended June 30, 2001; Quarterly Report on Form 10-Q for the period ended
September 30, 2001; Form 8-K/A dated December 13, 2000; and Form 8-K dated
March 23, 2001. The Company has responded to the SEC's comments. The Company
believes the information in this report fairly presents in all material
respects the financial condition and results of operation of the Company. There
can be no assurance, however, that the SEC will not have additional comments or
reach a determination different than that of the Company's.
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
The Company is exposed to market risks from changes in foreign currency
exchange rates, certain commodity prices and interest rates. In order to manage
theses risks, the Company participates in a risk management program, which
includes entering into financial instruments, including fixed and variable rate
debt as well as swap, forward and option contracts. The financial instruments
are entered into for periods consistent with related underlying exposures and
do not constitute positions independent of those exposures. The Company does
not enter into contracts for speculative purposes nor is it a party to any
leveraged instruments. Further, the counterparties to these contractual
arrangements are major financial institutions and therefore the Company does
not anticipate non-performance by counterparties to these contracts, and no
material loss would be expected from any such non-performance. A discussion of
our accounting policies for derivative instruments is provided in Notes 2 and 3
to the consolidated financial statements.
The Company's ability to utilize financial instruments has recently been
significantly restricted because of the tightening of credit availability with
counterparties. Accordingly, the Company is now exposed to greater risk with
respect to its ability to manage exposures to fluctuations in foreign
currencies, interest rates, and lead prices.
Foreign Currency Exchange Rate Risk
The Company is exposed to foreign currency risk related to uncertainty to
which future earnings or assets and liability values are exposed due to
operating cash flows and various financial instruments that are denominated in
foreign currencies. More specifically, the Company is exposed to foreign
currency risk in most European countries, principally Germany, France, the
United Kingdom, Spain and Italy. It is also exposed, although to a lesser
extent, to foreign currency risk in Australia and the Pacific Rim. Movements of
exchange rates against the U.S. dollar can result in variations in the U.S.
dollar value of non-U.S. sales. In some instances, gains in one currency may be
offset by losses in another. The Company enters into certain foreign exchange
rate agreements to hedge exposure to currency fluctuation of certain
transactions denominated in a currency other than the applicable local currency.
Commodity Price Risk
Lead is the principal raw material used in the manufacture of batteries,
representing approximately one-fifth of cost of goods sold. The market price of
lead fluctuates significantly. Generally, when lead prices decrease,
40
many of the Company's customers seek disproportionate price reductions and when
lead prices increase, customers tend to be more accepting of price increases.
The Company periodically enters into exchange-traded and over-the-counter
commodity forward and option contracts. These contracts are executed to hedge
the Company's exposure to the potential change in prices for externally
purchased lead.
Interest Rate Risk
The Company enters into certain interest rate swap agreements to hedge
exposure to interest costs associated with long-term debt. Interest rate swaps
involve the exchange of floating rate interest payments to effectively convert
floating rate debt into fixed rate debt. Interest rate swaps allow the Company
to maintain a target range of interest rates.
The information below summarizes the Company's market risks associated with
outstanding financial instruments as of March 31, 2002. Fair values included
herein have been determined based on quoted market prices.
Notional Value US$ in Fair Value US$ in
Derivative Expiration Thousands Thousands
- ---------- ---------- --------------------- -----------------
Foreign Currency Contracts April 2002 11,100 (20)
Commodity Contracts....... April 2002 6,700 * (142)
Interest Rate Swaps....... October 2002 60,000 (1,941)
- --------
* In Metric Tons
Exide Technologies and certain of its U.S. subsidiaries filed petitions to
reorganize under Chapter 11 of the U.S. Bankruptcy code on April 15, 2002. In
connection with its Chapter 11 filing, the Company received a commitment for
$427.5 million in new financing, including the $250.0 million DIP Credit
Facility arranged by Citicorp USA, a subsidiary of Citibank, N.A., and other
financial institutions. The DIP Credit Facility, along with normal cash flow
from operations, will principally be used to fund its operations and pay
obligations to employees and post-petition suppliers.
In connection with the Chapter 11 filing the Company also entered into a
Standstill and Subordination agreement with its senior secured credit facility
lenders, providing for the deferral of non-U.S. principal payments.
The following table presents the expected debt maturities of debt not
subject to compromise, excluding capital lease obligations and lines of credit,
under the terms of the Company's current and amended borrowing arrangements.
(US$ equivalents in millions) 2003 2004 2005 2006 2007 Thereafter Total Fair Value
- ----------------------------- ------ ------ ------ ---- ---- ---------- ------ ------------
Fixed rate.................... -- -- $ 77.9 -- -- -- $ 77.9 $ 27.2
Weighted average interest rate -- -- 9.13% -- -- -- 9.13% --
Variable Rate................. $ 23.3 $ 91.7 $136.8 -- -- -- $251.8 $159.9
Weighted average interest rate 8.17% 8.04% 7.38% -- -- -- 7.70% --
Item 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements and Schedule at page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
41
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors of the Registrant
Francois J. Castaing (57) Director of Exide since March 1999. Mr. Castaing
is President of Castaing & Associates, an automotive industry consulting firm.
From December 1997 until his retirement from DaimlerChrysler in June 2000, Mr.
Castaing was technical advisor to the Chairman. From 1987 until 1997, Mr.
Castaing held several executive positions with Chrysler, including Executive
Vice President. Mr. Castaing is also Chairman of the Detroit Science Center.
Rodney L. Chadwick (56) Director of Exide since January 2001. Prior to his
resignation in March 2001, Mr. Chadwick was Managing Director and CEO of
Australian-based Pacific Dunlop Limited, a position held since 1996. Mr.
Chadwick is currently a director of Tormey Investments Pty Ltd and the Selpam
Group of Companies. He is the National Vice President of Australian Industry
Group and Chair, Board of Advice, for the Australian Industry Group for
Vocational Education in Australia.
William I. Jacobs (60) Director of Exide since November 2001. Mr. Jacobs
is Managing Director, Chief Financial Officer and a director of New Power
Holdings, Inc., an entity that in June 2002 filed for protection under Chapter
7 of the U. S. Bankruptcy Code. From 1995 to May 2000, Mr. Jacobs served at
MasterCard International, first as Executive Vice President for Global
Resources and later as Senior Vice President, Strategic Ventures. Mr. Jacobs
serves on the boards of Investment Technology Group, Inc., Global Payments,
Inc. and Alpharma, Inc.
John A. James (60) Director of Exide since March 1999. Mr. James is
Chairman of the Board and Chief Executive Officer of the James Group
International, a group of transportation-related companies which he co-founded
in 1971. O-J Transport Company, an entity within the James Group, filed for
bankruptcy in October 2000. Mr. James is the principal owner of Magee
Ford-Mercury, an entity that filed for bankruptcy in December 1999. Mr. James
is also a director of the Hartford Development Foundation and a member of the
National Association of Black Automotive Suppliers. He is also on the Board of
the Boys and Girls Club of Southern Michigan, Michigan Minority Business
Association, the Michigan Economic Development Corporation and the Detroit
Chamber of Commerce.
Robert A. Lutz (70) Director of Exide since December 1998. Mr. Lutz was
Chairman and Chief Executive Officer of Exide from December 1998 until
September 1, 2001 when he tendered his resignation as Chief Executive Officer
of Exide but remained Chairman until May 17, 2002. Mr. Lutz also served as
President of Exide from December 1998 through May 2000. Mr. Lutz is currently
Chairman of GM North America and Vice Chairman of Product Development at
General Motors Corporation. Mr. Lutz retired in July 1998 as Vice Chairman of
Chrysler. Previously, Mr. Lutz was Chrysler's President and Chief Operating
Officer responsible for its car and truck operations worldwide. Mr. Lutz became
President of Chrysler in January 1991. Mr. Lutz is a director of Northrop
Grumman. Mr. Lutz is also a co-founder of the Cunningham Motor Company and is
assisting in product development.
Heinrich Meyr (61) Director of Exide since February 2001. A researcher and
entrepreneur in communications technology, Dr. Meyr has been a professor in
electrical engineering and the director of the laboratory for integrated signal
processing systems at Germany's Aachen University of Technology since 1977. Dr.
Meyr is also a director of ASCOM, a Swiss telecommunications and electronics
company.
Jody G. Miller (44) Director of Exide since December 1999. Ms. Miller is a
Venture Partner with Maveron, LLC, a Seattle-based venture capital firm, which
she joined in February 2000. Before joining Maveron, from 1995 until January
1999, Ms. Miller served in several senior executive positions with Americast, a
digital video and interactive services partnership between Ameritech,
BellSouth, GTE, SBC, SNET and the Walt Disney
42
Company. While at Americast, Ms. Miller served as Acting President and Chief
Operating Officer, Executive Vice President and Senior Vice President for
Operations. During the period between her tenures at Americast and Maveron, Ms.
Miller served as a consultant. Prior to Americast, Ms. Miller served in the
White House as special assistant to the President with the Clinton
Administration. Ms. Miller is a member of the Board of Directors of the
National Campaign to Prevent Teenage Pregnancy and has been a member of the
California Women's Law Center.
Craig H. Muhlhauser (53) Chairman of Exide since May 17, 2002, a director
of Exide since August 1, 2001, Chief Executive Officer of Exide effective
September 1, 2001 and President and Chief Operating Officer of Exide and a
member of the Office of the Chairman beginning July 2000. Before joining Exide,
Mr. Muhlhauser was a vice president of Ford Motor Company and President of
Visteon Corporation (a subsidiary of Ford) from 1997 to June 2000. Prior to
joining Ford, Mr. Muhlhauser worked for Pratt & Whitney, a division of United
Technologies Corporation, from 1995 to 1997, as senior vice president of sales
and service for the Americas and vice president for the global aftermarket, in
addition to holding senior management positions at Asea Brown Boveri Inc. and
Lucas Aerospace from 1990 to 1995. Mr. Muhlhauser began his career at the
General Electric Company in 1971, and had a series of sales, engineering and
general management assignments during his career in the Aircraft Engine and
Power Systems businesses of GE.
Executive Officers of the Registrant
Craig H. Muhlhauser (53) Chairman, President and Chief Executive Officer.
(See description above under the heading "Directors of the Registrant").
Lisa J. Donahue (37) Chief Financial Officer and Chief Restructuring
Officer. Ms. Donahue joined Exide in October 2001. Her services are provided to
the Company pursuant to a contract between the Company and an affiliate of Jay
Alix & Associates, a corporate turnaround and financial restructuring
consulting firm in which she is a principal. Since joining Jay Alix &
Associates in February 1998, she has served as Chief Restructuring Officer to
Graham Field Health Products, Inc. and as restructuring advisor to Regal
Cinemas. She also served as interim Chief Financial Officer at Umbro
International Inc., a manufacturer of soccer and fashion apparel. Until
February 1998, Ms. Donahue worked for the Recovery Group in a financial
restructuring consultant group.
Mitchell S. Bregman (49) President, Global Network Power. Mr. Bregman
joined Exide in September 2000 in connection with the Company's acquisition of
GNB. Mr. Bregman joined GNB in 1979 after receiving his BS in Industrial
Engineering from Cornell University and Masters of Business Administration from
Harvard Business School. Thereafter he served for 14 years as a Vice President
with various responsibilities with GNB Industrial Power and nine years with
GNB's Transportation Division.
Neil S. Bright (55) President, Global Motive Power. Mr. Bright has served
in his current capacity since April 2000 and prior to that beginning in April
1998 was Executive Vice President, Sales and Marketing for Exide Europe. Prior
to that he was Executive Vice President of Exide Holding Europe S.A. with
responsibility for sales to industrial customers throughout Europe. Mr. Bright
has over 30 years experience in the sale and manufacture of batteries. Mr.
Bright graduated with an Honors degree in Economics from Manchester University,
England in 1969.
David G. Enstone (48) President, Global Transportation. David Enstone
joined Exide in August 2000 as Senior Vice President, Marketing, Sales and
Service for Transportation Services and served as President,
Transportation-Europe until being promoted to his current position in October
2001. Prior to joining Exide, from 1997 to 2000, he served as Senior Business
Unit Director for Carlite Aftermarket Operations at Visteon Automotive Systems,
and before that as Visteon's Director for North American Aftermarket
Operations.
Janice M. Jones (52) Vice President, Global Human Resources. Ms. Jones
joined Exide in June 2002. Prior to that she was Senior Vice President of Human
Resources at American Express from 1999 to 2002, and was a Vice President of
Human Resources at Dial Corporation from 1995 to 1999.
43
John R. Van Zile (50) Executive Vice President, General Counsel and
Secretary. John R. Van Zile 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.
Robert B. Weiner (50) Senior Vice President, Global Manufacturing and
Engineering. Mr. Weiner joined the Company in his current capacity in April
2001. Prior to Exide, he was with Pratt and Whitney for seven years with his
last position as Vice President-Engine Services. Before that he was with Phelps
Dodge and MRC Bearings and spent sixteen years with General Electric graduating
through their manufacturing management program. Mr. Weiner has a BSME from
Polytechnic Institute of Brooklyn and an MBA from Loyola College of Maryland.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Exide's directors, executive officers, and persons who own more than ten
percent of our equity securities, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
such securities. Officers, directors and greater than ten percent stockholders
are required by applicable regulations to furnish the Company with copies of
all Section 16(a) forms they file.
To our knowledge, based solely on review of the copies of such reports
furnished to us and written representations that no other reports were
required, we believe that all Section 16(a) filing requirements applicable to
Exide's officers, directors and greater than ten percent beneficial owners were
complied with during the fiscal year ended March 31, 2002.
Item 11. Executive Compensation
Director Compensation
Directors who are not officers or employees of Exide receive a quarterly
retainer fee of $8,000, plus $2,000 for each Board meeting they attend.
Committee members receive $1,200 for each Committee meeting they attend and
Committee chairpersons receive a $2,500 retainer per quarter. Directors are
also reimbursed for their expenses to attend each meeting of the Board or any
Committee. Directors are paid all fees in cash. All other Director compensation
plans were terminated prior to the Company's Chapter 11 filing.
Executive Compensation
The following table sets forth the compensation for Mr. Muhlhauser, Exide's
Chief Executive Officer at March 31, 2002, for fiscal years 2002, 2001 and
2000, and the four most highly compensated executive officers of the Company,
other than the Chief Executive Officer, serving as executive officers at the
end of fiscal 2002. Such five individuals identified in the Summary
Compensation Table are referred to as the "named executive officers" throughout
this Report. In addition, information is provided for Mr. Lutz who served as
Chief Executive Officer until September 1, 2001 and for Thomas O. Minner, a
former vice president, who resigned his position with the Company effective
February 28, 2002.
44
Summary Compensation Table
Annual Long Term
Compensation Compensation Awards
------------ ----------------------
All
Other Restricted Other
Name and Annual Securities Stock Compen-
Principal Fiscal Bonus Compensation Underlying Awards sation
Positions Year Salary ($) ($) ($) (1) Options (#) ($) ($) (2)
--------- ------ ------------ ------- ------------ ----------- ---------- -------
Craig H. Muhlhauser(3)........... 2002 627,083 -- 175,000 20,966 -- 51,215
Chairman, President and Chief 2001 368,750 -- -- 405,000 -- 45,102
Executive Officer 2000 -- -- -- -- -- --
David G. Enstone (4)............. 2002 318,750 -- 119,000 -- -- 1,434
President, Global Transportation 2001 193,333 17,500 -- 100,000 -- 29,000
2000 -- -- -- -- -- --
Mitchell Bregman................. 2002 257,465 68,935 55,734 -- -- 4,508
President, Global Network Power 2001 239,992 413,435 -- 61,500 -- 2,818
2000 217,458 92,500 -- -- -- 21,630
Neil S. Bright (5)............... 2002 239,047 172,273 52,154 -- -- 121,764
President, Global Motive Power 2001 209,055 23,382 -- -- -- 23,493
2000 153,465 47,661 -- 25,500 -- 14,734
John R. Van Zile................. 2002 300,000 -- 60,000 5,391 -- 1,110
Executive Vice President, General 2001 250,000 -- -- 30,000 -- 9,296
Counsel and Secretary 2000 190,417 -- -- 100,000 -- 8,878
Robert A. Lutz (6)............... 2002 375,000 -- -- -- -- 2,263
Former Chief Executive Officer 2001 900,000 -- -- 35,942 543,150 25,395
2000 900,000 -- -- -- -- 21,470
Thomas O. Minner................. 2002 422,311 -- -- 4,950 -- 2,275
Former Vice President 2001 455,555 475,961 -- -- -- 2,976
2000 437,330 136,624 -- -- -- 7,055
- --------
(1) Other Annual Compensation for 2002 represents March 1, 2002 payments upon
achievement of the first performance goals under the Company's Milestone
Restructuring Plan, described below under "Long Term Incentives Plan Awards
Made in Fiscal 2002" and "Executive Incentive Compensation" in this Report.
(2) All Other Compensation includes payments for life insurance and accrued
contributions for the Exide Salaried Retirement Plan and the Exide 401(k)
Plan, as set forth in the table below this Summary Compensation Table.
(3) Mr. Muhlhauser was elected, and Mr. Lutz resigned, as Chief Executive
Officer effective September 1, 2001. All Other Compensation for Mr.
Muhlhauser includes $47,750 and $35,802, respectively, for moving expenses
paid in fiscal years 2002 and 2001.
(4) Other Annual Compensation for Mr. Enstone in 2002 also includes $50,000
paid upon acceptance of his position with the Company. All Other
Compensation for Mr. Enstone in 2001 represents moving expenses paid by the
Company.
(5) Dollar amounts shown for Mr. Bright are converted from pounds sterling at a
rate of 1.4229 dollars per pound. All Other Compensation for Mr. Bright
represents the Company pension contribution under a U.K. pension plan of
approximately 11 percent of salary plus, for 2002, an additional amount to
compensate for previously foregone pension contributions.
(6) Mr. Lutz was awarded 60,000 shares of restricted stock on September 29,
2000, which had a value of $18,000 as of March 31, 2002. Restrictions on
the shares lapse in three equal annual installments beginning September 29,
2001 so long as Mr. Lutz remains a director of Exide.
45
The following table shows the amount of life insurance payments and
retirement and 401(K) Plan contributions made by the Company in 2002 to the
persons named in the Summary Compensation Table above.
Retirement Plan and 401(k)
Life Insurance Payments Contributions
----------------------- --------------------------
Mr. Muhlhauser $3,465 $0
Mr. Enstone... $1,434 $0
Mr. Bregman... $823 $3,685
Mr. Bright.... $0 $121,764
Mr. Van Zile.. $1,110 $0
Mr. Lutz...... $2,263 $0
Mr. Minner.... $0 $2,275
Aggregated Option Exercises In Last Fiscal Year And Fiscal Year End Option
Values
The following table contains information relating to the exercise of stock
options by the named executive officers in fiscal 2002, as well as the number
and value of their unexercised options as of March 31, 2002.
Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money Options at
Shares Options at FY-End (#) FY-End ($)
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ------------ ------------------------- -------------------------
Craig H. Muhlhauser 0 0 122,216/303,750 None
David G. Enstone... 0 0 25,000/75,000 None
Mitchell S. Bregman 0 0 15,375/46,125 None
Neil S. Bright..... 0 0 29,375/56,125 None
John R. Van Zile... 0 0 39,391/106,000 None
Robert A. Lutz..... 0 0 1,835,942/0 None
Thomas O. Minner... 0 0 29,375/0 None
Option Grants in Last Fiscal Year
The following table contains information relating to the stock option grants
made in fiscal 2002 to the persons named in the summary Compensation Table.
Potential
Realizable Value
at Assumed
% of Total Annual Rates of
Number of Options Stock Price
Securities Granted to Appreciation for
Underlying Employees Exercise or Option Term ($)
Option in Fiscal Base Price Expiration ----------------
Name Granted (#) Year ($/Sh.) Date 5% 10%
- ---- ----------- ---------- ----------- ---------- ------ ------
Craig H. Muhlhauser 20,966 11% 10.75 5/15/11 11,269 22,538
David G. Enstone... -- -- -- -- -- --
Mitchell S. Bregman -- -- -- -- -- --
Neil S. Bright..... -- -- -- -- -- --
John R. Van Zile... 5,391 2.9 10.75 5/15/11 2,898 5,795
Robert A. Lutz..... 35,942 19 10.75 5/15/11 19,318 38,637
Thomas O. Minner *. 4,950 -- 10.75 5/31/02 -- --
- --------
* Mr. Minner's vested options lapsed 90 days following his resignation.
46
Long-Term Incentive Awards Made in Fiscal 2002
Payments Made and Estimated Future Payments
-------------------------------------------------------------------
By September 30, *By December 18,
Name Performance Period By March 1, 2002 2002 By June 30, 2003 2003
---- ------------------ ---------------- ---------------- ---------------- ----------------
Mr. Muhlhauser............ 2/15/02-6/30/03 $175,000 $175,000 $675,000 $675,000
Mr. Enstone............... 2/15/02-6/30/03 $69,000 $69,000 $69,000 $69,000
Mr. Bregman............... 2/15/02-6/30/03 $55,733 $55,733 $55,733 $55,733
Mr. Bright................ 2/15/02-6/30/03 $52,154 $52,154 $52,154 $52,154
Mr. Van Zile.............. 2/15/02-6/30/03 $60,000 $60,000 $60,000 $60,000
- --------
* Upon confirmation of a plan of reorganization by the Bankruptcy Court.
As more fully described later in this Report under the heading Executive
Incentive Compensation, in February 2002, the Board approved the Milestone
Restructuring Plan to provide incentives designed to attract and retain
individuals whose services were deemed highly desirable in connection with the
Company's restructuring. The performance goals and awards for each period are
specific to each of the named executive officers and are payable only at the
stated amount and only upon achievement by each officer of the applicable
performance goal. Payments were made for the period ending March 1, 2002 as all
performance goals were achieved. The payment of all other awards, if earned,
was approved by the Bankruptcy Court on July 30, 2002.
Equity Compensation Plan Information
Number of securities
Number of securities remaining available for
to be issued Weighted-average future issuance under
upon exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities
Plan category warrants and rights warrants and rights reflected in column (a))
- ------------- -------------------- -------------------- -------------------------
(a) (b) (c)
Equity compensation plans approved by security
holders..................................... 1,630,871 $12.73 2,579,262
Equity compensation plans not approved by
security holders............................ 3,035,833 $ 9.62 4,495,684
Total.................................. 4,666,704 $10.71 7,074,946
Selective Executive Retirement Plan
The Exide Technologies Selective Executive Retirement Plan was terminated
effective January 1, 2002.
Executive Employment Agreement
On June 14, 2002 the Bankruptcy Court approved the Company's motion to
accept the Executive Employment Agreement, as amended June 14, 2002, of Mr.
Muhlhauser (the "Employment Agreement"). Pursuant to the Employment Agreement,
Mr. Muhlhauser is paid an annual base salary of $700,000 and is eligible
annually to receive a bonus of up to 100% of his base salary, determined in
accordance with the provisions of the Company's then applicable annual bonus
plan. Mr. Muhlhauser is also eligible to receive such additional long-term
incentive compensation as may be approved by the Board of Directors. The term
of the agreement is three years and will renew automatically for additional
one-year periods unless either party to the agreement gives written notice of
termination at least 90 days prior to the operative expiration date. The
Employment Agreement is terminable by the Company or Mr. Muhlhauser without
cause upon 90 days prior written notice, and may be terminated by the Company
for "cause" (as defined in the Employment Agreement) or by Mr. Muhlhauser for
"good reason" (as defined in the Employment Agreement). In the event the
Employment Agreement is terminated by the Company other than for cause or upon
the death or disability of Mr. Muhlhauser, or by Mr. Muhlhauser for good
reason, the Company shall pay all accrued compensation and incurred expenses
47
to the date of termination and base salary and annual bonus for a period of 36
months. In all other cases, upon termination the Company shall pay accrued
compensation and incurred expenses to the date of termination. The Employment
Agreement also contains non-competition and confidentiality provisions for the
benefit of the Company.
The Company has taken no action before the Bankruptcy Court with respect to
the Executive Employment Agreement, dated as of August 13, 2001, of Mr. Van
Zile (the "Van Zile Agreement"), which agreement is subject to acceptance or
rejection by Exide in accordance with federal bankruptcy laws. Mr. Van Zile is
paid an annual base salary of $300,000, is eligible to receive a bonus of up to
60% of his base salary, and is also eligible to receive additional long-term
incentive compensation as approved by the Board of Directors. The term of the
agreement is two years and renews automatically for one-year periods unless
either party gives written notice of termination at least 90 days prior to the
operative expiration date. The agreement is terminable by the Company or Mr.
Van Zile without cause upon 90 days prior written notice, and may be terminated
by the Company for "cause" or by Mr. Van Zile for "good reason". In the event
the agreement is terminated by the Company other than for cause or upon the
death or disability of Mr. Van Zile, or by Mr. Van Zile for good reason, the
Company shall pay all accrued compensation and incurred expenses to the date of
termination and base salary and annual bonus for a period of 24 months. In all
other cases, upon termination the Company shall pay accrued compensation and
incurred expenses to the date of termination. The Van Zile Agreement also
contains non-competition and confidentiality provisions for the benefit of the
Company.
Income Protection and Change In Control Arrangements
Each of the named executive officers entered into a change in control
agreement with Exide on May 15, 2001. Exide, as part of its Chapter 11
proceedings, will reject the change of control agreements and, in lieu thereof,
has adopted the Exide Technologies et al Debtors Income Protection Plan
("Income Protection Plan") which, among other things, provides plan
participants (including the named executive officers) certain compensation in
the event of termination of employment, including in the event of a change in
control of the Company, but is structured to accommodate the Company's Chapter
11 restructuring and eventual plan of reorganization. The Income Protection
Plan was approved by the Bankruptcy Court on July 30, 2002.
In order to receive benefits under the provisions of the Income Protection
Plan, a named executive officer must incur a qualifying termination of
employment. A qualifying termination of employment will occur if the named
executive officer's employment is terminated (i) following a change in control,
(ii) by Exide other than for cause or by reason of death or disability, or
(iii) by the named executive officer for good reason.
If a named executive officer incurs a qualifying termination of employment,
he will be entitled, among other things, to (i) continued bi-weekly payments
equal to two times, three times in the case of the Chief Executive Officer, his
base salary as of the date of termination; (ii) payment equal to the
executive's target annual bonus under any annual bonus or incentive plan
maintained by Exide during the income protection period; (iii) life,
disability, health, dental, and accidental insurance benefits; and (iv) a lump
sum payment reflecting the actuarial value of an additional service credit for
retirement pension accrual purposes under any defined benefit pension plans
maintained by Exide. In the case of terminations other than upon a change in
control, income protection payments will terminate or be reduced to the extent
the executive obtains new employment.
Executive Incentive Compensation
Exide has engaged an outside executive compensation consulting firm to
evaluate the elements of its executive compensation program, taking into
consideration the Company's current circumstances, business plan,
48
external market conditions and competitive standards, and to advise the
Compensation Committee on appropriate compensation levels and programs. The
primary objectives of the compensation program and its constituent plans are:
1. to attract and retain an executive and senior management team capable of
implementing Exide's business plan and restructuring initiatives with a
view to creating management and operating capabilities that will provide
long-term financial strength and a stable platform on which the Company
can build value for its stakeholders; and
2. to reward key individuals for exceptional performance in pursuit of the
foregoing objectives.
The Compensation Committee's policies with respect to executive compensation
have been modified to accommodate the Company's current financial challenges
and restructuring needs. The Committee believes that adequate compensation must
be offered to attract talented individuals to a demanding set of
responsibilities under circumstances that may not provide the same short or
long term opportunities and support as competing ones. In that regard, the
Committee, taking guidance from advisors familiar with the Chapter 11 process,
has determined that it is also desirable to provide market-competitive
incentives that will both retain the services of executives whose contributions
are highly important to the Company's ability to implement its restructuring
initiatives and provide additional incentives to see that the Company's current
fiscal year business plan is met or exceeded. The Committee believes such
incentives should be performance based and dependent on the realization of
significant but achievable results.
Base Salaries
The base salaries of Exide's executive officers are reviewed annually and
evaluated with those of similarly situated manufacturing companies. Our
executives' salaries have generally been commensurate with those of other
executives in comparable positions in such companies.
Incentive Compensation
The Compensation Committee has recently recommended to the full Board, and
it has approved, two new incentive compensation plans described below intended
to support the Company's goals and business plan in reorganization. The
Corporate Incentive Plan is a successor to the prior annual incentive plan and
is designed to achieve annual business plan objectives. The Milestone
Restructuring Plan is a longer term plan tied to achievement of particular
restructuring objectives (including Court approval of a final plan of
reorganization) and is intended to provide incentives and rewards for
completing the Company's restructuring work. On July 30, 2002, the Bankruptcy
Court approved the Milestone Restructuring Plan and the Corporate Incentive
Plan.
Annual Incentives
In May 2002, our Board adopted a new annual cash incentive plan, the
Corporate Incentive Plan ("CIP"), which applies to our Chief Executive Officer,
his direct reports and other senior managers, certain other professionals and
sales personnel and plant managers located throughout the world. The CIP has
received Bankruptcy Court approval. The CIP's immediate objective is to provide
a competitive financial opportunity that will motivate key contributors to
achieve or exceed the Company's fiscal year 2003 business plan. The CIP is a
goal-driven plan based on financial performance that includes earnings before
interest, depreciation, taxes and restructuring costs ("EBITDAR"), improvements
in working capital, inventory reduction and certain other operational
initiatives. The incentive compensation of the Chief Executive Officer under
the CIP is based on global improvements in EBITDAR and working capital. Target
incentive levels have been established based on market competitive data and the
functional responsibilities for the other participants in the CIP. The CIP has
quarterly goals and payouts at threshold and target levels and, upon completion
of the full fiscal year, based on threshold, target and maximum achievement
levels.
49
Long-Term Incentives
In February 2002, on the recommendation of management, the Compensation
Committee recommended to the full Board, and it approved, the Milestone
Restructuring Plan ("Milestone Plan"). The purpose of the Milestone Plan is to
attract and retain certain key management and professional employees whose
services are deemed highly desirable in connection with restructuring programs
being implemented and developed. All awards payable under the Milestone Plan
are payable in cash and are earned based on achievement of goals that are
specific to each participant with respect to each of three separate achievement
dates (March 1, 2002; September 30, 2002; and June 30, 2003), with a fourth
goal of Bankruptcy Court approval of a plan of reorganization by December 18,
2003 (which date may be extended). Of the total available award, 25 percent is
payable upon achievement of each of the performance goals; provided, however,
that additional incentive awards of $500,000 were added to the third and fourth
milestone periods for the Chief Executive Officer. The Company has received
Bankruptcy Court approval for all payouts, if earned, under the Milestone Plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table shows, as of July 1, 2002, information regarding
beneficial ownership of common stock by Exide's directors, the named executive
officers and all other current executive officers of the Company and by each
person and entity that, to the knowledge of Exide, beneficially owns more than
five percent of Exide's common stock. Except as indicated in the notes to the
table, the holders listed below have sole voting power and investment power
over the shares beneficially held by them. Except as otherwise indicated, the
address of each person listed below is the address of Exide.
Number of Shares
Beneficially Owned
-------------------
Beneficial Owner Number Percent(1)
- ---------------- --------- ----------
Executive Officers and Directors
Craig H. Muhlhauser (2)..................................... 218,269 *
David G. Enstone (3)........................................ 25,000 *
Mitchell S. Bregman (4)..................................... 15,375 *
Neil S. Bright(5)........................................... 29,375 *
John R. Van Zile (6)........................................ 82,891 *
Francois J. Castaing........................................ 33,302 *
Rodney L. Chadwick (7)...................................... 11,551 *
William I. Jacobs........................................... 0 *
John A. James............................................... 11,569 *
Robert A. Lutz (8).......................................... 2,098,979 7.7%
Heinrich Meyr............................................... 7,078 *
Jody G. Miller.............................................. 6,623 *
All executive officers and directors as a group (14 persons) 2,489,871 9.1%
Five Percent or Greater Shareholders:
State of Wisconsin Investment Board (9)..................... 5,335,000 19.4%
Pacific Dunlop Holdings (USA) Inc. (10)..................... 4,000,000 14.6%
Dimensional Fund Advisors (11).............................. 1,423,880 5.2%
- --------
* Less than 1%.
50
(1) Based on 27,462,514 shares of common stock outstanding on July 1, 2002.
(2) Includes currently exercisable options to purchase 197,216 shares of common
stock. Mr. Muhlhauser also holds options to purchase 228,750 shares of
common stock that are not currently exercisable.
(3) Represents currently exercisable options. Mr. Enstone also holds options to
purchase 75,000 shares of common stock that are not currently exercisable.
(4) Represents currently exercisable options. Mr. Bregman holds options to
purchase 46,125 shares of common stock that are not currently exercisable.
(5) Represents currently exercisable options. Mr. Bright also holds options to
purchase 56,125 shares of common stock which are not currently exercisable.
(6) Includes currently exercisable options to purchase 61,891 shares of common
stock. Mr. Van Zile also holds options to purchase 83,500 shares of common
stock that are not currently exercisable.
(7) Includes 3,500 shares held indirectly by Tormey Investments Pty Ltd.
(8) Represents 263,037 shares owned directly, 82,500 in trust, 2,250 which are
beneficially owned by Mr. Lutz's spouse, and 1,835,942 currently
exercisable options to purchase common stock. Mr. Lutz also holds 40,000
restricted shares of common stock, the restrictions on which have not
lapsed.
(9) Based solely on a Schedule 13G/A filed on February 15, 2002. State of
Wisconsin Investment Board's address is P.O. Box 7842, Madison, Wisconsin
53707.
(10) Based solely on a Schedule 13D filed on October 10, 2000. Pacific Dunlop
Holdings (USA) Inc.'s address is 6121 Lakeside Drive, Suite 200, Reno,
Nevada 89511.
(11) Based solely on a Schedule 13G filed on January 30, 2002. Dimensional Fund
Advisors' address is 1299 Ocean Avenue, 11th Floor, Santa Monica,
California 90401.
Item 13. Certain Relationships and Related Transactions
JA&A Services LLC
The services of Lisa J. Donahue, Chief Financial Officer and Chief
Restructuring Officer, are provided to the Company pursuant to a Services
Agreement, dated October 25, 2001, between the Company and JA&A Services LLC.
Under the Services Agreement, the Company is charged an hourly fee for Ms.
Donahue's and other temporary employees' services, and Ms. Donahue, a principal
in JA&A Services, is compensated independently by JA&A Services. JA&A Services
is an affiliate of Alix Partners, LLC, a financial advisory and consulting firm
specializing in corporate restructuring, which has been retained by the Company
in connection with its financial restructuring. Ms. Donahue is also a principal
in Alix Partners, LLC. Fees incurred by the Company during fiscal 2002 under
the Services Agreement were $5.2 million.
GNB Battery Business Acquisition
On September 29, 2000, Exide acquired the global battery business of Pacific
Dunlop Holdings (USA), Inc., hereinafter referred to as Pacific Dunlop,
including its subsidiary GNB Technologies, Inc. As consideration for the
acquisition, Exide paid approximately $379 million (including $344 million in
cash and four million shares of Exide common stock plus assumed liabilities).
Pacific Dunlop now holds approximately 14 percent of the currently outstanding
shares of Exide common stock.
Registration Rights and Standstill Agreement
Pursuant to a Registration Rights and Standstill Agreement dated September
29, 2000, Exide granted certain registration rights to Pacific Dunlop. Exide is
required to file, so long as Pacific Dunlop continues to hold at least five
percent of outstanding Exide common stock, upon Pacific Dunlop's request, and
in accordance with certain limitations, registration statements with the SEC
for sale in an underwritten public offering, such amount of common stock
specified by Pacific Dunlop in its request. This agreement is subject to
acceptance or rejection by Exide in accordance with federal bankruptcy law.
Should Exide determine that it is advisable to file a registration statement
with the SEC for an offering of common stock or any security convertible into
or exchangeable for common stock, then, subject to certain
51
limitations, Pacific Dunlop is entitled to notice from Exide with regard to
such a proposal. If Pacific Dunlop so requests, Exide is required to include
such number of shares requested by Pacific Dunlop to be included in the
registration statement unless Pacific Dunlop's request fails to meet certain
requirements set forth in the agreement. Additionally, should Exide provide any
other holders of common stock or holders of any Exide security that is
convertible into or exchangeable for Exide common stock, more favorable rights
than those rights provided Pacific Dunlop in the agreement, the agreement is
deemed amended as necessary to provide Pacific Dunlop with similar rights as
those granted to such other stockholders.
The agreement provides that until September 29, 2003 Pacific Dunlop may not
take certain actions without the consent of Exide, including, without
limitation, the following: Pacific Dunlop may not (1) publicly state that it
wishes to acquire or offer or agree to acquire, directly or indirectly,
beneficial ownership of any of our equity securities; (2) solicit, or assist or
encourage any person to solicit consents or proxies to vote any of our equity
securities, other than as set forth in the agreement with regard to its own
shares; and (3) solicit, or assist or encourage any person to solicit consents
or proxies to vote any of our equity securities. Pacific Dunlop is also
restricted until September 29, 2003 from transferring its shares, other than in
certain cases, as set forth in the agreement.
The agreement also requires that until September 29, 2003 Pacific Dunlop
attend in person or appoint a proxy to vote its shares in the same proportion
as all other Exide common stock votes on any matter to be voted upon at any
meeting of Exide stockholders, except where such matter relates to the removal
of any director designated by Pacific Dunlop, in which case, Pacific Dunlop may
vote against such removal without regard to other votes. Pacific Dunlop has not
designated any member of our Board.
52
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Index to Financial Statements
See Index to Consolidated Financial Statements and Schedule at page F-1.
(b) Reports on Form 8-K
On January 15, 2002, the Company filed an interim report on Form 8-K
that included as an exhibit thereto a press release announcing the entry
by the Company into the Third Amendment and Waiver to the Loan Documents.
On April 17, 2002, the Company filed an interim report on Form 8-K to
report its April 15, 2002 filing in the U.S. Bankruptcy Court for the
District of Delaware for protection under Chapter 11 of the U.S.
Bankruptcy Code.
On July 15, 2002, the Company filed an interim report on Form 8-K
stating that it expected to file its Annual Report on Form 10-K for the
fiscal year ended March 31, 2002 on or prior to July 31, 2002.
On August 1, 2002 the Company filed an interim report on Form 8-K
stating that it expected to file its Annual Report on Form 10-K for the
fiscal year ended March 31, 2002 by August 31, 2002.
(c) Exhibits Required by Item 601 of Regulation S-K
See Index to Exhibits.
(d) Financial Statement Schedules
See Index to Consolidated Financial Statements and Schedule at page F-1.
53
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISION OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information, this report may be deemed to contain
"forward-looking" statements. The Company desires to avail itself of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") and is including this cautionary statement for the express purpose of
availing itself of the protection afforded by the Act.
Examples of forward-looking statements include, but are not limited to (a)
projections of revenues, cost of raw materials, income or loss, earnings or
loss per share, capital expenditures, growth prospects, dividends, the effect
of currency translations, capital structure and other financial items, (b)
statements of plans of and objectives of the Company or its management or Board
of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulating
authorities, (c) statements of future economic performance and (d) statements
of assumptions, such as the prevailing weather conditions in the Company's
market areas, underlying other statements and statements about the Company or
its business.
Factors that could cause actual results to differ materially from these
forward looking statements include, but are not limited to, the following
General Factors such as: (i) the Company's ability to implement business
strategies and financial reorganization and restructuring plans, (ii)
unseasonable weather (warm winters and cool summers) which adversely affects
demand for automotive and some industrial batteries, (iii) the Company's
substantial debt and debt service requirements which restrict the Company's
operational and financial flexibility, as well as imposing significant interest
and financing costs, (iv) the Company is subject to a number of litigation
proceedings, the results of which could have a material adverse effect on the
Company and its business, (v) the Company's assets include the tax benefits of
net operating loss carry forwards, realization of which are dependent upon
future taxable income, (vi) lead, which experiences significant fluctuations in
market price and which, as a hazardous material, may give rise to costly
environmental and safety claims, can affect the Company's results because it is
a major constituent in most of the Company's products, (vii) the battery
markets in North America and Europe are very competitive and, as a result, it
is often difficult to maintain margins, (viii) the Company's consolidation and
rationalization of acquired entities requires substantial management time and
financial and other resources and is not without risk, (ix) foreign operations
involve risks such as disruption of markets, changes in import and export laws,
currency restrictions and currency exchange rate fluctuations, (x) the Company
is exposed to fluctuations in interest rates on our variable debt which can
affect the Company's results, (xi) general economic conditions, (xii) the
ability to acquire goods and services and/or fulfill labor needs at budgeted
costs and Bankruptcy Considerations such as: (a) the Company's ability to
continue as a going concern, (b) the Company's ability to operate in accordance
with the terms of and maintain compliance with covenants of the DIP Credit
Facility and other financing arrangements, (c), the Company's ability to obtain
Bankruptcy Court approval with respect to motions in the Chapter 11 cases from
time to time, (d) the Company's ability to develop, confirm and consummate a
plan of reorganization with respect to the Chapter 11 cases, (e) the Company's
ability to attract, motivate and retain key personnel, (f) the Company's
ability to obtain and maintain normal terms with vendors and service providers,
(g) the Company's ability to maintain contracts that are critical to our
business, and (h) the Company's ability to attract and retain customers.
Therefore, the Company cautions each reader of this Report carefully to
consider those factors hereinabove set forth, because such factors have, in
some instances, affected and in the future could affect, the ability of the
Company to achieve its projected results and may cause actual results to differ
materially from those expressed herein.
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on August 16, 2002.
EXIDE TECHNOLOGIES
By: /s/ Craig H. Muhlhauser
------------------------------
Craig H. Muhlhauser Chairman,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities stated, in each case, on August 16, 2002.
By: /s/ Craig H. Muhlhauser By: /s/ William I. Jacobs
---------------------------------- ----------------------------------
Craig H. Muhlhauser,
Chairman, President and Chief
Executive Officer William I. Jacobs, Director
By: /s/ Lisa J. Donahue By: /s/ John A. James
---------------------------------- ----------------------------------
Lisa J. Donahue, Chief Financial
Officer and Chief Restructuring
Officer John A. James, Director
By: /s/ Ian J. Harvie By: /s/ Robert A. Lutz
---------------------------------- ----------------------------------
Ian J. Harvie, Vice President,
Corporate Controller Robert A. Lutz, Director
By: ---------------------------------- By: /s/ Heinrich Meyr
----------------------------------
Francois J. Castaing, Director Heinrich Meyr, Director
By: /s/ Rodney L. Chadwick By: /s/ Jody G. Miller
---------------------------------- ----------------------------------
Rodney L. Chadwick, Director Jody G. Miller, Director
55
INDEX TO EXHIBITS
2.1 Coordinating Agreement, dated May 9, 2000, between Exide Corporation and Pacific Dunlop Holdings
(USA) Inc. and Amendments No. 1, 2 and 3 thereto dated June 19, June 28, and September 29, 2000
respectively (the Coordinating Agreement and Amendment No. 1 and 2 are incorporated by reference to
Exhibit 2.1 to the Company's Quarterly report on Form 10-Q for the fiscal quarter ended July 2, 2000
(the "July 2000 10-Q"), Amendment No. 3 is incorporated by reference to the Company's Current Report
on Form 8-K/A filed December 13, 2000 (the "8-K/A"); Stock Purchase Agreement by and between the
Company and Pacific Dunlop Holdings (USA) Inc. dated as of May 9, 2000 (the "US Stock Purchase
Agreement") and Amendments No. 1 and 2 thereto dated June 19, 2000, and September 29, 2000
respectively (the Stock Purchase Agreement and Amendment No. 1 are incorporated by reference to the
July 2000 10-Q, Amendment No. 2 is incorporated by reference to the 8-K/A; Asset Purchase
Agreement, dated June 28, 2000, between Pacific Dunlop Holdings (N.Z.) Limited and Exide New
Zealand Limited (incorporated by reference to the July 2000 10-Q); Asset Purchase Agreement, dated
June 28, 2000, between GNB Battery Technologies Limited, Australian Battery Company (Aust.) Pty
Ltd, Pacific Dunlop Limited and Exide Australia Pty Limited and Amendment No.1 thereto dated
September 29, 2000 (the Asset Purchase Agreement is incorporated by reference to the July 2000 10-K
and Amendment No. 1 is incorporated by reference to the 8-K/A); Stock Purchase Agreement with
respect to GNB Technologies NV, dated June 28, 2000, between P.D. International Pty Limited and
Pacific Dunlop Holdings (Europe) Ltd and Exide Holding Europe (incorporated by reference to the July
2000 10-Q); Stock Purchase Agreement with respect to GNB Technologies Limited, dated June 28, 2000,
between Pacific Dunlop Holdings (Europe) Ltd and Exide Holding Europe (incorporated by reference to
the July 2000 10-Q); Stock Purchase Agreement with respect to GNB Technologies (China) Limited,
dated June 28, 2000, between Pacific Dunlop Holdings (Hong Kong) Limited and Traeson Pte Ltd
(renamed Exide Holding Asia Pte Limited) (incorporated by reference to the July 2000 10-Q); Asset
Purchase Agreement, dated June 28, 2000, between Pacific Dunlop Holdings (Singapore) Pte Ltd and
Bluewall Pte Ltd (renamed Exide Singapore Pte Limited) (incorporated by reference to the July 2000 10-
Q); Stock Purchase Agreement with respect to GNB Technologies (India) Private Limited, dated June 28,
2000, between Pacific Dunlop Holdings (Singapore) Pte Ltd and Traeson Pte Ltd (renamed Exide
Holding Asia Pte Limited) and Amendment No. 1 thereto, dated September 29, 2000 (the Stock Purchase
Agreement is incorporated by reference to the July 2000 10- Q and Amendment No. 1 is incorporated by
reference to the 8-K/A); Trademark Purchase Agreement, dated June 28, 2000 between PD Licensing Pty
Ltd and Exide Australia Pty Limited, incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 2000.
3.1 Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit
3.1 of the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2001.
3.2 Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3 of the
Company's Quarterly report on Form 10-Q for the fiscal quarter ended December 31, 2000.
3.3 Form of Rights Agreement dated as of September 18, 1998 between Exide Corporation and American
Stock Transfer and Trust Company, as Rights Agent, including the form of Certificate of Designation,
Preferences and Rights of Junior Participating Preferred Shares, Series A attached thereto as Exhibit A,
the form of Rights Certificate attached thereto as Exhibit B and the Summary of Rights attached thereto
as Exhibit C, incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K
filed September 21, 1998.
3.4 Amendment to the Rights Agreement, dated as of October 25, 2000, between Exide Corporation and
American Stock Transfer and Trust Company, as Rights Agent, incorporated by reference to Exhibit 4.2
of the Company's Current Report on Form 8-K filed November 20, 2000.
56
4.1 Amended and Restated Credit and Guarantee Agreement dated as of September 29, 2000 by and
among the Company, Credit Suisse First Boston, as Sole Book Manager, Joint Lead Arranger and
Administrative Agent, Salomon Smith Barney Inc., as Syndication Agent and Joint Lead Arranger,
and the lenders party thereto, and Amendment thereto, dated June 20, 2001, incorporated by reference
to Exhibit 4.1 of the Company's Current Report on Form 8-K filed October 16, 2000.
4.2 Warrant Agreement dated as of September 29, 2000 by and between the Company and The Bank of
New York, as warrant agent, and form of Warrant Certificate thereto as Exhibit A, incorporated by
reference to the Company's Current Report on Form 8-K filed October 16, 2000.
4.3 Registration Rights Agreement dated as of September 29, 2000 by and among the Company and
certain lenders under the Credit Agreement, incorporated by reference to Exhibit 4.4 of the Company's
Current Report on Form 8-K filed October 16, 2000.
4.4 Registration Rights and Standstill Agreement dated as of September 29, 2000 by and between the
Company and Pacific Dunlop Holdings (USA) Inc., incorporated by reference to Exhibit 4.5 of the
Company's Current Report on Form 8-K filed October 16, 2000.
4.5 Registration Rights Agreement among the Registrant, Wilmington Securities, Inc. and certain other
holders of the Registrant's Common Stock, incorporated by reference to Exhibit 2.1 of the Company's
Registration Statement on Form S-1 (Reg. No. 033-6801b), and Amendments No. 1 and No. 2, thereto,
dated as of August 10, and September 29, 2000, respectively, incorporated by reference to Exhibits 4.6
and 4.7, respectively, of the Company's Current Report on Form 8-K filed October 16, 2000.
4.6 Indenture dated as of April 28, 1995, between the Registrant and The Bank of New York, as trustee,
incorporated by reference to Exhibit 99.3 of the Company's Current Report on Form 8-K filed June 2,
1995.
4.7 Indenture dated as of December 15, 1995 between the Registrant and The Bank of New York, as
trustee, incorporated by reference to Exhibit 4.7 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1996.
4.8 Fiscal and Paying Agency Agreement, dated April 23, 1997, by and among Exide Holding Europe
S.A., Exide Corporation, The Bank of New York and Deutsche Bank Aktiengesellschaft, incorporated
by reference to Exhibit 4.9 to the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997.
*4.9 Amendment dated as of June 20, 2001, to the Amended and Restated Credit and Guarantee Agreement
dated as of September 29, 2000 by and among Registrant, Credit Suisse First Boston as Sole Bank
Manager, Joint Lead Arranger and Administrative Agent, Salomon Smith Barney, Inc. as Syndication
Agent and Joint Lead Arranger and the lenders party thereto.
4.10 Second Amendment dated as of October 31, 2001 to the Amended and Restated Credit and Guarantee
Agreement, dated as of September 29, 2000 by an among the Registrant, Credit Suisse First Boston, as
Sole Bank manager, Joint Lead Arranger and Administrative Agent, Salomon Smith Barney Inc., as
Syndication Agent and Joint Lead Arranger, and the lenders party thereto, incorporated by reference to
Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2001.
4.11 Third Amendment and Waiver to the Loan Documents, dated as of December 28, 2001, to the
Amended and Restated Credit and Guarantee Agreement and other Loan Documents where applicable,
dated as of September 29, 2000, among the Registrant, the Borrowing Subsidiaries signatories thereto,
the Guarantors signatories thereto, the several lenders from time to time parties thereto, Credit Suisse
First Boston, as sole book manager, Credit Suisse First Boston, as administrative agent for the
Lenders, and others, incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed January 15, 2002.
57
*4.12 Fourth Amendment and Waiver to the Loan Documents, dated as of March 28, 2002, to the Amended
and Restated Credit and Guarantee Agreement and other Loan Documents where applicable, dated as
of September 29, 2000, among the Registrant, the Borrowing Subsidiaries signatories thereto, the
Guarantors signatories thereto, the several lenders from time to time parties thereto, Credit Suisse First
Boston, as sole book manager, Credit Suisse First Boston, as administrative agent for the Lenders, and
others.
*4.13 Standstill Agreement and Fifth Amendment to the Credit Agreement, dated as of April 15, 2002, to the
Amended and Restated Credit and Guarantee Agreement and other Loan Documents where applicable,
dated as of September 29, 2000, among the Registrant, the Borrowing Subsidiaries signatories thereto,
the Guarantors signatories thereto, the several lenders from time to time parties thereto, Credit Suisse
First Boston, as sole book manager, Credit Suisse First Boston, as administrative agent for the
Lenders, and others.
*4.14 Sixth Amendment and First Amendment to the Standstill Agreement, dated as of May 21, 2002, to the
Amended and Restated Credit and Guarantee Agreement and other Loan Documents where applicable,
dated as of September 29, 2000, among the Registrant, the Borrowing Subsidiaries signatories thereto,
the Guarantors signatories thereto, the several lenders from time to time parties thereto, Credit Suisse
First Boston, as sole book manager, Credit Suisse First Boston, as administrative agent for the
Lenders, and others.
*4.15 Secured Super Priority Debtor in Possession Credit Agreement, dated as of April 15, 2002, among
Exide Technologies and certain of its Subsidiaries, as Debtors and Debtors in Possession, certain
Subsidiaries of the Borrowers party thereto, as Domestic Guarantors, and the Lenders and Issuers from
time to time party thereto, and Citicorp USA, Inc., as Administrative Agent, and Citicorp USA, Inc., as
collateral Monitoring Agent.
*4.16 First Amendment to Credit Agreement, dated as of May 17, 2002, to the Secured Super Priority
Debtor in Possession Credit Agreement, dated as of April 15, 2002, among Exide Technologies and
certain of its Subsidiaries, as Debtors and Debtors in Possession, certain Subsidiaries of the Borrowers
party thereto, as Domestic Guarantors, and the Lenders and Issuers from time to time party thereto,
and Citicorp USA, Inc., as Administrative Agent, and Citicorp USA, Inc., as collateral Monitoring
Agent.
*4.17 Intercreditor and Subordination Agreement, dated as of April 15, 2002, among Citicorp USA, Inc. for
the banks and other financial institutions from time to time parties to the DIP Credit Agreement, Credit
Suisse First Boston, as Pre-Petition Agent for the banks and other financial institutions from time to
time parties to the Pre-Petition Credit Agreement, those Pre-Petition Lenders party to the Standstill
Agreement, Citicorp USA, Inc., as Escrow Agent, the subsidiaries set forth on a schedule thereto of
Exide Technologies and GNB Battery Technology Japan, Inc.
*4.18 Second Amendment to Credit Agreement, dated as of June 10, 2002, to the Secured Super Priority
Debtor in Possession Credit Agreement dated as of April 15, 2002 and Exide and certain of its
subsidiaries as debtors and debtors in possession, certain subsidiaries of the Borrowers as Domestic
Guarantors, the Lenders and Issuers and Citicorp USA, Inc. as Administrative and Collateral
Monitoring Agent.
+10.1 Exide Corporation 1993 Stock Incentive Plan, incorporated by reference to Exhibit 99.1 to the
Company's Registration Statement on Form S-8 (Reg. No. 333-413).
+10.2 Exide Corporation 1993 Long Term Incentive Plan, incorporated by reference to Exhibit 10.25 to the
Registration Statement on Form S-1 (Reg. No. 033-6801b).
+10.3 Exide Corporation 1997 Stock Option Plan, incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998.
+10.4 Exide Corporation 1999 Stock Incentive Plan, as amended, incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 1999.
58
+10.5 Exide Corporation 2000 Broad-Based Stock Incentive Plan, incorporated by reference to Exhibit 99
of the Company's Registration Statement on Form S-8 (Reg. No. 333-52266).
+10.6 Amended and Restated Nonqualified Stock Option Agreement for Robert A. Lutz, incorporated by
reference to Exhibit 10.30 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended January 2, 2000.
+10.7 Form of Non-Qualified Stock Option Agreement, incorporated by reference to Exhibit 10.9 of the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2001.
+10.8 Form of Change in Control Agreement, incorporated by reference to Exhibit 10.10 of the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2001.
+*10.9 Executive Employment Agreement with Craig H. Muhlhauser, as amended on June 14, 2002.
+ 10.10 Executive Employment Agreement with John R. Van Zile, incorporated by reference to Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2001.
*10.11 Amended Receivables Subrogation Agreement dated May 24, 2002 between CEAC, Compagnie
Europeenne D'Accumulateurs S.A.S., as Originator; Exide Holding Europe S.A, as Offer Agent;
Exide Europe Funding Ltd, as Receivables Purchaser; and Citibank, N.A. London Branch, as
Operating Agent.
*10.12 Onward Receivables Sale Agreement dated May 24, 2002 between Exide Europe Funding Ltd, as
Seller; Exide Holding Europe S.A., as Offer Agent; Batteries Funding Ltd, as Buyer; and Citibank,
N.A., as Operating Agent.
*10.13 German Receivables Sale Agreement dated May 24, 2002 between Deutsche Exide GmbH,
Deutsche Exide Standby GmbH and Exide Automotive Batterie GmbH together, the Sellers; Exide
Holding Europe S.A., as Offer Agent; Batteries Funding Limited, as Buyer; and Citibank, N.A., as
Operating Agent.
*10.14 Amended and Restated Receivables Sale Agreement dated May 24, 2002 between Exide Italia S.r.l.,
as Seller; Archimede Securitisation S.r.l. (acting through its London branch), as Buyer; Exide
Holding Europe, as Offer Agent; Citibank, N.A. (acting through its London branch), as Operating
Agent; and Citibank, N.A. (acting through its Milan branch, as Allocation Agent.
*10.15 Receivables Sale Agreement dated May 24, 2002 between Sociedad Espanola del Acumulador
Tudor, S.A. and Fulmen Iberica, S.L. together, the Sellers; Exide Holding Europe, S.A., as Offer
Agent; Batteries Funding Limited, as Buyer; and Citibank, N.A., as Operating Agent.
*10.16 Receivables Securitisation Deed dated May 24, 2002 between CMP Batteries Limited, Exide
(Dagenham) Limited, Fulmen (U.K.) Limited and Deta UK Limited together, the Sellers; Exide
Holding Europe S.A., as Offer Agent; Batteries Funding Limited, as Buyer; and Citibank, N.A., as
Operating Agent.
*10.17 Letter of Undertaking from Exide Holding Europe S.A. to Batteries Funding Limited and Citibank,
N.A., London Branch as Operating Agent and Servicer.
*10.18 Term and Revolving Facilities Agreement, dated May 24, 2002, between Batteries Funding Limited,
as Borrower, Citibank, N.A., London Branch, as Arranger, the parties listed on Part II of Schedule 1
thereto, as Original Lenders, and Citibank, N.A., London Branch, as Agent.
+*10.19 Milestone Incentive Plan
+*10.20 Corporate Incentive Plan
*10.21 Services Agreement, dated October 25, 2001, between JA&J Services LLC and the Company.
*10.22 North American Supply Agreement dated December 15, 1999 between Daramic, Inc. and Exide
Corporation (certain confidential portions have been omitted and filed separately with the SEC
pursuant to a request for confidential treatment).
59
*10.23 Automotive and Industrial Supply Contract dated July 31, 2001 between Daramic, Inc. and Exide
Corporation (certain confidential portions have been omitted and filed separately with the SEC
pursuant to a request for confidential treatment).
*10.24 Golf Cart Separator Supply Contract dated July 31, 2001 between Daramic, Inc. and Exide
Corporation (certain confidential portions have been omitted and filed separately with the SEC
pursuant to a request for confidential treatment).
*10.25 Amendment to Supply Contracts dated July 31, 2001 between Daramic, Inc. and Exide Corporation
(certain confidential portions have been omitted and filed separately with the SEC pursuant to a
request for confidential treatment).
*10.26 Amendment No. 2 to Supply Contracts dated July 11, 2002 between Daramic, Inc. and Exide
Technologies (certain confidential portions have been omitted and filed separately with the SEC
pursuant to a request for confidential treatment).
+*10.27 Exide Technologies et al Debtors Income Protection Plan.
*21 Subsidiaries of the Company.
*23 Consent of PricewaterhouseCoopers LLP.
* Filed with this Report.
+ Management contract or compensatory plan or arrangement.
60
EXIDE TECHNOLOGIES AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
REPORT OF INDEPENDENT ACCOUNTANTS..................... F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.............. F-3
CONSOLIDATED STATEMENTS OF OPERATIONS................. F-4
CONSOLIDATED BALANCE SHEETS........................... F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT...... F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS................. F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............ F-9
FINANCIAL STATEMENT SCHEDULE:
II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES. F-46
All other schedules are omitted because they are not applicable, not
required, or the information required to be set forth therein is included in
the Consolidated Financial Statements or in the Notes thereto.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
Exide Technologies
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Exide Technologies and its subsidiaries at March 31, 2002 and March
31, 2001, and the results of their operations and their cash flows for each of
the two years in the period ended March 31, 2002 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of Exide's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Notes 3 and 4 to the consolidated financial statements, on
April 1, 2001, Exide adopted Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities", as
amended, SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and
Other Intangible Assets".
The accompanying consolidated financial statements have been prepared
assuming that Exide will continue as a going concern. As discussed in the notes
to the consolidated financial statements, on April 15, 2002, Exide filed a
voluntary petition for reorganization under Chapter 11 of the United States
Bankruptcy Code. The uncertainties inherent in the bankruptcy process and
Exide's recurring losses from operations raise substantial doubt about its
ability to continue as a going concern. The consolidated financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
July 30, 2002
F-2
The following is a copy of the report of Arthur Andersen LLP previously
issued with respect to the financial statements of the Company filed with its
Annual Report on Form 10-K for the fiscal year ended March 31, 2001, which
report has not been reissued. In October 2001, the Company changed its
organizational structure and now reports three segments. In accordance with
FAS131, prior year segment data has been reclassified to reflect the current
year presentation. See Note 21 to the Consolidated Financial Statements. In
addition, the Company has updated certain other disclosures in the notes, and
changed the manner of presentation of other (income) expense in the financial
statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Exide Corporation:
We have audited the accompanying consolidated balance sheet of Exide
Corporation (a Delaware corporation) and subsidiaries as of March 31, 2000, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the fiscal years ended March 31, 1999 and March
31, 2000. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Exide Corporation and
subsidiaries as of March 31, 2000 and the results of their operations and their
cash flows for the fiscal years ended March 31, 1999 and March 31, 2000, in
conformity with accounting principles generally accepted in the United States.
As explained in Note 1 to the consolidated financial statements, the Company
has given retroactive effect to the change in accounting for inventory costing.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index to the consolidated financial statements for the fiscal year's ended
March 31, 1999 and March 31, 2000 is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
June 29, 2000 (except with respect to the
matter discussed in Note 16, as to
which the date is June 28, 2001)
F-3
EXIDE TECHNOLOGIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share data)
For the Fiscal Year Ended March 31,
----------------------------------
2002 2001 2000
---------- ---------- ----------
NET SALES........................................................... $2,428,550 $2,432,102 $2,194,447
COST OF SALES BEFORE ASSET SALES.................................... 1,918,233 1,848,075 1,639,600
NET LOSS ON ASSET SALES............................................. -- -- 21,584
---------- ---------- ----------
Gross profit................................................. 510,317 584,027 533,263
---------- ---------- ----------
OPERATING EXPENSES:
Selling, marketing and advertising............................... 337,355 340,616 319,476
General and administrative....................................... 178,842 157,459 145,770
Restructuring and other (Note 15)................................ 33,122 113,166 39,336
Goodwill impairment charge (Note 4).............................. 105,000 -- --
Purchased research and development (Note 14)..................... (8,185) -- 14,262
Goodwill amortization............................................ -- 14,949 17,165
Other (income) expense, net (Note 16)............................ 32,739 (5,485) 16,814
---------- ---------- ----------
678,873 620,705 552,823
---------- ---------- ----------
Operating loss............................................... (168,556) (36,678) (19,560)
---------- ---------- ----------
INTEREST EXPENSE, net............................................... 136,241 117,652 103,988
Loss before income taxes, minority interest and cumulative effect of
change in accounting principle.................................... (304,797) (154,330) (123,548)
INCOME TAX PROVISION (BENEFIT)...................................... (1,422) 8,632 10,769
---------- ---------- ----------
Loss before minority interest and cumulative effect of change in
accounting principle.............................................. (303,375) (162,962) (134,317)
MINORITY INTEREST................................................... 211 1,623 1,725
---------- ---------- ----------
Loss before cumulative effect of change in accounting principle..... (303,586) (164,585) (136,042)
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE (Note 3).................................... (496) -- --
---------- ---------- ----------
Net loss..................................................... $ (304,082) $ (164,585) $ (136,042)
========== ========== ==========
NET LOSS PER SHARE, BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE
Basic and Diluted................................................ $ (11.33) $ (7.02) $ (6.40)
========== ========== ==========
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE PER SHARE
Basic and Diluted................................................ $ (0.02) $ -- $ --
========== ========== ==========
NET LOSS PER SHARE (Note 2)
Basic and Diluted................................................ $ (11.35) $ (7.02) $ (6.40)
========== ========== ==========
WEIGHTED AVERAGE SHARES
Basic and Diluted................................................ 26,798 23,447 21,263
========== ========== ==========
The accompanying notes are an integral part of these statements.
F-4
EXIDE TECHNOLOGIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per-share data)
March 31, March 31,
2002 2001
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 31,703 $ 23,072
Receivables, net of allowance for doubtful
accounts of $53,203 and $33,597, respectively (Note 19). 304,797 429,455
Inventories (Note 5)...................................... 404,667 511,411
Prepaid expenses and other................................ 19,302 19,817
Deferred income taxes..................................... 28,900 28,478
---------- ----------
Total current assets.................................. 789,369 1,012,233
---------- ----------
Property, plant and equipment, net........................... 530,220 632,935
---------- ----------
Other assets:
Goodwill, net (Note 4 and 14)............................. 416,926 540,395
Other intangibles, net (Note 14).......................... 48,680 --
Investments in affiliates................................. 4,821 5,782
Deferred financing costs, net............................. 12,610 26,777
Deferred income taxes (Note 11)........................... 69,819 40,716
Other (Note 6)............................................ 43,423 40,087
---------- ----------
596,279 653,757
---------- ----------
Total assets.......................................... $1,915,868 $2,298,925
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term borrowings (Note 7)............................ $ 10,999 $ 10,387
Current maturities of long-term debt (Note 7)............. 1,075,925 28,117
Accounts payable.......................................... 290,378 350,712
Accrued expenses.......................................... 363,933 439,399
---------- ----------
Total current liabilities............................. 1,741,235 828,615
Long-term debt (Note 7)...................................... 326,348 1,308,542
Noncurrent retirement obligations............................ 176,675 164,447
Other noncurrent liabilities................................. 209,336 235,587
---------- ----------
Total liabilities..................................... 2,453,594 2,537,191
---------- ----------
Commitments and contingencies (Notes 12 and 13)..............
Minority interest............................................ 18,016 18,373
---------- ----------
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value 100,000 shares authorized;
27,383 and 25,449 shares issued and outstanding............ 274 255
Additional paid-in capital................................... 570,589 531,179
Accumulated deficit.......................................... (791,119) (485,986)
Notes receivable--stock award plan........................... (665) (665)
Accumulated other comprehensive loss......................... (334,821) (301,422)
---------- ----------
Total stockholders' deficit.................................. (555,742) (256,639)
---------- ----------
Total liabilities and stockholders' deficit.................. $1,915,868 $2,298,925
========== ==========
The accompanying notes are an integral part of these statements.
F-5
EXIDE TECHNOLOGIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE FISCAL YEARS ENDED MARCH 31, 2000, 2001 AND 2002
(In thousands, except per-share data)
Notes
Additional Receivable-
Common Paid-in Stock Award Unearned Accumulated
Stock Capital Plan Compensation Deficit
------ ---------- ----------- ------------ -----------
Balance at March 31, 1999........................ $213 $490,147 $(786) $(129) $(181,779)
---- -------- ----- ----- ---------
Net loss for fiscal 2000...................... -- -- -- -- (136,042)
Minimum pension liability adjustment, net of
tax.......................................... -- -- -- -- --
Translation adjustment........................ -- -- -- -- --
Comprehensive loss............................
Common stock issued under employee stock
purchase plan................................ 1 165 -- -- --
Common stock issued pursuant to Board of
Directors' grants............................ -- 87 -- --
Forfeiture of common stock grants............. -- -- 52 -- --
Amortization of unearned compensation......... -- -- -- 129 --
Cash dividends paid ($0.08/share)............. -- -- -- -- (1,709)
---- -------- ----- ----- ---------
Balance at March 31, 2000........................ 214 490,399 (734) -- (319,530)
---- -------- ----- ----- ---------
Net loss for fiscal 2001...................... -- -- -- -- (164,585)
Minimum pension liability adjustment, net of
tax.......................................... -- -- -- -- --
Translation adjustment........................ -- -- -- -- --
Comprehensive loss............................
Common stock issued under employee stock
purchase plan................................ 1 -- -- -- --
GNB acquisition stock issuance................ 40 36,244 -- -- --
Warrants issued for GNB financing............. -- 4,536 -- -- --
Forfeiture of common stock grants............. -- -- 69 -- --
Cash dividends paid ($0.08/share)............. -- -- -- -- (1,871)
---- -------- ----- ----- ---------
Balance at March 31, 2001........................ $255 $531,179 $(665) $ -- $(485,986)
---- -------- ----- ----- ---------
Accumulated Other
Comprehensive Loss
-------------------------------------
Minimum
Pension
Liability Cumulative Derivatives
Adjustment, Translation Qualifying as Comprehensive
Net of Tax Adjustment Hedges Loss
----------- ----------- ------------- -------------
Balance at March 31, 1999........................ $ (1,782) $(171,749) $--
-------- --------- ---
Net loss for fiscal 2000...................... -- -- -- $(136,042)
Minimum pension liability adjustment, net of
tax.......................................... (311) -- -- (311)
Translation adjustment........................ -- (62,883) -- (62,883)
---------
Comprehensive loss............................ $(199,236)
=========
Common stock issued under employee stock
purchase plan................................ -- -- --
Common stock issued pursuant to Board of
Directors' grants............................ -- -- --
Forfeiture of common stock grants............. -- -- --
Amortization of unearned compensation......... -- -- --
Cash dividends paid ($0.08/share)............. -- -- --
-------- --------- ---
Balance at March 31, 2000........................ (2,093) (234,632) --
-------- --------- ---
Net loss for fiscal 2001...................... -- -- -- $(164,585)
Minimum pension liability adjustment, net of
tax.......................................... (34,461) -- -- (34,461)
Translation adjustment........................ -- (30,236) -- (30,236)
---------
Comprehensive loss............................ $(229,282)
=========
Common stock issued under employee stock
purchase plan................................ -- -- --
GNB acquisition stock issuance................ -- -- --
Warrants issued for GNB financing............. -- -- --
Forfeiture of common stock grants............. -- -- --
Cash dividends paid ($0.08/share)............. -- -- --
-------- --------- ---
Balance at March 31, 2001........................ $(36,554) $(264,868) $--
-------- --------- ---
F-6
F-7
EXIDE TECHNOLOGIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE FISCAL YEARS ENDED MARCH 31, 2000, 2001 AND 2002--(Continued)
(In thousands, except per-share data)
Notes
Additional Receivable-
Common Paid-in Stock Award Unearned Accumulated
Stock Capital Plan Compensation Deficit
------ ---------- ----------- ------------ -----------
Net loss for fiscal 2002...................... -- -- -- -- (304,082)
Minimum pension liability adjustment, net of
tax.......................................... -- -- -- -- --
Cumulative effect of change in accounting
principle.................................... -- -- -- -- --
Change in fair value of cash flow hedges...... -- -- -- -- --
Reclassification to earnings.................. -- -- -- -- --
Translation adjustment........................ -- -- -- -- --
Comprehensive loss............................
Common stock issued under employee stock
purchase plan................................ -- 17 -- -- --
Common stock issued in debt for equity
transaction.................................. 19 39,393 -- -- --
Cash dividends paid ($0.04/share)............. -- -- -- -- (1,051)
---- -------- ----- --- ---------
Balance at March 31, 2002........................ $274 $570,589 $(665) $-- $(791,119)
==== ======== ===== === =========
Accumulated Other
Comprehensive Loss
------------------------------------
Minimum
Pension
Liability Cumulative Derivatives
Adjustment, Translation Qualifying as Comprehensive
Net of Tax Adjustment Hedges Loss
----------- ----------- ------------- -------------
Net loss for fiscal 2002...................... -- -- -- $(304,082)
Minimum pension liability adjustment, net of
tax.......................................... (23,303) -- -- (23,303)
Cumulative effect of change in accounting
principle.................................... -- -- 541 541
Change in fair value of cash flow hedges...... -- -- (4,981) (4,981)
Reclassification to earnings.................. -- -- 2,357 2,357
Translation adjustment........................ -- (8,013) -- (8,013)
---------
Comprehensive loss............................ $(337,481)
=========
Common stock issued under employee stock
purchase plan................................ -- -- --
Common stock issued in debt for equity
transaction.................................. -- -- --
Cash dividends paid ($0.04/share)............. -- -- --
-------- --------- -------
Balance at March 31, 2002........................ $(59,857) $(272,881) $(2,083)
======== ========= =======
The accompanying notes are an integral part of these statements.
EXIDE TECHNOLOGIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Year Ended March 31,
----------------------------------
2002 2001 2000
--------- --------- ---------
(In thousands)
Cash Flows From Operating Activities:
Net loss............................................................ $(304,082) $(164,585) $(136,042)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities--
Depreciation and amortization..................................... 100,730 99,595 95,706
Net (gain) loss on asset sales.................................... (1,079) (18,500) 21,584
Purchased research and development................................ (8,185) -- 14,262
Deferred income taxes............................................. (15,156) (11,369) 16,199
Amortization of original issue discount on notes.................. 10,768 10,642 9,992
Provision for doubtful accounts................................... 24,731 12,066 6,859
Non-cash provision for restructuring.............................. 10,400 42,381 19,336
Goodwill impairment charge........................................ 105,000 -- --
Minority interest................................................. 211 1,623 1,725
Amortization of deferred financing costs.......................... 13,126 5,262 3,610
Debt-to-equity conversion non-cash charge......................... 13,873 -- --
Provision for excess inventories.................................. 10,000 -- --
Net change from sales of receivables.............................. (35,211) 94,933 (23,483)
Changes in assets and liabilities excluding effects of
acquisitions and divestitures--
Receivables....................................................... 118,138 7,331 (29,139)
Inventories....................................................... 87,043 (4,680) 50,324
Prepaid expenses and other........................................ 515 2,768 1,466
Payables.......................................................... (59,246) (36,565) 27,970
Accrued expenses.................................................. (77,276) 33,958 (29,132)
Noncurrent liabilities............................................ (2,115) 28,314 42,033
Other, net........................................................ 1,150 (12,984) 2,378
--------- --------- ---------
Net cash (used in) provided by operating activities............ (6,665) 90,190 95,648
--------- --------- ---------
Cash Flows From Investing Activities:
GNB Acquisition, net of cash acquired of $17,098 in fiscal 2001..... (965) (331,902) --
Other acquisitions of businesses.................................... -- -- (2,582)
Capital expenditures................................................ (61,323) (69,495) (63,953)
Proceeds from sales of assets....................................... 4,833 45,477 53,105
Investment in joint venture......................................... (1,007) -- --
Other............................................................... -- -- 807
--------- --------- ---------
Net cash used in investing activities.......................... (58,462) (355,920) (12,623)
--------- --------- ---------
Cash Flows From Financing Activities:
Increase (decrease) in short-term borrowings........................ 718 (8,503) 7,486
Borrowings under Senior Secured Credit Facilities Agreement......... 881,135 604,274 639,089
Repayments under Senior Secured Credit Facilities Agreement......... (788,635) (569,432) (709,673)
GNB acquisition debt................................................ -- 250,000 --
Decrease in other debt.............................................. (12,958) -- (8,448)
Financing costs and other........................................... (5,489) (15,000) (732)
Dividends paid...................................................... (1,051) (1,871) (1,709)
--------- --------- ---------
Net cash provided by (used in) financing activities............ 73,720 259,468 (73,987)
--------- --------- ---------
Effect of Exchange Rate Changes on Cash and Cash Equivalents........... 38 1,224 (1,524)
--------- --------- ---------
Net Increase (Decrease) In Cash and Cash Equivalents................... 8,631 (5,038) 7,514
Cash and Cash Equivalents, Beginning of Year........................... 23,072 28,110 20,596
--------- --------- ---------
Cash and Cash Equivalents, End of Year................................. $ 31,703 $ 23,072 $ 28,110
========= ========= =========
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the year for--
Interest............................................................ $ 117,721 $ 93,764 $ 89,955
Income taxes (net of refunds)....................................... $ 15,051 $ 9,682 $ 16,180
See Note 7 for non-cash financing activity related to debt to equity
conversion.
The accompanying notes are an integral part of these statements.
F-8
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
(In thousands, except per-share and headcount data)
(1) PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
On April 15, 2002 ("Petition Date") Exide Technologies (referred together
with its subsidiaries, unless the context requires otherwise, as "Exide" or the
"Company") and three of its wholly owned U.S. subsidiaries (collectively, the
"Debtors") filed voluntary petitions for reorganization under Chapter 11 of the
federal bankruptcy laws ("Bankruptcy Code" or "Chapter 11") in the United
States Bankruptcy Court for the District of Delaware ("Bankruptcy Court")under
case numbers 02-11125 through 02-11128 (jointly administered for procedural
purposes before the Bankruptcy Court under case number 02-11125JCA). The
Debtors are currently operating their business as debtors-in-possession
pursuant to the Bankruptcy Code.
The Company decided to file itself and certain of its subsidiaries for
reorganization under Chapter 11 as it offered the most efficient alternative to
restructure its balance sheet and access new working capital while continuing
to operate in the ordinary course of business. The Company has a heavy debt
burden, caused largely by a debt-financed acquisition strategy and the
significant costs of integrating those acquisitions. Other factors leading to
the reorganization included the impact of current economic conditions on the
Company's markets, particularly the telecommunications industry, ongoing
competitive pressures and recent capital market volatility. These factors
contributed to a loss of revenues and have resulted in significant operating
losses and negative cash flows, severely impacting the Company's financial
condition and its ability to maintain compliance with debt covenants.
As debtors-in-possession, the Debtors are authorized to continue to operate
as an ongoing business, but may not engage in transactions outside the ordinary
course of business without the approval of the Bankruptcy Court. The Company's
operations outside of the U.S. are not included in the Chapter 11 proceedings.
However, in connection with the filing the Company entered into a "Standstill
and Subordination Agreement" with its Pre-petition Senior Secured Credit
Facility lenders, whereby the lenders have agreed to forbear collection of
principal payments on foreign borrowings under this facility by non-debtor
subsidiaries until December 2003, subject to earlier termination upon the
occurrence of certain events.
On April 17, 2002 Exide received Bankruptcy Court approval for among other
things, on an interim basis, access to $200 million of a $250 million
debtor-in-possession ("DIP") financing facility ("DIP Credit Facility"), the
ability to pay pre-petition and post-petition employee wages, salaries and
benefits and to honor customer warranty and rebate obligations.
On May 10, 2002 the Company received final Bankruptcy Court approval to
access its entire $250 million DIP Credit Facility. The DIP Credit Facility
will be used to supplement cash flows from operations during the reorganization
process including the payment of post-petition ordinary course trade and other
payables, the payment of certain permitted pre-petition claims, working capital
needs, letter of credit requirements and other general corporate purposes.
Under Section 362 of the Bankruptcy Code, actions to collect pre-petition
indebtedness, as well as most other pending litigation, are stayed. Absent an
order of the Bankruptcy Court, substantially all prepetition liabilities are
subject to settlement under a plan of reorganization approved by the Bankruptcy
Court. Although the Debtors expect to file a reorganization plan that provides
for emergence from bankruptcy as a going concern, there can be no assurance
that a reorganization plan will be proposed by the Debtors or confirmed by the
Bankruptcy Court, or that any such plan will be successfully implemented.
F-9
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under the Bankruptcy Code, the Debtors may also assume or reject executory
contracts, including lease obligations, subject to the approval of the
Bankruptcy Court and certain other conditions. Parties affected by these
rejections may file claims with the Bankruptcy Court in accordance with the
reorganization process. Due to the timing of the Chapter 11 proceedings, the
Company cannot currently estimate or anticipate what impact the rejection and
subsequent claims of executory contracts may have in the reorganization process.
On June 14, 2002, the Company filed with the Bankruptcy Court schedules and
statements of financial affairs setting forth, among other things, the assets
and liabilities of the Debtors as shown by our books and records on the
petition date, subject to the assumptions contained in certain notes filed in
connection therewith. All of the schedules are subject to further amendment or
modification. The Bankruptcy Code provides for a claims reconciliation and
resolution process, although a bar date for filing claims has not yet been
established. As the ultimate number and amount of allowed claims is not
presently known and, because any settlement terms of such allowed claims are
subject to a confirmed plan of reorganization, the ultimate distribution with
respect to allowed claims is not presently ascertainable.
At this time, it is not possible to predict the ultimate effect of the
Chapter 11 reorganization on our business, various creditors and security
holders or when it may be possible to emerge from Chapter 11. Our future
results are dependent upon our confirming and implementing, on a timely basis,
a plan of reorganization. The Company believes, however, that under any
reorganization plan, the Company's common stock would likely be substantially
if not completely diluted or cancelled as a result of the conversion of debt to
equity or with respect to any other compromise of interest. Further it is also
expected that the Company's senior notes and convertible subordinated notes
will suffer substantial impairment.
The consolidated financial statements have been prepared on a going concern
basis, which assumes continuity of operations and realization of assets and
satisfaction of liabilities in the ordinary course of business. The ability of
the Company to continue as a going concern is predicated upon, among other
things, the confirmation of a reorganization plan, compliance with the
provisions of the DIP Credit Facility, the ability of the Company to generate
cash flows from operations, and where necessary, obtaining financing sources
sufficient to satisfy future obligations. As a result of the Chapter 11 filing,
and consideration of various strategic alternatives, including possible assets
sales, the Company expects that any reorganization plan will likely result in
material changes to the carrying amount of assets and liabilities in the
consolidated financial statements.
The consolidated financial statements do not include adjustments, if any, to
reflect the possible future effects on the recoverability and classification of
recorded assets or the amounts and classifications of liabilities that may
result from the outcome of these uncertainties. In addition, since the Debtors
filed for protection under the Bankruptcy Code subsequent to March 31, 2002,
the accompanying fiscal 2002 consolidated financial statements have not been
prepared in accordance with SOP 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7"), and do not include
disclosures of liabilities subject to compromise. Financial statements prepared
subsequent to the filing date under Chapter 11 will be prepared reflecting such
amounts subject to compromise.
Because the Company did not believe it would be in compliance with certain
financial covenants included in the Company's Senior Secured Credit facility
upon expiration of waivers on April 15, 2002, the Company classified those
obligations of the Debtors under the Senior Facility as short-term debt at
March 31, 2002.
F-10
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Exide
Technologies and all of its majority owned subsidiaries in which we exercise
control(collectively the "Company"). Investments in affiliates of less than a
20% interest are accounted for by the cost method. Investments in 20% to 50%
owned companies are accounted for by the equity method. The Company's equity in
the net income (loss) of these companies is not material. All significant
intercompany transactions have been eliminated.
The Company acquired GNB Technologies, Inc. and related entities and
assets("GNB") on September 29, 2000. GNB's results of operations were included
in the accompanying consolidated statement of operations since the date of
acquisition (See Note 14).
Nature of Operations
The Company is one of the largest manufacturers and marketers of lead acid
batteries in the world. 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 used in
forklift trucks and other electronic vehicles, and network power batteries used
for back-up power applications, such as those used for telecommunication
systems. We market our automotive batteries to a broad range of retailers and
distributors of replacement batteries and automotive original equipment
manufacturers.
We have three segments: the Transportation segment, the Motive Power segment
and the Network Power segment. See Note 21.
Seasonality and Weather
The automotive aftermarket is seasonal as retail sales of replacement
batteries are generally higher in the fall and winter. Accordingly, demand for
the Company's automotive batteries is generally highest in the fall and early
winter (the Company's second and third fiscal quarters) as retailers build
inventories in anticipation of the winter season. European sales are
concentrated in the fourth calendar quarter (the Company's third fiscal
quarter) due to the shipment of batteries for the winter season and the
practice of many industrial battery customers (particularly governmental and
quasi-governmental entities) of deferring purchasing decisions until the end of
the calendar year. Demand for automotive batteries is significantly affected by
weather conditions. Unusually cold winters or hot summers accelerate battery
failure and increase demand for automotive replacement batteries. Mild winters
and cool summers have the opposite effect.
Major Customers and Concentration of Credit
The Company has a number of major end-user, retail and original equipment
manufacturer customers, both in North America and Europe. No single customer
accounted for more than 10% of consolidated net sales during any of the fiscal
years presented. The Company does not believe a material part of its business
is dependent upon a single customer, the loss of which would have a material
long-term impact on the business of the Company. However, the loss of one or
more of the Company's largest customers would most likely have a negative
short-term impact on the Company's results of operations.
Foreign Currency Translation
The functional currencies of the Company's foreign subsidiaries are
primarily the respective local currency. Assets and liabilities of the
Company's foreign subsidiaries and affiliates are translated into U.S. dollars
at the year-end exchange rate, and revenues and expenses are translated at
average monthly exchange rates. Translation gains and losses are recorded as a
component of accumulated other comprehensive loss within stockholders' deficit.
Foreign currency gains and losses from certain intercompany transactions
meeting the permanently
F-11
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
advanced criteria of Statement of Financial Accounting Standards ("SFAS") No.
52 "Foreign Currency Translation" are also recorded as a component of
accumulated other comprehensive loss. Transaction gains and losses not meeting
this permanently advanced criteria are included in other (income) expense, net.
The Company recognized net transaction (gains) losses of $5,109, $(1,009) and
$897 in fiscal 2002, 2001 and 2000, respectively.
Cash Equivalents
Cash equivalents consist of highly liquid instruments with maturities at the
time of acquisition of three months or less. Cash equivalents are stated at
cost, which approximates fair value because of the short-term maturity of these
instruments.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. We
continually assess the adequacy of the reserves for doubtful accounts based on
the financial condition of our customers and other external factors that may
impact collectibility.
Inventories
Inventories, which consist of material, labor and overhead, are stated at
the lower of cost or market using the first-in, first-out ("FIFO") method. The
Company writes down its inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of the inventory and the
estimated market value based on assumptions of future demand and market
conditions.
Property, Plant and Equipment
Property, plant and equipment at March 31 consists of:
2002 2001
-------- --------
Land.................................. $ 46,687 $ 47,615
Buildings and improvements............ 262,779 260,336
Machinery and equipment............... 562,382 613,988
Construction in progress.............. 37,674 39,294
-------- --------
909,522 961,233
Less--Accumulated depreciation........ 379,302 328,298
-------- --------
Property, plant and equipment, net. $530,220 $632,935
======== ========
Depreciation is provided on a straight-line basis over the estimated useful
lives of the assets. The range of estimated useful lives is as follows:
buildings and improvements, 25-40 years; machinery and equipment, 3-14 years.
Cost and accumulated depreciation for property retired or disposed of are
removed from the accounts, and any gain or loss on disposal is credited or
charged to earnings. Expenditures for maintenance and repairs are charged to
expense as incurred. Additions, improvements and major renewals are
capitalized. Depreciation expense was $99,439, $84,568 and $76,257 for fiscal
years 2002, 2001 and 2000, respectively.
F-12
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Capitalized Software Costs
The Company capitalizes the cost of computer software acquired or developed
for internal use, in accordance with SoP 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The capitalized
costs are amortized over the estimated useful life of the software, ranging
from 3 to 5 years, on a straight-line basis.
Deferred Financing Costs
Deferred financing costs are amortized to interest expense over the life of
the related debt. During the third and fourth quarters of fiscal 2002 the
Company accelerated amortization of certain deferred financing costs amounting
to $6,216 which related to the Senior Secured Credit facility.
Valuation of Long-Lived Assets
The Company's long-lived assets include property, plant and equipment,
goodwill and identified intangible assets. Long-lived assets (other than
goodwill and indefinite lived intangible assets) are depreciated over their
estimated useful lives, and are reviewed for impairment whenever changes in
circumstances indicate the carrying value may not be recoverable. Goodwill and
indefinite-lived intangible assets are reviewed for impairment on both an
annual basis and whenever changes in circumstances indicate the carrying value
may not be recoverable. The fair value of goodwill and indefinite-lived
intangible assets are based upon our estimates of future cash flows and other
factors including discount rates to determine the fair value of the respective
assets. If these assets or their related assumptions change in the future, we
may be required to record impairment charges. See Note 4.
Hedging Activities
In accordance with SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended, the Company reports all derivative financial
instruments on the balance sheet at their fair values. For derivative
instruments designated as cash flow hedges, the effective portion of any hedge
is reported in Accumulated Other Comprehensive Loss until it is cleared to
earnings during the same period in which the hedged item affects earnings. The
ineffective portion of all hedges is recognized in current period earnings. The
Company uses no derivative instruments designated as fair value hedges. In the
Consolidated Statement of Cash Flows, the Company reports the cash flows
resulting from its hedging activities in the same category as the related item
that is being hedged.
The Company enters into certain interest rate swap agreements to hedge
exposure to interest costs associated with long-term debt. The differential to
be paid or received on these agreements is accrued as interest rates change and
is recognized in earnings over the life of the agreements. All of the Company's
interest rate swaps qualify for the shortcut method of hedge accounting under
SFAS 133, thus there is no ineffectiveness reported in earnings related to
these hedges.
The Company enters into foreign exchange rate agreements to hedge exposure
to the currency fluctuation of certain transactions denominated in a currency
other than the applicable local currency. The differential to be paid or
received on these agreements is included in earnings in the period in which
they are settled.
The Company also enters into certain lead forward purchase and put option
agreements to hedge the cost of externally purchased lead. These hedges are
considered highly effective and are accounted for as cash flow hedges under
SFAS 133.
Counterparties to interest rate swap, foreign exchange and commodity and
option agreements are major financial institutions. Management believes the
risk of incurring losses related to credit risk is remote.
F-13
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's ability to utilize financial instruments as hedges has been
significantly restricted due to the Chapter 11 filing. As a result, the Company
does not anticipate utilizing the types of financial instruments described
above to any significant extent in the foreseeable future.
Warranty and Returns
The Company recognizes the estimated cost of warranty and returns as a
reduction of sales in the period in which the related revenue is recognized.
These estimates are based upon historical trends and claims experience, and
include assessment of the anticipated lag between the date of sale and claim /
return date.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS 109
"Accounting for Income Taxes", which requires the use of the liability method
in accounting for deferred taxes. If it is more likely than not that some
portion, or all, of a deferred tax asset will not be realized, a valuation
allowance is recognized.
Revenue Recognition
The Company records sales when revenue is earned. Shipment terms are
generally FOB shipping point and revenue is recognized when product is shipped
to the customer. In limited cases, terms are FOB destination and in these
cases, revenue is recognized when product is delivered to the customer's
delivery site.
Accounting for Shipping and Handling Costs
The Company records shipping and handling costs incurred in cost of sales
and records shipping and handling costs billed to customers in net sales.
Advertising
The Company expenses advertising costs as incurred.
Earnings Per Share ("EPS")
Basic EPS excludes all potentially dilutive securities and is computed by
dividing income (loss) by the weighted average number of common shares
outstanding during the period. Diluted EPS includes the assumed exercise and
conversion of potentially dilutive securities, including stock options and
convertible notes, in periods when they are not anti-dilutive; otherwise, it is
the same as basic EPS.
Basic and diluted EPS are the same for fiscal 2002, 2001 and 2000 because
the effect of assumed exercise and conversion of potentially dilutive
securities would have been anti-dilutive.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior years' amounts have been reclassified to conform to the fiscal
2002 presentation.
Recently Issued Accounting Standards
The Financial Accounting Standards Board recently issued SFAS 143
"Accounting for Asset Retirement Obligations", and SFAS 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
Company is required
F-14
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
to adopt SFAS 143 on April 1, 2003. The provisions of SFAS 143 address
financial accounting and reporting requirements for obligations associated with
the retirement of tangible long-lived assets and the associated retirement
costs and requires companies to record an asset and related liability for the
cost associated with the retirement of long-lived tangible assets if a legal
liability to retire the asset exists.
SFAS 144 is effective for financial statements for fiscal years beginning
after December 15, 2001. The Company will adopt SFAS 144 on April 1, 2002. SFAS
144 addresses financial accounting and reporting for the impairment or disposal
of long-lived assets and supersedes SFAS 121 and the accounting and reporting
provisions of the Accounting Principles Board ("APB") Opinion No. 30 for the
disposal of a segment of a business. SFAS 144 retains the basic principles of
SFAS 121 for long lived assets to be disposed of by sale or held and used and
broadens discontinued operations presentation to include a component of an
entity that is held for sale or that has been disposed of.
The Company is in the process of completing its evaluation of the impact of
these statements.
(3) ACCOUNTING FOR DERIVATIVES
On April 1, 2001, the Company adopted SFAS 133 "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS 138 "Accounting for
Certain Derivative Instruments and Certain Hedging Activities", (collectively,
"SFAS 133"). SFAS 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized as either assets or liabilities at fair value. The
Company does not enter into derivative contracts for trading purposes.
Derivatives are used only to hedge the volatility arising from movements in a
portion of the cost of lead purchases as well as hedging certain interest rates
and foreign currency exchange rates. The Company's outstanding derivatives that
qualify for hedge accounting are designated as cash flow hedges. The effective
portion of changes in the fair value of lead forward contracts are recorded in
Accumulated Other Comprehensive Loss until the related purchased lead is
charged to earnings. At that time, the effective portion recorded in
Accumulated Other Comprehensive Loss is recognized in the Statement of
Operations. Changes in the fair value of cash flow hedges for which the hedged
item affects earnings immediately (foreign currency transaction hedges and
interest rate hedges), ineffective portions of changes in the fair value of
cash flow hedges and fair value changes on certain derivatives that, despite
being utilized to effectively manage the above mentioned activities, do not
qualify for hedge accounting, are recognized in earnings immediately.
The adoption of SFAS 133 resulted in an income statement charge, reflected
as a cumulative effect of change in accounting principle, of $496 or $0.02 per
diluted share. Also, a cumulative effect adjustment reduced Accumulated Other
Comprehensive Loss by $541. Approximately $2,083 of the amount in Accumulated
Other Comprehensive Loss at March 31, 2002 will be reclassified into earnings
during the fiscal year ending March 31, 2003. The change in fair value of cash
flow hedges for which the hedged item affects earnings immediately, related to
hedge ineffectiveness and of derivatives not qualifying for hedge accounting
(including the cumulative effect of change in accounting principle), for the
fiscal year ended March 31, 2002 was $1,247 and was recognized in other
expense. No cash flow hedges were derecognized or terminated during the period.
The fair value of derivative contracts at March 31, 2002 is a liability of
$2,103.
F-15
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents activity relating to other comprehensive income
(loss) for derivative instruments classified as cash flow hedges only:
Fiscal Year
Ended
March 31, 2002
--------------
Cumulative effect of change in accounting principle.... $ 541
Additions and revaluations of derivatives designated as
cash flow hedges..................................... (4,981)
Less: Clearance of hedge results to earnings........... 2,357
-------
Ending Balance......................................... $(2,083)
=======
(4) ACCOUNTING FOR GOODWILL AND INTANGIBLES
In June 2001, the Financial Accounting Standards Board issued SFAS 141,
"Business Combinations" and SFAS 142, "Goodwill and Other Intangible Assets".
SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS 141 also specifies
the criteria applicable to intangible assets acquired in a purchase method
business combination to be recognized and reported apart from goodwill. SFAS
142 requires that goodwill and intangible assets with indefinite useful lives
no longer be amortized, but instead be tested for impairment, at least
annually. SFAS 142 also requires that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and be reviewed for impairment.
The Company adopted SFAS 141 and 142 effective April 1, 2001. There was no
cumulative effect of a change in accounting as a result of the initial adoption
of SFAS 142. However, on a prospective basis upon adoption of SFAS 142, the
Company no longer amortizes goodwill. The following table reflects net loss
adjusted to exclude amortization expense (including any related tax effects)
recognized in the periods presented:
For the fiscal year ended
-------------------------------
March 31, March 31, March 31,
2002 2001 2000
--------- --------- ---------
Reported Net Income (Loss)........... $(304,082) $(164,585) $(136,042)
Goodwill Amortization................ -- 14,949 17,165
Adjusted Net Income (Loss)........... $(304,082) $(149,636) $(118,877)
Basic and Diluted Earnings Per Share:
Reported Net Income (Loss)........... $ (11.35) $ (7.02) $ (6.40)
Goodwill Amortization................ -- 0.64 0.81
Adjusted Net Income (Loss)........... $ (11.35) $ (6.38) $ (5.59)
Summarized goodwill activity for fiscal 2002 is as follows:
Total
---------
Goodwill, net at March 31, 2001........ $ 540,395
Purchase price allocation (See Note 14) (14,814)
Impairment charge...................... (105,000)
Currency translation effect............ (3,655)
---------
Goodwill, net at March 31, 2002........ $ 416,926
=========
In accordance with the requirements of FAS 142, due to a significant
deterioration in the Network Power segment and the Company's expectation that
the current depressed telecommunications market would not recover in the near
term, the Company tested goodwill for impairment during the third quarter of
fiscal 2002.
F-16
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company identified an impairment of goodwill within the Network Power
segment and recorded a charge of $105,000 in the third quarter of fiscal 2002.
The impairment charge was recorded based upon a comparison of the book carrying
value of this reporting unit, including goodwill, against the fair value of the
reporting unit, estimated using a discounted cash flow model based upon the
Company's five year business plan developed and finalized in February 2002.
If the assumptions used in determining the fair value of reporting units
change or there is further significant erosion of business results, such
changes could result in additional impairment charges in future periods. Since
March 31, 2002 the Company has experienced adverse deterioration in the
performance of its European Network Power business. The Company evaluated the
impact of these market conditions on the business and recorded a further
goodwill impairment charge in its Network Power segment in first quarter fiscal
2003 results.
The amounts of goodwill, net at March 31, 2002 allocated to the Company's
Transportation, Motive Power and Network Power segments are approximately
$221,000, $159,000 and $37,000, respectively.
Net intangible assets include $38,600 of trademarks which are not subject to
amortization and $10,080 of technology which is amortized over its useful life
of 10 years. The technology gross carrying amount is $10,900 and the related
accumulated amortization is $820 (See Note 14).
(5) INVENTORIES
Inventories, valued by the first-in, first-out ("FIFO") method, consist of:
March 31, March 31,
2002 2001
--------- ---------
Raw materials.. $ 81,089 $108,582
Work-in-process 79,416 79,767
Finished goods. 244,162 323,062
-------- --------
$404,667 $511,411
======== ========
In connection with the inventory management component of the Company's
restructuring and reorganization programs, during the third quarter of fiscal
2002, the Company recorded a charge to write-down excess inventories by
approximately $10,000. The charge, which was classified as cost of sales in the
accompanying consolidated statement of operations, was determined after an
assessment of the Company's five-year business plan and updated demand
forecasts, the continued weakening of the Company's business segments,
particularly the telecommunications market, and ongoing stock keeping unit
(SKU) rationalization. The Company expects to complete the disposition of these
identified inventories during fiscal 2003.
(6) OTHER ASSETS
Other assets consist of:
March 31, March 31,
2002 2001
- --------- ---------
Pension assets........... $16,403 $24,298
Capitalized software, net 18,264 9,905
Loan to affiliate........ 4,930 3,334
Other.................... 3,826 2,550
------- -------
$43,423 $40,087
======= =======
F-17
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) DEBT
At March 31, 2002 and 2001, short-term borrowings of $10,999 and $10,387,
respectively, consisted of various operating lines of credit and working
capital facilities maintained by certain of the Company's non-U.S.
subsidiaries. Certain of these borrowings are secured by receivables,
inventories and/or property. These borrowing facilities, which are typically
for one-year renewable terms, generally bear interest at current local market
rates plus up to one percent. As of March 31, 2002 and 2001, the weighted
average interest rate on these borrowings was 7.0% and 9.5%, respectively.
Following is a summary of the Company's long-term debt at March 31, 2002 and
2001:
2002 2001
- - ----------- ----------
Senior Secured Global Credit Facilities Agreement--Borrowings primarily at
LIBOR plus 4.75% to 5.25% and LIBOR plus 3.75% to 4.5% at a weighted
average rate of 7.40% and 9.61% at March 31, 2002 and 2001, respectively........... $ 682,683 $ 587,432
9.125% Senior Notes, (Deutsche mark denominated--175,000) due April 15,
2004............................................................................... 77,934 78,589
10% Senior Notes, due April 15, 2005................................................. 300,000 300,000
Convertible Senior Subordinated Notes, due December 15, 2005......................... 320,704 337,011
Other, including capital lease obligations (see Note 13), and other loans at interest
rates generally ranging from 0.0% to 11.0% due in installments through
2015(1)............................................................................ 20,952 33,627
----------- ----------
1,402,273 1,336,659
Less--Current maturities............................................................. (1,075,925) (28,117)
----------- ----------
$ 326,348 $1,308,542
=========== ==========
- --------
(1) Includes various operating lines of credit and working capital facilities
maintained by certain of the Company's non-US subsidiaries.
On January 4, 2002, the Company secured a waiver from its senior lenders
through April 12, 2002 of certain covenants contained in its Senior Secured
Credit Facility and the deferral of principal and interest payments during the
waiver period. In connection with securing this waiver, certain additional
security interests were provided to the senior lenders. On March 28, 2002, the
Company obtained an amendment extending these waivers through April 15, 2002.
On April 15, 2002, the Company and three of its U.S. subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code.
In connection with the filing, the Company also entered into a "Standstill and
Subordination Agreement" with its Pre-petition Senior Secured Credit Facility
lenders, whereby the lenders have agreed to forbear collections of principal
payments on foreign borrowings under this facility from non-debtor subsidiaries
until December 2003, subject to earlier termination upon the occurrence of
certain events. In addition, the Company continues to accrue and pay interest
of the Debtors under the Pre-petition Senior Secured Credit Facility subject to
liquidity calculations prescribed in the DIP Credit Facility. Borrowings under
the Senior Credit Facility by Debtors within the Chapter 11 case are subject to
compromise.
In accordance with generally accepted accounting principles, the Company
classified the long-term portion of its Senior Secured Credit Facility borrowed
by the Debtors, approximately $430,696 at March 31, 2002, as short-term debt as
the Company did not believe it would be in compliance with these covenants
after expiration of the waivers. In addition, the Company classified its 10%
Senior Notes and Convertible Senior Subordinated Notes as short-term as a
consequence of default under these agreements following the Company's Chapter 11
F-18
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
filing. The Company accelerated amortization of certain Senior Secured Credit
Facility deferred financing costs such that these costs were substantially
amortized by March 31, 2002. This acceleration resulted in additional
amortization expense of approximately $6,216 in fiscal 2002. See Note 1 for
further discussion of the Company's bankruptcy considerations and
reorganization plans.
On May 10, 2002 the Company received final Bankruptcy Court approval of its
entire $250,000 DIP Credit Facility. The DIP Credit Facility will be used to
supplement cash flows from operations during the reorganization process
including the payment of post-petition ordinary course trade and other
payables, the payment of certain permitted pre-petition claims, working capital
needs, letter of credit requirements and other general corporate purposes.
On April 17, 2002, approximately $129,000 of the DIP Credit Facility was
drawn down, $117,000 being used to terminate and repurchase uncollected
securitized accounts receivable under the Company's existing U.S. receivables
sale facility and the balance for financing costs and related fees.
The DIP Credit Facility is a secured revolving credit and term loan facility
under which Exide Technologies is the borrower with certain U.S. subsidiaries
acting as guarantors. The DIP Credit Facility is afforded super priority claim
status in the Chapter 11 case and is collateralized by first liens on certain
eligible U.S. assets of the Company, principally accounts receivable, inventory
and property.
The revolving credit tranche of the DIP Credit Facility provides for
borrowing up to $121,000, of which up to $65,000 is available to Exide
Technologies for on-lending to its foreign subsidiaries. An additional $50,000
sub-facility is also available to the foreign subsidiaries based on certain
collateral asset values in the United Kingdom, Canada and Australia. To the
extent funds are borrowed under the DIP and on-lent to foreign subsidiaries,
additional liens on certain assets of the borrowing foreign subsidiary and
related guarantees are required. Up to $40,000 of the revolving credit tranche
is available for letters of credit.
Borrowings under the DIP Credit Facility bear interest at Libor plus 3.75%
per annum. Borrowings are limited to eligible collateral under the DIP Credit
Facility. Eligible collateral under the DIP Credit Facility includes accounts
receivable, inventory and certain property. Availability to the Company is
impacted by changes in both the amounts of the collateral and qualitative
factors (such as aging of accounts receivable and inventory reserves) as well
as cash requirements of the business such as trade credit terms. The DIP Credit
Facility contains certain financial covenants requiring the Company to maintain
monthly specified levels of earnings before interest, taxes, depreciation,
amortization, restructuring and certain other defined charges, as well as
limits on capital expenditures and cash restructuring expenditures. The DIP
Credit Facility also contains other customary covenants, including certain
reporting requirements and covenants that restrict the Company's ability to
incur indebtedness, create or incur liens or guarantees, enter into leases,
sell or dispose of assets, change the nature of our business or enter into
related party transactions. The Company believes it was in compliance with DIP
Credit Facility Covenants as of June 30, 2002. The Company has presented to its
banks an operating plan which assumes that the Company will maintain compliance
with its covenants in fiscal 2003. Currently the Company expects to maintain
adequate financial resources during fiscal 2003 (considering both funds
available under the DIP Credit Facility and cash flows generated from
operations) while pursuing its strategic options and development of a plan of
reorganization. However no assurance can be given that the Company will
maintain compliance with its covenants or have adequate financial resources
available during fiscal 2003. Failure to maintain compliance with these
covenants in the future would result in an event of default which, absent cure
within defined grace periods or obtaining appropriate waivers, would restrict
the Company's availability to funds necessary to maintain its operations and
assist in funding of its reorganization plans. The Company has obtained waivers
under the DIP Credit Facility and Standstill and Subordination Agreement for
late delivery of its audited consolidated financial statements for the fiscal
year ended March 31, 2002.
F-19
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The DIP Credit Facility matures on the earlier of February 15, 2004, 30 days
before the pre-petition Revolving Credit and Tranche A Senior Secured Credit
Facilities mature or the Company emerges from bankruptcy.
In July 2001, the Company completed debt-for-equity exchanges whereby
approximately $30,000 face value of the Convertible Senior Subordinated Notes
(the "Notes") were exchanged for approximately 1,900 shares of Company common
stock. Since these exchanges involved a convertible security, the Company
recognized a non-cash charge of $13,873 in fiscal 2002 equivalent to the market
value of the shares issued in excess of the original conversion ratio of the
Notes. The non-cash charge was included in the "Other(income)expense" line of
the consolidated statement of operations. The carrying value of the Notes was
$25,539. The Company reduced debt and increased shareholders' equity by $25,539
as a result of the transaction. This transaction was treated as a non-cash
financing activity in the accompanying consolidated statement of cash flows.
The Company's $900,000 (including $250,000 to finance the GNB acquisition)
Senior Secured Global Credit Facilities Agreement has three borrowing tranches:
a $150,000 six year multi-currency term A loan, a $500,000 seven and
one-quarter year U.S. dollar term B loan, and a $250,000 six year
multi-currency revolving credit line. This facility contains a number of
financial and other covenants customary for such agreements including
restrictions on new indebtedness, liens, leverage rates, acquisitions and
capital expenditures. Under the original terms of the agreement, principal
payments on nonrevolving debt would continue through March 2005.
In April 1995, the Company issued $300,000 in aggregate principal amount of
10% Senior Notes. The 10% Senior Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after April 15, 2000, initially
at 105% of the principal amount, plus accrued interest, declining to 100% of
the principal amount, plus accrued interest on or after April 15, 2002.
In December 1995, the Company issued Convertible Senior Subordinated Notes
due December 15, 2005, with a face amount of $397,000 discounted to $287,797.
These notes have a coupon rate of 2.9% with a yield to maturity of 6.75%. The
notes are convertible into the Company's common stock at a conversion rate of
..0125473 shares per $1 principal amount at maturity, subject to adjustments in
certain events.
The Company entered into a $60,000 two year interest rate swap agreement on
October 18, 2000 for which the Company pays a quarterly fixed rate of 6.55% and
receives a three month LIBOR rate. This agreement was terminated in the first
quarter of fiscal 2003 in connection with the Company's Chapter 11 filing. This
swap hedged a portion of the variable interest exposure on our $900,000 Global
Credit Facilities Agreement Tranche B Term Loans.
On January 17, 2001 the Company entered into an interest rate cap agreement,
which reduces the impact of changes in interest rates on a portion of our
floating rate debt. The cap agreement effectively limits the three-month LIBOR
based interest rate on $70,000 of our U.S. borrowings to no more than 6.5%
through July 17, 2002.
The Company's variable rate based debt at March 31, 2002 was approximately
$700,000, of which approximately $130,000 was hedged.
F-20
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Annual principal payments required under long-term debt obligations at March
31, 2002 are as follows:
Fiscal Year Amount
----------- -----------
2003....... $ 29,273
2004....... 260,700
2005....... 479,300
2006....... 622,200
2007....... 1,400
Thereafter. 9,400
-----------
$ 1,402,273
===========
(8) EMPLOYEE BENEFIT PLANS AND POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE
BENEFITS:
The Company has noncontributory defined benefit pension plans covering
substantially all hourly employees in North America. Plans covering hourly
employees provide pension benefits of stated amounts for each year of credited
service. The Company has numerous defined contribution plans in North America
and Europe with related expense of $4,278, $3,325 and $5,585 in fiscal 2002,
2001 and 2000, respectively.
European subsidiaries of the Company sponsor several defined benefit plans
that cover substantially all employees who are not covered by statutory plans.
For defined benefit plans, charges to expense are based upon costs computed by
independent actuaries. In most cases, the defined benefit plans are not funded
and the benefit formulas are similar to those used by the North American plans.
The Company provides certain health care and life insurance benefits for a
limited number of retired employees. In addition, a limited number of the
Company's active employees may become eligible for those benefits if they reach
normal retirement age while working for the Company. The Company accrues the
estimated cost of providing postretirement benefits during the employees'
applicable years of service.
F-21
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the plans' funded status and the amounts
recognized in the Company's consolidated financial statements at March 31, 2002
and 2001:
Other
Post-Retirement
Pension Benefits Benefits
-------------------- ------------------ -
2002 2001 2002 2001
Change in benefit obligation: --------- --------- -------- -------- -
Benefit obligation at beginning of year............... $ 430,476 $ 285,791 $ 32,566 $ 15,661
Transfers in (primarily GNB).......................... 634 136,024 -- 14,042
Service cost.......................................... 12,515 9,314 162 256
Interest cost......................................... 28,917 22,575 2,459 1,905
Actuarial (gain) loss................................. 1,459 16,043 2,243 3,087
Plan participants' contributions...................... 1,223 1,174 46 --
Benefits paid......................................... (26,208) (15,963) (1,749) (2,153)
Plan amendments....................................... -- (2,607) (2,158) --
Currency translation.................................. 266 (20,961) (27) (232)
Settlements and other................................. 2,408 (914) (1,659) --
--------- --------- -------- -------- -
Benefit obligation at end of year..................... $ 451,690 $ 430,476 $ 31,883 $ 32,566
========= ========= ======== ======== =
Change in plan assets:
Fair value of plan assets at beginning of year........ $ 297,209 $ 194,055 $ -- $ --
Transfers in (primarily GNB).......................... 27 143,043 -- --
Actual return on plan assets.......................... (1,377) (20,904) -- --
Employer contributions................................ 9,760 3,218 1,703 2,153
Plan participants' contributions...................... 1,223 1,174 46 --
Benefits paid......................................... (26,208) (15,963) (1,749) (2,153)
Currency translation.................................. 1,059 (12,024) -- --
Settlements and other................................. -- 4,610 -- --
--------- --------- -------- -------- -
Fair value of plan assets at end of year.............. $ 281,693 $ 297,209 $ -- $ --
========= ========= ======== ======== =
Reconciliation of funded status:
Funded status......................................... $(169,997) $(133,267) $(31,883) $(32,566)
Unrecognized net
Transition obligation.............................. 73 94 360 857
Prior service cost................................. (244) 2,375 (2,158) --
Actuarial loss..................................... 86,816 31,708 4,579 4,197
Contributions after measurement date.................. 38 3 200 --
--------- --------- -------- -------- -
Net amount recognized................................. $ (83,314) $ (99,087) $(28,902) $(27,512)
========= ========= ======== ======== =
Amounts recognized in statement of financial position:
Prepaid benefit cost.................................. $ 16,403 $ 31,547 $ -- $ --
Accrued benefit cost.................................. (161,319) (169,103) (28,902) (27,512)
Intangible asset...................................... 1,588 1,759 -- --
Accumulated other comprehensive (income) loss......... 60,014 36,710 -- --
--------- --------- -------- -------- -
Net amount recognized................................. $ (83,314) $ (99,087) $(28,902) $(27,512)
========= ========= ======== ======== =
The Company recognized additional minimum pension liabilities of $61,602 and
$38,469 at March 31, 2002 and 2001, respectively.
Other Post-
Retirement
Pension Benefits Benefits
--------------- ----------
2002 2001 2002 2001
---- ---- ---- ----
Weighted-average assumptions as of March 31:
Discount rate................................ 6.7% 6.7% 7.3% 7.5%
Expected return on plan assets............... 8.7% 8.5% -- --
Rate of compensation increase................ 4.5% 4.4% -- --
F-22
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For other post-retirement benefit measurement purposes, a 9.8% and 7.0%
annual rate of increase in the per capita cost of covered health care benefits
was assumed for 2002 and 2001, respectively. The rate was assumed to decrease
gradually to 5.0% over nine years and remain at that level thereafter.
The following table sets forth the plans' expense recognized in the
Company's consolidated financial statements:
Other Post-Retirement
Pension Benefits Benefits
- - ---------------------------- --------------------
2002 2001 2000 2002 2001 2000
-------- -------- -------- ------ ------ ------
Components of net periodic benefit cost:
Service cost........................... $ 12,515 $ 9,314 $ 7,186 $ 162 $ 256 $ 206
Interest cost.......................... 28,917 22,575 16,823 2,459 1,905 1,085
Expected return on plan assets......... (26,459) (21,271) (14,193) -- -- --
Amortization of--Transition obligation. 21 28 30 495 64 65
Prior service cost..................... 79 256 357 -- -- --
Actuarial (gain) loss.................. 1,071 190 (10) 119 125 --
-------- -------- -------- ------ ------ ------
Net periodic benefit cost(a)........... $ 16,144 $ 11,092 $ 10,193 $3,235 $2,350 $1,356
======== ======== ======== ====== ====== ======
- --------
(a) Excludes the impact of curtailments of $3,620, $(986) and $1,083 in fiscal
2002, 2001 and 2000, respectively.
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $343,471, $334,078 and $181,342, respectively as
of March 31, 2002 and $319,929, $314,287 and $186,883, respectively, as of
March 31, 2001.
A one percentage point change in the weighted average expected return on
plan assets would change net periodic benefit cost by $3,017 in fiscal 2002.
Assumed health care cost trend rates have a significant effect on the
amounts reported for other post-retirement benefits. A one-percentage-point
change in assumed health care cost trend rates would have the following effects:
One Percentage- One Percentage-
Point Increase Point Decrease
--------------- ---------------
Effect on total of service and interest cost components $ 87 $ (79)
Effect on the postretirement benefit obligation........ $1,292 $(1,159)
(9) PREFERRED SHARE PURCHASE RIGHTS PLAN
In fiscal 1999, the Company's Board of Directors announced that it adopted a
Preferred Share Purchase Rights Plan and declared a dividend distribution to be
made to stockholders of record on September 29, 1998, of one Preferred Share
Purchase Right (a "Right") on each outstanding share of common stock. Each
Right entitles the registered holder to purchase from the Company one
one-thousandth of a share of Junior Participating Preferred Stock, Series A,
par value $.01 per share, of the Company (the "Preferred Shares") at an
exercise price of $60 per one one-thousandth of a Preferred Share, subject to
adjustment. The Rights are not exercisable, or transferable apart from the
common stock, until the earlier to occur of (i) ten days following a public
announcement that a person or group other than certain exempt persons (an
"Acquiring Person"), together with persons affiliated or associated with such
Acquiring Person (other than those that are exempt persons) acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding common stock, or (ii)
F-23
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ten business days following the commencement or public disclosure of an
intention to commence a tender offer or exchange offer (other than a permitted
offer, as defined) by a person other than an exempt person if, upon
consummation of the offer, such person would acquire beneficial ownership of
20% or more of the outstanding common stock (subject to certain exceptions).
Thereafter, if the Company is not the surviving corporation in a merger or
other business combination, or if common stocks are changed or exchanged, or in
a transaction or transactions wherein 50% or more of its consolidated assets or
earning power are sold, each Right would entitle the holder (other than the
Acquiring Person and certain related persons or transferees) upon exercise to
receive, in lieu of Preferred Shares, a number of shares of common stock of the
acquiring company or the Company, as the case may be, having a value of two
times the exercise price of the Right. The Rights are redeemable at the
Company's option at any time before public disclosure that an Acquiring Person
has become such, for $.01 per Right, and expire on September 18, 2008. Each
Preferred Share will be entitled to a minimum preferential quarterly dividend
payment equal to the greater of $25 per share or 1,000 times the dividend
declared per common stock. The Preferred Shares have liquidation preference, as
defined. In addition, each Preferred Share will have 1,000 votes per share,
voting together with the common stock.
(10) STOCK GRANTS AND OPTIONS
On August 10, 2000, the Board of Directors adopted the 2000 Broad Based
Stock Incentive Plan (the "2000 Plan"). The plan states that all employees of
the Company are eligible for awards under the plan except those employees
subject to Section 16 of the Exchange Act including Officers as defined in Rule
16a-1(f) under the Exchange Act and Directors as defined in Section 3 (a)(7) of
the Exchange Act. The award type most frequently used is the non-qualified
stock option with an exercise price fixed at 100% of the fair market value of a
share of the Company's common stock on the date of grant. Non-qualified options
generally become exercisable in cumulative installments of 25% one year after
the date of grant and annually thereafter, and must be exercised no later than
ten years from the date of grant. Initially, 2,000 awards were authorized under
the 2000 Plan. On the first anniversary of the effective date of the 2000 Plan
and each nine anniversaries thereafter, the total amount of awards may increase
by an amount equal to one percent of the number of shares of Common Stock
outstanding on that day. As of March 31, 2002, 1,460 shares remain available
for grant under this plan.
The Company's shareholders approved the 1999 Stock Incentive Plan effective
August 11, 1999 under which executives and key employees of the Company are
eligible to be granted a total of 2,300 awards in the form of incentive stock
options, nonqualified stock options or restricted shares of common stock.
Certain of these options will vest ratably over four years while the remainder
will vest over nine years or immediately upon the Company reaching certain
performance measures. In addition to the stock options reported in the stock
option summary table, 55 shares of common stock were granted during fiscal 2002
as part of each Board of Directors' compensation package. As of March 31, 2002,
948 shares remain available for grant under this plan.
During the 2001 fiscal year, the Board of Directors approved option grants
to four new members of the Company's executive team as part of each executive's
employment agreement. 640 options were authorized and granted by the Board of
Directors to the executives. These options expire ten years from the date of
grant, were granted at fair market value on the date of grant, and vest at a
rate of 25% per year on each anniversary date of their employment.
On May 1, 1997 the Board of Directors adopted the 1997 Stock Option Plan
("1997 Plan") that authorizes the granting of stock options to key employees of
the Company covering up to 2,000 shares of common stock. No options become
vested or exercisable before May 1, 2007 unless the market price of the common
stock increases to certain levels. If the market price increases to $30.00 per
share, 40% of the granted options become vested, if it reaches $50.00, another
40% become vested and if it achieves $75.00 the remainder will become vested,
provided, that in the case of each such percentage which so vests, the vested
options are then only
F-24
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
exercisable as follows; 40% on the date of vesting and 20% each on the first,
second and third anniversaries. The exercise price for each share is equal to
the fair market value of the common stock on the date of the grant of the
option ($16.625). These options will expire on June 1, 2007. No further awards
will be granted under the 1997 Plan.
On May 23, 1996, the Board of Directors adopted the 1996 Non-Employee
Directors Stock Plan whereby Directors of the Company are granted common stock
as part of their compensation. Under this plan, approximately 10 and 29 shares
were granted during fiscal 1999 and 2000, respectively. The market value of the
shares awarded on the date of the fiscal 1999 and 2000 grants was $149 and
$312, respectively, and was charged to expense at the grant date.
In October 1993, the Board of Directors adopted the Long-Term Incentive Plan
("Incentive Stock Plan"), which may grant awards to key employees in the form
of incentive stock options, nonqualified stock options, restricted shares of
common stock or units valued on the basis of long-term performance of the
Company ("Performance Units"). Options may be accompanied by stock appreciation
rights ("Rights"). All of the awards to date have been nonqualified stock
options, none of which were accompanied by Rights. All awards vest ratably over
periods ranging from four to five years, with the maximum exercise period of
the awards ranging from five years and three months to ten years. The maximum
aggregate number of shares of common stock with respect to options, restricted
shares, Performance Units or Rights granted without accompanying options that
could have been granted pursuant to the Incentive Stock Plan is 700 shares. No
further awards will be granted under this plan.
On April 29, 1993, the Board of Directors adopted an Incentive Compensation
Plan, under which certain members of the Company's management were granted a
total of approximately 795 shares of the Company's common stock. These shares
are fully vested and have certain restrictions related to sale, transferability
and employment. Participants must pay $2.25 per share, the estimated fair value
at the grant date, prior to the transferring of such shares. As of March 31,
2002 there were 22 restricted shares that remain vested and unpurchased by the
awardees.
Stock grant and option transactions are summarized as follows:
Weighted
Average Exercise
Stock Price of
Options Stock Options
- - ------- ----------------
Shares under option:
Outstanding at March 31, 1999......................... 3,464 $13.91
Granted........................................... 1,987 $11.32
Exercised......................................... (1) $16.63
Forfeited......................................... (416) $14.57
------
Outstanding at March 31, 2000......................... 5,034 $12.85
------
Granted........................................... 1,870 $ 8.82
Exercised......................................... --
Forfeited......................................... (1,105) $13.45
------
Outstanding at March 31, 2001......................... 5,799 $10.99
------
Granted........................................... 188 $10.67
Exercised......................................... --
Forfeited......................................... (1,320) $11.95
------
Outstanding at March 31, 2002......................... 4,667 $10.71
------
Options available for grant at March 31, 2002..... 2,408
------
Exercisable at March 31, 2000............................ 1,243 $14.64
Exercisable at March 31, 2001............................ 2,036 $12.02
Exercisable at March 31, 2002............................ 2,969 $10.82
F-25
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Outstanding stock options have an average remaining contractual life of 7.7
years at March 31, 2002 with the exercise prices for these options ranging from
$7.75 to $25.875.
As provided for in SFAS 123, "Accounting for Stock-Based Compensation," the
Company utilizes the intrinsic value method of expense recognition under APB
Opinion No. 25. Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation expense for the stock option plans been
determined consistently with the provisions of SFAS 123, the Company's net
income (loss) and net income (loss) per share would have been the pro forma
amounts indicated below:
Fiscal Year Ended March 31,
--------------------------------
2002 2001 2000
---------- ---------- ----------
Net income (loss):
As reported................................ $(304,082) $(164,585) $(136,042)
Pro forma.................................. $(305,851) $(172,962) $(142,798)
Basic and diluted net income (loss) per share:
As reported................................ $ (11.35) $ (7.02) $ (6.40)
Pro forma.................................. $ (11.41) $ (7.38) $ (6.72)
The weighted average grant-date fair values for options granted during
fiscal 2002, 2001 and 2000 were $8.28, $4.83 and $6.07, respectively.
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following range of assumptions
used for the option grants which occurred during fiscal 2002, 2001, and 2000:
Fiscal Year Ended March 31,
----------------------------
2002 2001 2000
-------- -------- --------
Volatility............. 119.8% 56.1% 34.8%
Risk-free interest rate 4.6%-4.9% 4.6%-6.7% 6.0%-6.8%
Expected life in years. 5.0 5.0 10.0
Dividend yield......... 0.0% 1.0% 0.9%
Volatility for the fiscal year 2002 and 2001 calculation was estimated using
the Company's historical stock price data. Volatility for the fiscal year 2000
calculation was estimated using certain of the Company's peer group's
historical stock price data.
F-26
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(11) INCOME TAXES
The provision for income taxes includes federal, state and foreign taxes
currently payable and those deferred because of net operating losses and
temporary differences between the financial statement and tax bases of assets
and liabilities. The components of the provision for income taxes for the
fiscal years ended March 31, 2002, 2001 and 2000, are as follows:
2002 2001 2000
- -------- -------- --------
Current:
Federal............... $ -- $ -- $ --
State................. -- -- 130
Foreign............... 13,734 20,001 (5,560)
-------- -------- --------
13,734 20,001 (5,430)
-------- -------- --------
Deferred:
Federal............... 2,424 (2,424) (11,031)
State................. -- -- (1,261)
Foreign............... (17,580) (8,945) 28,491
-------- -------- --------
(15,156) (11,369) 16,199
-------- -------- --------
Total provision (benefit) $ (1,422) $ 8,632 $ 10,769
======== ======== ========
Major differences between the federal statutory rate and the effective tax
rate are as follows:
2002 2001 2000
----- ----- -----
Federal statutory rate........................ (35.0)% (35.0)% (35.0)%
Nondeductible goodwill impairment/amortization 12.1 3.2 4.5
Debt for equity swaps......................... 2.6 -- --
Subpart F Income(i)........................... 16.9 -- --
Capital structure reorganizations(ii)......... (3.2) -- --
Tax losses not benefited...................... 9.5 27.2 40.6
Non-deductible U.S. Attorney fine............. -- 6.1 --
Purchased research and development............ (1.0) -- 4.0
Other, net.................................... (2.4) 4.1 (5.4)
----- ----- -----
Effective tax rate............................ (0.5)% 5.6% 8.7%
===== ===== =====
- --------
(i) As a result of certain pledges of stock of foreign subsidiaries in
connection with bank amendments obtained during fiscal 2002, the Company
was required to recognize certain foreign sourced income ("Subpart F
Income") as a constructive dividend for U.S. tax purposes. The constructive
dividend has otherwise reduced operating loss tax carry-forwards.
(ii) During fiscal 2002 the Company reorganized the ownership structure of
certain of its foreign subsidiaries and recorded an impairment charge on
certain intercompany investments for statutory purposes. These actions
have no effect on reported pre-tax operating results but resulted in a net
tax benefit.
F-27
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of March 31, 2002 and 2001:
2002 2001
--------- ---------
Deferred tax assets:
Operating loss and tax credit carry-forwards. $ 290,887 $ 233,446
Compensation reserves........................ 45,887 41,062
Environmental reserves....................... 27,744 32,463
Bad debt..................................... 12,193 13,720
Warranty..................................... 17,641 14,793
Asset and other realization reserves......... 12,782 17,723
Purchase commitments......................... 18,690 --
Other........................................ 95,076 78,008
Valuation allowance.......................... (422,181) (362,021)
--------- ---------
$ 98,719 $ 69,194
========= =========
As of March 31, 2002, the Company has net operating loss carry-forwards for
U.S. income tax purposes of approximately $379,000 which expire in years 2005
through 2023. As of March 31, 2002, certain of the Company's foreign
subsidiaries have net operating loss carry-forwards for income tax purposes of
approximately $376,000, of which approximately $119,000 expire in years 2003
through 2012, with the remainder able to be carried forward indefinitely by
statute or tax planning strategies. For financial reporting purposes, a
valuation allowance has been recognized to reduce the deferred tax assets,
related to certain net operating loss carry-forwards and certain deductible
temporary differences for which it is more likely than not that the related tax
benefits will not be realized.
The Company's net deferred tax assets include certain amounts of net
operating loss carry-forwards as well as certain tax deductible temporary
differences which management believes are realizable through a combination of
forecasted future taxable income and anticipated tax planning strategies. The
Company has implemented certain tax planning strategies in prior years to
utilize a portion of such deferred tax assets. Failure to achieve forecasted
future taxable income might affect the ultimate realization of any remaining
recorded net deferred tax assets. Valuation allowances have been provided on
all U.S. subsidiaries of the Company, including those entities which are part
of the Chapter 11 cases and for a number of the Company's foreign subsidiaries.
As a result of the pledges of stock of certain of the Company's foreign
subsidiaries in connection with bank amendments obtained in fiscal 2002, the
Company has effectively provided for taxes on these undistributed earnings. As
of March 31, 2002, the Company had not provided for withholding or U.S. Federal
income taxes on undistributed earnings of certain other foreign subsidiaries
since such earnings were expected to be reinvested indefinitely or be
substantially offset by available foreign tax credits and operating loss carry
forwards.
(12) ENVIRONMENTAL MATTERS
The Company, particularly as a result of its manufacturing and secondary
lead smelting operations, is subject to numerous environmental laws and
regulations and is exposed to liabilities and compliance costs arising from its
past and current handling, 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
the monitoring of employee health. The Company devotes certain of its resources
to attaining and maintaining compliance with environmental and occupational
health and safety laws and regulations and does not currently believe that
environmental, health or safety compliance issues will have a
F-28
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
material adverse effect on the Company's long-term business, 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 90 federally defined Superfund or state
equivalent sites (including 16 GNB sites). At 61 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 three 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, 2002. 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 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.
International
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 international locations. 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 that it is in substantial
compliance with all material environmental, health and safety requirements in
each country.
The Company expects that its international 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.
F-29
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidated
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, 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. At March 31,
2002 and March 31, 2001 the amount of such reserves were $70,543 and $88,100,
respectively. At March 31, 2002, $56,254 of the total reserve was included in
other noncurrent liabilities.
Because environmental liabilities are not accrued until a liability is
determined to be probable and reasonably estimable, not all potential future
environmental liabilities have been included in the Company's environmental
reserves and, therefore, additional earnings charges are possible. Also, future
findings or changes in estimates could have a material effect on the recorded
reserves and cash flows.
In the U.S., the Company has advised each state and federal authority with
whom we have negotiated plans for environmental investigations or remediation
of the Company's Chapter 11 filing as required by those agreements or
applicable rules. In some cases these authorities may require the Company to
undertake certain agreed remedial activities under a modified schedule, or may
seek to negotiate or require modified remedial activities. Such requests have
been received at several sites and are the subjects of ongoing discussions. At
this time no requests or directives have been received which, individually or
in the aggregate, would alter the Company's reserves or have a material adverse
effect on the Company's long-term business, financial condition or results of
operation.
(13) COMMITMENTS AND CONTINGENCIES
Bankruptcy Considerations
As of the Petition Date, substantially all pending litigation against the
Debtors was stayed, and absent further order of the Bankruptcy Court, no party
may take any action to recover on pre-petition claims against the Debtors. We
cannot predict what action, if any, the Bankruptcy Court may take with respect
to pending litigation.
Former Management Team: Arthur M. Hawkins; Douglas N. Pearson, Alan E.
Gauthier
Exide established a $13,400 reserve in fiscal 2000 to cover litigation with
respect to allegations that used batteries were sold as new. The Company has
now resolved these claims, including the third quarter fiscal 2002 settlement
of the sole remaining "legacy" action, Houlihan v. Exide. As a result of the
Houlihan settlement, the Company recorded an additional expense in the third
quarter of fiscal 2002 of $1,400 for reimbursement of legal fees. At March 31,
2002, there is a reserve of approximately $2,500 remaining, representing the
Company's estimate of its remaining battery discount under the Houlihan and
other "legacy" settlements.
On March 23, 2001, Exide reached a plea agreement with the U.S. Attorney for
the Southern District of Illinois, resolving an investigation of the conduct of
certain former senior executives of the Company. Under the terms of that
settlement Exide agreed to a fine of $27,500 over five years, to five year's
probation and to cooperate with the U.S. Attorney in her prosecution of Arthur
M. Hawkins, Douglas N. Pearson and Alan E. Gauthier, former senior executives
of the Company. The payment terms of the plea agreement are dependent upon the
Company's compliance with the plea agreement during the five-year probation
period. Generally, the terms of the probation would permit the U.S. Government
to reopen the case against Exide if the Company violates the terms of the plea
agreement or other provisions of law. The Company reserved $31,000 for this
F-30
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
matter, including preliminary estimates of expected costs and out-of-pocket
expenses in the first quarter of fiscal 2001. Further costs of $1,000 were
reserved in the third quarter of fiscal 2002. At March 31, 2002, approximately
$27,500 of this reserve remains. As a result of the imposition of the automatic
stay arising upon the Company's Chapter 11 filing, the Company has not made the
first installment payment of its $27,500 fine. The Company is uncertain as to
the effect of this non-payment and the bankruptcy filing with respect to the
plea agreement.
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. Superseding indictments were
unsealed in July, 2001. The trial of the former officers began on March 18,
2002. On April 19, 2002, Gauthier pleaded guilty to one count of making false
statements to an agency of the United States. On June 20, 2002, Hawkins and
Pearson were each convicted of conspiracy to commit wire fraud.
Exide is currently involved in litigation with the former members of its
management referenced above. The former management has claims to enforce
separation agreements, reimbursements of legal fees, and other contracts, while
Exide has filed claims and counterclaims asserting fraud, breach of fiduciary
duties, misappropriation of corporate assets and civil conspiracy.
The Company has filed a claim with its insurers for reimbursement of the
amounts paid to its former management team, and expects to obtain substantial
reimbursement for those amounts. However, the Company has not recognized any
receivable for such reimbursements at March 31, 2002.
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 $15,000. 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 by either party.
The parties have executed a final settlement agreement. On July 2, 2002, the
claims between Sears and Exide were dismissed with prejudice.
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 alleged 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, among other claims. On February 14, 2002,
Exide and JCI reached a settlement which requires JCI to withdraw its complaint
with prejudice. The settlement does not require any payment or other
consideration to JCI.
Hazardous Materials
Exide is 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.
In January 2002, the counsel that brought the South Carolina actions filed
additional claims, in the Circuit Court for Greenville County, South Carolina.
The Company's preliminary review of these claims suggest they are without
merit, and the Company plans to vigorously defend itself in these matters. The
Company does not believe any reserves are currently warranted for these claims.
F-31
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
GNB Acquisition
In July 2001, Pacific Dunlop Holdings (US), Inc. ("PDH") and several of its
foreign affiliates (the "Sellers") under the various agreements through which
Exide acquired GNB, filed a breach of contract claim against Exide in the
Circuit Court for Cook County, Illinois. The Sellers maintain they are entitled
to certain additional payments for assets acquired by Exide in the amount of
approximately $17,000 in its acquisition of GNB. Management does not believe
that the Sellers are correct either as to the rights for additional payments
asserted by the Sellers or that any additional amounts are owed. In December,
2001, the Court denied Exide's motion to dismiss the complaint, without
prejudice to re-filing the same motion after discovery proceeds. Management
remains confident that the claim is without merit.
In December 2001, PDH filed a separate action in the Circuit Court for Cook
County, Illinois, seeking recovery of $3,100 for amounts allegedly owed by
Exide under various agreements between the parties. The amounts in question all
relate to security for certain workers compensation insurance policies, which
cover claims by former GNB employees. Exide's answer contested the amounts
claimed by PDH and include counter-claims against PDH and/or its affiliates.
Other
On June 6, 2002, McKinsey & Company International filed suit against Exide
Holdings Europe, S.A., Compagnie Europeene D'accumulateurs, S.A., Euro Exide
Corporation Ltd., Exide Italia S.r.l Deutsche Exide GmbH and Exide
Transportation Holding Europe, S.L. ("Respondants") in the U.S. District court
for the Southern District of New York, Case No. 02CV4255, seeking to compel
arbitration of McKinsey's request for payment of approximately $5,000 in
consulting fees. The Company intends to defend the suit and denies liability
thereunder and believes that the claim is stayed as a consequence of the
Chapter 11 petition.
Exide is a defendant in an arbitration proceeding initiated in October of
2001, by Margulead Limited ("Margulead"). In June of 1997, GNB, now an
operating division of Exide, entered into an agreement with Margulead to build
a facility to test and develop certain lead acid battery recycling technology
developed by Margulead. This agreement was terminated by Exide after the
Margulead technology failed to meet initial performance criteria. Margulead now
alleges breach of contract and has requested damages in the amount of
approximately $2.6 million, which represents the projected cost of building a
testing facility. Margulead has indicated that it may amend its claim to seek
up to $9.0 million in damages. Because Margulead is a foreign entity and the
arbitration is pending in London, the arbitration is currently proceeding
notwithstanding Exide's Chapter 11 proceedings. The Company intends to defend
the claim and denies liability thereunder.
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.
F-32
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Leases
Future minimum lease payments under operating and capital leases that have
initial or remaining noncancelable lease terms in excess of one year at March
31, 2002, are:
Fiscal Year Operating Capital
- ----------- --------- --------
2003.......................................................... $ 53,991 $ 2,046
2004.......................................................... 43,632 2,052
2005.......................................................... 33,920 2,035
2006.......................................................... 23,801 2,067
2007.......................................................... 12,524 2,096
Thereafter.................................................... 23,501 12,934
-------- --------
Total minimum payments........................................ $191,369 $ 23,230
========
Less--Interest on capital leases.............................. (5,928)
--------
Total principal payable on capital leases (included in Note 7) $ 17,302
========
In fiscal 1998 and 1999, the Company entered into sale/leaseback
transactions, where the Company sold certain machinery and equipment with an
aggregate book value of $48,000 for $97,100 and leased the same machinery and
equipment back over periods ranging from eight to nine years. The total gain of
$49,100 has been deferred and is being recognized ratably over the life of the
leases.
Rent expense amounted to $61,179, $68,364 and $54,680 for fiscal years 2002,
2001 and 2000, respectively.
The Company has various purchase commitments for materials, supplies and
other items incident to the ordinary course of business. See Notes 14 and 17
for discussion of the battery separator agreement entered into as part of the
Company's sale of these operations.
(14) ACQUISITIONS AND DIVESTITURES
On September 29, 2000, the Company acquired the global battery business of
Australian-based Pacific Dunlop Limited, including its subsidiary GNB
Technologies, Inc. ("GNB"), a U.S. and Pacific Rim manufacturer of both
industrial and automotive batteries, for consideration of $379,000 (including
$344,000 in cash and 4,000 of the Company's common shares) plus assumed
liabilities. Pacific Dunlop now holds an approximate 14.6 percent interest in
the outstanding shares of common stock of the Company. The 4,000 common shares
issued in connection with this acquisition were valued at approximately $9.00
per common share (or $36,000), which was the closing price per share of the
Company's common stock when the terms of the acquisition were agreed to and
announced on May 9, 2000.
The Company financed the cash portion of the purchase price, including
associated fees and expenses, through an additional $250,000 term loan under
its existing Senior Facility, and $100,000 of securitized GNB accounts
receivable. The Company also issued warrants to acquire 1,286 of its common
shares with an exercise price of $8.99 per share in conjunction with the term
loan financing. These warrants are immediately exercisable. The warrants were
valued using the Black Scholes-model with the following assumptions:
Exercise price......... $8.99 per common share
Expected term.......... 5.5 years
Expected volatility.... 34%
Risk-free interest rate 5.92%
Annual dividend yield.. 0.88%
Grant date stock price. $9.0625 per common share
F-33
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The acquisition was accounted for using the purchase method. GNB's results
of operations are included in the accompanying consolidated statement of
operations since the date of acquisition. GNB's opening balance sheet is
included in the accompanying consolidated balance sheets as of March 31, 2002
and March 31, 2001. The allocation of purchase price which follows was
completed on September 30, 2001.
Current assets............... $362,500
Property, plant and equipment 220,000
Other assets................. 6,000
Intangible assets............ 49,500
Goodwill..................... 75,000
--------
Total assets acquired........ 713,000
========
Current liabilities.......... 243,000
Other liabilities............ 91,000
--------
Total liabilities assumed.... 334,000
--------
Net assets acquired.......... $379,000
========
Based on the final purchase price allocation above and revisions to
allocations of purchase price for acquisitions in prior years, the following
adjustments from the preliminary allocations related to the GNB acquisition
included in the Company's consolidated balance sheets prior to September 30,
2001 and prior year acquisitions were as follows:
Identification and valuation of intangible assets:
Trademarks..................................... $ 38,600
Technology..................................... 10,900
--------
Acquired identified intangibles................... 49,500
Purchase price allocation adjustments, net........ (34,686)
--------
Net Decrease in Goodwill.......................... $ 14,814
========
The final adjustments primarily related to GNB property and plant
write-downs due to planned plant and distribution center rationalizations, and
final estimates for environmental issues and other contingencies for GNB and
prior year acquisitions.
Of the $49,500 of acquired identified intangibles, $38,600 was assigned to
trademarks that are not subject to amortization. The remaining $10,900 of
acquired identified intangibles have a useful life of 10 years and are
technology related. Related amortization expense of $820 was recorded for the
year ended March 31, 2002. The Company expects to record $1,120 in related
amortization expense for fiscal 2003, and in each of the next eight fiscal
years.
The following unaudited supplemental information reflects the Company's pro
forma results of operations for the period shown by combining the historical
results of the Company and GNB and including the impact of goodwill
amortization and the impact of other applicable purchase accounting
adjustments, as well as interest expense on acquisition financing, together
with related income tax effects, assuming the acquisition had occurred
F-34
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
at the beginning of the earliest period presented. The pro forma earnings per
share calculation below also includes the impact of the four million shares
issued as part of the acquisition consideration. This pro forma information
does not purport to represent what the Company's results of operations would
have actually been had the acquisition occurred as of an earlier date or
project the results of any future period.
For the Year Ended
March 31, 2001
(Unaudited)
------------------
Net sales...... $2,921,417
Net loss....... $ (180,501)
Loss per share:
Basic....... $ (7.09)
Diluted..... $ (7.09)
Lion Compact Energy
On September 27, 1999, the Company entered into an agreement to acquire a
controlling interest in Lion Compact Energy (LCE), a privately held company
conducting research in dual-graphite battery technology. This transaction was
accounted for using the purchase method. In conjunction with the LCE
acquisition, the Company recorded a $14,262 write-off for purchased research
and development costs in fiscal 2000. The purchased in-process research and
development had not yet reached technological feasibility, and the technology
had no alternative future use, as of the date of acquisition.
The Company paid $3,500 in cash upon closing in December, 1999 and $2,500 in
fiscal 2001. The Company expected to pay $9,000, plus certain royalty fees,
over the next several years based upon the performance of LCE and its product
development. The Company had the option to reconvey its interest in LCE at any
time to the seller during this payment period. The Company exercised this
option during the second quarter of fiscal 2002 and recorded a credit of $8,185
equal to the present value of the expected future payments. All prior payments
were non-refundable.
Divestitures
During the fourth quarter of fiscal 1999, the Company, as part of a
strategic review of its operations identified certain non-core businesses
within its transportation segment for divestiture, and the board of directors
approved a related divesture plan. The Company recorded an impairment charge of
$38,600 in cost of sales and $2,000 in operating expenses in fiscal 1999
related to the identified businesses. These impairment charges were determined
based on the difference between net book value and estimated fair value. Fair
values were estimated based on the expected proceeds to be received from the
sale of the businesses, including internally developed valuations and
preliminary valuation estimates obtained from third party advisors. The Company
recorded additional net charges of approximately $21,600 in cost of sales in
fiscal 2000 related to these divestitures. Before recognition of the
impairment, these businesses had a net book value of approximately $72,400 and
operating losses of approximately $8,400 during fiscal 1999 and $3,200 in
fiscal 2000.
The Company sold its battery separator operations in fiscal 2000 for
approximately $26,100 cash proceeds. In addition certain sub-lease arrangements
were assumed by the buyer. Cash proceeds from the sale were used to reduce
debt. As part of the agreement, the buyer entered into a multi-year agreement
to purchase its United States battery separator needs from the buyer. This
arrangement includes minimum annual purchase level commitments. The Company
recorded a gain on this sale, net of the amounts deferred related to the
purchase agreement, of approximately $7,500 which is included in other (income)
expense, net in the accompanying consolidated statement of operations. See Note
17 regarding purchase commitments.
The Company sold additional non-core businesses in fiscal 2000 and 2001 with
cash proceeds of approximately $6,700 and $9,000, respectively.
F-35
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On November 10, 2000 the Company sold its 13.5 percent interest in Yuasa
Inc. for $29,900. The Company reported a pre-tax gain in other (income)
expense, net of approximately $13,000 in fiscal 2001 on the sale of this
investment.
(15) RESTRUCTURING AND OTHER
Following the acquisition of GNB in September 2000, the Company initiated
various restructuring programs involving facility, branch and corporate office
closures and consolidation, principally in connection with overall integration
plans to affect the combination of the two organizations. Such actions impacted
both existing Exide and acquired GNB employees and facilities. The actions were
designed to reduce costs and improve earnings and cash flows. Both the fiscal
2000 and 2001 restructuring charges relate to specific approved actions and
plans that are part of this overall restructuring program. During fiscal 2002,
the Company has continued to implement operational changes to streamline and
rationalize its structure in an effort to simplify the organization and
eliminate redundant and or unnecessary costs with a goal of reducing its
salaried workforce by approximately 20%.
The following is a summary of the actions taken under the programs described
above:
Fiscal 2002
-------------------------------------
Severance Closure
Costs Write-Offs Costs Total
--------- ---------- ------- -------
U.S. Headcount Reductions (including
Lombard and Alpharetta Office Consolidations) $ 6,350 $ 2,500 $ 2,700 $11,550
European Headcount Reductions.................. 9,400 -- -- 9,400
Closure of Kankakee............................ 350 -- -- 350
Closure of Plastics Manufacturing Facilities... 600 2,500 -- 3,100
Closure of Maple, Ontario Plant................ 3,300 5,400 -- 8,700
------- ------- ------- -------
Total Charge in the Statement of Operations.... $20,000 $10,400 $ 2,700 $33,100
======= ======= ======= =======
Fiscal 2001
-------------------------------------
Severance Closure
Costs Write-Offs Costs Total
--------- ---------- ------- -------
Closure of Burlington, Iowa.................... $ 2,600 $ 3,900 $ 6,900 $13,400
UK and German Manufacturing Facility........... 5,500 4,800 -- 10,300
Headcount Reductions and Closures
(Cwmbran and Duisburg)
UK Manufacturing Facility Impairment........... -- 15,200 -- 15,200
(Cwmbran)
European Transport Reorganization.............. 6,700 -- -- 6,700
Closure of Maple, Ontario Plant................ 3,000 6,400 4,000 13,400
Maple, Ontario Plant Redevelopment............. -- (3,200) (4,000) (7,200)
Closure of US Distribution Facilities.......... 2,000 1,900 4,200 8,100
US Headcount Reduction and Office.............. 8,000 2,200 -- 10,200
Closure (including Reading Office)
Other European Headcount Reduction............. 5,800 300 -- 6,100
European Shared Services Headcount Reduction... 6,400 -- -- 6,400
Other Restructuring Charges.................... -- 10,200 4,600 14,800
------- ------- ------- -------
Total Charge in the Statement of Operations.... $40,000 $41,700 $15,700 $97,400
======= ======= ======= =======
F-36
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fiscal 2000
------------------------------------
Severance Closure
Costs Write-Offs Costs Total
--------- ---------- ------- -------
Closure of Reading, Pennsylvania Plant................ $ 200 $ 7,700 $ -- $ 7,900
Closure of US Branches................................ -- 1,200 -- 1,200
European Plant Rationalization and Headcount Reduction 15,500 9,900 -- 25,400
US Headcount Reduction................................ 4,000 -- -- 4,000
Other................................................. -- 800 -- 800
------- ------- ----- -------
Total Charge in the Statement of Operations........... $19,700 $19,600 $ -- $39,300
======= ======= ===== =======
Fiscal Year 2002
Exide Restructuring Initiatives
In August 2001, the Company, in a continued effort to streamline and
simplify the Company's operations and organizational structure, announced plans
to eliminate approximately 1,300 positions resulting in severance and related
charges of approximately $11,000. In November 2001, the Company finalized plans
to continue in its reduction of the salaried workforce resulting in severance
charges of approximately $8,200 and recorded a non-cash charge of $5,400 for
the write down of machinery and equipment at the Maple, Ontario manufacturing
operation, which will now not be reopened as a Network Power facility, given
the continued downturn in the Network Power business and telecommunications
market. In fiscal 2001, the Company had originally announced plans to close
this facility but based on market conditions and anticipated increases in
demand for its Network Power products, subsequently decided to redevelop this
facility as a Network Power manufacturing plant. The impairment charge was
determined based upon the difference between net book value and estimated fair
value, with fair value representing the Company's estimated residual value from
abandonment. The effect of facility shutdowns on operating results was not
material. These programs jointly resulted in the elimination of approximately
1,300 positions, which range from plant employees and clerical workers to
operational and sales management.
During the fourth quarter of fiscal 2002 the Company recognized
restructuring charges of $8.4 million, representing $3.4 million severance and
related costs and $5.0 million of non-cash charges related to the write- down
of machinery and equipment. These charges resulted from plans announced prior
to March 31, 2002 involving the closure of two North American plastics
manufacturing facilities, a North American Network Power facility and office
consolidations in Alpharetta, Georgia and Lombard, Illinois.
Approximately 500 employees will be terminated in connection with these
plans.
The fiscal 2002 Exide restructuring initiatives are expected to be completed
by the second quarter of fiscal 2003.
GNB Restructuring Initiatives
In the second quarter of fiscal 2002, the Company recorded, as part of the
GNB purchase price allocation, an additional $36,400 adjustment, principally
for certain fixed asset write-downs due to planned plant closures and
distribution facility rationalizations. Such actions were part of the overall
restructuring plan originally contemplated coincident with the acquisition of
GNB in September 2000.
F-37
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fiscal Year 2001
Exide Restructuring Initiatives
With respect to existing Exide employees, contracts and facilities, the
Company recorded restructuring charges aggregating approximately $97,400 in
fiscal 2001. These charges principally resulted from actions taken in
connection with the integration of the operations of the Company and GNB, the
exiting of certain customer relationships and elimination of combined excess
capacity, as well as ongoing cost reduction initiatives worldwide. The charges
consisted of the elimination of approximately 900 positions resulting in
$40,000 in severance costs, $41,700 in asset write-downs and $15,700 in closure
costs. Positions eliminated as part of the fiscal 2001 reductions range in
nature from plant employees and clerical workers to operational and sales
management. The effect of facility shutdowns on current period operating
results was not material, principally because they were designed to eliminate
excess capacity and did not anticipate loss of revenues or significant
customers.
The fiscal 2001 restructuring charges for existing Exide employees,
contracts and facilities comprised the following:
. the closure of the Burlington automotive battery plant in the U.S which
included approximately 250 employee terminations.
. workforce reductions at the Cwmbran, Wales and Duisburg, Germany
manufacturing facilities in Europe which included approximately 40
employee terminations.
. A charge of $15,200 related to the impairment of the Cwmbran, Wales
facility to write-off the remaining net book value of the facility as a
result of current period operating and cash flow losses and adverse
future projections, and market conditions. The charge was determined
based upon an assessment of projected undiscounted cash flows, which
indicated an impairment existed.
. the reorganization of the Company's European Transportation business
sales and logistics work force, resulting in elimination of approximately
260 positions. During the fourth quarter of fiscal 2001, the Company
finalized its plans for its transportation Europe positioning project,
whereby the Company's European Transport operations would be streamlined.
As part of the plan the Company has terminated or will terminate certain
employees in the Transport business throughout Europe.
. the closing or sale of 27 of the Company's distribution facilities,
principally in North America, resulting in the elimination of
approximately 45 positions.
. the consolidation of the Company's European accounting activities into a
shared services operation. During the third quarter of fiscal 2001, the
Company committed to and announced a plan to centralize its European
accounting activities into a shared services operations located in Paris,
France resulting in the planned elimination of approximately 160
positions.
. the closure of the Maple, Ontario automotive manufacturing operations.
During the second quarter of fiscal 2001, the Company recorded a $13,400
charge related to the closure of the Maple, Ontario Transportation
manufacturing facility, including severance costs, asset write-offs and
other closure costs. Subsequent to the decision to close this facility,
the Company experienced an unexpected increase in the demand for its
Network Power products as well as projected demand for the foreseeable
future. As a result, the Company decided to redevelop this facility as a
Network Power manufacturing plant. Therefore, the Company reversed
certain portions of these charges related to asset write-offs and other
closure costs during the fourth quarter of fiscal 2001.
. the closure of certain branches and offices and severance and other costs
for reductions in staff, resulting in the elimination of approximately
130 positions.
F-38
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fiscal 2001 initiatives are substantially complete. Remaining
expenditures principally represent severance and related benefits payable per
employee agreements or regulatory requirements payable over periods up to three
years.
GNB Restructuring Initiatives
Coincident with the acquisition of GNB, the Company began formalization of
restructuring plans involving the closure and rationalization of certain
acquired facilities. With respect to acquired GNB employees, contracts and
facilities, in fiscal 2001, the Company closed the Dallas, Texas and Dunmore,
Pennsylvania facilities, and certain distribution centers and sales branches.
The Company recorded $28,800 of restructuring reserves for severance and
closure costs in the GNB purchase price allocation for these actions. This
program resulted in the elimination of approximately 525 positions including
clerical, operational and management positions. The effect of facility
shutdowns on operating results was not material, principally because they were
designed to eliminate excess capacity and did not anticipate loss of revenues
or significant customers. The GNB restructuring initiatives are completed.
Fiscal Year 2000
During fiscal 2000, the Company recorded restructuring charges of $39,300
consisting of $19,700 in severance benefits and $19,600 in asset write-offs for
plant and branch closings. As a result of these plans approximately 300
positions were eliminated. Functions and levels throughout the Company were
effected by the employee terminations. Positions eliminated as part of the
fiscal 2000 reductions range in nature from plant employees and clerical
workers to operational and sales management.
The charges related to the:
. closure of the Reading, Pennsylvania plant
. closure of six branches in the U.S.
. headcount reductions in the U.S. and Europe
The effect of facility shutdowns on operating results was not material,
principally because they were designed to eliminate excess capacity and did not
anticipate loss of revenues or significant customers. The fiscal 2000
initiatives are completed.
The following is a summary of restructuring activity from March 31, 1999
through March 31, 2002:
Severance Write-Offs Closure Costs Total
--------- ---------- ------------- ---------
Balance, March 31, 1999................... $ 9,400 -- $ 8,700 $ 18,100
Charges, Fiscal 2000...................... 19,700 $ 19,600 -- 39,300
Payments, Charge-offs and currency changes (15,100) (19,600) -- (34,700)
-------- -------- -------- ---------
Balance, March 31, 2000................... 14,000 -- 8,700 22,700
Charges, Fiscal 2001...................... 40,000 41,700 15,700 97,400
GNB Acquisition........................... 13,000 -- 15,800 28,800
Payment, Charge-offs and Currency Changes. (20,700) (41,700) (8,600) (71,000)
-------- -------- -------- ---------
Balance, March 31, 2001................... 46,300 -- 31,600 77,900
Charges, Fiscal 2002...................... 20,000 10,400 2,700 33,100
GNB Acquisition........................... 600 35,000 800 36,400
Payments, Charge-offs and Currency Changes (50,400) (45,400) (19,800) (115,600)
-------- -------- -------- ---------
Balance, March 31, 2002................... $ 16,500 -- $ 15,300 $ 31,800
======== ======== ======== =========
F-39
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Remaining expenditures principally represent a) severance and related
benefits payable, per employee agreements over periods up to three years and/or
regulatory requirements; b) lease commitments for certain closed facilities,
branches, and offices, as well as leases for excess and permanently idle
equipment payable in accordance with contractual terms, over periods up to five
years; and c) certain other closure costs including dismantlement and costs
associated with removal obligations incurred in connection with the exit of
facilities.
Other
During fiscal 2001, the Company recorded other charges of $15,800 in the
"restructuring and other" line item of the Statement of Operations. These
charges were expensed as incurred and were included as a component of this line
item as they related to the Company's overall growth strategies and integration
plans. These charges included $6,800 of professional fees related to the
integration of GNB. The information resulting from these projects was
considered by the Company as part of the fiscal 2001 restructuring actions
taken by the Company in connection with the reorganization of its European
Transportation business and establishment of a shared service operation in
Europe. All costs were incurred during fiscal 2001. The remainder of the charge
is comprised of other merger and integration costs associated with the
Company's reduced involvement in NASCAR motor sport programs of approximately
$3,000, additional non-cash asset write-downs upon the completion of the
divestiture of certain non-core businesses of approximately $3,000, and costs
incurred in connection with the exiting of certain less profitable customers
and other integration activities of approximately $3,000.
(16) OTHER (INCOME) EXPENSE, NET
Other (income) expense, net for the fiscal years ended March 31, 2002, 2001
and 2000 comprises:
2002 2001 2000
------- -------- -------
Losses on sales of accounts receivable $14,635 $ 16,438 $13,958
Net gain on asset sales............... (1,079) (18,406) (8,363)
Asset write-downs and other reserves.. -- -- 12,600
Equity income......................... (1,898) (2,516) (1,879)
Debt-to-equity conversion............. 13,873 -- --
Currency loss (gain).................. 5,109 (1,009) 897
Other................................. 2,099 8 (399)
------- -------- -------
$32,739 $ (5,485) $16,814
======= ======== =======
Losses on sales of receivables represent expenses related to the Company's
receivables sales facilities in the U.S. and Europe (See Note 19).
In fiscal 2002, the Company incurred a non-cash charge for the
debt-to-equity conversion of Convertible Senior Subordinated Notes (See Note 7).
Net gain on asset sales in fiscal 2001 included $13,000 from the sale of the
Company's interest in Yuasa, Inc.
(17) PURCHASE COMMITMENTS
The Company sold its battery separator operations in fiscal 2000 for
approximately $47,000, including $26,100 in cash proceeds, to an unrelated
party ("Daramic" or the "Buyer"). In connection with the sale, the Company
entered into a ten-year supply agreement that includes minimum annual purchase
commitments and penalty payments if such minimum annual purchase commitments
are not met. The agreement also required
F-40
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
adjustment for the minimum annual purchase commitments if the Company acquired
any customers of the Buyer during the term of the agreement. The Company
recorded a gain on this sale of $9,500 and established a liability related to
the adverse supply agreement of $8,500 based on its estimates of future
purchases from the Buyer.
As a result of acquiring GNB, which was a customer of the Buyer, the Company
renegotiated the supply agreement. Under the renegotiated terms and based on
the Company's estimates of its purchases from the Buyer given the Company's
plan to integrate GNB, the Company recorded a charge of $29,000 to cost of
sales in the fourth quarter of fiscal 2001.
Based on recent development of our preliminary five year business plan, the
Company revised its unit volume outlook. This revision increased its expected
liability related to the minimum annual purchase commitments to a total of
$53,400 for the remaining eight years of this supply agreement. This resulted
in recognition of an additional charge to cost of sales of $15,500 in the third
quarter of fiscal 2002.
The Company purchases substantially all of its separator requirements from
Daramic and the Company does not believe there exists a readily available
alternative source or sources of supply for the volume of separators Daramic
provides. As a result, any substantial disruption in supply from Daramic would
likely have a material adverse impact on the Company. In May 2002, Daramic
filed a motion in the Bankruptcy Court to compel the Company to accept or
reject the supply agreements. Following negotiation with Daramic, the Company
agreed to pay approximately $10 million pre-petition accounts payable and,
subject to Bankruptcy Court approval, to accept the contracts with certain
agreed upon amendments. These amendments are not expected to materially affect
the purchase commitment liability.
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by the
Company using available market information and appropriate methodologies;
however, considerable judgment is required in interpreting market data to
develop these estimates. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. Certain of these financial instruments are with major
financial institutions and expose the Company to market and credit risks and
may at times be concentrated with certain counterparties or groups of
counterparties. The creditworthiness of counterparties is continually reviewed,
and full performance is anticipated.
The methods and assumptions used to estimate the fair value of each class of
financial instruments are set forth below:
. Cash and cash equivalents, accounts receivable and accounts payable--The
carrying amounts of these items are a reasonable estimate of their fair
values.
. Long-term receivables--The carrying amounts of these items are a
reasonable estimate of their fair value.
. Short-term borrowings--Borrowings by Exide Technologies under Senior
Secured Global Credit Facilities have been classified to short-term due
to the Company's inability to meet certain financial covenants.
Borrowings under miscellaneous line of credit arrangements have variable
rates that reflect currently available terms and conditions for similar
debt. The carrying amount of these line of credit arrangements is a
reasonable estimate of its fair value.
. Long-term debt--Borrowings by foreign subsidiaries under the Senior
Secured Global Credit Facilities have variable rates that reflect
currently available terms and conditions for similar debt. These foreign
subsidiaries have entered into an agreement with their lenders which
allow for the companies to be in compliance with their financial
covenants.
F-41
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The 9.125% and 10% Senior Notes and Convertible Senior Subordinated Notes
are traded occasionally in public markets.
The carrying values and estimated fair values of these obligations are as
follows at March 31, 2002 and 2001:
2002 2001
------------------ ------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- --------- -------- ---------
10.00% Senior Notes............................ $300,000 $ 32,250 $300,000 $228,000
9.125% Senior Notes (Deutsche mark denominated) 77,934 27,179 78,589 61,299
Convertible Senior Subordinated Notes.......... 320,704 1,840 337,011 170,710
Senior Secured Global Credit Facilities........ 682,683 433,504 587,432 524,144
. Interest rate swap and option agreements -- the fair value of outstanding
contracts at March 31, 2002 and 2001, was ($1,941) and ($292),
respectively, based on quotes from financial institutions.
. Lead forward, option and futures contracts -- The estimated fair value of
outstanding lead contracts was ($142) and ($25) at March 31, 2002 and
2001 based on quotes from brokers.
. Foreign currency contracts -- The fair value is based on quotes obtained
from financial institutions. As of March 31, 2002 and 2001, the fair
value of foreign currency contracts was approximately ($20) and $3,300,
respectively.
(19) ACCOUNTING FOR RECEIVABLES SALES AGREEMENTS
Since July 1997, certain of the Company's European subsidiaries have sold
selected receivables to a wholly owned bankruptcy-remote subsidiary of the
Company, Exide Europe Funding Ltd., which in turn established a multi-currency
receivable sale facility (collectively, the "European Agreement") with a
financial institution, whereby the financial institution committed to purchase
on a continuous basis, with limited recourse, all right, title and interest in
these receivables up to a maximum net investment of $175,000. As of March 31,
2002 and 2001, net uncollected receivables sold under the European Agreement
were $135,610 and $148,717, respectively.
The Company has also entered into a Receivables Sale Agreement (the "U.S.
Agreement") with certain banks (the "Purchasers"), and under this agreement,
the Purchasers have committed to purchase, with limited recourse, all right,
title and interest in selected accounts receivable of the U.S. Company, up to a
maximum net investment of $200,000. In connection with the U.S. Agreement,
during fiscal 1997 the Company established a wholly owned, bankruptcy-remote
subsidiary, Exide U.S. Funding Corporation, to purchase accounts receivable at
a discount from the Company on a continuous basis, subject to certain
limitations as described in the U.S. Agreement. Exide U.S. Funding Corporation
simultaneously sells the accounts receivable to the Purchasers. As of March 31,
2002 and 2001, net uncollected receivables sold under the U.S. Agreement were
$117,455 and $140,717, respectively.
On May 31, 2002, the Company entered into a new $177,500 European accounts
receivable securitization facility. This facility replaced the Company's
existing $175,000 European securitization program. The new facility will be
accounted for as a secured borrowing in accordance with the requirements of
SFAS 140,
F-42
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" whereby the accounts receivable and related borrowings will be
recorded on the Company's consolidated balance sheet.
Upon closing of the DIP Credit Facility discussed above, the Company
terminated and repurchased uncollected securitized accounts receivable under
the U.S. Program for approximately $117,000.
Losses and expenses related to receivables sold under these agreements for
fiscal years 2002, 2001 and 2000 were $14,635, $16,438 and $13,958,
respectively, and are included in other (income) expense, net in the
consolidated statements of operations.
Except for the May 2002 securitization facility, the above transactions
qualify as sales under the provisions of SFAS 140. The Company adopted SFAS 140
in the beginning of fiscal 2002 for transfers of receivables after March 31,
2001.
(20) RELATED PARTY TRANSACTIONS
The services of Lisa J. Donahue, Chief Financial Officer and Chief
Restructuring Officer, are provided to the Company pursuant to a Services
Agreement, dated October 25, 2001, between the Company and JA&A Services LLC.
Under the Services Agreement, the Company is charged an hourly fee for Ms.
Donahue's and other temporary employees' services, and Ms. Donahue, a principal
in Alix Partners, LLC, is compensated independently by JA&A Services. JA&A
Services is an affiliate of Alix Partners, LLC, a financial advisory and
consulting firm specializing in corporate restructuring, which has been
retained by the Company in connection with its financial restructuring. Ms.
Donahue is also a principal in Alix Partners, LLC. Fees incurred by the Company
during fiscal 2002 under the Services Agreement were $5,154.
(21) SEGMENT INFORMATION
Beginning October 1, 2001, the Company changed its organizational structure
such that operations are managed and reported in three segments:
Transportation, Motive Power and Network Power. The Company previously
operated its battery business within the Transportation and Industrial segments
through September 30, 2001. The previous Industrial segment was split between
Network Power and Motive Power. Network Power applications include batteries
for telecommunications systems, fuel cell load leveling, electric utilities,
railroads, photovoltaic and other critical uninterruptible power supply
markets. Motive Power applications include batteries for a broad range of
equipment uses including lift trucks, mining and other commercial vehicles.
Transportation uses include automotive, heavy duty, agricultural, marine and
other batteries, as well as new technologies being developed for hybrid
vehicles and new 42-volt automobile applications.
F-43
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The prior year segment data below has been restated to reflect the current year
presentation. Certain asset information required to be disclosed is not
reflected below as it is not allocated by segment nor utilized by management in
the Company's operations.
Selected financial information concerning the Company's reportable segments
are as follows:
Fiscal 2002
----------------------------------------------------------
Transportation Motive Network (a) Other (b) Consolidated
-------------- -------- ----------- ---------- ------------
Net sales.................... $1,518,119 $475,230 $ 435,201 $ -- $2,428,550
Gross profit................. 272,391 128,742 109,184 -- 510,317
Operating income (loss)...... (9,963) 16,310 (110,561) (64,342) (168,556)
Depreciation and amortization 56,884 16,178 20,662 7,006 100,730
Fiscal 2001
----------------------------------------------------------
Transportation Motive Network Other ( c) Consolidated
-------------- -------- ----------- ---------- ------------
Net sales.................... $1,522,531 $449,407 $ 460,164 $ -- $2,432,102
Gross profit................. 303,616 137,450 142,961 -- 584,027
Operating income (loss)...... (62,311) 28,992 55,715 (59,074) (36,678)
Depreciation and amortization 53,078 16,409 13,413 16,695 99,595
Fiscal 2000
----------------------------------------------------------
Transportation Motive Network Other (d) Consolidated
-------------- -------- ----------- ---------- ------------
Net sales.................... $1,486,858 $401,633 $ 305,956 $ -- $2,194,447
Gross profit................. 322,223 133,368 77,672 -- 533,263
Operating income (loss)...... 12,379 34,185 9,976 (76,100) (19,560)
Depreciation and amortization 51,732 14,334 13,389 16,251 95,706
- --------
(a) Included in Network operating loss for fiscal 2002 is a $105,000 goodwill
impairment charge (see Note 4).
(b) Includes a credit of $8,185 related to the termination of the Lion Compact
Energy agreement (See Note 14), offset by corporate expenses associated
with the operational restructuring, capital structure review and strategic
sourcing initiatives.
(c) Includes $14,949 of goodwill amortization.
(d) Includes $17,165 of goodwill amortization.
Geographic information is as follows:
Revenues from External Customers
--------------------------------
2002 2001 2000
---------- ---------- ----------
United States $1,090,983 $1,038,364 $ 729,153
France....... 202,647 225,066 241,136
Germany...... 273,871 371,542 417,167
UK........... 148,396 221,713 239,784
Italy........ 150,373 151,843 169,627
Spain........ 163,616 175,194 191,390
Other........ 398,664 248,380 206,190
---------- ---------- ----------
Total........ $2,428,550 $2,432,102 $2,194,447
========== ========== ==========
F-44
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-Lived Assets
--------------------------
2002 2001 2000
-------- -------- --------
United States $271,936 $374,467 $110,740
France....... 27,288 36,693 39,646
Germany...... 47,127 69,581 74,226
UK........... 28,466 35,338 54,936
Italy........ 32,291 33,690 37,147
Spain........ 64,784 70,773 75,182
Other........ 58,328 12,393 51,467
-------- -------- --------
Total........ $530,220 $632,935 $443,344
======== ======== ========
(22) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the Company's unaudited quarterly consolidated
results of operations for fiscal years 2002 and 2001:
2002
-----------------------------------------
First (d) Second (a) Third (a) Fourth (a)
--------- ---------- --------- ----------
Net Sales............................ $631,237 $624,245 $ 633,194 $ 539,874
Gross Profit......................... 150,398 140,390 122,330 97,199
Net Income (loss).................... (7,219) (32,520) (200,471) (63,872)
Basic earnings (loss) per share (c).. $ (0.28) $ (1.20) $ (7.33) $ (2.33)
Diluted earnings (loss) per share (c) $ (0.28) $ (1.20) $ (7.33) $ (2.33)
2001
-----------------------------------------
First Second (b) Third (b) Fourth (b)
--------- ---------- --------- ----------
Net Sales............................ $465,800 $494,174 $ 764,385 $ 707,743
Gross Profit......................... 123,700 135,716 182,641 141,970
Net Income (loss).................... (9,355) (14,534) 3,968 (144,664)
Basic earnings (loss) per share (c).. $ (0.44) $ (0.68) $ (0.16) $ (5.67)
Diluted earnings (loss) per share (c) $ (0.44) $ (0.68) $ (0.15) $ (5.67)
- --------
(a) Includes the Company's pre-tax charges aggregating $138,122 in fiscal 2002
with $11,058, $118,626 and $8,438 recorded in the second quarter, third
quarter and fourth quarter, respectively, of fiscal 2002. See Note 4 for
third quarter goodwill impairment charge of $105,000 included within the
$118,626.
(b) Includes the Company's pre-tax charges aggregating $113,166 in fiscal 2001
with $30,000, $9,181 and $73,985 recorded in the second quarter, third
quarter and fourth quarter, respectively, of fiscal 2001.
(c) Basic and diluted earnings (loss) per share amounts for the quarters and
full years have been calculated separately. Accordingly, quarterly amounts
may not add to the annual amounts because of differences in the weighted
average common shares outstanding during each period.
(d) Net loss and basic and diluted loss per share for the first quarter of
fiscal 2002 includes an after-tax charge of $496 or $0.02 per share for the
cumulative effect of change in accounting principle.
F-45
EXIDE TECHNOLOGIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share data)
SCHEDULE II
Balance at Additions Balance
Beginning Charged to at end
of period Expense Charge-offs Other (1) of period
---------- ---------- ----------- --------- ---------
(Amounts in thousands)
Year ended March 31, 2000:
Allowance for doubtful accounts. $54,111 17,146 (8,392) 1,312 $64,177
======= ====== ======= ====== =======
Year ended March 31, 2001:
Allowance for doubtful accounts. $64,177 12,066 (37,062) (5,584) $33,597
======= ====== ======= ====== =======
Year ended March 31, 2002:
Allowance for doubtful accounts. $33,597 24,731 (4,791) (334) $53,203
======= ====== ======= ====== =======
- --------
(1) Primarily the impact of currency changes as well as the acquisitions and
divestitures of certain businesses.
F-46