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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file Number 1-11263
Exide Corporation
(Exact name of registrant as specified in its charter)
Delaware 23-0552730
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1400 N. Woodward Avenue
Bloomfield Hills, Michigan 48304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (810) 258-0080
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
10-3/4% Senior Notes, due December 15, 2002
(Title of Class)
12-1/4% Senior Subordinated Deferred Coupon Debentures
due December 15, 2004
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
. Aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 28, 1995: $717,944,697.
. 19,991,810 outstanding shares of the Registrant's common stock as of
June 1, 1995.
(DOCUMENTS INCORPORATED BY REFERENCE)
Portions of the Proxy Statement relating to the Annual Meeting of Stockholders
to be held August 15, 1995, are incorporated by reference into
Part III of this report.
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EXIDE CORPORATION
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TABLE OF CONTENTS
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Page
----
PART I
Item 1 Business 1
Item 2 Properties 12
Item 3 Legal Proceedings 14
Item 4 Submission of Matters to a Vote of Security Holders 15
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 16
Item 6 Selected Financial Data 17
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 8 Financial Statements and Supplementary Data 23
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 23
PART III
Item 10 Directors and Executive Officers of the Registrant 24
Item 11 Executive Compensation 24
Item 12 Description of Capital Stock 24
Item 13 Certain Relationships and Related Transactions 24
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K 25
SIGNATURES 26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES F-1
EXIDE CORPORATION
-----------------
PART I
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Item 1. Business
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(a) General Development of Business
-------------------------------
Exide was founded in 1888 as The Electric Storage Battery Company. In
1974, Exide was acquired by a subsidiary of INCO Limited ("INCO").
Principals of The Spectrum Group, Inc. ("Spectrum") and other investors
acquired Exide from INCO in 1983. The current management joined Exide in
1985 and since that time, Exide has pursued a strategy of increasing its
market penetration by developing new marketing programs, lowering costs and
increasing productivity while achieving economies of scale by consolidating
facilities and pursuing acquisition opportunities. In furtherance of that
strategy, Exide acquired all of the issued and outstanding capital stock of
General Battery Corporation from Fruit of the Loom, Inc. in 1987, thereby
significantly expanding its customer base and reducing operating cost and
corporate overhead per unit through economies of scale. In 1989,
Wilmington Securities ("WSI"), an affiliate of The Hillman Company
("Hillman"), purchased 49% of the common stock of the Company.
Management owned 37% of the common stock at that time. This acquisition
was made through a newly formed holding company, EC Acquisition, Inc.
("ECA"). Immediately after the acquisition, ECA contributed its shares
to EC Merger, Inc. ("ECM"). As used herein, unless the context indicates
otherwise, the term "Company" refers to Exide Corporation, a Delaware
corporation, and its consolidated subsidiaries.
In June 1991, the Company sold substantially all of the assets relating to
its industrial battery product line to Yuasa-Exide, Inc., formerly Yuasa
Battery (America), Inc., affiliated with Yuasa Battery Co. Ltd. of Japan.
The buyer paid approximately $97,000,000 in cash and assumed certain
liabilities. In addition, ECA entered into a 10-year agreement not to
compete with the buyer in the industrial battery field and received a cash
payment of $20,000,000 as consideration. As a result of this sale, the
Company recorded a gain of $22,075,000.
On December 17, 1992, the Company completed a refinancing of its previously
existing debt, which resulted in the redemption of previously outstanding
debt, the issuance of Senior Notes and Senior Subordinated Deferred Coupon
Debentures, the repurchase of the Company's Class "B", "C" and "D"
Preferred Stock owned by the Class "B" Preferred Stock holders, and the
recognition of an extraordinary loss of $10,363,000, net of $1,900,000
income tax benefit (see Note 6 of Notes to the Company's Consolidated
Financial Statements appearing elsewhere herein).
Effective October 28, 1993, the Company completed an initial public
offering ("IPO") of its common stock and raised $92,000,000 (before
fees and expenses). In connection with the IPO, the Company increased
the authorized shares of common stock from 1,000 to 30,000,000 and ECA's
shareholders exchanged all outstanding
1
shares of common stock of ECA for shares of common stock of the Company
on a 1.29 to 1 basis.
Effective March 8, 1994, the Company completed a secondary offering of
its common stock. The secondary offering included the issuance of an
additional 1,000,000 shares which raised $34,000,000.
Effective December 22, 1994, the Company completed an offering of its
common stock. The offering included the issuance of an additional
5,175,000 shares (including the underwriters exercise of their
overallotment option) which raised $259,000,000 (before fees and
expenses).
(b) Financial Information About Industry Segments
---------------------------------------------
The Company is primarily engaged in one industry segment, namely, the
manufacture, distribution and sale of lead acid batteries and related
accessories. (See Note 17 to the Company's Consolidated Financial
Statements appearing elswhere herein.)
(c) Narrative Description of Business
---------------------------------
The following descriptions include Exide and its consolidated subsidiaries
as of March 31, 1995. They do not include information with respect to
Compagnie Europeene d'Accumulateurs S.A. ("CEAC") which was acquired by
the Company in May, 1995 (see International Expansion - CEAC).
Principal Products
------------------
Exide, together with its affiliates, is the leading manufacturer of lead
acid batteries in the North America with approximately a 39% market share
as of March 31, 1995. The Company produces starting, lighting and ignition
("SLI") batteries primarily for automobiles and for commercial
applications, including trucks, farm equipment, tractors and other off-road
vehicles, and specialty batteries for marine and garden tractor
applications, motorcycles, golf cars and wheelchairs, battery chargers and
a broad line of battery accessories.
Exide is one of the largest manufacturers and marketers in Europe of SLI
and industrial batteries. The Company produces standby batteries used
primarily in telecommunications, as well as electrical installations.
The Company also produces traction batteries which are used to drive
electric vehicles such as forklifts, transporters, mine locomotives,
electric cars and cable-guided equipment.
Seasonality and Weather
-----------------------
The automotive aftermarket is seasonal as retail sales of replacement
batteries are generally higher in the fall and winter (the Company's second
and third fiscal quarters). Accordingly, demand for the Company's
automotive batteries is generally highest in the fall and early winter as
retailers build inventories for the winter season.
2
In addition, demand for automotive batteries is affected by weather
conditions. Unusually cold winters or hot summers will increase demand for
automotive replacement batteries. Conversely, unusually mild winters or cool
summers will decrease demand for automotive replacement batteries. In North
America, over 80% of the Company's automotive batteries are sold in the
aftermarket.
Raw Materials and Suppliers
---------------------------
Lead is the principal raw material in the manufacture of batteries, and lead
prices are the most important variable in the cost of raw materials. The
Company presently operates two secondary lead smelters in North America that
obtain lead by recycling scrap batteries. The Company obtains a majority of
its lead requirements through the operation of its secondary lead smelters.
This vertical integration minimizes the effects of changes in the market
price of lead on production costs. The Company obtains the balance of its
lead from a number of suppliers.
Exide has two recycling plants in Europe that supply a significant portion
of Exide's European lead requirements. Major investments have been made in
these plants in recent years to improve lead treatment and recycling
processes.
In North America, the Company also produces approximately 80% of its plastic
molding requirements, and receives approximately 88% of its plastics
requirements through its program of recycling scrap batteries.
Other key raw materials and components in the production of batteries
include separators, lead oxide and chemicals, all of which are generally
available from multiple sources. The Company currently produces all of its
United States requirements of separators, one component in SLI batteries,
through Evanite. In order to further vertically integrate its operations and
assure a portion of its separator needs, the Company consummated the
acquisition of Evanite in February 1995. (See Note 3 to the Company's
Consolidated Financial Statements (Appearing elsewhere herein.)
The Company has not experienced any material stoppage or slowdown in
production as a result of the unavailability, or delays in the availability,
of raw materials. No single vendor accounted for 10% or more of the
Company's total purchases in fiscal 1995.
Trademarks and Patents
----------------------
The Company owns or has a license to use various trademarks which are of
value in the conduct of its business. While the Company believes such
trademarks and trade names enhance the broad recognition of its products and
therefore are important in its business, the Company also believes that its
products, engineering skills, reputation for quality and relationships with
its customers are equally important for the maintenance and growth of its
business. An unaffiliated firm has rights to the Exide
3
trademark in approximately 37 foreign countries. In addition, Exide
Electronics Group, Inc., an unaffiliated company, is licensed to use Exide
on certain devices.
Exide has been issued many patents worldwide, some of which are active, with
several additional patents in process covering design of lead acid batteries
and battery manufacturing equipment. While the Company believes that patents
are important to its business operations, it also believes that the loss of
any single patent or several patents would not have a material adverse
effect on the Company.
International Expansion/(1)/
-----------------------
Battronics
In October 1993, the Company acquired for $3.0 million the remaining 50%
equity interest in Battronics, Inc. ("Battronics"), the leading automotive
battery manufacturer in Canada with approximately a 50% market unit share
for automotive batteries in Canada. Battronics, which has its primary
production facility in Maple, Ontario, had net sales of $64.4 million and
$64.9 million in fiscal 1995 and 1994, respectively.
BIG
On March 30, 1994, the Company acquired all of the issued and outstanding
capital stock of B.I.G. Batteries Group Limited ("BIG"), a company
incorporated in England and Wales, for approximately $2 million in cash and
$32.7 million in British pound denominated Loan Notes. BIG is an automotive
battery manufacturer/distributor in the United Kingdom with net sales of
$42.1 million in fiscal 1995.
Gemala
In September 1994, the Company and PT Sapta Panji Manggala ("PT Sapta"), an
Indonesian company, signed an agreement whereby the Company contributed its
interest in BIG, and PT Sapta contributed its interest in Gemala Holdings
Limited ("Gemala") into a newly formed joint venture. In exchange for PT
Sapta's interest in Gemala, the Company gave PT Sapta an 18.5% equity
interest in the joint venture and the right to certain benefits realized
from Gemala's tax loss carryforwards. PT Sapta also received the right to
require Exide to purchase its 18.5% interest in the joint venture at any
time after five years from the closing date of this transaction for a
defined multiple of earnings of the joint venture. The value of the
consideration exchanged ($6.65 million) has been allocated on the basis of
the estimated fair market value of Gemala's contributed net assets.
- --------------------------------------------------------------------------------
/(1)/ See Notes 3 and 18 to the Company's Consolidated Financial Statements
appearing elsewhere herein.
4
Tudor
In October 1994, the Company acquired approximately 89.4% of the outstanding
capital stock and approximately 25% of the convertible bonds of Sociedad
Espanola del Acumulador Tudor, S.A. ("Tudor") for 1,145 pesetas per share or
approximately $229,000,000 (before fees and expenses). In December, one of
the shareholders of Tudor sold its remaining 5% ownership to Tudor at the
tender offering price in accordance with the terms of the purchase
agreement. After completion of this sale, the Company's effective ownership
in Tudor is approximately 94.1%. In addition, the Company has provided a
letter of credit which guarantees payment of the convertible bonds held by
that same shareholder. Tudor, which is based in Spain, is the third largest
lead acid battery producer in Western Europe with 1994 consolidated sales of
approximately $500,000,000 annually. Tudor manufactures both automotive and
industrial batteries and markets its products in Western Europe, most
notably in Spain, Portugal, Germany, Finland, Norway and Sweden.
CEAC
On May 18, 1995, the Company acquired 99.7% of the outstanding capital stock
of CEAC for approximately $425,000,000 in cash ($553,500,000 less assumed
debt of $131,900,000 plus interest from March 31, 1995 of $3,400,000). Exide
financed the acquisition with the April 1995 issuance of $300 million of 10%
Senior Notes repayable in April 2005 and the proceeds from the Company's
December 1994 common stock offering. The proceeds from the December 1994
common stock offering were utilized to temporarily reduce the Company's
Revolving Loans under the U.S. Credit Agreement at March 31, 1995. In
connection with CEAC acquisition, the Company paid $4,568,000 of additional
interest to amend the terms of its 10-3/4% Senior Note Indentures and its
12-1/4% Senior Subordinated Deferred Coupon Indentures. Such costs have been
deferred and are being amortized over the remaining lives of such debt.
CEAC, which is headquartered in France, is a leader in the European battery
market with 1994 consolidated sales of approximately $800,000,000, primarily
in France, Italy and Germany.
CEAC is one of the largest manufacturers and marketers of SLI batteries in
Western Europe and is a leading manufacturer and marketer of industrial
batteries. CEAC is headquartered in Genevilliers, France and has
manufacturing plants and warehouses and distribution facilities in a number
of European countries. Like other battery companies, CEAC's business is
seasonal, with higher sales generally occurring during the late fall and
winter, and is subject to significant variations on a month-to-month basis,
due to the timing of shipments of industrial batteries.
CEAC has adopted strategies that address the competitive environment and the
need to expand its markets. A principal component of this strategy has been
to enter markets, primarily through acquisitions, in order to establish
CEAC's pan-European presence. In 1991, CEAC acquired approximately 75% of
Sonnenschein, a leading German battery manufacturer and marketer, and in
1992 it purchased Fiat's Magneti Marelli battery operation. Other recent
examples of this expansion are CEAC's
5
purchase of a 50% interest in Inci Aku, Turkey's second largest SLI battery
manufacturer and the acquisition of a 95% interest in CENTRA, a leading
Polish battery manufacturer.
Another key element of CEAC's strategy has been to aggressively pursue
consolidation and integration opportunities. In the last five years, CEAC
has closed four plants and moved various of its manufacturing operations in
order to achieve production and cost efficiencies. On the product side, CEAC
has taken steps to streamline production and reduce costs by standardizing
processes and products and minimizing, where practical, design variations.
Recognizing that in the industrial battery sector of the market, service is
of particular importance, CEAC has focused on improving its performance by
instituting means to improve logistics, delivery time and other service
aspects.
Products
Automotive Batteries. Automotive batteries represented $363,000,000 or
approximately 48% of CEAC's net sales in calendar 1994. CEAC sold
approximately 10.6 million automotive batteries in 1994. Similar to North
America, the automotive battery aftermarket represents approximately 70% of
the SLI battery market in Western Europe, and approximately 80% of CEAC's
automotive sales are of aftermarket batteries. CEAC offers a full range of
products to service the aftermarket including the recently introduced STR
battery, a sealed technology with gas recombination, resulting in a
maintenance-free battery and the Series 30 power range for automobiles and
the Heavy Duty and Super Heavy Duty batteries for trucks.
CEAC also produces SLI batteries for the OEM market in Europe and is the
primary supplier for Fiat and the PSA group, and a principal supplier to
Renault and Iveco. The STR battery has been approved by Renault and Fiat for
1996 car models.
Industrial Batteries. In 1994, CEAC had industrial battery sales of
approximately $364,000,000 or approximately 49% of CEAC's net sales.
Standby batteries represent approximately 50% of such sales. CEAC has the
leading market share in Western Europe for both standby and traction
batteries. This represents the third largest share of such markets on a
worldwide basis.
CEAC's standby batteries are used for telecommunications, uninterruptible
power supplies, security systems, submarines, power plants, railways and
miscellaneous mobile applications (such as wheelchairs and golf carts). CEAC
offers a complete range of standby products from one ampere hour
(portable/consumer batteries) to 10,000 ampere hours (submarine batteries).
CEAC offers both vented and sealed batteries and has been a leader in the
development of sealed battery technology. Through Sonnenschein, CEAC
introduced the Dryfit battery, a maintenance-free gel electrolyte battery
with a very wide capacity range designed to perform in extreme and difficult
applications, and has a leading position in this technology. CEAC also
produces lithium and NiCd batteries.
6
Traction batteries produced by CEAC are used for materials handling
equipment such as forklifts, floor sweepers and milk trucks for quiet early
morning deliveries, and automatic guided vehicles used in mass
transportation and production and mining locomotives. CEAC offers a wide
range of products and services with over 380 models. Most product types are
focused in four main areas including a 2-volt vented battery, a 2-volt
sealed battery, 6- and 12-volt monobloc batteries and charges. CEAC has
recently updated and rationalized its product technology base developing
common cell, cell materials and battery exteriors across its product
offering and is continuing its rationalization program with development of
common electrode and process technologies across product offerings.
New Products. Innovations in the automotive, standby and traction battery
markets generally represent incremental improvements on existing designs.
CEAC's product development teams in each of these three areas work with
original equipment manufacturers to meet their evolving needs. One of the
principal focuses in recent years has been a trend toward smaller, more
powerful batteries.
Although electric vehicles are not expected to result in significant revenue
in the next few years, in order to maintain and enhance its reputation as an
innovator, CEAC is working on the development of electric vehicles with
leading automobile makers, including Fiat, the PSA group and Renault.
Markets and Marketing
Automotive. During the fourth calendar quarter of 1994, CEAC's share of the
aftermarket in Western Europe was approximately 18% and it has market
leadership in France, Italy and Belgium, with significant market presence in
several other Western European countries. CEAC's automotive aftermarket
batteries are sold principally under the brand names Fulmen, Sonnenschein
and Tudor (for which it has rights in Belgium and Italy) as well as several
private label brands. CEAC has developed a marketing strategy based
principally on product differentiation, customized trade, marketing support,
service and concern for the environment. Sales are primarily made through
battery wholesaler and OEM dealers, and to a lesser but growing extent,
through hypermarkets. CEAC is one of the leading suppliers of SLI
aftermarket batteries to battery retailers in Western Europe with major
customers including Auto Distribution International, Magneti Marelli, the
PSA group's and Renault's dealer networks and Daisa.
Industrial. The Company believes that the standby battery market offers good
opportunities for growth given the growth and evolution of the
telecommunications market, including infrastructure development in emerging
countries and the development of mobile networks and the information
superhighway, and the continued need for and importance of uninterruptible
power supplies. CEAC sells standby batteries throughout Western Europe, with
particularly strong market positions in France, Italy, Spain and Germany,
under the brand names Sonnenschein, Tudor and Fulmen. These batteries are
distributed directly by its own sales force and through independent sales
agents and distributors. CEAC has developed a strong
7
presence in the telecommunications, uninterruptible power supply and power
system markets with major customers including Schneider Group, France
Telecom, Deutsches Bundespost Telekom, the Italian telecommunications
company, Electricite de France and Siemens.
In traction batteries, CEAC has a market presence throughout much of Western
Europe and, during the fourth calendar quarter of 1994, had a market share
in excess of 30% in the United Kingdom, France, Italy, Belgium, the
Netherlands and Spain. CEAC's traction batteries are sold under the brand
names Fulmen, Chloride Motive Power, Sonnenschein, Tudor, Magnetti Marelli
and ASTA. Distribution channels, which vary by country, consist of CEAC's
in-house sales force, independent dealers and commissioned agents. Service
represents a principal element of CEAC's marketing efforts for traction
batteries and is provided by CEAC's service and support staff of
approximately 300 employees. CEAC has a strong presence with the original
equipment manufacturers and its major customers include the Linde group,
Jungheinrich, BT and Hyster.
Competition
The European markets for both SLI and industrial batteries are extremely
competitive. Competition is based in significant part on price, although
quality, warranty terms and, especially in industrial batteries, service,
are also important competitive factors. CEAC's principal competitors in the
SLI segments include Varta/Bosch, Delco Remy, Fiamm, Autosil and Hoppecke,
and in the industrial battery market CEAC competes mainly against Yuasa-
Exide, Hawker Siddeley and Matsushita, as well as Varta/Bosch.
Properties and Manufacturing
CEAC manufactures its batteries and other related products in 15 facilities
located in France, Italy, Germany and other countries in Europe. Through
CEAC's investment in Turkey and its recent acquisition in Poland, CEAC also
has manufacturing facilities in Turkey and Poland. As of December 31, 1994,
CEAC had approximately 7,100 employees, including approximately 1,900 at
CENTRA in Poland. In addition, CEAC operates a lead smelter in northern
France with an annual production capacity of 25,000 tons. During the fourth
quarter of 1994, such smelter supplied approximately 16% of its lead
consumption, and CEAC's plastic processing facilities provided approximately
65% of its plastic needs.
Automotive. CEAC has initiated a manufacturing and production
rationalization program to reduce production costs, improve flexibility and
improve product quality. Since 1989, CEAC has closed four plants and
restructured one plant. As a result of its rationalization program, CEAC has
substantially improved productivity and reduced costs.
Industrial. CEAC initiated a manufacturing and production rationalization
program of its industrial battery plants including a review and
rationalization of product ranges
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and specialization of plants to improve productivity and reduce fixed costs.
This program was introduced in 1992 and will continue through the mid-1990s.
To date, CEAC has realized both improved production volumes and productivity
at most of its industrial plants.
Environmental, Health and Safety Matters
The Company completed its environmental health and safety due diligence
review of the operations and facilities of CEAC in February 1995. The
Company engaged several law firms and three consulting firms with offices in
the respective countries to assist in performing this review. While this
review identified certain environmental compliance and liability issues, the
Company does not currently believe that any such issues would have a
material adverse effect on the Company's business or financial condition.
Any further consolidation of CEAC's operations could accelerate or increase
its environmental costs. In addition, at this time, the Company has no basis
for predicting what effect stricter enforcement of existing environmental,
health and safety laws and regulations, or the adoption of additional such
laws and regulations, would have on CEAC's business or financial condition.
Yuasa-Exide
On April 1, 1992, Exide exchanged with Yuasa Battery (America) Inc., its 49%
interest in a joint venture with Yuasa Exide Battery Corporation for a 13.5%
interest in Yuasa-Exide, Inc. This company includes the operations of the
joint venture and Exide's former industrial battery product line, which was
acquired from Exide in June 1991 for $117,000,000. Yuasa-Exide, Inc. is a
leading manufacturer and marketer of motorcycle batteries in the United
States. Output is being sold primarily to the U.S. operations of Japanese
automobile and motorcycle manufacturers including Mazda and Honda. Yuasa-
Exide, Inc. also produces a sealed lead-acid battery, a product used
primarily for computer applications and security systems, in a plant in
Hays, Kansas. The Company also has a 50% ownership interest in Yuasa-Exide
Research and Development Corporation, a joint venture involved in the
research and development of new battery products and manufacturing
processes.
Customers
---------
Because the Company utilizes a varied marketing network of mass
merchandisers, auto supply chain stores and large wholesale distributors
along with the Company's own distribution network, the loss of a single
customer would not have a material impact on a material part of the business
of the Company. The five largest customers totaled 26% of fiscal 1995
consolidated net sales (see Note 1 - "Major Customers" of the Notes to the
Company's Consolidated Financial Statements appearing elsewhere herein).
9
In North America, the Company markets its replacement automotive batteries
through leading mass merchandisers, auto supply chain stores and large
wholesale distributors. The Company has also established its own
distribution network to supplement independent wholesalers and to service
smaller battery retailers. The Company also markets batteries to various
original equipment manufacturers ("OEM's").
In Europe, the Company markets SLI batteries to various OEMs, battery
wholesalers and dealers and OEM dealers, and to a lesser but growing extent,
through supermarket chains, replacement part stores and hypermarkets. The
Company's principal customers for standby batteries are telecommunications
companies and, for submarine batteries, the navies of several nations. The
Company supplies traction batteries to some of the major electric vehicle
OEMs in Europe and to a wide variety of customers in the aftermarket. The
Company's industrial batteries are distributed directly by its own sales
force and through independent dealers and commissioned agents.
Backlog
-------
The Company does not have a material amount of backlog orders.
Competition
-----------
The market for automotive, commercial and specialty batteries is mature and
highly competitive in both North America and Europe. Battery manufacturers
compete primarily on the basis of price, quality, service, warranty period
and timeliness of delivery. Generally, sales are made without long-term
contracts. Both the domestic and European industry currently has excess
capacity. Consequently, prices for batteries have declined periodically in
recent years and some smaller competitors have been unable to survive.
The Company's primary domestic competitors are Johnson Controls, Inc., Delco
Remy (a division of General Motors Corporation) and GNB Incorporated (a
subsidiary of Pacific Dunlop, Ltd.). Regional manufacturers are also
significant, accounting for approximately 13% of the United States market.
Among the Company's competitors in the European SLI battery market are VB
Autobatterie GmbH ("Varta/Bosch"), Hawker Siggeley, Fiamm, Delco Remy,
Autosil and Hoppecke, and in the industrial battery market the Company
competes mainly against Yuasa-Exide, Hawker Siddeley and Matsushita, as well
as Varta/Bosch.
Employees
---------
North America. As of March 31, 1995, the Company employed approximately
1,716 salaried employees and approximately 4,496 hourly employees in North
America. Approximately 39% of such salaried employees are engaged in sales,
service and
10
marketing and approximately 38% in engineering and manufacturing.
Approximately 36% of its hourly employees are represented by unions.
Relations with the unions are generally good, and during the last four years
the Company has negotiated new agreements without labor disruptions.
Contracts covering approximately 272 of the Company's union employees expire
in fiscal 1996.
Europe. As of March 31, 1995, the Company employed approximately 5,500
employees in Europe. The Company's hourly employees are generally
represented by unions. Relations with the unions are generally good.
Contracts covering the Company's European union employees expire on various
dates through 1998.
(d) Financial Information About Foreign and
---------------------------------------
Domestic Operations and Export Sales
------------------------------------
See Note 17 of Notes to the Company's Consolidated Financial Statements
appearing elsewhere herein.
11
Item 2. Properties
----------
The chart below lists the location of the principal facilities of the Company.
All of the facilities are owned unless otherwise indicated. All of the owned
properties and the leases for the leased properties are subject to liens under
the Company's Credit Agreement.
Approximate
Location Square Footage Use
- --------------------------- ----------------- ------------------------------------
North America:
Auburn Hills, MI 5,000 (leased) OEM Engineering and Sales
Bloomfield Hills, MI 10,000 (leased) Executive Offices
Bristol, TN 120,000 (leased) Automotive Accessory Manufacturing
Bristol, TN 510,000 (leased) Battery Manufacturing (renovations
in progress)
Burlington, IA 189,000 Battery Manufacturing
Cooper, TX 80,000 Starter and Alternator Manufacturing
Corvallis, OR 361,700 Separator and Other Manufacturing
Corydon, IN 161,000 Separator Manufacturing
Denver, CO 64,000 Distribution Center/Formation
Warehouse
Drumondville, 110,000 Battery Manufacturing
Quebec, Canada
Frankfort, IN 204,000 Battery Manufacturing
Frankfort, IN 211,000 Distribution Center
Greer, SC 131,000 Battery Manufacturing
Hamburg, PA 149,000 Battery Manufacturing
Hamburg, PA 30,000 Distribution Center
Indianapolis, IN 135,000 Starter and Alternator Manufacturing
Lampeter, PA 81,000 Battery Plastics Manufacturing
Logansport, IN 197,000 Battery Manufacturing
Manchester, IA 198,000 Battery Manufacturing
Maple, Ontario, 100,000 (leased) Distribution and Administration
Canada
Maple, Ontario, 179,000 Battery Manufacturing
Canada
Memphis, TN 4,000 Executive Offices/Sales Office
Muncie, IN 174,000 Secondary Lead Smelting
North Bay, Ontario 30,000 (leased) Battery Charger Manufacturing
Canada
Phoenix, AZ 31,000 (leased) Distribution Center
12
Approximate
Location Square Footage Use
- --------------------------- ----------------- ------------------------------------
Reading, PA 72,000 (leased) Engineering, Research &
Development, Tech Center
Reading, PA 118,000 Secondary Lead Smelting
Reading, PA 135,000 Administrative Offices
Reading, PA 215,000 Battery Manufacturing
Reading, PA 46,000 Equipment Center
Reading, PA 74,000 Distribution Center
Salina, KS 300,000 (leased) Battery Manufacturing/Distribution
Center
Sumner, WA 87,000 (leased) Distribution Center
Travelers Rest, SC 62,000 (leased) Distribution Center
Europe:
Graz, Austria 144,000 Industrial Battery Manufacturing
Herlev, Denmark 15,000 Executive Offices
Witham Essex, 20,000 Executive Offices
England
Bristol, England 5,000 Warehouse
Vantaa, Finland 133,000 (leased) SLI Battery Manufacturing
Fougeres, France 38,000 Industrial Battery Manufacturing
Berlin, Germany 99,000 SLI Battery Manufacturing
Kassel, Germany 212,000 SLI Battery Manufacturing
Soest, Germany 386,000 Industrial Battery Manufacturing
Schimatari, Greece 69,000 SLI Battery Manufacturing
Maarssen, Holland 26,000 Executive Offices
Avellino, Italy 35,000 Lids and Containers Manufacturing
Bergamo, Italy 203,000 Lids, Containers and Separators
Manufacturing
Horten, Norway 108,000 (leased) Industrial Battery Manufacturing
Castanheira, Portugal 471,000 SLI and Industrial Battery
Manufacturing
Ilhavo, Portugal 54,000 Manual Tools Manufacturing
Azambuja (Sonalur), 21,000 Recycling
Portugal
Azambuja (Azai), 23,000 Lids and Containers Manufacturing
Portugal
Lisbon, Portugal 12,000 Executive Offices
Azuqueca de 434,000 SLI Battery Manufacturing and
Henares, Spain Research
Torrejon de Ardoz, 54,000 Industrial Battery Manufacturing
Spain
Loeches, Spain 12,000 (leased) Traction Chargers Manufacturing
Malpica, Zaragoza, 213,000 SLI Battery Manufacturing
Spain
13
Approximate
Location Square Footage Use
- --------------------------- ----------------- ------------------------------------
Hernani, Spain 22,000 SLI Battery Manufacturing
Hernani, Spain 13,000 (leased) Warehouse
S. Esteban de 63,000 Recycling
Gormaz, Spain
Madrid, Spain 38,000 (leased) Executive Offices
Manzares, Spain 438,000 SLI Battery Manufacturing
Zaragoza, Spain 269,000 Industrial Battery Manufacturing
Nol, Sweden 447,000 SLI and Industrial Battery
Manufacturing
Cwmbran, Wales 105,000 Executive Offices and SLI Battery
Manufacturing
In addition, the Company temporarily operates an SLI battery manufacturing
facility in Dagenham, England (385,000 square feet), which includes some
executive offices.
In North America the Company operates more than 130 automotive battery sales
branches and service facilities, virtually all of which are leased. The Company
also leases distribution outlets in Europe.
The Company believes that its facilities are in good operating condition,
adequately maintained, and suitable to meet its present needs and future plans.
The Company believes that it has sufficient capacity to satisfy the demand for
its products in the foreseeable future.
Item 3. Legal Proceedings
-----------------
The Company, as a result of its manufacturing and secondary lead smelting
operations, is subject to numerous environmental laws and regulations and is
exposed to the cost and risks of handling, processing, storing and disposing of
hazardous and toxic substances. The Company's operations are also subject to
federal and state occupational and health regulations, particularly relating to
the control of blood lead levels in employees. Management believes that its
competitors are subject to substantially the same regulatory requirements, and
it does not expect that compliance with such requirements will have a material
effect on the Company's capital expenditures, earnings or competitive position.
The Environmental Protection Agency ("EPA") and other parties have advised the
Company that it is considered a "potentially responsible party" under the
Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA")
with respect to certain sites. The Company is involved in the assessment and
remediation of various sites, and numerous environmental matters concerning the
Company are pending before federal and state courts and regulatory agencies.
None of such matters known to the Company is expected to have a material adverse
effect on the Company's financial condition or results of operations.
The Resource Conservation and Recovery Act ("RCRA") obligates owners/operators
of manufacturing/storage sites that handled toxic materials to file a closure
plan with the EPA for
14
remediation of any environmental incidents from operation of the facility, and
to commence remediation pursuant to such plan following closure of the facility.
The Company is currently a defendant in a claim brought by one of the Company's
competitors alleging patent infringement. The claim went to trial and the jury
ruled that one of the subject patents was valid and infringed. A separate trial
was held for the award of damages and, in April 1995, the plaintiff was awarded
damages and interest (through June 1995) of approximately $5,300,000. The
Company's outside counsel believes the verdict of the jury trial was incorrect
and has advised that there is a high likelihood that the Company will prevail on
appeal. Therefore, management does not believe the ultimate resolution of this
matter will have a material adverse effect on the Company's financial condition
or results of operations.
A patent infringement suit was filed in the U.S. District Court in Oregon
against the Company in January 1995 by Tekmax, Inc. The suit alleges
infringement of Tekmax patents dealing with a device to insert battery plates
into battery separators and processes for doing so. The complaint alleges
damages in excess of the jurisdictional requirement of $50,000 (although
plaintiff requested $6,000,000 before the suit was filed). Exide has denied
infringement and asserted that such patents are invalid. Discovery has just
begun and will continue for the foreseeable future. An intelligent assessment of
this matter cannot now be made.
The Company is currently involved in three related lawsuits pending in state and
federal court in Alabama. The actions concern allegations that the Company sold
used batteries as new. Two of the actions are in state court. An action by a
purported nationwide class of more than 1,000 consumers of Exide batteries is
entitled Eddie Walton Davis, et al. v. Exide Corporation, et al. An action by a
purported nationwide class of more than 1,000 resellers of Exide batteries is
entitled Charlie Mathews v. Exide Corporation, et al. Neither class has been
certified. Both state court actions seek unspecified compensatory and punitive
damages and injunctive relief. The federal court action is a wrongful
termination suit by a former branch manager of Exide who claims he was
terminated for refusing to sell used batteries as new and is entitled Charles
Harris v. Exide Corporation. All three actions are in preliminary stages of
pretrial discovery. The Company disputes all allegations and intends to
vigorously defend itself.
In addition, the Company is involved in routine litigation incidental to the
conduct of its business. Based on consultation with legal counsel, management
does not believe that any of the litigation to which the Company is a party will
have a material adverse effect on the Company's business or financial condition.
See also Notes 13 and 15 of Notes to the Company's Consolidated Financial
Statements appearing elsewhere herein.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
15
PART II
- -------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
Market Information
- ------------------
The Common Stock has been listed and traded on the New York Stock Exchange under
the symbol EX since October 29, 1993. The reported range of the high and low
prices of the Common Stock on the New York Stock Exchange Composite Tape and
dividends paid are shown in the following table for the periods indicated. The
initial public offering price was $20 per share.
Sales Prices Quarterly
------------------ Cash
High Low Dividends
-------- -------- -----------
(per share)
Fiscal 1994:
Third Quarter (commencing
October 29, 1993) $29-3/8 $20 $0.00
Fourth Quarter 42-1/4 29-3/8 0.02
Fiscal 1995:
First Quarter $50-1/4 $35-5/8 $0.02
Second Quarter 53-1/2 45-5/8 0.02
Third Quarter 56-1/4 47 0.02
Fourth Quarter 57-1/2 32-3/4 0.02
As of June 1, 1995, there were approximately 250 record holders of Common Stock.
16
Item 6. Selected Financial Data (In thousands, except per share data):
-----------------------
Fiscal Year Ended March 31
--------------------------------------------------------------------
1991 1992/(1)/ 1993 1994/(2)/ 1995/(2)/
-------- --------- -------- --------- ----------
Income Statement Data:
Net sales $742,671 $593,626 $578,755 $679,649 $1,198,546
Gross profit 132,249 118,475 128,757 158,253 265,680
Operating profit 34,168 34,830 47,170 61,758 64,162
Income (loss) from operations (12,324) 6,656 5,153 17,217 4,491
Extraordinary loss -- -- (10,363)/(3)/ -- (3,597)/(3)/
Cumulative effect of
accounting change -- -- -- (12,711)/(4)/ --
Net income (loss) (12,324) 6,656 (5,210) 4,506 894
Net income (loss) applicable
to common stock/(5)/ (18,764) (330) (10,206) 4,506 894
Per-share data/(6)/:
Income (loss) before extra-
ordinary loss and
cumulative effect of
accounting change (2.24) (0.04) 0.02 1.56 .28
Net income (loss) (2.24) (0.04) (1.22) .41 .06
Cash dividends - common
stock -- -- -- .02 .08
Balance sheet data (at end
of period):
Working capital 142,514 122,906 132,339 153,711 395,875
Total assets 595,066 463,679 474,868 629,090 1,637,589
Short-term borrowings
and long-term debt
(including current
maturities) 375,157 274,866 305,562 291,821 645,135
Redeemable preferred
stock (including
current maturities) 82,135 88,325 6,462 -- --
Common stockholders'
equity (deficit) (10,580) (10,013) 45,096 164,450 413,230
(1) See Item 1(a) herein relating to the June, 1991 sale of the industrial
battery product line.
(2) See Note 3 of Notes to the Company's Consolidated Financial Statements
appearing elsewhere herein.
(3) During fiscal 1995, the Company recorded a loss of $3.6 million (net of a
tax benefit of $2.3 million) resulting from the early extinguishment of debt
in connection with obtaining a new U.S. Credit Agreement. During fiscal
1993, the Company recorded a loss of $10.4 million (net of a tax benefit of
$1.9 million) resulting from the early extinguishment of debt in connection
with the debt refinancing. See Note 6 of Notes to the Company's
Consolidated Financial Statements appearing elsewhere herein.
17
(4) Effective April 1, 1993, the Company adopted SFAS 106, which resulted in a
charge of $12.7 million with no income tax effect because of the uncertainty
of deductibility at that time. See Note 8 of Notes to the Company's
Consolidated Financial Statements appearing elsewhere herein.
(5) Amounts reduced for preferred stock dividends.
(6) The per-share data was adjusted to give effect to the stock exchange. See
Note 2 of Notes to the Company's Consolidated Financial Statements appearing
elsewhere herein. The weighted average number of shares used for all
periods was 8,388,338, except for fiscal 1994 and 1995, for which the
weighted average number of shares were 11,058,185 and 16,191,075.
18
Item 7. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Year Ended March 31
--------------------------------------------
Actual
--------------------------------------------
1993 1994 1995
------------- ------------- ---------------
(Amounts in thousands, except percentages)
Net sales $578,755 $679,649 $1,198,546
Cost of sales 449,998 521,396 932,866
-------- -------- ----------
Gross profit 128,757 158,253 265,680
Gross profit percentages 22.2% 23.3% 22.2%
Selling, general and administrative
expenses 81,587 96,495 201,518
-------- -------- ----------
Operating income 47,170 61,758 64,162
Interest expense 35,261 33,150 52,565
Other expense, net 3,365 597 874
Income taxes 3,400 10,794 5,160
Income before extraordinary loss and
cumulative effect of accounting change 5,153 17,217 4,491
Extraordinary loss (a) (10,363) -- (3,597)
Cumulative effect of accounting
change (b) -- (12,711) --
Net income (loss) (5,210) 4,506 894
(a) During fiscal 1995, the Company recorded a loss of $3.6 million (net of a
tax benefit of $2.3 million) resulting from the early extinguishment of debt
in connection with obtaining a new U.S. Credit Agreement. During fiscal
1993, the Company recorded a loss of $10.4 million (net of a tax benefit of
$1.9 million) resulting from the early extinguishment of debt in connection
with the refinancing. See Note 6 of Notes to the Company's Consolidated
Financial Statements appearing elsewhere herein.
(b) Effective April 1, 1993, the Company adopted SFAS 106 which resulted in a
charge of $12.7 million with no income tax effect because of the uncertainty
of deductibility at that time. See Note 8 of Notes to the Company's
Consolidated Financial Statements appearing elsewhere herein.
19
Year Ended March 31, 1995, Compared with Year Ended March 31, 1994
------------------------------------------------------------------
Net sales increased $518.9 million to $1,198.5 million in fiscal year 1995
compared with fiscal 1994. The sales increase was principally attributable to
the acquisition of Sociedad Espanola Del Acumulador Tudor, S.A. (Tudor) in
October 1994, the acquisition of B.I.G. Batteries Group Limited (B.I.G.) on
March 30, 1994; and the full year impact of Battronics (now Exide Canada Ltd.)
which was first included on a consolidated basis in October 1993. In
addition, during 1995 the Company began supplying a significant new customer,
Sears Roebuck & Co. Partially offsetting this increase was the adverse impact
of an abnormally warm winter which was experienced both in the Company's North
American and European markets.
Gross profit increased $107.4 million, while gross profit margin fell by 1.1
percentage points in fiscal year 1995 versus 1994. The increase in gross
profit was principally the result of the inclusion of Tudor and B.I.G. for
$81.1 million and $21.7 million, respectively, of gross profit. The decrease
in profit margin was due principally to one-time promotional costs associated
with Exide's domestic volume growth, and associated higher manufacturing and
transportation costs.
Selling, general and administrative expenses increased $105.0 million, or
108.8%, compared to the previous year, primarily due to Tudor and B.I.G. which
accounted for approximately $80.1 million, or 76.3% of the increase. In
addition, selling and advertising increased due to higher sales volume on new
and existing accounts, and other sales promotional activities including racing
sponsorships. General and administrative expenses increased principally due
to higher legal fees and other professional services.
Operating income increased $2.4 million, or 3.9%, primarily as a result of the
matters discussed above.
Interest expense increased $19.4 million, or 58.6% in fiscal year 1995
compared to fiscal 1994, principally as a result of higher debt levels
associated with the financing of Exide's European acquisitions.
Year Ended March 31, 1994, Compared with Year Ended March 31, 1993
------------------------------------------------------------------
Net sales increased $100.9 million, or 17.4% in fiscal 1994 compared to fiscal
1993. The sales increase was the result of substantially higher sales to new
as well as existing customers and from new product introductions. Also,
fiscal 1994 results include Battronics on a consolidated basis since October
1993, whereas the Battronics results were previously reported as an equity
investment. Of the 17.4% sales increase in the fiscal 1994 period, Battronics
sales accounted for 5.9% of such sales increase. Unit sales volume increased
by approximately 3,821,000 batteries, or 21.1% (16.0% without Battronics),
over the same period in the previous year. Unit sales growth exceeded the
increase in dollar sales due primarily to a change in product mix resulting
principally from the expiration of a defense-related contract. Additionally,
pricing in the battery industry continues to be highly competitive.
20
Gross profit increased $29.5 million ($23.7 million without Battronics) and
the gross profit margin improved by 1.1 percentage points (1.4 percentage
points without Battronics) in fiscal 1994 versus fiscal 1993. The increase in
gross profit margin was attributable principally to both higher unit sales and
production volume and the favorable impact of the Company's continuing cost
reduction program in its manufacturing and distribution process. The higher
production volume resulted in additional fixed cost absorption, further
reducing cost of sales as a percentage of net sales.
Selling, general and administrative expenses increased $14.9 million, or 18.3%
($12 million or 14.7% without Battronics), compared to the previous year,
primarily due to increases in selling expenses, associated with the higher
sales volume of both large accounts and wholesale distribution outlets and the
timing of certain expenses. In addition, advertising expenses increased
principally as a result of promotional expenses connected with a marine
battery program and other programs.
Operating income increased $14.6 million, or 30.9% ($11.8 million or 25%
without Battronics), primarily as a result of the higher volume and continuing
cost reduction program discussed above.
Interest expense decreased $2.1 million or 6% in fiscal 1994 compared to
fiscal 1993, primarily as a result of the reduction in revolving loan
borrowings due to the application of the proceeds from the equity offerings
(see Note 2 of Notes to the Company's Consolidated Financial Statements
appearing elsewhere herein).
Income before extraordinary loss and the cumulative effect of an accounting
change increased in fiscal 1994 by $12.1 million or 234% over fiscal 1993.
Net income in fiscal 1994 of $4.5 million compares to a net loss in the
previous year of $5.2 million. The $12.7 million charge in fiscal 1994 for
the cumulative effect of an accounting change relates to the recognition of
the liability for postretirement benefits under SFAS 106 in fiscal 1994. In
fiscal 1993, the extraordinary loss of $10.4 million resulted from the early
retirement of debt as a result of the debt refinancing, net of the associated
income tax benefit.
Liquidity and Capital Resources
-------------------------------
The Company's liquidity requirements arise primarily from the funding of its
seasonal working capital needs, obligations on its indebtedness and capital
expenditures. In addition, the Company has paid quarterly cash dividends of
$0.02 per share on its common stock since its initial public offering. The
Company meets these liquidity requirements, both in the U.S. and Europe,
through cash flow generated from operating activities and with borrowed funds
and the proceeds of sales of accounts receivable. Due to the seasonal demands
of the battery industry, the Company builds inventory in advance of the
typically stronger selling periods during the fall and winter. The Company's
highest cash demands from operations occur during the months of June through
October.
Funds generated (used) from continuing operations were $25.0 million, $49.4
million and $(69.1) million in fiscal 1993, 1994 and 1995, respectively.
Because of the seasonality of the Company's business, more funds are typically
generated in its third and fourth fiscal
21
quarters. However, during fiscal 1995, as a result of growth in the existing
customer base and the addition of the Sears business, coupled with the
abnormally warm winter weather across North America and Europe, automotive
battery inventories, especially in North America, increased. Accordingly,
continuing operations required a large use of funds during the fourth quarter
of fiscal 1995. Since inventories at March 31, 1995 were higher than planned,
the Company adjusted its fiscal 1996 production schedule.
The Company is party to a receivables purchase agreement under the terms of
which the purchaser has committed (subject to certain exceptions) to purchase
selected accounts receivable of the Company, up to a maximum commitment of $40
million.
Obligations under the U.S. Credit Agreement and under the European Credit
Facilities bear interest at fluctuating rates. The Company has two interest
rate collar agreements and an interest rate swap agreement which reduce the
impact of changes in interest rates on a portion of the Company's floating
rate debt. The collar agreements effectively limit the LIBOR base interest
rate on $100 million of borrowings under the Credit Agreement to no more than
8% through December 30, 1997. If interest rates fall below certain levels,
Exide is required to make payments to the counterparties under the agreement.
The Company also has a $50 million interest rate swap agreement which
effectively fixes LIBOR interest rates at 6.2% through May 16, 1997. See Note
6 of Notes to the Company's Consolidated Financial Statements appearing
elsewhere herein.
The Company's capital expenditures were $20.3 million in fiscal 1993, $47.2
million in fiscal 1994 and $61.3 million in fiscal 1995. Capital expenditures
in fiscal 1995 were principally due to the start-up of the Bristol, TN,
facility, other plant expansions and cost reduction programs, and Tudor's
capital expenditures. Because of the significant growth in sales in North
America, the Company is contemplating an acquisition of an additional
secondary lead smelting operation. The U.S. Credit Agreement limits the
Company's capital expenditures.
The Company borrowed $229.2 million under the Credit Agreement to finance its
acquisition of Tudor in October 1994 and is currently obligated with respect
to letters of credit totaling $67.1 million, which guarantees certain
indebtedness of Tudor. The Company plans to refinance such indebtedness,
thereby eliminating the requirement for such letters of credit and guarantees
by the Company.
In December 1994, the Company completed a public offering of its Common Stock
with net proceeds of $215.3 million and in January 1995 sold additional shares
pursuant to the overallotment option for net proceeds of $32.5 million. The
net proceeds of that offering were used to temporarily repay revolving loans
under the Credit Agreement and excess proceeds were invested in short-term,
interest bearing investment grade securities in anticipation of the CEAC
acquisition. In April 1995, the Company issued $300 million of 10% Senior
Notes due in 2005. The proceeds of these notes were used to finance the
balance of the CEAC acquisition and to reduce bank debt. (See Notes 2, 3, 6
and 18 to the Company's Consolidated Financial Statements appearing elsewhere
herein.)
22
At March 31, 1995, the Company had $207.8 million available under its U.S.
Credit Agreement, with $74.2 million available on a pro forma basis after the
CEAC acquisition and Tudor refinancing as of June 22, 1995, based on a
facility size of $451 million. Availability from other sources, such as Tudor
bank facilities and other subsidiaries, was $63.2 million at March 31, 1995,
and $104.7 million on June 22, 1995, including CEAC.
The Company believes it will have sufficient funds available for its ongoing
operating needs including any environmental requirements (see Note 13 of Notes
to the Company's Consolidated Financial Statements appearing elsewhere
herein). The Company's Credit Agreement, Senior Notes and Deferred Coupon
Debentures contain various business and financial covenants. At March 31,
1995, the Company was in compliance with the terms of those agreements.
In fiscal 1996, as a result of the CEAC acquisition, almost two-thirds of the
Company's consolidated sales and operations will be outside the U.S.
Therefore, the Company's future consolidated operating results and financial
condition may be influenced by exchange rate fluctuations.
The Company's European operations are being financed through capital
contributions associated with the initial acquisitions, local borrowings and
operating cash flows. The implementation of the Company's European integration
strategy is expected to produce significant manufacturing and other cost
savings and lower working capital requirements. As a result, the Company
expects future operating cash flows in Europe to exceed its short-term cash
needs for severance and other costs associated with plant closures.
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 Disclosures
------------------------------------------------
Not applicable.
23
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The biographical information under the heading Election of Directors and the
information under the heading Section 16(a) Compliance in the Company's
Definitive Proxy Statement for its annual meeting of stockholders to be held
on August 15, 1995, is hereby incorporated by reference.
In addition to the executive officers named in the biographical section,
Messrs. Alan E. Gauthier and George J. Tinker are executive officers. Mr.
Gauthier (age 47) was appointed Executive Vice President and Chief Financial
Officer in October 1993. Prior to that time, he had been Vice President-
Finance since May 1989. Prior to joining Exide, he was Senior Vice President
and Chief Financial Officer of Airwork Corporation and prior to that held
senior financial positions with Commodore Business Machines, Inc. and General
Electric Co.
Mr. Tinker (age 50) was appointed Chief Executive Officer of Exide's European
Operations in June of 1995. Since joining Exide in March 1994, he has been
Chief Executive Officer of Euro Exide Corporation Limited. Prior to joining
Exide, he was a Divisional and Main Board Director of the Ross Group Plc and
prior to that he was the Chief Executive Officer of the Stellar Group.
Item 11. Executive Compensation
----------------------
The information under the heading Executive Compensation in the Company's
Definitive Proxy Statement for its annual meeting of stockholders to be held
on August 15, 1995, is hereby incorporated by reference.
Item 12. Description of Capital Stock
----------------------------
The information under the heading Stock Ownership in the Company's Definitive
Proxy Statement for its annual meeting of stockholders to be held on August
15, 1995, is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The information under the heading Certain Relationships and Related
Transactions in the Company's Definitive Proxy Statement for its annual
meeting of stockholders to be held on August 15, 1995, is hereby incorporated
by reference.
24
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules
---------------------------------------
and Reports on Form 8-K
--------------------------------------
(a) Index to Financial Statements
-----------------------------
See Index to Consolidated Financial Statements and Schedule at
page F-1.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the last quarter of
the period covered by this report.
(c) Exhibits Required by Item 601 of Regulation S-K
-----------------------------------------------
See Index to Exhibits.
(d) Financial Statement Schedules
-----------------------------
See Index to Consolidated Financial Statements and Schedule at
page F-1.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EXIDE CORPORATION
By: /s/ Arthur M. Hawkins
-------------------------------------
Arthur M. Hawkins, President
Principal Executive Officer
By: /s/ Alan E. Gauthier
-------------------------------------
Alan E. Gauthier
Principal Financial and
Accounting Officer
Date: June 29, 1995
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
By: /s/ Arthur M. Hawkins By: /s/ Douglas N. Pearson
----------------------------- -----------------------------
Arthur M. Hawkins, President Douglas N. Pearson, Executive
Chairman of the Board and Vice President and President
Director North American Operations and
Director
By: /s/ William J. Rankin By: /s/ Timothy O. Fisher
----------------------------- -----------------------------
William J. Rankin, Executive Timothy O. Fisher
Vice President and Director Director
By: /s/ Lawrence M. Wagner By: /s/ Robert H. Irwin
----------------------------- -----------------------------
Lawrence M. Wagner Robert H. Irwin
Director Director
By: /s/ Earl Dolive By: /s/ Arthur R. Taylor
----------------------------- -----------------------------
Earl Dolive Arthur R. Taylor
Director Director
26
EXHIBITS:
--------
2.1 Agreement of Merger between EC Acquisition, Inc. ("ECA") and the
Registrant, incorporated by reference to Exhibit 2.1 of the
Registrant's Registration Statement on Form S-1 (No. 33-68016), as
amended (the "1993 Registration Statement").
3.1 Restated Certificate of Incorporation of the Registrant, incorporated
by reference to Exhibit of same number to the 1993 Registration
Statement.
3.2 Restated Bylaws of the Registrant, incorporated by reference to
Exhibit of same number to the 1993 Registration Statement.
4.1 Form of Senior Note Indenture (including form of Senior Note),
incorporated by reference to Exhibit 4.1 of the Registrant's
Registration Statement on Form S-2 (No. 33-53666), as amended (the
"S-2 Registration Statement").
4.2 Form of Senior Subordinated Deferred Coupon Debenture Indenture
(including form of Senior Subordinated Debenture), incorporated by
reference to Exhibit 4.2 of the S-2 Registration Statement.
4.3 Agreement dated as of December 7, 1992, between the Registrant and
Inco United States, Inc., relating to the assumption of certain
liabilities, incorporated by reference to Exhibit 10.30 to the S-2
Registration Statement.
4.4 Registration Rights Agreement among the Registrant, WSI and certain
other holders of the Registrant's Common Stock, incorporated by
reference to Exhibit 4.14 to the 1993 Registration Statement.
4.5 Indenture dated as of April 28, 1995, between the Registrant and The
Bank of New York, as trustee, incorporated by reference to Exhibit
99.3 of the Registrant's Form 8-K dated June 2, 1995 (the "CEAC
8-K").
10.1 Receivables Purchase Agreement dated as of February 17, 1994, among
the Registrant and Three Rivers Funding Corporation, incorporated by
reference to Exhibit 10.1 to the 1994 Registration Statement.
10.2 Employment Agreement dated June 15, 1985 between the Registrant and
Arthur M. Hawkins, incorporated by reference to Exhibit 10.4 of the
Registrant's Registration Statement on Form S-1 (No. 33-13632), as
amended (the "S-1 Registration Statement").
10.3 Amendment dated June 7, 1988 to Employment Agreement between the
Registrant and Arthur M. Hawkins, incorporated by reference to
Exhibit 10.1 to the Registrant's Form 10-Q for the quarter ended
October 2, 1988.
27
10.4 Employment Agreement dated June 15, 1985 between the Registrant and
Douglas N. Pearson, incorporated by reference to Exhibit 10.5 to the
S-1 Registration Statement.
10.5 Employment Agreement dated June 1, 1987 between the Registrant and
William J. Rankin.
10.6 Amendment dated July 7, 1988 to Employment Agreement between the
Registrant and Douglas N. Pearson, incorporated by reference to
Exhibit 10.2 to the Registrant's Form 10-Q for the quarter ended
October 2, 1988.
10.7 Stock Purchase Agreement dated May 27, 1987 among the Registration,
Fruit of the Loom, Inc. and Northwest Industries Leasing Company,
incorporated by reference to Exhibit 2 to the S-1 Registration
Statement.
10.8 Lease Agreement dated July 1, 1988 between the Registrant and an
officer of the Registrant pertaining to Chippewa Trail Lodge,
incorporated by reference to Exhibit 10.28 to the 1989 10-K.
10.9 Amendment to Lease Agreement dated October 24, 1988 between the
Registrant and Chippewa Trail Lodge, Inc., incorporated by reference
to Exhibit 10.29 to the 1989 10-K.
10.10 Assignment of Lease dated July 1, 1988 between an officer of the
Registrant and Chippewa Trail Lodge, Inc., incorporated by reference
to Exhibit 10.30 to the 1989 10-K.
10.11 Assignment and Assumption of Lease dated October 24, 1988 between an
officer of the Registrant and Chippewa Trail Lodge, Inc.,
incorporated by reference to Exhibit 10.31 to the 1989 10-K.
10.12 Lease Agreement dated August 1, 1978 pertaining to the Reading,
Pennsylvania administrative office facilities, amended as of April 1,
1979, incorporated by reference to Exhibit 10.20 to the S-1
Registration Statement.
10.13 Lease Agreement dated February 1, 1974 pertaining to the Manchester,
Iowa manufacturing facilities, incorporated by reference to Exhibit
10.21 to the S-1 Registration Statement.
10.14 Lease Agreements (Series A and Series B) dated September 1, 1976
pertaining to the Salina, Kansas manufacturing facilities,
incorporated by reference to Exhibit 10.22 to the S-1 Registration
Statement.
10.15 Lease Agreement dated August 1, 1978, pertaining to the Reading,
Pennsylvania engineering facilities, incorporated by reference to
Exhibit 10.23 to the S-1 Registration Statement.
28
10.16 Lease Agreement dated January 5, 1978, pertaining to the City of
Industry, California distribution facilities, incorporated by
reference to Exhibit 10.24 to the S-1 Registration Statement.
10.17 Lease Agreement dated August 11, 1986, pertaining to the Sumner,
Washington Distribution facilities, incorporated by reference to
Exhibit 10.27 to the S-1 Registration Statement.
10.18 Lease Agreement beginning December 1, 1987, pertaining to the
Travelers Rest, South Carolina distribution facilities, incorporated
by reference to Exhibit 10.27 to the Registrant's Form 10-K for the
fiscal year ended March 31, 1988.
10.19 Asset Purchase Agreement, dated as of June 10, 1991, between the
Registrant and Yuasa Battery (America), Inc., incorporated by
reference to Exhibit 1 to the Registrant's Form 8-K dated June 25,
1991.
10.20 EC Acquisition, Inc. 1993 Stock Award Plan, incorporated by
reference to Exhibit 10.23 to the 1993 Registration Statement.
10.21 Battronics Purchase Agreement, incorporated by reference to Exhibit
10.24 to the 1993 Registration Statement.
10.22 Exide 1993 Long Term Incentive Plan, incorporated by reference to
Exhibit 10.25 to the 1993 Registration Statement.
10.23 Agreement dated September 30, 1994, among Gemala (Isle of Man)
Limited, PT Sapta Panji Manggala, and B.I.G. Batteries Group Limited.
Deed dated September 30, 1994, among Euro Exide Corporation Limited,
Gemala (Isle of Man) Limited and B.I.G. Batteries Group Limited.
Master Agreement dated September 30, 1994 among Euro Exide
Corporation Limited, Gemala (Isle of Man) Limited, B.I.G. Batteries
Group Limited and PT Sapta Panji Manggala, incorporated by reference
to Exhibit 10.24 of the December 1994 Registration Statement.
10.24 Stock Purchase Agreement and Warranty Agreement dated March 17,
1995, between the Registrant and Fiat SpA and one of its affiliates,
incorporated by reference to Exhibit 2.2 of the CEAC 8-K.
10.25 Composite copy of Credit Agreement (the "Credit Agreement") dated as
of August 30, 1994, among the Registrant, various financial
institutions, Bankers Trust Company, Bank of America National Trust
and Savings Association and Bank of Montreal, as Agents, and Bankers
Trust Company, as Administrative Agent, incorporated by reference to
Exhibit 99.1 of the CEAC 8-K.
29
10.26 Facilities Agreement dated February 28, 1995, among the Registrant
(CEAC and certain of its subsidiaries have joined as borrowers and
guarantors), the banks listed for the Credit Agreement, Dresdner Bank
Luxembourg and other lenders, and Amendment No. 1 thereto,
incorporated by reference to Exhibit 99.2 of the CEAC 8-K.
10.27 Lease Agreement dated February 7, 1994, pertaining to the Bristol,
Tennessee manufacturing facility and related amendment dated May 1995.
11.1 Statement re computation of per-share earnings.
21.1 Subsidiaries of the Registrant.
30
EXIDE CORPORATION AND SUBSIDIARIES
----------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
-------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEETS F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9
CONSOLIDATED SUPPORTING SCHEDULES FILED:
II VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES F-36
----------------------------------------------------------------
All other schedules are omitted because they are not applicable,
not required, or the information required to be set forth
therein is included in the Consolidated Financial Statements or
in Notes thereto.
----------------------------------------------------------------
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders,
Exide Corporation:
We have audited the accompanying consolidated balance sheets of Exide
Corporation (a Delaware corporation) and subsidiaries as of March 31, 1994 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three fiscal years in the period ended
March 31, 1995. These financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Exide Corporation and
subsidiaries as of March 31, 1994 and 1995, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
March 31, 1995, in conformity with generally accepted accounting principles.
As explained in Note 8 to the financial statements, effective April 1, 1993, the
Company changed its method of accounting for postretirement employee benefits
other than pensions.
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 index to
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
June 27, 1995
F-2
EXIDE CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
(In thousands)
March 31
-----------------------
1994 1995
---------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 33,707 $ 63,361
Receivables, net of allowance for doubtful
accounts of $4,846 and $23,274 119,653 317,466
Inventories 169,474 476,481
Prepaid expenses and other 10,134 34,707
Deferred income taxes 9,438 19,388
-------- ----------
Total current assets 342,406 911,403
-------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Land 6,104 48,320
Buildings and improvements 64,597 124,260
Machinery and equipment 188,105 355,189
Construction in progress 16,718 28,156
-------- ----------
275,524 555,925
Less- Accumulated depreciation and
amortization (94,377) (132,049)
-------- ----------
Property, plant and equipment, net 181,147 423,876
-------- ----------
OTHER ASSETS:
Goodwill 71,061 185,111
Investments in affiliates 17,814 36,095
Deferred financing costs 8,029 21,590
Deferred income taxes - 33,024
Other 8,633 26,490
-------- ----------
105,537 302,310
-------- ----------
Total assets $629,090 $1,637,589
======== ==========
The accompanying notes are an integral part of these statements.
F-3
EXIDE CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
(In thousands, except share and per-share data)
March 31
-----------------------
1994 1995
---------- ------------
CURRENT LIABILITIES:
Short-term borrowings $ 9,550 $ 75,010
Current maturities of long-term debt 35,760 51,731
Accounts payable, trade and other 68,597 191,534
Accrued compensation 10,115 34,238
Product warranty reserve 7,338 19,053
Accrued insurance 11,339 14,219
Accrued environmental 9,500 9,072
Other accrued liabilities 36,496 120,671
-------- ----------
Total current liabilities 188,695 515,528
-------- ----------
LONG-TERM DEBT 246,511 518,394
-------- ----------
NONCURRENT RETIREMENT OBLIGATIONS 17,835 92,809
-------- ----------
OTHER NONCURRENT LIABILITIES 8,541 70,082
-------- ----------
DEFERRED INCOME TAXES 3,058 -
-------- ----------
COMMITMENTS AND CONTINGENCIES
(Notes 13 and 15)
MINORITY INTEREST - 27,546
-------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 30,000,000 shares
authorized, 14,800,000 and 19,991,810 shares 148 200
issued and outstanding
Additional paid-in capital 194,097 443,446
Retained earnings (deficit) (25,446) (25,837)
Notes receivable--stock award plan (1,826) (1,774)
Unearned compensation - (1,806)
Minimum pension liability adjustment (1,331) (5,527)
Cumulative translation adjustment (1,192) 4,528
-------- ----------
Total stockholders' equity 164,450 413,230
-------- ----------
Total liabilities and stockholders' equity $629,090 $1,637,589
======== ==========
The accompanying notes are an integral part of these statements.
F-4
EXIDE CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In thousands, except share and per-share data)
For the Fiscal Year Ended March 31
--------------------------------------
1993 1994 1995
----------- ------------ ------------
NET SALES $ 578,755 $ 679,649 $ 1,198,546
COST OF SALES 449,998 521,396 932,866
---------- ----------- -----------
Gross profit 128,757 158,253 265,680
---------- ----------- -----------
OPERATING EXPENSES:
Selling, marketing and advertising 59,577 69,810 130,774
General and administrative 22,010 26,685 70,744
---------- ----------- -----------
81,587 96,495 201,518
---------- ----------- -----------
Operating profit 47,170 61,758 64,162
---------- ----------- -----------
OTHER (INCOME) EXPENSE:
Interest 35,261 33,150 52,565
Other, net 3,356 597 874
---------- ----------- -----------
38,617 33,747 53,439
---------- ----------- -----------
Income before income taxes, minority
interest, extraordinary loss and
cumulative effect of accounting
change 8,553 28,011 10,723
PROVISION FOR INCOME TAXES 3,400 10,794 5,160
---------- ----------- -----------
Income before minority interest,
extraordinary loss and cumulative
effect of accounting change 5,153 17,217 5,563
MINORITY INTEREST - - 1,072
---------- ----------- -----------
Income before extraordinary loss and
cumulative effect of accounting
change 5,153 17,217 4,491
EXTRAORDINARY LOSS RELATED TO EARLY
RETIREMENT OF DEBT, net of income tax
benefit of $1,900 and $2,320 (10,363) - (3,597)
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE--ADOPTION OF SFAS 106 - (12,711) -
---------- ----------- -----------
Net income (loss) $ (5,210) $ 4,506 $ 894
========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE:
Income before extraordinary loss and
cumulative effect of accounting change $0.02 $1.56 $0.28
Extraordinary loss (1.24) - (0.22)
Cumulative effect of accounting change - (1.15) -
---------- ----------- -----------
Net income (loss) $ (1.22) $ 0.41 $ 0.06
========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 8,388,338 11,058,185 16,191,075
========== =========== ===========
The accompanying notes are an integral part of these statements.
F-5
EXIDE CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED MARCH 31, 1993, 1994 AND 1995
-------------------------------------------------
(In thousands)
Notes Minimum Foreign
Additional Retained Receivable-- Pension Currency
Preferred Common Paid-in Earnings Stock Award Unearned Liability Translation
Stock Stock Capital (Deficit) Plan Compensation Adjustment Adjustment
--------- ------ ---------- ---------- ------------ ------------ ---------- -----------
BALANCES AT MARCH 31, 1992 $ 88,325 $ 1 $ 9,529 $ (19,470) $ - $ - $ (4) $ (69)
Net loss for fiscal 1993 - - - (5,210) - - - -
Accrued dividends 4,996 - - (4,996) - - - -
Redemption of preferred
stock (86,859) - 66,353 - - - - -
Minimum pension liability
adjustment - - - - - - (145) -
Translation adjustment - - - - - - - (859)
Other - - (34) - - - - -
--------- ------ ---------- ---------- ------------ ------------ ---------- -----------
BALANCES AT MARCH 31, 1993 6,462 1 75,848 (29,676) - - (149) (928)
Net income for fiscal 1994 - - - 4,506 - - - -
Redemption of preferred
stock (6,462) - - - - - - -
Conversion of existing
common stock - 83 (83) - - - - -
Issuance of common stock
grants - 8 1,818 - - - - -
Public offerings of common
stock - 56 116,514 - - - - -
Cash dividends paid
($0.02/share) - - - (276) - - - -
Minimum pension liability
adjustment - - - - - - (1,182) -
Translation adjustment - - - - - - - (264)
Notes receivable - stock
award plan - - - - (1,826) - - -
--------- ------ ---------- ---------- ------------ ------------ ---------- -----------
BALANCES AT MARCH 31, 1994 - 148 194,097 (25,446) (1,826) - (1,331) (1,192)
Net income for fiscal 1995 - - - 894 - - - -
Public offering of stock - 52 247,466 - - - - -
Compensation under stock
grants - - 1,935 - - (1,806) - -
Forfeiture of common stock
grants - - (52) - 52 - - -
Cash dividends paid
($0.08/share) - - - (1,285) - - - -
Minimum pension liability
adjustment - - - - - - (4,196) -
Translation adjustment - - - - - - - 5,720
--------- ------ ---------- ---------- ------------ ------------ ---------- -----------
BALANCES AT MARCH 31, 1995 $ - $ 200 $ 443,446 $ (25,837) $ (1,774) $ (1,806) $ (5,527) $ 4,528
========= ====== ========== ========== ============ ============ ========== ===========
The accompanying notes are an integral part of these statements.
F-6
EXIDE CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
For the Fiscal Year Ended March 31
-------------------------------------
1993 1994 1995
------------ ----------- -----------
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Net income (loss) $ (5,210) $ 4,506 $ 894
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities-
Depreciation and amortization 28,437 30,613 48,524
Cumulative effect of accounting change - 12,711 -
Extraordinary loss 10,363 - 3,597
Deferred income taxes - 7,266 863
Interest expense on zero-coupon
convertible notes 2,146 7,941 8,942
Provision for losses on accounts
receivable 2,214 379 3,238
Minority interest in subsidiary income - - 1,072
Changes in assets and liabilities
excluding effects of acquisitions-
Receivables (17,751) (11,912) (14,686)
Inventories 3,243 (7,701) (138,568)
Prepaid expenses and other 455 (5,960) (3,400)
Payables and accrued expenses 2,045 19,636 31,258
Other, net (983) (8,115) (10,868)
-------- -------- ---------
Net cash provided by (used in)
operating activities 24,959 49,364 (69,134)
-------- -------- ---------
CASH FLOWS (USED IN) INVESTING ACTIVITIES:
Acquisitions of net assets of certain (1,650) (7,707) (262,995)
businesses
Capital expenditures (20,266) (47,164) (61,257)
Proceeds from sale of property, plant
and equipment 71 12 1,356
-------- -------- ---------
Net cash used in investing activities (21,845) (54,859) (322,896)
-------- -------- ---------
(continued)
F-7
EXIDE CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
(continued)
For the Fiscal Year Ended March 31
-------------------------------------
1993 1994 1995
------------ ----------- -----------
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Increase in short-term borrowings - - 20,402
Repayment of U.S. Credit Agreement
borrowings (45,000) (66,000) (105,000)
Borrowings under U.S. Credit Agreements - - 286,500
Repayment of European term loan - - (1,421)
Redemption of preferred stock (13,590) (6,462) -
Equity from public offerings, net of
fees - 116,499 247,519
Dividends paid - (276) (1,284)
Issuance of 10-3/4% senior notes and
12-1/4% senior subordinated notes 210,743 - -
Redemption of 12-7/8% senior
subordinated notes (141,751) - -
Decrease in other debt (2,772) (5,060) (4,211)
Deferred financing costs (10,578) - (24,191)
--------- -------- ---------
Net cash provided by (used in)
financing activities (2,948) 38,701 418,314
--------- -------- ---------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH - - 3,370
--------- -------- ---------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 166 33,206 29,654
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 335 501 33,707
--------- -------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 501 $ 33,707 $ 63,361
========= ======== =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for-
Interest (net of amount capitalized) $ 33,645 $ 24,080 $ 41,442
Income taxes $ 1,598 $ 2,349 $ 4,047
The accompanying notes are an integral part of these statements.
F-8
EXIDE CORPORATION AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(in thousands, except share and per-share data)
-----------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Exide Corporation
(the "Company") and all of its majority-owned subsidiaries, except certain
foreign companies that are not material. All significant intercompany
transactions have been eliminated.
The investments in and the operating results of 20% to 50% owned companies and
the foreign companies referred to above are included in the consolidated
financial statements on the basis of the equity method of accounting. The
Company's equity in net income (loss) of these companies is not material.
Foreign Currency Translation
- ----------------------------
Assets and liabilities of the Company's foreign subsidiaries and affiliates are
translated into U.S. dollars at the current rate of exchange existing at year-
end, and revenues and expenses are translated at the average monthly exchange
rates. Translation gains or losses are recorded in stockholders' equity and
transaction gains and losses are included in Other (Income) Expense.
Inventories
- -----------
Inventories, which consist of material, labor and overhead, are stated at the
lower of cost or market. Cost is determined by the last-in, first-out ("LIFO")
method for substantially all U.S. inventories and by the first-in, first-out
("FIFO") method for all remaining inventories.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost. Depreciation is calculated by
the straight-line method over the estimated useful lives of depreciable assets.
Accelerated methods are used for tax purposes. Useful lives of depreciable
assets, by class, are as follows:
F-9
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Class Useful Life
-------------------------- -------------
Buildings and improvements 5 to 40 years
Machinery and equipment 3 to 10 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. In connection with constructing certain property and
equipment, the Company capitalized $274, $725 and $1,678 of interest costs
during the fiscal years ended March 31, 1993, 1994 and 1995, respectively.
Goodwill
- --------
Goodwill is amortized over 40 years on a straight-line basis. Accumulated
amortization as of March 31, 1994 and 1995, was $9,728 and $14,497,
respectively. It is the Company's policy to review goodwill and other intangible
assets for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. If such
review indicates that the carrying amount of goodwill and other intangible
assets is not recoverable, it is the Company's policy to reduce the carrying
amount of such assets to fair value.
Estimated Warranty Costs
- ------------------------
The Company recognizes the estimated cost of warranty obligations in the period
in which the related products are sold.
Noncurrent Retirement Obligations
- ---------------------------------
Noncurrent retirement obligations is comprised principally of reserves for
pension obligations, postretirement health care and other retirement benefits.
Other Noncurrent Liabilities
- ----------------------------
Other noncurrent liabilities is comprised principally of reserves for
environmental cleanup and severance.
Seasonality
- -----------
The Company's operating results are influenced by seasonality, as sales volumes
for automotive replacement batteries are typically higher in the months of
September through January.
F-10
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Major Customers
- ---------------
The Company's five largest customers accounted for 43%, 40% and 26% of
consolidated net sales in fiscal 1993, 1994 and 1995, respectively. Included
among these five customers is NAPA, which accounted for approximately 16.9%,
16.2% and 9.4% of consolidated net sales in fiscal 1993, 1994 and 1995,
respectively.
Net Income (Loss) Applicable to Common Stock
- --------------------------------------------
The net income applicable to common stock in fiscal 1994 and fiscal 1995 is
equal to the net income reported for the period. The net loss applicable to
common stock in fiscal 1993 was $10,206, which represents the net loss reported
for the period, plus accrued dividends on the redeemable preferred stock (none
of which had been declared or paid prior to the redemption).
Net Income (Loss) Per Common Share
- ----------------------------------
The net income (loss) per common share is based on the weighted average number
of common shares outstanding during the period. Fully diluted earnings per
common share are not presented since dilution is less than 3%.
Revenue Recognition
- -------------------
The Company records revenue upon transfer of title to the customer.
Cash Flows
- ----------
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Reclassifications
- -----------------
Prior year financial statements have been reclassified to conform to the current
year presentation.
2. STOCKHOLDERS' EQUITY:
---------------------
On August 31, 1989, all of the issued and outstanding shares of the Company's
common stock were acquired by EC Acquisition, Inc. ("ECA"), a corporation
initially organized by Wilmington Securities ("WSI"), an affiliate of the
Hillman Company, current management and certain former shareholders of the
Company. WSI acquired a 49% beneficial ownership in the Company at the
conclusion of this transaction.
F-11
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As part of this acquisition, the previous owners of the Company's common stock
exchanged their shares for preferred stock of ECA. These shares were reflected
in the Company's financial statements using the "push down" accounting rules.
During fiscal 1993, as part of the debt refinancing (see Note 6), the Company
redeemed the Series "B," Series "C" and Series "D" preferred stock held by
Series "B" holders.
The following is a summary of the accounting for the redemption of the preferred
stock:
Book value of preferred shares at redemption:
Series "B" (29,617 shares) $39,568
Series "C" (34,943 shares) 46,684
Series "D" (607 shares) 607
-------
86,859
Less:
Cash offered 14,506
Estimated environmental liabilities assumed 6,000
-------
Increase in additional paid-in capital $66,353
=======
Effective October 28, 1993, the Company completed an initial public offering
("IPO") of its Common Stock, which raised $92,000 (before fees and expenses).
In connection with the IPO, the Company increased the authorized shares of
common stock from 1,000 to 30,000,000 and ECA's shareholders exchanged all
outstanding shares of common stock of ECA for shares of common stock of the
Company on a 1.29-to-1 basis. Retroactive restatement has been made to all
share and per share amounts to reflect the effects of the stock exchange. The
Company also repurchased the remaining Series "D" Junior Redeemable Preferred
Stock at carrying value for $6,462.
Effective March 8, 1994, the Company completed a secondary offering of its
common stock. The secondary offering included the issuance of an additional
1,000,000 shares which raised $34,000 (before fees and expenses).
On December 22, 1994, the Company raised $225,000 (before fees and expenses)
through the issuance of 4,500,000 additional shares of common stock. In
connection with this offering, the Company's U.S. underwriters exercised their
over-allotment option and, in January 1995, the Company received additional
proceeds of $33,750 (before fees and expenses) from the issuance of 675,000 of
additional shares of common stock.
3. ACQUISITIONS:
-------------
In October 1994, the Company acquired approximately 89.4% of the outstanding
capital stock and approximately 25% of the convertible bonds of Sociedad
Espanola del Acumulador Tudor, S.A. ("Tudor") for 1,145 pesetas per share or
approximately $229,000 (before fees and expenses). In December 1994, one of the
shareholders of Tudor sold its
F-12
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
remaining 5% ownership to Tudor at the tender offering price in accordance with
the terms of the purchase agreement. After completion of this sale, the
Company's ownership in Tudor is approximately 94.1%. In addition, the Company
has provided a letter of credit which guarantees payment of the convertible
bonds held by that same shareholder.
This acquisition was accounted for as a purchase and the results of Tudor's
operations are included in the Company's consolidated statement of operations
effective October 3, 1994. The cost of the acquisition has been preliminarily
allocated on the basis of the estimated fair market value of the assets acquired
and the liabilities assumed. Estimated goodwill is being amortized over 40
years. The preliminary allocation of the purchase price is as follows:
Cash $ 12,398
Receivables, net 169,950
Inventories 147,690
Prepaid expenses and other 34,687
Property, plant and equipment 183,818
Other noncurrent assets 34,542
Accounts payable and accrued expenses (182,032)
Long-term debt (including current maturities) (140,850)
Other noncurrent liabilities (114,411)
Minority interest (17,323)
---------
128,469
Cash consideration (including fees and expenses) 234,717
---------
Preliminary estimate of goodwill $ 106,248
=========
In connection with the Tudor acquisition, the Company intends to close certain
Tudor plants which will result in severance, environmental and other costs which
are reflected in the opening balance sheet.
On March 30, 1994, the Company acquired all of the issued and outstanding
capital stock of B.I.G. Batteries Group Limited ("BIG") for approximately $2,075
in cash and $32,725 in British pound denominated Loan Notes. The acquisition
was accounted for as a purchase, and the results of operations of BIG are
included in the Company's consolidated statement of operations effective April
1, 1994. The cost of the acquisition has been allocated on the basis of the
estimated fair market value of the assets acquired and the liabilities assumed.
This allocation resulted in goodwill of approximately $30,084, which is being
amortized over 40 years.
In September 1994, management of the Company and PT Sapta Panji Manggala ("PT
Sapta"), an Indonesian company, signed an agreement whereby the Company
contributed its interest in BIG, and PT Sapta contributed its interest in Gemala
Holdings Limited ("Gemala") into a newly formed joint venture, Exide Batteries
Limited. In exchange for PT Sapta's interest in Gemala, the Company gave PT
F-13
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Sapta an 18.5% equity interest in Exide Batteries Limited and the right to
certain benefits to be realized from Gemala's tax loss carryforwards. PT Sapta
also received the right to require Exide to purchase its 18.5% interest in the
joint venture at any time after five years from the closing date of the
transaction for a defined multiple of earnings of the joint venture.
On May 3, 1994, the Company acquired General Electric Credit Corporation's
secured debt position in Evanite Fiber Corporation ("Evanite"), a debtor-in-
possession, for approximately $33,700. Evanite is a manufacturer and the
Company's primary supplier of battery separators. On February 21, 1995, Exide
acquired all of the assets and assumed certain liabilities of Evanite in
exchange for its secured debt position. The purchase price was allocated
primarily to receivables, inventories and fixed assets and resulted in no
goodwill.
Effective October 15, 1993, the Company purchased the remaining 50% equity
interest in Battronics, Inc. ("Battronics") for approximately $3,000 in cash.
Battronics is an automotive battery manufacturer/distributor in Canada.
Effective October 1993, Battronics' financial results are reported on a
consolidated basis rather than the equity basis that was previously followed.
The following unaudited pro forma consolidated statements of operations for the
fiscal years ended March 31, 1994 and 1995, illustrate the estimated effects of
the BIG, Battronics, Evanite and Tudor acquisitions, after the elimination of
the equity income previously recorded for Battronics, as if the transactions
were consummated as of the beginning of each fiscal year presented:
1994 1995
---------- -----------
Net sales $1,231,528 $1,474,627
Cost of sales 911,715 1,134,237
---------- ----------
Gross profit 319,813 340,390
Selling, general and administrative expenses 224,092 266,668
---------- ----------
Operating income 95,721 73,722
Interest expense, net 73,481 70,959
Other (income) expense 11,682 (323)
---------- ----------
Income before income taxes and minority interest 10,558 3,086
Provision for income taxes 7,100 3,052
---------- ----------
Income before minority interest 3,458 34
Minority interest 1,053 (913)
---------- ----------
Income (loss) before extraordinary loss and
cumulative effect of accounting change $ 4,511 $ (879)
========== ==========
Pro forma earnings per common share:
Income before extraordinary loss and cumulative
effect of accounting change $ 0.41 $ (0.05)
========== ==========
F-14
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro forma adjustments include only the effects of events directly attributable
to a transaction that are factually supportable and expected to have a
continuing impact. Pro forma adjustments reflecting anticipated "efficiencies"
in operations resulting from a transaction are, under most circumstances, not
permitted. The above unaudited pro forma financial information is not
necessarily indicative of the results that would actually have been obtained if
the transactions had been effected on the dates indicated or that may be
obtained in the future.
During the fiscal years ended March 31, 1994 and 1995, the Company purchased the
net assets of various other manufacturers and distributors of batteries and
automotive parts for cash. The aggregate purchase price for these acquisitions
totaled approximately $3,082 and $249, respectively. Each purchase price was
allocated primarily to receivables, inventory and equipment. The pro forma
effect of these acquisitions on consolidated operating results was immaterial.
4. INVENTORIES:
------------
The components of inventories as of March 31, 1994 and 1995, are as follows:
1994 1995
-------- --------
Raw materials $ 36,046 $ 98,872
Work-in-process 14,539 43,840
Finished goods 118,889 333,769
-------- --------
$169,474 $476,481
======== ========
At March 31, 1994 and 1995, inventories valued by the LIFO method were
approximately 71% and 42% of total inventories, respectively. If all
inventories had been determined using the first-in, first-out method, such
inventories would have been $152,407 and $459,414 at March 31, 1994 and 1995,
respectively. The carrying amount of inventories on a LIFO basis exceeds
replacement cost. Since LIFO inventories reflect the fair value of inventories
as of August 31, 1989, when all of the outstanding common shares of Exide
Corporation were acquired in a leveraged buyout, and because the inventories
subsequently produced cost less to manufacture, the Company believes that no
write-down of the carrying amount of inventories to replacement cost is
necessary as no loss will be realized upon their final sale.
5. SHORT-TERM BORROWINGS:
----------------------
At March 31, 1994 and 1995, short-term borrowings consisted of various operating
lines of credit and working capital facilities maintained by the Company's
foreign subsidiaries totaling $9,550 and $87,466, respectively. Certain of these
borrowings are secured by receivables, inventories or property. These
facilities, which are typically for one year
F-15
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
renewable terms, generally bear interest at the current market rates plus up to
1%. As of March 31, 1994 and 1995, the weighted average interest rate on these
borrowings was 6.8% and 8.9%, respectively. At March 31, 1995, $12,456 of short-
term borrowings have been classified as other long-term debt since the Company
has the ability and intent to refinance such amounts during fiscal year 1996.
6. LONG-TERM DEBT:
---------------
Following is a summary of the Company's long-term debt at March 31, 1994 and
1995 :
1994 1995
-------- --------
U.S. Credit Agreement borrowings primarily at
LIBOR plus 1.75% at March 31, 1994 (5.4%), and
LIBOR plus 2.5% at March 31, 1995 (8.8%) $ 13,000 $194,500
10-3/4% Senior Notes, due December 15, 2002 150,000 150,000
12-1/4% Senior Subordinated Deferred Coupon
Debentures, due December 15, 2004 70,830 79,772
European Term Loans at rates ranging from
5.0% to 11.9% at March 31, 1995, due
through March 31, 2006 - 63,286
Spanish Convertible Debentures at
average one year MIBOR revisable every
six months (9.6% at March 31, 1995) - 23,699
Guaranteed Unsecured Loan Notes at LIBOR
less 5/8% at March 31, 1994 (4.75%), and March 31,
1995 (6.1%), due on demand 32,848 35,868
Other, primarily capital lease obligations at
interest rates ranging from 5.5% to 10.4%
due in installments through 2001, and
other debt 15,593 23,000
-------- --------
282,271 570,125
Less- Current maturities 35,760 51,731
-------- --------
$246,511 $518,394
======== ========
Effective August 30, 1994, the Company entered into a new U.S. Credit Agreement
that initially provided a borrowing capacity of $550,000 and is divided into
three components: Loan A ($100,000), having a five year term; Loan B ($100,000),
having a seven year term; and a Revolving Credit Facility ($350,000,
subsequently reduced to $304,760), expiring September 30, 1999. The Revolving
Credit Facility and Term Loan A bear interest at LIBOR plus 2.5% (LIBOR plus
2.0% through April 17, 1995) and Term Loan B bears interest at LIBOR plus 3.0%
(LIBOR plus 2.5% through April 17, 1995). The two term loans have fixed
amortization schedules, both of which provide for the majority of principal
repayment late in their respective maturity periods. The Revolving Credit
Facility contains a sub-limit
F-16
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
which provides for the Company's letter of credit needs. As of March 31, 1995,
the Company had $87,700 of letters of credit outstanding and $14,425 of
additional availability under such sub-limit. The agreement contains a number of
financial and other covenants which place restrictions on dividends, new
indebtedness, liens, acquisitions, capital expenditures and other items. As of
March 31, 1995, the Company was in compliance with these covenants.
Initial borrowings were used in the paydown and early termination of the former
Credit Agreement which resulted in an extraordinary loss of $3,597, net of
$2,320 income tax benefit. The new U.S. Credit Agreement also provided funding
for the acquisition of Tudor. The Former Credit Agreement provided for the
extension of credit in an aggregate principal amount which, as of March 31,
1994, was structured not to exceed $98,664 (previously $170,000).
Deferred financing costs of $17,322 were incurred in connection with the new
U.S. Credit Agreement. These costs will be amortized over the life of the new
Credit Agreement, to August 30, 1999, for Loan A and the Revolving Credit
Facility and August 30, 2001, for Loan B. Amortization of deferred financing
costs related to the current and previous Credit Agreements amounted to $1,321
in fiscal 1993, $1,418 in fiscal 1994 and $2,249 in fiscal 1995. Additionally,
in fiscal 1995, the Company expensed $2,000 of bridge loan commitment fees.
In December 1992, the Company completed a refinancing of its previously existing
debt, which resulted in the following:
A) Redemption of 12-7/8% Senior Subordinated Notes at a call
premium of 105% of face value ($135,000) plus accrued
interest.
B) The paydown of the term loan of $15,000, the standby loan
of $10,000 and the repayment of outstanding Revolving
Loans of $18,000.
C) The issuance of 10-3/4% Senior Notes due December 15,
2002, in the amount of $150,000 and the issuance of 12-
1/4% Senior Subordinated Deferred Coupon Debentures due
December 15, 2004, with a face amount of $110,000
discounted to $60,700.
D) The recognition of an extraordinary loss of $10,363, net
of $1,900 income tax benefit. The components of the
extraordinary loss related to the early retirement of
debt were the 5% early redemption premium on the 12-7/8%
Senior Subordinated Notes ($6,750), the write-off of the
unamortized bond issuance costs ($2,850) and original
issue discount ($580) on the 12-7/8% Senior Subordinated
Notes, the write-off of the
F-17
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
unamortized deferred financing costs on the previous
credit agreement ($907), and the net interest expense
from the notification date until the redemption became
effective ($1,176).
Interest on the 10-3/4% Senior Notes is payable semiannually on June 15 and
December 15. Interest on the 12-1/4% Senior Subordinated Debentures is accreted
to the principal balance through December 15, 1997. Semiannual interest
payments commence on June 15, 1998. In connection with the issuance of this
senior debt, the Company incurred financing costs of $6,858. These costs are
being amortized over the lives of the Senior and Subordinated debt of 10 and 12
years, respectively. Amortization during fiscal 1993, 1994 and fiscal 1995 was
$217, $649 and $784, respectively.
Tudor and certain of its subsidiaries have outstanding term loan arrangements
with financial institutions. Most of these arrangements are secured by
property.
The Spanish convertible debentures were issued by Tudor in December 1993 and are
redeemable in December 1997. In October, as part of the Company's acquisition
of Tudor, the Company repurchased 99,781 of the original 400,000 debentures
issued by Tudor. In connection with the acquisition, the primary ex-shareholder
of Tudor also relinquished its conversion rights on 299,887 debentures.
Outstanding debentures bear interest payable semiannually.
In connection with the acquisition of BIG, on March 30, 1994, the Company issued
$32,725 of British pound denominated Guaranteed Unsecured Loan Notes ("Loan
Notes") to the previous owners of the acquired entity ($35,868 as of March 31,
1995). Interest is payable quarterly at the LIBOR rate less 5/8%. The Loan
Notes are secured by a Company-purchased, British pound denominated certificate
of deposit (cash equivalent) of equal amount ($35,868 as of March 31, 1995). On
April 13, 1995, the certificate of deposit was redeemed and the proceeds were
used to fully redeem the Loan Notes.
During fiscal 1994, the Company had an outstanding interest rate swap agreement
with a commercial bank that reduced the impact of changes in interest rates on
floating rate debt. This agreement effectively adjusted the floating interest
rate to a fixed 9.08% on a notional principal of $27,500 through September 1997.
This agreement was terminated in connection with the August 30, 1994 refinancing
of the U.S. Credit Agreement. In March 1994, the Company terminated its interest
rate collar agreements that limited the range of the Company's interest rate
exposure on $32,500 of borrowings from LIBOR 7.15% to 12.00% through September
1994 and 1997 for the cap and floor portions, respectively. Effective December
1994, the Company entered into two interest rate collar agreements which reduce
the impact of changes in interest rates on a portion of the Company's floating
rate debt. These agreements effectively limit the LIBOR base interest rate on
$100,000 of borrowings under the U.S. Credit Agreement to no more than 8% and no
less than 5.5% graduating up
F-18
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
to 7.5% through December 30, 1997. During fiscal 1993, 1994 and 1995, the
Company recognized $4,850, $2,433 and $24, respectively, of additional interest
expense related to these swap and collar agreements. Additionally, effective May
17, 1995, the Company entered into an interest rate swap agreement which fixed
the LIBOR base interest rate on a notional amount of $50,000 at 6.21% for two
years.
Annual principal payments required under long-term debt obligations are as
follows:
Fiscal Year Amount
---------- --------
1996 $ 51,731
1997 31,921
1998 57,725
1999 76,570
2000 44,247
2001 and thereafter 307,931
--------
$570,125
========
7. EMPLOYEE BENEFIT PLANS:
-----------------------
North American Pension Plans
- ----------------------------
The Company has noncontributory defined benefit pension plans covering
substantially all hourly employees in North America. Plans covering hourly
employees provide pension benefits of stated amounts for each year of credited
service. Substantially all salaried employees in North America are covered
under a defined contribution plan, which requires the Company to contribute 4%
of eligible employees' salaries on an annual basis.
A summary of the components of net periodic pension cost for the defined benefit
plans and pension expense for the defined contribution plans for the years ended
March 31, 1993, 1994 and 1995, is as follows:
1993 1994 1995
-------- -------- --------
Defined Benefit Plans:
Service cost of current period $ 573 $ 616 $ 1,217
Interest cost on projected benefit obligation 3,876 3,834 4,609
Actual return on plan assets (2,716) (5,809) 3,173
Net amortization and deferrals (1,136) 2,058 (7,909)
------- ------- -------
Net defined benefit pension expense 597 699 1,090
Defined Contribution Plan 1,544 2,039 2,003
------- ------- -------
Total pension expense $ 2,141 $ 2,738 $ 3,093
======= ======= =======
F-19
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
It is the Company's policy to make contributions sufficient to meet the minimum
contributions required by law and regulation.
The following table sets forth the funded status and the amounts recognized in
the consolidated balance sheets for the Company's defined benefit pension plans:
March 31
--------------------
1994 1995
--------- ----------
Actuarial present value of:
Vested benefit obligation $ 58,005 $ 60,597
======== ========
Accumulated benefit obligation $ 60,138 $ 62,838
======== ========
Actuarial present value of:
Projected benefit obligation $ 61,490 $ 64,497
Plan assets at fair value 51,179 48,833
-------- --------
Plan assets less than projected benefit obligation (10,311) (15,664)
Prior service cost 1,422 1,624
Unrecognized net loss 2,406 9,124
Additional minimum liability recognized (2,668) (9,234)
-------- --------
Accrued pension cost recognized in the
consolidated balance sheet $ (9,151) $(14,150)
======== ========
The weighted average interest rates used in determining the projected benefit
obligation were 8% and 8.5%, respectively, as of March 31, 1994 and 1995. The
rate of increase in future compensation levels and the expected long-term rate
of return on plan assets were 6.0% and 10.5%, respectively, as of March 31, 1994
and 1995. The pension plan assets are invested primarily in equity and fixed
income securities.
Statement of Financial Accounting Standards ("SFAS") No. 87 requires that
underfunded pension plans reflect an additional balance sheet liability if the
excess of the accumulated benefit obligation over the plan assets exceeds the
accrued pension liability. However, SFAS No. 87 also permits the Company to
establish an intangible asset, not to exceed the unrecognized prior service
cost, as an offsetting entry. Any remaining amount of additional liability that
is not offset by the intangible asset must be offset through a charge against
equity. Accordingly, the Company increased the additional minimum liability
$2,285 in 1994 by increasing the intangible asset $443 and increasing the charge
against equity $1,842 (tax effected to $1,182). In 1995, the Company increased
the additional minimum liability $6,567 by increasing the intangible asset $55
and increasing the charge against equity $6,512 (tax effected to $4,197).
F-20
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
European Pension Plans
- ----------------------
European subsidiaries of the Company sponsor several defined benefit and defined
contribution plans that cover substantially all employees who are not covered by
statutory plans. For defined benefit plans, charges to expense are based upon
costs computed by independent actuaries. In most cases, the defined benefit
plans are not funded--book reserves are maintained. Benefit formulas are similar
to those used by the U.S. plans.
Total pension expense related to the European plans was $4,111 in fiscal 1995.
These programs are unfunded and, therefore, the accrued pension liability is
included in Noncurrent Retirement Obligations. The accrued pension liability and
the accumulated benefit obligation at March 31, 1995, for these plans is
approximately $59,560, of which approximately $56,332 is vested. The discount
rate used in determining the actuarial present value of the projected benefit
obligation ranged from 7% to 9.5%, and the assumed increase in salaries ranged
from 4% to 5%. In connection with the Company's plan to close certain
facilities, the Company reflected a curtailment benefit related to the closed
plants of approximately $10,300 in their opening balance sheet. This benefit is
primarily attributable to the elimination of the future salary progression
assumption.
8. POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS:
-------------------------------------------------------
The Company provides certain health care and life insurance benefits for a
limited number of retired employees. In 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. Prior to fiscal year 1994,
the Company accounted for these costs on a pay-as-you-go basis. In the first
quarter of fiscal year 1994, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The Company elected
to recognize the cumulative effect of this accounting change by expensing
$12,711, with no income tax effect because of the uncertainty of deductibility
at that time. This amount represented the accumulated postretirement benefit
obligation for current and future retirees at the beginning of fiscal year 1994.
The Company's current policy is to fund the cost of postretirement health care
and life insurance currently.
F-21
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the plan's postretirement benefit liability as of
March 31:
1994 1995
-------- --------
Accumulated postretirement benefit obligation
("APBO"):
Retirees, beneficiaries and dependents $ 12,511 $ 10,370
Fully eligible actives 791 400
Not fully eligible actives 814 450
-------- --------
Total 14,116 11,220
Unrecognized (gain) loss (1,484) 1,138
-------- --------
Accrued postretirement benefit cost recognized in the
consolidated balance sheet $ 12,632 $ 12,358
======== ========
The Company charges postretirement benefit costs as accrued, based on actuarial
calculations. The net periodic postretirement benefit cost for fiscal 1994 and
1995 included the following components:
1994 1995
------ ------
Service cost $ 135 $ 99
Interest cost 1,019 856
------ ------
Net periodic postretirement benefit cost $1,154 $ 955
====== ======
The significant assumptions used to calculate the net periodic postretirement
benefit cost and the accumulated postretirement benefit obligation were a
discount rate of 7.5% and 8.0%, respectively, and medical costs that are assumed
to increase at a rate of 10.0% per year during fiscal 1995 grading down to 5.0%
per year by 2004. The effect of a one percentage point increase in the assumed
health care cost trend rate would increase the accumulated postretirement
benefit obligation as of March 31, 1995, by approximately 9.0%, and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost by approximately 9.0%.
9. INCENTIVE COMPENSATION PLAN:
----------------------------
On April 28, 1993, the Board of Directors adopted an incentive compensation plan
for fiscal year 1994, under which certain members of the Company's management
were granted 811,662 shares of the Company's Class A Common Stock. These shares
vest over a five-year period and have certain restrictions related to sale,
transferability, as well as employment with the Company. Upon complete vesting,
participants must pay $2.25 per share, the estimated fair value at the grant
date, prior to transferring such shares.
F-22
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During fiscal 1995, a total of 40,000 restricted shares of the Company's common
stock were granted to certain employees. The market value of the shares awarded
($1,935) has been recorded as unearned compensation and is shown as a separate
component of stockholders' equity. Unearned compensation is being amortized to
expense over the five year vesting period and amounted to $129 in fiscal 1995.
10. INCOME TAXES:
-------------
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109 which requires the use of a
liability method for 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.
The provision for income taxes includes federal, state and foreign taxes
currently payable and those deferred because of temporary differences between
the financial statement and tax bases of assets and liabilities. The components
of the provision for income taxes for the fiscal years ended March 31, 1993,
1994 and 1995, are as follows:
1993 1994 1995
------ ------- -------
Current:
Federal $1,632 $ 1,286 $ 2,940
State 1,768 1,366 218
Foreign - 876 2,865
------ ------- -------
3,400 3,528 6,023
------ ------- -------
Deferred:
Federal - 6,866 (4,253)
State - 400 (911)
Foreign - - 4,301
------ ------- -------
- 7,266 (863)
------ ------- -------
Total provision $3,400 $10,794 $ 5,160
====== ======= =======
Major differences between the federal statutory rate and the effective tax rate
are as follows:
Percent of
Pretax Income
---------------------------
1993 1994 1995
------ ------ ------
Federal statutory rate 34.0% 35.0% 35.0%
State taxes, net of federal benefit 14.4 4.1 (4.2)
Nondeductible goodwill 8.3 3.5 15.3
Difference in rates on foreign subsidiaries - - 0.8
Capital loss on sale of subsidiary (21.0) - -
Changes in valuation allowance - (2.5) (2.5)
Other, net 5.0 (1.3) 3.7
----- ---- -----
Effective tax rate 40.7% 38.8% 48.1%
===== ==== =====
F-23
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The net current and noncurrent components of deferred income taxes recognized in
the consolidated balance sheet at March 31, 1994 and 1995, are as follows:
1994 1995
------ -------
Net current assets $9,438 $19,388
Net noncurrent assets - 33,024
Net noncurrent liabilities 3,058 -
------ -------
$6,380 $52,412
====== =======
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of March 31, 1994 and 1995:
Deferred Tax
Assets (Liabilities)
---------------------
1994 1995
---------- ----------
Depreciation/property basis $(19,095) $(25,285)
Operating loss and tax credit carryforwards 15,720 44,672
Inventory basis difference (6,352) (6,741)
Compensation reserves 1,285 22,218
Environmental reserves 6,071 12,888
Retirement benefits 7,675 6,494
Interest 3,530 6,660
Self-insurance 2,880 3,681
Warranty 2,008 2,951
Other 3,958 15,402
-------- --------
17,680 82,940
Valuation allowance (11,300) (30,528)
-------- --------
$ 6,380 $ 52,412
======== ========
As of March 31, 1995, the Company has net operating loss and tax credit
carryforwards for U.S. income tax purposes of approximately $25,600 and $7,400,
respectively, which expire in years 1996 through 2008. Certain of these
carryforwards are preacquisition tax attributes, which will reduce goodwill upon
realization. For financial reporting purposes, a valuation allowance of $11,300
has been recognized to offset the deferred tax assets related to these
preacquisition tax attributes ($7,000) and certain nondeductible reserves which
are not considered probable of realization.
During fiscal 1994 and 1995, the Company utilized approximately $38,000 and
$3,000 of preacquisition net operating loss carryforwards, which resulted in the
reduction of goodwill of approximately $12,000 and $1,000, respectively.
F-24
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of March 31, 1995, certain of the Company's European subsidiaries have net
operating loss and tax credit carryforwards for income tax purposes of
approximately $60,000 and $5,900, respectively, which expire in years 1995
through 1999. Certain of these carryforwards are preacquisition tax attributes,
which will reduce goodwill upon realization. For financial reporting purposes,
a valuation allowance of $19,128 has been recognized to offset the deferred tax
assets related to these preacquisition tax attributes and certain nondeductible
reserves which are not considered probable of realization.
During fiscal 1995, non-U.S. pretax income was approximately $19,000. Also, as
of March 31, 1995, the Company has not provided for withholding or U.S. federal
income taxes on approximately $9,000 of undistributed earnings of foreign
subsidiaries as they are considered by management to be permanently reinvested.
11. RECEIVABLES SALE AGREEMENT:
---------------------------
The Company entered into a Receivables Sale 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 Company, up to a maximum net investment of $50,000
(reduced from $75,000 effective February 17, 1994). As of March 31, 1994 and
1995, gross uncollected receivables sold under the Receivables Sale Agreement
were $45,308 and $43,880, respectively. Loss on receivables sold under this
agreement for the years ended March 31, 1993, 1994 and 1995, were $2,075, $1,593
and $1,467, respectively, and are included in Other Expense.
12. RELATED-PARTY TRANSACTIONS:
---------------------------
The Company is party to an agreement with Yuasa-Exide, Inc., a 13.5% owned
affiliate, whereby the Company provides facilities and certain administrative
support to Yuasa-Exide, Inc. During fiscal 1993, 1994 and 1995, the Company
received payments under this agreement of $948, $694, and $174, respectively.
In July 1988, the Company entered into a net lease with a corporation whose
stockholders include certain officers and employees of the Company. This
corporation owns approximately 70 acres of land and certain buildings in
Michigan that the Company uses for customer meetings and other business
purposes. The lease expires in 1996 and provides for quarterly rental payments
during the term of $26. In addition, the Company has the option, exercisable at
any time during the term, to purchase the leased property at its appraised
market value. The Company believes the terms of the lease are no less favorable
to it than those that could have been obtained from nonaffiliated parties.
F-25
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company used $6,500 of the net proceeds from its IPO to purchase for
liquidation value all of the outstanding shares of preferred stock of the
Company's predecessor, substantially all of which was held by WSI and certain
members of management.
In connection with the secondary offering in March 1994, the Company paid the
offering expenses with respect to shares sold by Messrs. Hawkins, Pearson and
Rankin and WSI (except their underwriters' discount) as required by an agreement
pursuant to which WSI and certain current and past members of management had
certain rights requiring the Company to register their shares for sale.
13. ENVIRONMENTAL MATTERS:
----------------------
The Company, particularly as a result of its manufacturing and secondary lead
smelting operations, is subject to numerous environmental laws and regulations
and is exposed to liabilities and compliance costs arising from its past and
current handling, processing, recycling, storing and disposing of hazardous
substances and hazardous wastes. The Company's operations are also subject to
occupational safety and health laws and regulations, particularly relating to
the monitoring of employee health in North America and, to a lesser extent, in
Europe. Except as disclosed herein, the Company believes that it is in
substantial compliance with all material environmental, health and safety
requirements.
To protect the environment, minimize future liability and help ensure a stable
supply of lead to its battery manufacturing facilities, the Company has
developed a comprehensive materials recycling program. This program consists of
reverse distribution of spent batteries through the Company's wholesale
distribution system and open market purchasing of lead-bearing materials. In
the U.S., these materials are processed at the Company's smelters to make lead
alloys for use in the battery plants and plastic pellets for case manufacturing
at the Company's plastic molding facility in Lampeter, Pennsylvania. The
Company is the third largest secondary lead producer in the United States.
Currently, the Company does not recycle spent sulfuric acid from spent
batteries, but is actively pursuing recycling methods. The Company employs over
70 full-time staff to ensure compliance with environmental, safety and health
laws and regulations at its various facilities. The Company also maintains
numerous permits with the U.S. Environmental Protection Agency ( the "EPA") and
state and provincial agencies which allow the Company to legally operate its
facilities and transport, store and recycle spent batteries, lead-bearing
materials and wastes, and certain other hazardous wastes.
NORTH AMERICA
The Company has been advised by the EPA that it is a "Potentially Responsible
Party" ("PRP") under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") or similar state laws at 46 federally defined Superfund
or state equivalent
F-26
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
sites. At 16 of these sites, the Company has either paid or
is in the process of paying its share of liability. In most instances, the
Company's obligations are not expected to be significant because its portion of
any potential liability appears to be minor to insignificant in relation to the
total liability of all PRPs that have been identified and which are viable. The
Company's share of the anticipated remediation costs associated with all of the
Superfund sites where it has been named a PRP, which share is based on the
Company's estimated volumetric contribution to each site, is included in the
environmental remediation reserves discussed below. Because the Company's
liability under such statutes may, as a technical matter, be imposed on a joint
and several basis, the Company's liability may not necessarily be based on
volumetric allocations and could be greater than the Company's estimates.
Management believes, however, that its PRP status at these Superfund sites will
not have a material adverse effect on the Company's business or financial
condition because, based on the Company's experience, it is reasonable to expect
that liability will be roughly proportionate to its volumetric contribution of
waste to the sites.
The Company is the primary PRP at four Superfund sites. Other than these four
sites, the Company's volumetric allocation exceeds 5% at only eight such
Superfund sites (with respect to two of which the Company's share of liability
has been paid) and its volumetric allocation at the six sites where the
Company's liability has not yet been paid averages 13.2%. At all other sites,
the Company's volumetric allocations are currently estimated to be less than 5%
of the total waste of the site.
The Company is the primary PRP at the Brown's Battery site located in
Pennsylvania. The site was operated by third-party owners in the 1960s and
early 1970s. The EPA issued a final Record of Decision ("ROD") adopting an
innovative technology developed by the Company which, though not yet used for
lead remediation on a production volume basis, is lower in cost than other
prevailing options and offers to the Company and EPA additional significant
potential enhancements for remediation of other similar sites. The cost of
remediation for this approach is estimated to be approximately $16,000, a
substantial portion of which would constitute capital improvements. If the
innovative technology is not commercially feasible, the alternative remediation
plan, which entails relocation of contaminated soil, would be employed at a cost
(estimated by EPA) of approximately $30,000. The Company has tested and is
actively developing the innovative technology. The Company has established its
reserves based upon the innovative technology remediation plan, net of amounts
to be capitalized and not considering potential insurance recovery.
The Company is also the primary PRP at the Wortham Lead Salvage State Superfund
Site located in Texas, another site that was owned and operated by third
parties. Remediation of the Wortham Site is expected to have a cost of $770.
F-27
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company is also the primary PRP at the Seventh Street Lead Site located in
Iowa, another site that was owned and operated by third parties. Remediation of
the Seventh Street Site was completed in January 1994, and the Company paid
$1,300 as its share of liability. The EPA has determined that the Company is in
full compliance with the unilateral order issued by the EPA to the Company and
other PRPs.
Also, the Company is the primary PRP at the Jones Tire & Battery Superfund Site
in Alabama. Like the other sites listed above, the Company never owned or
operated this site. Accordingly, the Company's volumetric share of the waste
found at this site was fairly small. Because of the large number of nonpaying
PRPs, however, the Company has paid the largest single share of the expenses to
date. The paying PRPs have collectively paid nearly $4,000 at this site, of
which the Company has paid approximately $1,300. As a result of the Company's
efforts, the remediation of soils and waste materials found at the site is
nearly complete, although discussions regarding the future of this site are
continuing with the EPA. The Company has commenced litigation against those
PRPs who have declined to fund their share of the cleanup and currently believes
that much of the additional funds which the Company has been forced to expend on
this matter will be recovered through that litigation.
The Company is also involved in the assessment and remediation of various other
properties, including certain Company-owned or -operated facilities. Such
assessment and remedial work is being conducted pursuant to a number of state
and federal environmental laws and with varying degrees of involvement by state
and federal authorities. Where reasonably estimable, the costs of such projects
have been accrued in reserves established by the Company, as discussed further
below. In addition, several environmental matters concerning the Company are
pending in federal and state courts or with regulatory agencies.
South Carolina environmental officials have alleged that the Company improperly
disposed of soil from the Company's Greer, South Carolina facility in 1991. The
Company, in consultation with South Carolina authorities, reexcavated and
disposed of the soil. Federal authorities are investigating this incident,
which may result in civil or criminal action being taken against the Company.
The Company does not now believe that this matter will result in any civil or
criminal action having a material adverse effect on its business or financial
condition.
The Company's Bristol, Tennessee facility was previously contaminated by Unisys
Corporation's ("Operating Owner") manufacturing operations. The location was
designated by the State of Tennessee as a "Superfund" site in 1988. Under the
direction of the State of Tennessee, the Operating Owner has, at its own
expense, completed soil remediation at the site and is in the process of
completing a groundwater cleanup. In 1990, the Operating Owner discontinued
manufacturing at the facility and in 1993 sold it to an investor ("Investor")
who did not operate it. The Company purchased the facility from a
F-28
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
party ("Seller") who obtained title to the property from the Investor. As part
of the Company's purchase, the Seller agreed to indemnify the Company with
respect to environmental conditions in existence at the time of purchase. The
State of Tennessee has informed the Company that it considers the Operating
Owner to be primarily responsible for any contamination existing at the facility
at the time of the Company's purchase.
Pursuant to the debt refinancing completed in fiscal 1993, the Company agreed
with one of the former holders of its preferred stock to provide certain
environmental management services and to indemnify such holder for certain
potential environmental liabilities. The Company established an additional
environmental reserve of $6,000 with respect to this liability, which the
Company believes will be adequate.
While the ultimate outcome of the foregoing environmental matters is uncertain,
after consultation with legal counsel, management does not believe the
resolution of these matters will have a material adverse effect on the Company's
business, financial condition or results of operations. The Company's policy is
to accrue for environmental costs when it is probable that a liability has been
incurred and the amount of such liability is reasonably estimable.
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,
1995, the amount of such reserves on the Company's balance sheet was $21,822.
Of this total amount, $4,072 was included in "Other accrued liabilities" and
$17,750 was included in "Other Noncurrent Liabilities." These reserves consist
of amounts accrued for active Company facilities, closed facilities, and 11 of
the Superfund sites. They also include a general allowance for other Superfund
sites where the Company's exposure is estimated to be less than $100 per site.
Because environmental liabilities are not accrued until a liability is
determined to be probable and reasonably estimable, not all potential future
environmental liabilities have been included in the Company's environmental
reserves and, therefore, additional earnings charges are possible.
In 1993, the CNA Insurance Companies ("CNA") filed a declaratory judgment
lawsuit in Delaware state court. CNA seeks to have the court determine that CNA
owes no duty to the Company for costs of defending environmental actions and for
response costs, property damage and bodily injury claims stemming from
environmental conditions. In addition to suing the Company, the CNA Action
names Northwest Industries and over 75 other insurance companies as defendants.
In 1994, Exide filed a cost recovery action against CNA and other insurance
companies in Illinois state court. The Company seeks to have the court
determine that each of the insurance companies owes the Company a duty to defend
and reimburse for certain property damage and bodily injury arising from
environmental conditions that the Company allegedly caused, suffered or allowed.
The Company intends to vigorously defend the suit and vigorously pursue
recovery. While the ultimate outcome of these lawsuits is uncertain, after
consultation with legal counsel, management does not
F-29
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
believe the resolution of these matters will have a material adverse effect on
the Company's business, financial condition or results of operations.
EUROPE
The Company is subject to numerous environmental, health and safety requirements
and is exposed to differing degrees of liabilities and compliance costs arising
from its past and current manufacturing and recycling activities in various
European countries. The laws and regulations applicable to such activities
differ from country to country and also substantially differ from the United
States laws and regulations. Except as disclosed herein, the Company believes,
based upon reports from its foreign subsidiaries and/or independent qualified
opinions, that it is in substantial compliance with all material environmental,
health and safety requirements in each country.
At the lead-acid battery manufacturing facility in Malpica, Spain, and at the
Sonalur secondary lead smelting facility in Azambuja, Portugal, treated
wastewater is discharged in excess of permit levels for lead. At the Torrejon
de Ardoz nickel-cadmium battery manufacturing facility, treated wastewater is
discharged in excess of permit levels for cadmium. The Company is working
cooperatively with appropriate authorities to make improvements to the
wastewater treatment plants at each facility. It is possible that the Company
could be subject to fines or penalties with regard to these violations. The
cost to upgrade the facilities to attain compliance is not expected to be
material. The subject violations are not expected to interfere with continued
operations at the subject facilities.
The Company expects that its European operations will continue to incur capital
and operating expenses in order to maintain compliance with evolving
environmental, health and safety requirements or more stringent enforcement of
existing requirements in each country.
As a result of the Company's plan to consolidate its European manufacturing
operations, it is probable that certain environmental costs will be incurred. A
preliminary estimate of the probable liability has been included in the Tudor
purchase price allocation.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS:
------------------------------------
The estimated fair value of financial instruments has been determined by the
Company using available market information and appropriate methodologies;
however, considerable judgment is required in interpreting market data to
develop the estimates for fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
F-30
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The methods and assumptions used to estimate the fair value of each class of
financial instruments are set forth below:
Cash and cash equivalents, accounts receivable and accounts payable--the
carrying amounts of these items are a reasonable estimate of their fair
values at March 31, 1995.
Investments in affiliates--the estimated fair value of these items could
not be obtained without incurring excessive costs as these investments have
no quoted market price.
Investment in limited partnership--the estimated fair value of this item
was determined based upon quoted market values of the related underlying
assets.
Long-term receivables--the carrying amounts of these items are a reasonable
estimate of their fair value.
Short-term borrowings--
Borrowings under the line of credit arrangements have variable rates
that reflect currently available terms and conditions for similar
debt. The carrying amount of this debt is a reasonable estimate of its
fair value.
Long-term debt--
Borrowings under the credit agreement have variable rates that reflect
currently available terms and conditions for similar debt. The
carrying amount of this debt is a reasonable estimate of its fair
value.
Senior notes and senior subordinated debentures are traded
occasionally in public markets.
Interest rate protection agreements have no carrying value; however,
if the Company were to terminate these agreements at March 31, 1995,
the Company would be obligated to pay $477.
F-31
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The carrying values and estimated fair values of the Company's financial
instruments for which the amounts differ are as follows at March 31, 1995:
Carrying Estimated
Value Fair Value
-------- ----------
Investments in Limited Partnership $ 1,600 $ 2,436
Long-Term Debt:
Senior Notes 150,000 149,625
Senior Subordinated Debentures 79,772 79,750
15. COMMITMENTS AND CONTINGENCIES:
------------------------------
The Company is currently a defendant in a claim brought by one of the Company's
competitors alleging patent infringement. The claim went to trial and the jury
ruled that one of the subject patents was valid and infringed. A separate trial
was held for the award of damages and, in April 1995, the plaintiff was awarded
damages and interest (through June 1995) of approximately $5,300. The Company's
outside counsel believes the verdict of the jury trial was incorrect and has
advised that there is a high likelihood that the Company will prevail on appeal.
Therefore, management does not believe the ultimate resolution of this matter
will have a material adverse effect on the Company's financial condition or
results of operations.
A patent infringement suit was filed in the U.S. District Court in Oregon
against the Company in January 1995 by Tekmax, Inc. The suit alleges
infringement of Tekmax patents dealing with a device to insert battery plates
into battery separators and processes for doing so. The complaint alleges
damages in excess of the jurisdictional requirement of $50 (although plaintiff
requested $6 million before the suit was filed). Exide has denied infringement
and asserted that such patents are invalid. Discovery has just begun and will
continue for the foreseeable future. An intelligent assessment of this matter
cannot now be made.
The Company is currently involved in three related lawsuits pending in state and
federal court in Alabama. The actions concern allegations that the Company sold
used batteries as new. Two of the actions are in state court. An action by a
purported nationwide class of more than 1,000 consumers of Exide batteries is
entitled Eddie Walton Davis, et al. v. Exide Corporation, et al. An action by a
purported nationwide class of more than 1,000 resellers of Exide batteries is
entitled Charlie Mathews v. Exide Corporation, et al. Neither class has been
certified. Both state court actions seek unspecified compensatory and punitive
damages and injunctive relief. The federal court action is a wrongful
termination suit by a former branch manager of Exide who claims he was
terminated for refusing to sell used batteries as new and is entitled Charles
Harris v. Exide Corporation. All three actions are in preliminary stages of
pretrial discovery. The Company disputes all allegations and intends to
vigorously defend itself.
F-32
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, the Company is involved in various claims and litigation incidental
to the conduct of its business which are not considered material to the
Company's financial condition or results of operations.
Following is a summary of future minimum payments under operating leases that
have initial or remaining noncancelable lease terms in excess of one year at
March 31, 1995:
Fiscal Year Amount
----------- ------
1996 $21,553
1997 17,685
1998 12,039
1999 9,397
2000 6,111
2001 and thereafter 11,109
-------
$77,894
=======
Rent expense amounted to $14,013, $14,322 and $21,994 for the fiscal years ended
March 31, 1993, 1994 and 1995, respectively.
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
----------------------------------------------
The following is a summary of the Company's unaudited quarterly consolidated
results of operations for the fiscal years ended March 31, 1994 and 1995:
Quarter Ended
-------------------------------------------------
July 4, October 3, January 2, March 31,
1993 1993 1994 1994
-------- ---------- ---------- ---------
(In thousands, except per-share amounts)
Net sales $130,761 $177,868 $185,661 $185,359
Gross profit 28,269 47,224 46,086 36,674
Income (loss) before cumulative effect
of accounting change (2,139) 10,037 7,588 1,731
Net income (loss) (14,850) 10,037 7,588 1,731
Net income (loss) per common share:
Income (loss) before cumulative
effect of accounting change $ (.25) $ 1.12 $ .62 $ .12
Cumulative effect of accounting
change (1.46) - - -
-------- -------- -------- --------
Net income (loss) per common share $ (1.71) $ 1.12 $ .62 $ .12
======== ======== ======== ========
F-33
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Quarter Ended
-----------------------------------------------
July 3, October 2, January 1, March 31,
1994 1994 1995 1995
-------- -------- -------- ---------
(In thousands, except per-share amounts)
Net sales $165,067 $233,142 $436,796 $363,541
Gross profit 40,617 56,007 98,530 70,526
Income (loss) before extraordinary
loss (41) 10,038 10,453 (15,959)
Net income (loss) (41) 6,441 10,453 (15,959)
Net income (loss) per common share:
Income (loss) before extraordinary
loss $ - $ .68 $ .69 $ (.80)
Extraordinary loss - (.24) - -
-------- -------- -------- --------
Net income (loss) per common share $ - $ .44 $ .69 $ (.80)
======== ======== ======== ========
17. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
--------------------------------------------
The Company is primarily engaged in one industry segment, namely, the
manufacture, distribution and sale of lead acid batteries and related
accessories. Financial information, summarized by geographic area, is as
follows:
North
America Europe Other Consolidated
--------- --------- --------- ------------
Year ended March 31, 1995:
Sales to unaffiliated
customers $ 825,133 $ 373,413 $ - $ 1,198,546
========= ========= ========= ============
Operating profit $ 35,934 $ 28,228 $ - $ 64,162
========= ========= ========= ============
Identifiable assets $ 691,234 $ 783,897 $ 162,458 $ 1,637,589
========= ========= ========= ============
Other includes cash and cash equivalents, deferred tax assets, investments and
deferred financing costs.
18. SUBSEQUENT EVENTS:
------------------
On May 18, 1995, the Company acquired 99.7% of the outstanding capital stock of
Compagnie Europeene d'Accumulateurs S.A. ("CEAC") for approximately $425,000 in
cash ($553,500 less assumed debt of $131,900 plus interest from March 31, 1995
of $3,400). Exide financed the acquisition with the April 1995 issuance of
$300,000 of 10% Senior Notes repayable in April 2005 and the proceeds from the
Company's December 1994 common stock offering. The proceeds from the December
1994 common stock offering were utilized
F-34
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
to temporarily reduce the Company's Revolving Loans under the U.S. Credit
Agreement at March 31, 1995. In connection with the CEAC acquisition, the
Company paid $4,568 of additional interest to amend the terms of its 10-3/4%
Senior Note indentures and its 12-1/4% Senior Subordinated Deferred Coupon
Indentures. Such costs have been deferred and are being amortized over the
remaining lives of such debt. CEAC, which is headquartered in France, is a
leader in the European battery market with annual sales of approximately
$800,000, primarily in France, Italy and Germany.
The following unaudited pro forma consolidated statement of operations
illustrates the estimated effect of the CEAC acquisition, as if the transaction,
along with the pro forma effects of the fiscal 1995 acquisitions (see Note 3),
were consummated on April 1, 1994:
Net sales $2,263,368
Cost of sales 1,715,545
----------
Gross profit 547,823
Selling, general and administrative expenses 431,931
----------
Operating income 115,892
Interest expense, net 115,324
Other expense 2,252
----------
Loss before income taxes and minority interest (1,684)
Provision for income taxes 6,062
----------
Loss before minority interest (7,746)
Minority interest 2,079
----------
Loss before extraordinary item $ (9,825)
==========
Pro forma earnings per common share:
Loss before extraordinary item $(0.61)
==========
Pro forma adjustments include only the effects of events directly attributable
to a transaction that are factually supportable and expected to have a
continuing impact. Pro forma adjustments reflecting anticipated "efficiencies"
in operations resulting from a transaction are, under most circumstances, not
permitted. The above unaudited pro forma financial information is not
necessarily indicative of the results that would actually have been obtained if
the transactions had been effected on the date indicated or that may be obtained
in the future.
F-35
SCHEDULE II
EXIDE CORPORATION AND SUBSIDIARIES
----------------------------------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
----------------------------------------------
(Amounts in thousands)
----------------------
Balance
Balance at Additions at
Beginning Charged to End of
of Period Expenses Write-offs Other Period
--------- ---------- ---------- -------------- --------
YEAR ENDED MARCH 31, 1995:
Allowance for doubtful
accounts
$ 4,846 $ 3,238 $ (12,508) $ 27,698 (1) $ 23,274
========= ========== ========== ========= ========
YEAR ENDED MARCH 31, 1994:
Allowance for doubtful
accounts $ 4,771 $ 379 $ (1,725) $ 1,421 (1) $ 4,846
========= ========== ========== ========= ========
YEAR ENDED MARCH 31, 1993:
Allowance for doubtful
accounts $ 6,712 $ 2,214 $ (2,180) (1,975) (2) $ 4,771
========= ========== ========== ========= ========
(1) Principally from the acquisitions of certain businesses.
(2) Sale of the Company's subsidiary ESB Puerto Rico.
F-36