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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996
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
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 (ZIP CODE)
OFFICES)
Registrant's telephone number, including area code (810) 258-0080
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
REGISTERED
Common Stock, $.01 par value New York Stock Exchange
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. [_]
. $415,670,731Aggregate market value of the voting stock held by non-
affiliates of the registrant as of June 27, 1996:
. 20,893,693 outstanding shares of the Registrant's common stock as of June
27, 1996.
(DOCUMENTS INCORPORATED BY REFERENCE)
Portions of the Proxy Statement relating to the Annual Meeting of Stockholders
to be held August 14, 1996, are incorporated by reference into Part III of
this report.
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EXIDE CORPORATION
TABLE OF CONTENTS
PAGE
----
PART I
Item 1 Business..................................................... 1
Item 2 Properties................................................... 13
Item 3 Legal Proceedings............................................ 15
Item 4 Submission of Matters to a Vote of Security Holders.......... 16
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................................... 18
Item 8 Financial Statements and Supplementary Data.................. 21
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 22
PART III
Item 10 Directors and Executive Officers of the Registrant........... 22
Item 11 Executive Compensation....................................... 22
Item 12 Description of Capital Stock................................. 22
Item 13 Certain Relationships and Related Transactions............... 22
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 22
SIGNATURES............................................................... 23
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE.................. F-1
EXIDE CORPORATION
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
Exide Corporation (together with its subsidiaries, "Exide" or the "Company")
is the leading manufacturer and marketer of starting, lighting and ignition
("SLI") batteries in the world. During 1994 and 1995 through its acquisitions
of B.I.G. Batteries Group Limited ("BIG"), Sociedad Espanola del Acumulador
Tudor, S.A. ("Tudor") and Compagnie Europeenne d'Accumulateurs S.A. ("CEAc"),
as well as its assumption of the customers of Gemala Battery Company Limited
("Gemala Battery"), the Company has become Europe's largest producer and
marketer of SLI batteries and industrial batteries.
RATIONALIZATION AND CONSOLIDATION
The Company is implementing a cohesive overall European rationalization and
consolidation strategy with respect to its recently completed European
acquisitions. The Company plans to lower fixed and variable production costs
through plant closings, thereby increasing capacity utilization at the
remaining plants, shifting production to lower cost areas and reducing
overhead. In conjunction with its plant closings, the Company intends to
rationalize its distribution system, reducing the number of warehouses and
improving its delivery systems. In addition, the Company plans to rationalize
its product range, significantly reducing the number of stockkeeping units and
improving inventory management. The Company anticipates that this
consolidation will produce significant cost savings. Exide is also
rationalizing its SLI battery brand strategy in Europe and will concentrate
its sales and marketing efforts on its strongest brands, including Exide,
Tudor, Fulmen, Sonnenschein and Hagen Batterie.
The Company plans to reduce the total number of automotive and industrial
manufacturing facilities in Europe from 30 as of June 30, 1995 to 12 by the
year 2000. The Company has plans to close eleven automotive manufacturing
facilities, six industrial manufacturing plants and one combined automotive
and industrial manufacturing facility. In addition, the Company plans to close
two non-battery manufacturing plants. The Company was able to close six plants
in Europe in fiscal 1996 without labor unrest.
The Company plans to continue rationalizing its manufacturing and production
facilities in the United States as well. The Company is in the process of
relocating production from its Greer, South Carolina facility to its Reading,
Pennsylvania and Bristol, Tennessee facilities. The Bristol facility is
designed to be a high volume, low-cost SLI battery manufacturing facility.
NORTH AMERICA
Exide and its affiliates have a unit market share in SLI batteries of
approximately 39% in the United States and Canada, based on information
provided by an industry trade association. The Company believes that it is the
lowest cost major producer in its North American markets.
The Company has realized significant cost savings through consolidations of
operations, particularly after it doubled its size by its acquisition of
General Battery Corporation in 1987, the installation of more efficient
equipment and processes and the addition of a technologically advanced
secondary lead smelter. The Company's relatively high level of vertical
integration, through lead smelting, plastics reprocessing and separator
production, reduces the effects on Exide of changes in the market prices of
raw materials and can result in substantial raw material cost savings. In
August 1995 the Company acquired Schuylkill Holdings, Inc. ("Schuylkill"), a
U.S. company that operates two secondary lead smelters. Exide operates 18
manufacturing facilities in the United
States and Canada. Exide continues to increase production at its Bristol,
Tennessee battery manufacturing facility, which the Company intends to be
similar to its Salina, Kansas plant. The Company believes its Salina plant is
the highest volume and one of the lowest cost automotive battery plants in the
world.
For the fiscal year ended March 31, 1996, Exide's North American operations
would have accounted for approximately 38% of Exide's total pro forma net
sales.
EUROPE
Exide targeted the European market as an attractive opportunity because it is
one of the largest battery markets outside of North America and because the
Company believes that its experience with rationalization and consolidation of
manufacturing and distribution operations can be successfully applied in
Europe. The Company believes the battery manufacturing industry in Europe is
undergoing rationalization and consolidation activity similar to that which has
occurred in the United States over the last twenty years. The key components of
the Company's European strategy include maintaining or improving (i) strong
market shares, (ii) broad geographic coverage, (iii) low production costs, (iv)
distribution systems, (v) strong customer relationships and (vi) experienced
management.
In implementing this strategy, the Company acquired two European battery
manufacturers in 1994 and one in 1995. In May 1995, the Company acquired 99.7%
of the stock of CEAc (subsequently increased to 100%), one of the largest SLI
producers and the largest industrial battery manufacturer in Europe, for
approximately $425.0 million in cash ($553.5 million less assumed debt plus
interest from March 31, 1995). In October 1994, Exide acquired for
approximately $229.0 million 89.4% (subsequently increased to 95.8%) of the
outstanding capital stock and 25% of the convertible bonds of Tudor,
headquartered in Madrid, Spain, which is the third largest lead acid battery
producer in Western Europe. In March 1994, the Company acquired BIG, an SLI
battery manufacturer based in Wales, for approximately $35.0 million. In
addition, in September 1994, the Company assumed the customers of, and began to
temporarily operate the facilities of, Gemala Battery, a battery producer based
in England and the owner of Gemala Battery received an 18.5% interest in the
combined operations of BIG and Gemala Battery.
Exide is the leading manufacturer and marketer of SLI and industrial
batteries in Europe with major market presence in France, Spain, Portugal,
Italy, Germany, the United Kingdom, Sweden, Denmark, Finland and Norway. The
Company believes it is one of the lowest cost, highest quality suppliers of SLI
and industrial batteries in Europe. SLI batteries and industrial batteries
accounted for approximately 54% and 43%, respectively, of the net sales of
Exide's European operations for the fiscal year ended March 31, 1996.
Approximately 70% of all automotive batteries sold in Europe are sold in the
aftermarket and approximately 71% of the automotive battery net sales of
Exide's operations in Europe during fiscal 1996 were of automotive replacement
batteries. Exide produces SLI batteries for the European original equipment
manufacturing ("OEM") market. On a going forward basis, the Company will focus
its SLI battery marketing efforts on certain of its strong brands. Standby
batteries represented approximately 41% and traction batteries represented
approximately 52% of industrial battery sales of the Company in fiscal 1996. As
in the automotive market, the Company's industrial battery brands, including
TS, Hagen Batterie, Tudor, Fulmen, Sonnenschein, Chloride Motive Power, Magneti
Marelli and ASTA, are well recognized in their markets.
The Company's European operations are vertically integrated (although to a
lesser extent than its North American operations), with three secondary lead
smelters in Europe. The Company supplies most of its own European needs for
plastic components.
For the fiscal year ended March 31, 1996, Exide's European operations would
have represented approximately 62% of Exide's total pro forma net sales.
----------------
2
The Company is a Delaware corporation organized in 1966 to succeed to the
business of a New Jersey corporation founded in 1888 by Thomas A. Edison. The
principal executive offices of the Company are located at 1400 North Woodward
Avenue, Bloomfield Hills, Michigan 48304, telephone number (810) 258-0080.
(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 elsewhere herein.)
(C) NARRATIVE DESCRIPTION OF BUSINESS
Exide is the leading manufacturer and marketer of SLI batteries in the world.
The Company's acquisitions of BIG, Tudor and CEAc, as well as its assumption of
the customers of Gemala Battery, have made it Europe's largest producer and
marketer of SLI batteries and industrial batteries.
PRODUCTS
SLI Batteries. SLI batteries for the automotive aftermarket and the OEM
market represented 66% of the pro forma consolidated revenues of Exide for the
fiscal year ended March 31, 1996. In the United States and Canada, Exide has
the most complete line of automotive batteries, and the Company has introduced
numerous new products, including batteries for superior performance in hot and
cold climates, such as the Exide Heat Guard battery, the first climatized
battery, the Exide Barium Plus line maintenance-free batteries that have a
shelf life twice as long as conventional batteries and the Exide 911 Emergency
Vehicle Battery that employs patented technology to provide the high
performance required for emergency vehicles. In addition, the Company has
recently introduced a sealed recombinant battery in Europe, which the Company
believes will present a significant opportunity as it has a longer shelf life
and is the first battery sealed in such a manner that allows the battery to be
relocated from the engine to the passenger compartment of the vehicle. Exide
plans to introduce this new battery in the North American market in fiscal
1997.
The Company also produces SLI batteries for commercial applications, such as
trucks, farm equipment, tractors and other off-road vehicles, as well as
specialty batteries for marine and garden tractor applications. For the marine
market, Exide has introduced the Nautilus Mega Cycle high performance, dual
terminal battery and the Power Probe battery which allows boaters to instantly
check their battery power.
Industrial Batteries. Sales of industrial batteries represented 28% of the
pro forma consolidated revenues of Exide for the fiscal year ended March 31,
1996. Exide is the largest manufacturer and marketer in Europe of industrial
batteries. Standby (also known as "stationary") batteries are used primarily in
telecommunications, as well as electric installations, security and emergency
systems, such as for airports and hospitals, and uninterruptible power systems.
In the fiscal year ended March 31, 1996, Exide's pro forma sales of standby
batteries were approximately $285 million. Exide is one of Europe's leading
suppliers of submarine batteries and its customers include the navies of
Norway, Israel, Turkey, Sweden, Greece, Germany and Spain. Exide's European
operations have developed the Dry Safe line of maintenance-free standby
batteries, an improvement over existing sealed batteries. Traction batteries
are used to drive electric vehicles such as forklifts and mine locomotives. In
the fiscal year ended March 31, 1996, Exide's traction battery pro forma sales
were $356 million. The traction battery market is divided into the OEM market,
comprised of the manufacturers of electric vehicles, and the replacement
market, which includes large users of electric vehicles as well as OEM dealer
networks. The most important recent development by Exide's European operations
in traction batteries is the CSM series of batteries which contain a copper
negative plate that increases their capacity.
3
In 1991 Exide sold its North American industrial battery product line to
Yuasa Exide, an entity in which the Company has a 13.5% interest. Yuasa Exide,
which is a leading manufacturer of industrial batteries in North America,
supplies the Company with motorcycle batteries built to Exide's
specifications.
Other Products. Sales of products other than SLI and industrial batteries
represented 6% of the pro forma consolidated revenues of Exide for the fiscal
year ended March 31, 1996. The Company also produces battery chargers and,
through acquisitions, has expanded its presence in the North American
automotive market by adding its Speed Clip line of battery related accessories
and wheel weights and its Sure Start line of remanufactured starters and
alternators. Its European operations also manufacture and market other
products such as battery chargers and accessories, plastic components and
nickel-cadmium and lithium batteries.
MARKETS AND MARKETING
North America. Over 80% of all automotive batteries sold in the United
States and Canada are sold in the aftermarket, and in fiscal 1996
approximately 90% of the Company's unit sales were of automotive replacement
batteries. The aftermarket is influenced more by the age and number of
vehicles in service than new production levels and tends to be less cyclical
than the OEM market. In April 1994, Sears, one of the largest retailers of SLI
batteries in the United States, selected the Company as the primary supplier
of its batteries, including the Die Hard brand. Exide is the leading supplier
for 17 of the 20 largest battery retailers in the United States, including
NAPA Distribution Centers, Kmart Corp., Northern Automotive Corporation,
Montgomery Ward & Co. and The Pep Boys-Manny, Moe & Jack. The Company also
produces SLI batteries for the OEM market in North America, principally for
Chrysler Corporation, for whom it is the primary supplier, as well as John
Deere, E-Z-GO, Ford New Holland, Mitsubishi Motor Manufacturing Company,
NAVISTAR, Toyota Motor Corp., and others.
Current management, which is led by Arthur M. Hawkins, Chairman, President
and Chief Executive Officer, who joined Exide in 1985, has transformed the
Company into a marketing-driven business by developing a new customer base
focused on leading mass-merchandisers, auto supply chains and wholesalers and
introducing merchandise displays, innovative packing and programs to assist
customers in marketing and inventory management. To support and expand this
customer base, Exide has expanded its Company-owned distribution system from
12 wholesale branch outlets in 1985 to approximately 130 today. These outlets,
which distribute Exide batteries to both large accounts and local dealers and
other small volume customers, also allow Exide to collect used batteries for
recycling in the Company's lead smelters as part of its recycling program
aimed at reducing costs and protecting the environment. In addition, in recent
years the Company has introduced several new products including an advanced
line of maintenance-free batteries and an emergency vehicle battery. The
Company, which markets its products under various trademarks including Exide,
Willard and Prestolite, has strengthened its brand recognition through
promotional activities, including sponsoring a NASCAR Winston Cup racing team.
A 1992 Marketing Research Institute study that surveyed 20,000 households
showed that the Exide brand had the second highest level of battery brand
recognition in the United States.
Europe. The Company's European revenues are diversified across many European
countries. Approximately 53% of the pro forma combined sales of Exide's
European operations in fiscal 1996 were of SLI batteries. Pro forma SLI
battery aftermarket sales were approximately 70% of the pro forma combined SLI
battery sales of Exide's European operations in fiscal 1996. The Company has a
leading position in the aftermarket in France, Italy, Belgium, the United
Kingdom, Ireland, Finland, Norway, Portugal and Spain. Exide's replacement SLI
battery brands include Fulmen, Sonnenschein, Tudor, Hagen Batterie, LYAC
Power, SONNAK, Anker, BIG and Exide. In addition to the markets in which it
has a direct presence through manufacturing subsidiaries, the Company markets
batteries in and exports batteries to approximately 50 other countries.
Approximately 11% of the pro forma combined fiscal 1996 sales of Exide's
European operations were to OEMs, and the Company is one of the major
suppliers to Fiat S.p.A. ("Fiat"), the Volkswagen group
4
(Volkswagen AG/AUDI AG/Seat/Skoda Automobilova AS), the PSA group (Peugeot
S.A./Citroen), the Renault group and Volvo. By assuming the customers of
Gemala Battery, the Company is also a supplier to Ford Motor Co. in Europe. As
development supplier to the PSA group and several other automobile
manufacturers, Exide works closely with such customers as they develop new
models with varying requirements. As in the United States, OEM battery sales
are closely linked to new vehicle sales.
The Company has the leading market share in both standby and traction
batteries in western Europe. The Company's standby batteries are used for
telecommunications, uninterruptible power supplies, security systems,
submarines, power plants, railways and miscellaneous mobile applications (such
as wheelchairs and golf carts). Major standby battery customers include
telecommunications companies and European armed forces. Major traction battery
customers in Europe include the electric vehicle operations of the Linde group
(Still GmbH, LL Fenwicks, Fiat and Lansing), Clark and Jungheinrich, and to a
wide variety of customers in the aftermarket, ranging from large industrial
concerns to small warehouses. Technical expertise and assistance and customer
service are more important in the industrial battery markets than in the SLI
battery markets and the Company has technical service agreements with a number
of its customers.
Customers. On a pro forma basis the Company's five largest customers
accounted for 15% of its fiscal 1996 net sales. The Company does not believe
that a material part of its business is dependent upon a single customer the
loss of which would have a material impact on the long-term business of the
Company. However, the loss of one or more of the Company's largest customers
would have a negative short-term impact on the Company's results of
operations.
DISTRIBUTION NETWORKS
North America. As part of its program to improve its customer base and its
service to such customer base, the Company has developed a network of over 130
Company-owned wholesale distribution outlets throughout the United States and
Canada that sell and distribute Exide batteries to local auto part retailers,
service stations, local repair shops and other smaller volume customers as
well as collect used and spent batteries for recycling in the Company-owned
lead smelters. The Company's wholesale outlet distribution system has grown to
constitute the third largest distribution system of SLI batteries in the
United States. The development of its wholesale outlet distribution system,
which is supplemented by regional accounts, small battery wholesalers and
battery specialists, has been a key component in the Company's success and has
enabled the Company to provide cost effective product distribution to the
Company's national accounts and reduced the Company's reliance on small
battery wholesalers and retailers.
Europe. Exide's European operations distribute their aftermarket SLI
batteries primarily through battery wholesalers, OEM dealer networks,
hypermarkets, European purchasing centers and oil companies, although on a
country by country basis distribution strategy varies greatly. Battery
wholesalers sell and distribute batteries to a network of automotive parts
retailers, service stations, independent retailers and supermarkets throughout
Europe. Wholesalers, who sell to repair shops and service stations, and OEM
dealers represent the large majority of this market, but supermarket chains,
replacement part stores (who are represented by purchasing associations) and
hypermarkets have become increasingly important. The Company's distribution
network will be enhanced as certain manufacturing facilities closed pursuant
to the ongoing rationalization and consolidation are converted to use as
distribution centers.
Given the importance of service and technical assistance, Exide's European
operations generally ship standby batteries directly to system suppliers and
uninterruptible power supply manufacturers who include the standby batteries
in the equipment and distribute products to end users. Traction batteries are
distributed through OEM dealers, independent distributors and directly to
large fleet users. Exide's European operations also distribute both standby
and traction batteries through their own branch network. Exide has begun a
restructuring of its distribution network to better serve the mass
merchandising segment and currently plans to reduce the number of its
warehouse outlets and subcontract the rest of its company-owned distribution
operations.
5
RESEARCH AND DEVELOPMENT; QUALITY
In North America, Exide has increased its number of engineers from just 2 in
1985 to 64 today. This commitment to research and development has allowed the
Company to introduce more new products in the last five years than the rest of
the domestic SLI battery industry combined, including the Exide Barium Plus
line and other batteries noted above. Exide has received over 100 new patents
since 1985 and is now working on the next generation of power solutions. The
Company's presence in the North American OEM markets for automobiles and
commercial vehicles, particularly its close working relationship with Chrysler
Corporation, helps it to remain current with technological innovations.
Similarly, Exide through its European operations, devotes substantial efforts
to research and development and benefits from its appointment as development
supplier to several major automobile manufacturers. The Company has received
the maximum research and development rating from the PSA group and similar
ratings from most of the other European automobile companies it serves. For
the SLI market, Exide is developing lighter batteries which will result in
lower fuel consumption and recently developed a new line of very low
maintenance batteries with higher starting power. With respect to industrial
batteries, Exide has focused on improving efficiency and reducing maintenance.
Exide continues to devote substantial efforts to research and development
for batteries for electric cars and other vehicles. The Company participated
in the development of an electric vehicle which has set various speed and
endurance records and was demonstrated at the 1994 Indianapolis 500. The
Company is participating in electric vehicle battery research projects funded
by the European Union and a consortium of battery manufacturers and by the
Spanish Ministry of Industry and Energy.
Exide's performance and product quality has been widely recognized by its
customers. In recent years, in the United States, Exide has received the
"Desert Storm" Commendation from the United States military, Carport Vendor of
the Year Award, Chrysler Quality Excellence Award, Chrysler Preferred Supplier
Evaluation, Ford Q1 Award, Toyota President's Award, Navistar QA 7 Award, NAPA
Excellence Through Performance Award, Kmart Innovation of Products and
Marketing Award, Montgomery Ward Excellence in Vendor Performance, Quality
Stores Vendor of the Year, and the ADAP Stores Vendor of the Year. An
independent testing laboratory of national repute subjected SLI batteries in
the North American market to rigorous tests designed to simulate conditions
that those batteries would experience in actual use. The reported results of
those tests indicated that Exide's batteries were superior to the other
batteries tested.
Exide's European operations have received awards for quality automotive OEM
production, including the Formel Q and Most Value to Customer awards from
Volkswagen, and one of the Company's batteries was chosen as the best
replacement battery in France in a study conducted by Auto Plus, a French
automobile magazine. In the industrial market, the Company's standby batteries
have received quality approval certificates from such major telecommunications
companies as the Deutsches Bundespost Telekom and from European defense
organizations.
MANUFACTURING, RAW MATERIALS AND SUPPLIERS
North America. The major reasons for the Company's emergence as the low-cost
producer in the United States and Canadian automotive battery industry have
been the achievement of economies of scale through strategic acquisitions, the
consolidation of facilities, the Company's relatively low labor costs and
increased vertical integration in the areas of lead smelting, plastics and
battery separators. Since 1985 and in association with the acquisition of
General Battery in May 1987, the Company consolidated the operations of seven
plants and eight distribution centers into larger, more efficient locations
with lower labor costs. This has led to a significant reduction in unit costs
and improved labor productivity. The Company also is a leader in developing
advanced production techniques, such as continuous plate processing,
statistical process control and computer-aided design and manufacturing. The
Company's manufacturing plant in Salina, Kansas is the highest volume and one
of the lowest cost automotive battery plants in the world. The Company
continues to increase production
6
at its manufacturing facility in Bristol, Tennessee, a modern, highly efficient
battery manufacturing plant similar to the Company's Salina, Kansas facility.
Exide believes its overall unit conversion costs (production costs other than
raw materials) are significantly below the conversion costs of its major United
States and Canadian competitors. These cost efficiencies result from the
Company's high volume of production, emphasis on cost control and competitive
labor costs. The Company's relatively high level of vertical integration
reduces the effects of changes in the market prices of raw materials on
production costs and, when lead market prices are higher, may result in
substantial raw material cost savings. Lead is the principal raw material in
the manufacture of batteries, representing approximately one-third of the cost
of goods sold. The Company can obtain substantially all of its lead
requirements through the operation of four secondary lead smelters, which
reclaim lead by recycling spent lead-acid batteries. Prior to its acquisition
of two of such smelters in August 1995 through its purchase of Schuylkill, the
Company had begun purchasing a larger portion of its lead requirements, making
the cost of its batteries more sensitive to lead price changes. During fiscal
1996, lead prices increased significantly. The Company obtains batteries for
recycling from its customers and through its wholesale distribution outlet
system. Exide obtains the balance of its lead from a number of suppliers. The
Company believes it has a significant competitive advantage from its in-house
lead smelting and from back hauling of spent batteries for recycling through
its distribution network and wholesale distribution outlets. When lead market
prices decline, the Company's lead cost advantage from vertical integration can
be reduced or eliminated. Because Exide adjusts its pricing to a substantial
number of customers pursuant to a formula based on a published price of lead,
if market prices were to decline below the Company's lead production cost for
an extended period of time, the Company could be forced to obtain more of its
requirements from third parties and to seek to reduce its variable and fixed
costs of conversion.
The Company also produces approximately 76% of its U.S. plastic molding
requirements. In addition, approximately 87% of the Company's raw plastic
requirements in the United States are obtained through in-house reclamation of
spent battery cases as part of its recycling program.
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 global separator needs, the Company consummated the acquisition of Evanite
in February 1995. The Company has not experienced any material stoppage or
slowdown in production as a result of the unavailability, or delays in the
availability, of raw materials.
Europe. The Company operates manufacturing plants, including temporary
operation of Gemala Battery's plant, in France, Italy, Spain, Portugal,
Germany, the United Kingdom and elsewhere in Europe. Through CEAc's investment
in Turkey and its recent acquisition in Poland, and Tudor's investment in
India, the Company has a presence in Eastern Europe and Asia as well.
Exide has three secondary lead smelters in Europe that supply approximately
28% of its lead requirements (with a plan to bring that figure to 50% by the
year 2000). The Company's European operations are affected by changes in lead
prices more than its North American operations because European operations are
less vertically integrated and do not have the benefit of contract provisions
that automatically pass lead price increases through to customers to the extent
of the North American business. Major investments have been made in these
plants in recent years to improve lead treatment and recycling processes. The
Company produces most of its own plastic components.
The Company is implementing a cohesive overall European rationalization and
consolidation strategy with respect to its European acquisitions. The Company
plans to lower fixed and variable production costs through plant closings,
thereby increasing capacity utilization at the remaining plants, shifting
production to lower cost areas and reducing overhead. In conjunction with its
plant closings, the Company intends to rationalize its distribution system,
reducing the number of warehouses and improving its delivery systems. In
addition, the Company plans to rationalize its product range, significantly
reducing the number of stockkeeping units and
7
improving inventory management. The Company anticipates that this
consolidation will produce significant cost savings. Exide is also
rationalizing its SLI battery brand strategy in Europe, and will concentrate
its sales and marketing efforts on its strongest brands, including Exide,
Tudor, Fulmen, Sonnenschein and Hagen Batterie.
COMPETITION
North America. The United States and Canadian market for SLI and specialty
batteries is mature and highly competitive. Battery manufacturers compete
primarily on the basis of price, quality, service, warranty period and
timeliness of delivery. Generally, sales are made without long-term contracts.
Because the domestic industry has had excess capacity, competition and
increased pressure for cost reduction from SLI battery customers in the SLI
aftermarket and from automotive OEMs and other customers in the OEM markets
for SLI batteries have resulted in declining prices in the last several years
and some smaller competitors were unable to survive.
The Company's primary domestic competitors are Johnson Controls, Inc., Delco
Remy (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.
Europe. The SLI and industrial battery markets are very competitive and
competition intensified as a result of reduced demand due to the recent
European recession. As in the North American SLI and industrial battery
market, European manufacturers compete primarily on the basis of price,
quality, service, warranty period and timeliness of delivery. There is excess
capacity in the industry and competition and increased pressure for cost
reduction from large customers in both the SLI and industrial battery markets
have resulted in declining prices in recent years. Currency fluctuations among
the European countries and as compared with other countries can also have
considerable competitive effects. Among Exide's competitors in Europe are VB
Autobatterie GmbH ("Varta/Bosch"), Hawker Siddeley, Fiamm, Delco Remy,
Autosil, Hoppecke, Yuasa and Matsushita.
BACKLOG
The Company does not have a material amount of backlog orders.
EMPLOYEES
North America. As of March 31, 1996, the Company employed approximately
1,614 salaried employees and approximately 4,698 hourly employees in North
America. Approximately 41% of such salaried employees are engaged in sales,
service and marketing and approximately 43% in manufacturing and engineering.
Approximately 40% of its hourly employees are represented by unions. Relations
with the unions are generally good. Contracts covering approximately 202 and
1,143 of the Company's union employees expire in fiscal 1997 and 1998,
respectively, and the remainder thereafter.
Europe. As of March 31, 1996, the Company employed approximately 3,849
salaried employees and approximately 6,437 hourly employees in Europe.
Approximately 13% of such salaried employees are engaged in sales, service and
marketing and approximately 47% in manufacturing and engineering. The
Company's hourly employees are generally represented by unions. Relations with
the unions are generally good. Contracts covering the Company's European union
employees expire on various dates through 1998.
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 brand recognition of its
8
products and therefore are important to its business, the Company also
believes that its products, engineering skills, reputation for quality and
relationships with its customers are equally important for the maintenance and
growth of its business. An unaffiliated firm has rights to the Exide mark in
approximately 37 foreign countries. In addition, Exide Electronics Group,
Inc., an unaffiliated company, is licensed to use the Exide name on certain
devices.
Exide has been issued many patents worldwide, some of which are active, with
several additional patents in process covering design of lead acid batteries
and battery manufacturing equipment. While the Company believes that patents
are important to its business operations, it also believes that the loss of
any single patent or several patents would not have a material adverse effect
on the Company.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
North America. 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 federal, state and provincial occupational
safety and health laws and regulations, particularly relating to the
monitoring of employee health. Except as disclosed herein, the Company
believes that it is in substantial compliance with all material environmental,
health and safety requirements.
The Company has been advised by the EPA and various state agencies that it
is a PRP under CERCLA or similar state laws at 53 federally defined Superfund
or state equivalent sites. At 23 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 PRP's 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 for environmental remediation costs under such
statutes may be imposed on a joint and several basis, the Company's liability
may not necessarily be based on volumetric contributions 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 three Superfund sites (discussed below).
Other than these three sites, the Company's volumetric contribution exceeds 5%
at only seven Superfund sites (with respect to two of which the Company's
share of liability has been paid) and its volumetric contribution at the five
sites where the Company's liability has not yet been fully paid averages
14.5%. At all other sites, the Company's volumetric contribution is currently
estimated to be less than 5% of the total waste at the site. However, in some
instances the Company's volumetric share of the waste at a site is not the
sole determinant of the Company's share of the remediation costs because some
PRPs are unable to fund their allotted share and the shortfall is divided
among the viable PRPs.
The Brown's Battery site, located in Pennsylvania, was operated by third
party owners in the 1960's and early 1970's. EPA completed its study of this
site and issued a final Record of Decision ("ROD") outlining a remediation
plan that employs an innovative technology developed by the Company which has
not yet been used for lead remediation on a production volume basis. EPA sued
the Company and the District Court held the Company liable for the site
cleanup and the Company signed a consent decree to remediate the site with
EPA.
9
The District Court approved the Decree on June 3, 1996, and Exide intends to
make a $3 million payment for EPA's past cost on July 2, 1996. The decree
proposes remediation using the innovative technology. This innovative
technology approach is believed to be 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 incremental cost of
remediation for the innovative technology approach is estimated to be
approximately $16.0 million, a substantial portion of the total remedial costs
constitute capital improvements. If the innovative technology is not feasible,
the alternative remediation plan, which entails relocation of the contaminated
soil, would be employed at a cost (estimated by EPA) of approximately $30
million. The Company has tested and is actively pursuing design, development
and additional testing of the innovative technology. The Company is also
actively pursuing recovery under prior insurance policies as discussed below.
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 Mabank, Texas, another site that was owned and
operated by third parties. The estimated cost of remediating the Wortham site
is between $520,000 and $770,000. The Texas Natural Resources Conservation
Commission ("TNRCC") has amended the Record of Decision for this site. The
Company believes that the revised approach would reduce the cost of
remediating this site by roughly 50% as compared to the original remedy. The
Company has until July 9, 1996 to submit a good faith offer to perform the
amended ROD remedy. As an alternative to submitting a good faith offer, the
TNRCC has given the Company an opportunity to pursue site remediation under
the TNRCC Voluntary Cleanup Program. This alternative is being evaluated and
the Company is negotiating with the TNRCC over the requirements of the program
change. Until that process is completed, the Company cannot determine the cost
of remediating this site. Nevertheless, management does not believe that the
costs incurred at this site will have a material adverse effect of the
Company's business or financial condition.
The third site at which the Company has been the primary PRP is 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 (less than
2%). Because of the large number of non-paying PRPs, however, the Company has
paid the largest single share of the expenses to date. The paying PRPs have
collectively paid nearly $4 million at this site, of which the Company has
paid approximately $1.43 million. Site remediation was completed in May 1995
and the EPA issued a letter in August 1995 stating that no further remedial or
investigative action was needed at this site. However, EPA has referred the
matter to the State of Alabama Department of Environmental Management ("ADEM")
for closure. The Company does not expect that any additional expenses
associated with this site will have a material adverse effect on the Company's
business or financial condition. 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, federal and provincial environmental laws and with varying degrees of
involvement by state, federal and provincial authorities. Where reasonably
estimable, the costs of such projects have been accrued in reserves
established by the Company, as discussed further below. In addition, certain
environmental matters concerning the Company are pending with regulatory
agencies.
South Carolina environmental officials alleged that the Company improperly
disposed of soil from the Company's Greer, South Carolina facility in 1991.
Without acknowledging any wrongdoing on its part, the Company, in consultation
with South Carolina authorities, reexcavated and disposed of the soil. Federal
authorities fully investigated the incident, and declined to take civil or
criminal action against the Company. In a related matter the Company entered
into a Consent Order with State environmental authorities to conduct
investigatory and remedial action at its Greer facility and residential areas
adjacent to the facility.
10
On January 14, 1994, the Company acquired a vacant manufacturing facility
located in Bristol, Tennessee which the Company has converted to a battery
manufacturing facility. While the facility was being used for manufacturing
operations by Unisys Corporation ("Operating Owner"), soil and groundwater
contamination was identified at the site which led to its designation by the
State of Tennessee as a state "Superfund" site in 1988. Under the direction of
the State of Tennessee, the Operating Owner has, at its own expense, completed
a soil remediation at the site and is in the process of completing a
groundwater cleanup.
The Company purchased the facility from a subsequent owner of the property.
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. The Company is in
communication with the Operating Owner on a periodic basis regarding the
status of the remediation. The Company does not currently believe that the
environmental condition of the facility will have a material adverse effect on
the Company's business or financial condition.
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 or financial condition. 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.
Pursuant to a refinancing, the Company agreed with a former holder of its
preferred stock which had sold the Company a portion of its business to
provide certain environmental management services relating to twelve landfills
and other sites not operated by the Company at which lead contamination by
such businesses and others is alleged and to indemnify such holder from
certain potential environmental liabilities relating to such sites. The
Company established an additional environmental reserve of $6.0 million with
respect to this liability, which the Company believes will be adequate.
The Company has established reserves for onsite and offsite environmental
remediation costs and believes that such reserves are adequate. These reserves
consist of amounts accrued for active Company facilities, closed facilities,
and 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
$100,000 per site. Because environmental liabilities are not accrued until
liability is determined to be probable and reasonably estimable, not all
potential future environmental liabilities have been included in the Company's
environmental reserves and, therefore, additional earnings charges are
possible.
The Company believes it has insurance coverage for liability and defense
costs arising out of certain sites, and has put its insurance companies on
notice where applicable. While none of the Company's insurance carriers have
acknowledged coverage for cleanup costs at any sites, certain of the Company's
insurance carriers have tendered defense costs under a reservation of rights
at the Brown's Battery site discussed above and the Granite City, Illinois
(NL/Taracorp) site. Also, one insurance company has paid a settlement for
bodily injury at the Brown's site.
The Company believes that it ultimately will be successful in establishing
coverage for liabilities for remediation arising out of those sites. The
Company is engaged in discussions with various insurers with respect to other
sites, although no agreements have been reached with respect to coverage for
those other sites. The Company does not currently maintain environmental
impairment liability insurance in light of the unavailability of meaningful
coverage and the prohibitive cost of obtaining even limited coverage. The
coverage the Company has results from insurance policies issued prior to 1982
for general liability, which policies included coverage for offsite liability.
The Company also may have limited coverage for certain costs under policies
issued between 1983 and 1985.
In 1993, the CNA Insurance Companies filed a declaratory judgement action in
the Superior Court of Delaware, in Wilmington, Delaware. In the lawsuit,
Continental Casualty Company, et al. v. General Battery
11
Corporation, et al., (the "CNA Action") CNA seeks to have the court determine
that CNA owes no duty to defend or reimburse General Battery Corporation, Dixie
Metals Company and certain other Exide subsidiaries for costs of defending
environmental actions against those companies and for response costs, property
damage and bodily injury claims arising from environmental conditions allegedly
caused, suffered or allowed by those companies. In addition to suing the
Company, the CNA Action names Northwest Industries, Fruit of the Loom and over
75 other insurance companies as defendants.
The Company intends to vigorously defend the CNA Action. While the ultimate
outcome of the CNA Action 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 or financial condition or
results of operations. See Note 13 to notes to consolidated financial
statements appearing elsewhere herein.
The Company has taken an active role in addressing environmental issues
associated with its business and has a staff of more than 70 persons, not
including consultants, focusing on environmental, safety and health matters.
The Company maintains numerous permits with the EPA, various state agencies and
provincial regulatory authorities which allow the Company to transport, store
and recycle spent lead acid batteries, lead-bearing hazardous wastes and
certain other hazardous wastes in the United States.
To protect the environment, minimize future liability and help ensure a
stable supply of lead to its battery manufacturing facilities, the Company has
developed a comprehensive materials recycling program. Under this program, the
Company obtains spent lead-acid batteries through its wholesale distribution
outlet system and lead-bearing materials from third parties. These materials
are transported to the Company's secondary lead smelting facilities. Batteries
are separated at the smelters into three constituent units: lead, dilute
sulfuric acid and plastic casing material. The lead is reclaimed and refined
into lead alloys for use at the Company's battery manufacturing facilities. The
plastic from battery cases is broken into pieces and extruded into pellets by
adding strengtheners and other additives. The pellets are then used at the
Company's battery casing molding facility to make new battery cases. The dilute
sulfuric acid solution is neutralized and discharged in accordance with
Federal, State and provincial permits. The Company is investigating methods of
recycling spent battery acid. As described above, the Company has been actively
involved in the development of a new technology for remediation of lead
contaminated soils at the Brown's Battery site, which, if successful, may have
significant application in the secondary smelting of lead generally.
Europe. With regard to its overseas operations, 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. The laws and regulations
applicable to such activities differ from country to country and also
substantially differ from 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. The Company believes it has adequate reserves for environmental
remediation costs in Europe. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Future Environmental
Developments."
At two Tudor lead-acid battery manufacturing facilities in Spain (Malpica and
Manzanares) 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 CEAc battery manufacturing facilities in Auxere and Nimes, France do not
currently meet lead air emission standards established by the French Ministry
of Environment. The local enforcement authority is aware
12
of the situation in Nimes, and has granted the Company an additional two year
period within which to achieve compliance with those standards. A similar
approach is being undertaken at the Auxere facility. Management believes that
the cost of achieving compliance with the air limits at both these facilities
is not material.
In addition, the CEAc lead-acid battery manufacturing facilities in Vierzon,
France and Weiden, Germany are not in compliance with certain limits contained
in these facilities' wastewater discharge permits. The German authorities have
temporarily suspended the limits; negotiations to resolve this matter are
continuing. Management at the Vierzon facility submitted a compliance plan and
is coordinating its efforts with local authorities. The cost of any upgrades
required to achieve compliance at these facilities are not expected to be
material.
CEAc's German subsidiary, Sonnenschein, GmbH, has signed a consent order with
the administrative enforcement authorities to complete remediation of a river
which flows along the lead-acid battery manufacturing facility in Budingen,
Germany. That cleanup is proceeding and CEAc has established a reserve to cover
the cost of completing the project; the Company does not expect the cost of
such remediation to be material.
The Company's Polish subsidiary, Centra, is a former state-owned entity.
Under the sales agreement with the Polish State Treasury, the Company is
obligated to spend $1.0 million per annum in capital improvements in
environmental controls at the Centra facilities. The funds needed to cover this
commitment are included in CEAc's capital budget. Management believes that
these funds will be needed to ensure compliance with anticipated new air
regulations in Poland.
The Company expects that its overseas operations will continue to incur
capital and operating expenses in order to maintain compliance with evolving
environmental, health and safety requirements or more stringent enforcement of
existing requirements in each country. In addition, accelerated consolidation
of Exide's European operations could increase its expenditures.
(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.
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. In North
America, all of such owned properties and the leases for the leased properties
are subject to liens under the Credit Agreement. The leases for leased
facilities expire at various dates through 2001. In addition to these
properties, Tudor holds a portfolio of undeveloped land totaling approximately
39 acres of which it divests portions from time to time.
APPROXIMATE
LOCATION SQUARE FOOTAGE USE
- ------------------------ ---------------- ----------------------------------------------
North America:
Auburn Hills, MI 5,000 (leased) OEM Engineering and Sales
Baton Rouge, LA 197,000 Secondary Lead Smelting
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
Cannon Hollow, MO 128,000 Secondary Lead Smelting
Cooper, TX 30,000 (leased) Starter and Alternator Manufacturing
Corvallis, OR 332,000 Separator and Other Manufacturing
Corydon, IN 161,000 Separator Manufacturing
Denver, CO 64,000 Distribution Center
Drummondville, Quebec,
Canada 100,000 Distribution Center
Frankfort, IN 206,000 Battery Manufacturing
Frankfort, IN 211,000 Distribution Center
13
APPROXIMATE
LOCATION SQUARE FOOTAGE USE
- ------------------------ --------------- ---------------------------------------------
Greer, SC 130,000 Battery Manufacturing
Hamburg, PA 149,000 Battery Manufacturing
Hamburg, PA 30,000 Distribution Center
Indianapolis, IN 135,000 Starter and Alternator Manufacturing
Lampeter, PA 82,000 Battery Plastics Manufacturing
Logansport, IN 197,000 Battery Manufacturing
Manchester, IA 198,000 Battery Manufacturing
Maple, Ontario, Canada 100,000 (leased) Distribution and Administration
Maple, Ontario, Canada 179,000 Battery Manufacturing
Memphis, TN 4,000 (leased) Distribution Center
Muncie, IN 174,000 Secondary Lead Smelting
North Bay, Ontario,
Canada 30,000 (leased) Battery Charger Manufacturing
Phoenix, AZ 31,000 (leased) Distribution Center
Reading, PA 72,000 Engineering and Research and Development
Reading, PA 125,000 Secondary Lead Smelting and poly reprocess
Reading, PA 15,000 (leased) Technical Center
Reading, PA 135,000 Administrative Offices
Reading, PA 336,000 Battery Manufacturing
Reading, PA 77,000 Distribution Center
Salina, KS 250,000 (leased) Battery Manufacturing
Salina, KS 50,000 Distribution Center
Sumner, WA 56,000 (leased) Distribution Center
Travelers Rest, SC 62,000 (leased) Distribution Center
Europe and Other:
Graz, Austria 144,000 Industrial Battery Manufacturing
Florival, Belgium 290,000 Distribution Center
Herlev, Denmark 15,000 Executive Offices
Witham Essex, England 20,000 (leased) Executive Offices
Bristol, England 5,000 Warehouse
Over Hulton, England 279,000 Industrial Battery Manufacturing
Vantaa, Finland 133,000 (leased) SLI Battery Manufacturing
Auxerre, France 176,000 SLI Battery Manufacturing
Fougeres, France 38,000 Industrial Battery Manufacturing
Gennevilliers, France 55,000 Executive Offices
Lille, France 484,000 Industrial Battery Manufacturing
Nanterre, France 31,000 SLI Battery Manufacturing
Nimes, France 120,000 SLI Battery Manufacturing
Peronne, France 96,000 Battery Plastics Manufacturing
Pont Ste Maxence,
France 71,000 Secondary Lead Smelting
Vierzon, France 174,000 Industrial Battery Manufacturing
Berlin, Germany 99,000 Distribution Center
Budingen, Germany
(two) 258,000 Industrial Battery Manufacturing
15,000 Lithium Cells Manufacturing
Kassel, Germany 212,000 SLI and Industrial Manufacturing
Soest, Germany 386,000 Industrial Battery Manufacturing
Weiden, Germany 208,000 Industrial Battery Manufacturing
Schimitari, Greece 69,000 SLI Battery Manufacturing
Maarssen, Holland 26,000 Executive Offices
Avellino, Italy 35,000 Lids and Containers Manufacturing
Bergamo, Italy 203,000 Lids, Containers and Separators Manufacturing
Casalnuovo, Italy 483,000 Industrial Battery Manufacturing
Fumane, Italy 65,000 SLI Battery Manufacturing
Romano Di Lombardia,
Italy 266,000 SLI Battery Manufacturing
Horten, Norway 108,000 (leased) Industrial Battery Manufacturing
Czarnkow, Poland 112,000 Sundry Batteries Manufacturing
Poznan, Poland (five) 887,000 SLI Battery Manufacturing
Castanheira, Portugal 471,000 SLI and Industrial Battery Manufacturing
Ilhavo, Portugal 54,000 Manual Tools Manufacturing
Azambuja (Sonalur),
Portugal 21,000 Secondary Lead Smelting
Azambuja (Azai),
Portugal 21,000 Lids and Containers Manufacturing
14
APPROXIMATE
LOCATION SQUARE FOOTAGE USE
- ---------------------- --------------- -----------------------------------------------
Lisbon, Portugal 12,000 Executive Offices
Azuqueca de Henares,
Spain 434,000 SLI Battery Manufacturing and Research
Torrejon de Ardoz,
Spain 54,000 Industrial Battery and NiCad Manufacturing
Loeches, Spain 12,000 (leased) Traction Chargers Manufacturing
Malpica, Zaragoza,
Spain 213,000 SLI Battery Manufacturing
S. Esteban de Gormaz
(Mejorsa), Spain 63,000 Secondary Lead Smelting
Madrid, Spain 38,000 (leased) Executive Offices
Manzares, Spain 438,000 SLI Battery Manufacturing
Zaragoza, Spain 248,000 Industrial Battery Manufacturing
Nol, Sweden 447,000 SLI and Industrial Battery Manufacturing
Izmir, Turkey 64,000 SLI Battery Manufacturing
Cwmbran, Wales 105,000 Executive Offices and SLI Battery Manufacturing
In addition, the Company temporarily operates an SLI battery manufacturing
facility in Dagenham, England, which includes some executive offices. The
Company also leases distribution outlets in Europe.
The Company believes that its facilities are in good operating condition,
adequately maintained, and suitable to meet its present needs and future
plans.
ITEM 3. LEGAL PROCEEDINGS
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 claims
infringement of three Tekmax patents dealing with a device to insert battery
plates into battery separators and processes for doing so. The complaint seeks
damages in excess of the jurisdictional requirement of $50,000 (although
plaintiff requested $6 million before the suit was filed). In the course of
trial preparation, plaintiff voluntarily dismissed the claims related to the
infringement of one of the patents and Exide obtained summary judgment as to
the claims of one other patent. The trial of the claims related to the single
patent now in controversy is scheduled to begin in July, 1996. The Company
anticipates a favorable result.
The Company is, or recently was, involved in several lawsuits or claims all
of which alleged a common complaint: the Company sold used batteries as new.
Paramount among these was Eddie Walton Davis, et al v. Exide Corporation which
purported to be a class action brought on behalf of more than 1,000 consumers
who purchased allegedly used batteries as new. This suit was initiated in the
Circuit Court of Barbour County, Alabama, and sought unspecified compensatory
and punitive damages. The trial court certified the suit as a class action.
The Company successfully sought a writ of mandamus from the Alabama Supreme
Court which decertified the class. The case was dismissed without prejudice on
June 12, 1996.
Charlie Mathews v. Exide is a purported class action suit brought in the
Circuit Court of Montgomery, Alabama. The suit purports to represent resellers
of Exide batteries who received used batteries which were represented as new.
The Company has answered the complaint, denied the essential allegations and
will vigorously defend this suit which seeks unspecified damages. This matter
is currently in the discovery phase and should be set for trial in 1997.
Charles Harris v. Exide is a case brought by a former Exide branch manager
who alleges he was fired for refusing to sell used batteries as new. The
Company has filed a motion for summary judgment with the trial court, the U.S.
District Court for the Northern District of Alabama. Should the Company's
motion fail to dispose of this matter, the case will be tried later this year
or in 1997.
The Company brought a collection suit against a former customer, Charles E.
"Bo" Keever, in the General Court of Justice, Superior Court Division, State
of North Carolina, County of Caldwell. The defendant has asserted a
counterclaim against the Company, alleging that the batteries he was sold were
not "fresh." Pursuant to local rules this matter will soon be subject to non-
binding arbitration. If this matter is not resolved in the arbitration
process, it will probably go to trial in 1997.
15
Jason McLaughlin, operating under the trade name Discount Outlet has
initiated suit against the Company in the U.S. District Court of the District
of Alabama, Southern Division. The plaintiff claims that the Company sold him
batteries which were not "fresh". The plaintiff seeks unspecified compensatory
and punitive damages. The Company will vigorously defend this action and it
will probably be set for trial in June, 1997.
Charlie Craig of Craig Batteries in Athens, Alabama has threatened to bring
suit in Madison County, Alabama alleging that the Company sold him used
batteries as new. To date he has not filed suit.
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, financial
condition, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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.
SALES PRICES QUARTERLY
---------------- CASH
HIGH LOW DIVIDENDS
------ ------ -----------
(PER SHARE)
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
Fiscal 1996:
First Quarter................................. $ 44 1/2 $ 29 1/2 $0.02
Second Quarter................................ 53 7/8 42 1/2 0.02
Third Quarter................................. 50 42 1/4 0.02
Fourth Quarter................................ 51 1/8 23 1/4 0.02
At June 27, 1996 the reported last sale price of the stock was $23 1/4. As
of June 6, 1996, there were 471 record holders of Common Stock.
16
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEAR ENDED MARCH 31,
------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net Sales (a)........... $593,626 $578,755 $679,649 $1,198,546 $2,342,616
Gross Profit............ 118,475 128,757 158,253 265,680 554,385
Selling, General and
Administrative
Expenses............... 83,645 81,587 96,495 201,518 425,162
Operating Income........ 34,830 47,170 61,758 64,162 129,223
Interest Expense........ 34,364 35,261 33,150 52,565 120,600
Income Taxes............ 14,100 3,400 10,794 5,160 6,300
Income before
Extraordinary Loss and
Cumulative Effect of
Accounting Change...... 6,656 5,153 17,217 4,491 939
Extraordinary Loss...... -- (10,363)(b) -- (3,597)(c) (9,600)(d)
Cumulative effect of
accounting change(e)... -- -- (12,711) -- --
Net Income (Loss)....... 6,656 (5,210) 4,506 894 (8,661)
Preferred dividends..... 6,986 4,996 -- -- --
Net income (loss)
applicable to common
stock.................. (330) (10,206) 4,506 894 (8,661)
Net income (loss) common
or common equivalent
per share.............. (0.04) (1.22) 0.41 0.06 (0.42)
BALANCE SHEET DATA
(At End of Period):
Working Capital......... 122,906 132,339 153,711 395,875 604,423
Property, Plant and
Equipment, net......... 139,494 136,392 181,147 423,876 578,722
Total Assets............ 463,679 474,868 629,090 1,637,589 2,711,429
Total Debt.............. 274,866 305,562 291,821 645,135 1,340,025
Preferred Stock......... 88,325 6,462 -- -- --
Common Stockholders'
Equity (Deficit)....... (10,013) 45,096 164,450 413,230 439,400
OTHER DATA:
EBITDA (a)(f)........... 82,077(g) 72,427 91,465 110,759 230,131
Ratio of Earnings to
Fixed Charges(h)....... 1.5x 1.2x 1.7x 1.2x 1.0x
Capital Expenditures.... 15,426 20,266 47,164 61,257 106,385
Net cash provided by
(used in) operating
activities............. 7,931 24,959 49,364 (69,134) 23,319
Net cash provided by
(used in) investing
activities............. 100,807 (21,845) (54,859) (322,896) (487,091)
Net cash provided by
(used in) financing
activities............. (111,050) (2,948) 38,701 418,314 449,473
SLI Units Sold.......... 17,483 18,075 21,896 32,309 47,866
- --------
(a) The Company sold its North American industrial battery product line on
June 10, 1991. If the North American industrial battery product line were
excluded, net sales would have been $569.8 million and EBITDA would have
been $58.2 million for fiscal 1992.
(b) 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 of its previously existing debt.
(c) 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 retirement of the
former U.S. Credit Agreement in connection with entering a new U.S. Credit
Agreement.
(d) During fiscal 1996, the Company recorded a loss of $9.6 million (net of a
tax benefit of $6.0 million) from the early retirement of debt under the
U.S. Credit Agreement.
(e) 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 to the Company's
consolidated financial statements appearing elsewhere herein.
(f) Represents earnings before interest, taxes, depreciation of property,
plant and equipment, amortization of goodwill and equity in earnings of
joint ventures. EBITDA should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" for a discussion of
other commonly used measures of liquidity and operating performance.
(g) Includes the gain on the sale of the North American industrial battery
product line of $22.1 million.
(h) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income (loss) before income taxes and equity in earnings of
joint ventures plus fixed charges (excluding capitalized interest) and
dividends from joint ventures. Fixed charges consist of interest expense,
amortization of debt expense, capitalized interest, and one-third of rent
expense, representative of the interest factor.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The mild winters of 1994-1995 and 1995-1996 had a substantial adverse effect
on the Company's results of operations for fiscal 1995 and 1996. See
"Seasonality and Weather."
The Company through its European acquisitions is exposed to foreign currency
risk in most Western European countries, principally France, Spain, Germany,
Italy and the U.K. The Company does not have material operations in countries
whose economies can be classified as hyper-inflationary. Movements of exchange
rates vis-a-vis the U.S. dollar can result in both unrealized and realized
exchange gains or losses. In some instances gains in one currency may be
offset by losses in another as all currencies may not move in unison vis-a-vis
the U.S. dollar. Because it is not possible to forecast future movements in
foreign exchange rates it is the policy of the Company to reduce foreign
currency risk by balancing net foreign currency positions where possible.
RESULTS OF OPERATIONS
Year Ended March 31, 1996 Compared with Year Ended March 31, 1995
Net sales increased $1,144.1 million, or 95.5%, to $2,342.6 million in
fiscal year 1996 compared with fiscal 1995. The sales increase was principally
attributable to the inclusion of CEAc since June 1995 ($749.8 million) and the
incremental effect related to the inclusion of Tudor for the entire twelve
months of fiscal 1996 (six months in fiscal 1995) of $275.5 million. Sales in
fiscal 1996 were also favorably impacted by shipments to Sears Roebuck &
Company, which was a significant new customer added late in the second quarter
of fiscal 1995, growth of the Company's business in the U.K. (net sales
increased $17.4 million) and the inclusion of Evanite, a battery separator
manufacturer, with net sales of $40.7 million, a February 1995 acquisition.
Industrial battery sales (included above) for fiscal year 1996 were $613.6
million versus $130.1 million in fiscal year 1995. See Note 3 to the Company's
consolidated financial statements appearing elsewhere herein.
Gross profit increased $288.7 million while the gross profit margin
increased by 1.5 percentage points in fiscal 1996 versus 1995. The increase in
gross profit was principally the result of the inclusion of CEAc ($222.5
million) and the incremental effect related to the inclusion of Tudor for the
entire twelve months of fiscal 1996 (six months in fiscal 1995) of $90.5
million. The Company's gross profit margin increased due to higher gross
margins in Europe, partially offset by higher lead costs and usage.
Selling, general and administrative expenses increased $223.6 million, or
111.0%, compared to fiscal year 1995, primarily due to the inclusion of CEAc
($149.9 million), and the full year impact of Tudor ($58.7 million), for a
combined $208.6 million of the increase. Additional increases resulted from
the inclusion of Evanite ($4.0 million), and expenses related to the growth in
the U.K. business ($7.0 million).
Operating income increased $65.1 million, or 101.4%, primarily as a result
of the matters discussed above.
Interest expense increased $68.0 million, or 129.4%, in fiscal 1996 compared
to fiscal 1995, principally as a result of the interest cost attributable to
the financing of the Company's European and North American acquisitions,
inclusion of CEAc ($11.6 million) and the incremental expense related to the
inclusion of Tudor for the entire twelve months in fiscal 1996 ($10.0
million).
Other expense, net is primarily comprised of a $5.5 million judgement
related to a patent infringement suit, and loss on the sales of receivables of
$2.6 million, offset by $6.5 million of net European currency transaction
gains.
18
Income before extraordinary loss was $3.6 million lower in fiscal 1996
compared with fiscal 1995. The extraordinary loss of $9.6 million in fiscal
1996 is related to the writeoff of unamortized deferred financing costs
associated with the early extinguishment of debt. In fiscal 1995, the Company
incurred a $3.6 million writeoff of a similar nature. See Note 6 to the
Company's consolidated financial statements appearing elsewhere herein.
Net income decreased $9.6 million, primarily as a result of the matters
discussed above.
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 1995
compared with fiscal 1994. The sales increase was principally attributable to
the acquisition of Tudor in October 1994 with net sales of $299.4 million,
including its industrial battery sales of $122.7 million during the period,
the acquisition of BIG on March 30, 1994 with net sales of $74.0 million; and
the full year impact of Battronics (now Exide Canada Ltd.) with net sales of
$64.4 million, 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 1995 versus 1994. The increase in gross profit was
principally the result of the inclusion of Tudor and BIG for $87.5 million and
$20.8 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 BIG of $65.2
million and $14.9 million, respectively, 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.
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 automatic
batteries is generally highest in the fall and early winter as retailers build
inventories in anticipation of the winter season. European sales are
concentrated in the fourth calendar quarter (the Company's third quarter), due
to the shipment of batteries for the winter season and the practice of many
industrial battery customers (particularly governmental and quassi
governmental entities) of deferring purchasing decisions until the end of the
calendar year. Demand for automotive batteries is significantly affected by
weather conditions. Unusually cold winters or hot summers accelerate battery
failure and increase demand for automotive replacement batteries. See Note 16
to the Company's consolidated financial statements appearing elsewhere herein.
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 cash dividends of $.02 per
share on the common stock in each completed quarter following its initial
public offering.
19
Historically, the Company has met these liquidity requirements through cash
flows generated from operating activities and with borrowed funds and the
proceeds of sales of accounts receivable. The Company is party to a
receivables purchase agreement under which the other party has committed
(subject to certain exceptions) to purchase selected accounts receivable of
the Company, up to a maximum commitment of $75.0 million. 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 greatest cash demands from operations occur during the months of
June through October. During fiscal 1997 and beyond the Company also expects
to meet its liquidity requirements in the same manner.
Funds generated (used) from operations were $49.4 million, $(69.1) million
and $23.3 million in fiscal 1994, fiscal 1995 and fiscal 1996, respectively.
Because of the seasonality of the Company's business, more funds are typically
generated in its third and fourth fiscal quarters. During fiscal 1996, the
Company's inventories were reduced (before considering the overall increase
from the fiscal 1996 acquisitions) which helped to minimize the effects of the
Company's growth in working capital. Offsetting this were the significant cash
uses for the Company's European restructuring activities, which require large
amounts of cash for severance associated with plant closures. During fiscal
1996, the Company closed 6 plants in Europe and 2 plants in the U.S. All of
this is part of the Company's long-term strategy of reducing its manufacturing
and distribution cost structure, especially in Europe. In the next several
years, the Company will continue to complete the closure of various European
plants which will necessitate cash payments for severance, etc. While the
Company believes that a large portion of its cash requirements for its
European plant consolidation activities will be generated from operations, it
has substantial liquidity and capital resources through its European
Facilities Agreement and also has substantial borrowing availability under its
U.S. Credit Agreement.
The Company's capital expenditures were $47.2 million in fiscal 1994, $61.3
million in fiscal 1995 and $106.4 million in fiscal 1996. Capital expenditures
increased in fiscal 1995 and 1996 principally due to the acquisition of Tudor
in fiscal 1995 and CEAc and Schuylkill Metals in fiscal 1996. The U.S. Credit
Agreement and the European Facilities Agreement restrict the amount of capital
expenditures which may be made by the Company and its subsidiaries. See Note 6
to the Company's consolidated financial statements. However, the Company
believes that it has sufficient resources for its capital expenditure programs
from operating cash flows and borrowing availability under its existing credit
agreements.
During fiscal 1995 and 1996, as discussed in Note 3 to the consolidated
financial statements, the Company completed several major acquisitions, mostly
in Europe. The financing for these acquisitions resulted from a combination of
equity and debt sources, both in the U.S. and Europe. See Notes 2 and 6 to the
consolidated financial statements. The Company borrowed $229.2 million under
the U.S. Credit Agreement to finance its acquisition of Tudor in October 1994.
In December 1994, the Company completed a public offering of its common stock
with net proceeds of $247.5 million including the underwriters exercise of
their over-allotment option. The net proceeds of that offering were used to
repay revolving loans under the U.S. Credit Agreement and excess proceeds were
invested in short-term, interest bearing investment grade securities. In May
1995, the Company completed the CEAc acquisition for $425.0 million in cash
($553.5 million less assumed debt plus interest from March 31, 1995). The
Company financed the CEAc acquisition through borrowings under the U.S. Credit
Agreement and with the proceeds of a $300 million offering of 10% Senior
Notes, and refinanced approximately $150 million of indebtedness of CEAc
pursuant to a facilities agreement (the "former European Facilities
Agreement").
In December 1995, the Company issued 2.9% Convertible Senior Subordinated
Notes due December 15, 2005, with a face amount of $397.9 million discounted
to $287.8 million, after the underwriters' exercise of their overallotment
option. These notes have a coupon rate of 2.9% with a yield to maturity of
6.75%. The notes are convertible into the Company's common stock at a
conversion rate of 12.5473 shares per $1,000 principal amount at maturity,
subject to adjustments in certain events. The Company used the funds to repay
indebtedness under the U.S. Credit Agreement.
Also, on November 30, 1995, the Company entered into a Pan-European,
multicurrency, multiborrower credit facility ("European Facilities
Agreement"). The facility contains a Tranche A term loan in the amount of
20
236 million French francs (U.S. $46.9 million), a Tranche B term loan in the
amount of 930 million French francs (U.S. $184.8 million), and a revolving
facility of 1,403 million French francs (U.S. $278.8 million). The Tranche A
term loan matures on November 30, 2000, and the Tranche B term loan matures on
November 30, 2002. Both term loans require semiannual principal payments
throughout their terms. The revolving facility expires on September 30, 2002.
Substantially all of the Company's European bank debt, including indebtedness
under the former European Facilities Agreement that was utilized to finance a
portion of the CEAc acquisition, was refinanced with this European Facilities
Agreement.
As of March 31, 1996, the Company had utilized $11.8 million of its U.S.
Credit Agreement for letters of credit, and $438.7 million was outstanding
under the European Facilities Agreement, including letters of credit.
Obligations under the U.S. Credit Agreement and the European Facilities
Agreement bear interest at fluctuating rates. Increases in interest rates on
such obligations could adversely affect the Company's results of operations
and financial condition. The 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 $100.0 million of
borrowings under the U.S. Credit and European Facilities Agreements 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
agreements. The Company also has an interest rate swap agreement which
effectively fixes LIBOR interest rates on $50 million at 6.2% through May 16,
1997. See Note 6 to the Company's consolidated financial statements appearing
elsewhere herein.
As of March 31, 1996 the Company had $173.2 million available under its U.S.
Credit Agreement. Effective May, 1996 the maximum capacity was reduced to $165
million subject to certain limitations based on eligible receivables and
inventory. As of March 31, 1996, the Company's European and Canadian
operations had borrowing availability of approximately $56.1 million. See Note
6 to the Company's consolidated financial statements appearing elsewhere
herein.
The Company believes it has adequate reserves for offsite and onsite
environmental remediation costs. See "Business--Environmental, Health and
Safety Matters" and "Future Environmental Developments."
As of March 31, 1996, the Company has significant NOL carryforwards in
Europe and in the United States which may be available, subject to certain
restrictions, to offset future U.S. and European taxable income. See Note 10
to the Company's consolidated financial statements appearing elsewhere herein.
EFFECT OF INFLATION
Inflation has not had a material impact on the operations of the Company
during the past three years. The Company generally has been able to offset the
effects of inflation with price increases, cost-reduction programs and
operating efficiencies.
FUTURE ENVIRONMENTAL DEVELOPMENTS
The Company is subject to extensive federal, state, local and foreign
environmental, health and safety laws and regulations. In the future
environmental, health and safety standards may be more stringent. The Company
anticipates that such standards could cause an increase in the Company's
capital expenditures and operating costs. Until the standards are adopted it
is not possible to estimate these costs with any certainty or to predict
whether they will have a material effect on the Company's financial condition
or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedule at page F-1
21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The biographical information under the heading Election of Directors in the
Company's definitive Proxy Statement for its annual meeting of stockholders to
be held on August 14, 1996, is hereby incorporated by reference.
In addition to the executive officers named in the biographical section,
Messr. George J. Tinker is an executive officer.
Mr. Tinker (age 51) 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 14, 1996, 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 14, 1996, is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading Certain Transactions in the Company's
definitive Proxy Statement for its annual meeting of stockholders to be held
on August 14, 1996, is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Financial Statements
See Index to Consolidated Financial Statements and Schedule at page F-1.
(b) Reports on Form 8-K
On January 26, 1996 a report on Form 8-K was filed discussing third quarter
results.
(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.
22
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
/s/ Arthur M. Hawkins
By: _________________________________
Arthur M. Hawkins
President Principal Executive
Officer
/s/ Alan E. Gauthier
By: _________________________________
Alan E. Gauthier
Principal Financial and Accounting
Officer
Date: June 28, 1996
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.
/s/ Arthur M. Hawkins /s/ Douglas N. Pearson
By: _________________________________ By: _________________________________
Arthur M. Hawkins Douglas N. Pearson
President, Chairman of the Board Executive Vice President,
and Director President-- North American
Operations and Director
/s/ Alan E. Gauthier /s/ Timothy O. Fisher
By: _________________________________ By: _________________________________
Alan E. Gauthier Timothy O. Fisher
Executive Vice President and Director
Director
/s/ Lawrence M. Wagner /s/ Robert H. Irwin
By: _________________________________ By: _________________________________
Lawrence M. Wagner Robert H. Irwin
Director Director
/s/ Earl Dolive /s/ Arthur R. Taylor
By: _________________________________ By: _________________________________
Earl Dolive Arthur R. Taylor
Director Director
23
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-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY............................. F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS....................................... F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................................. F-7
CONSOLIDATED SUPPORTING SCHEDULE FILED:
II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES......................... F-28
ALL OTHER SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE, NOT
REQUIRED, OR THE INFORMATION REQUIRED TO BE SET FORTH THEREIN IS
INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS OR IN THE NOTES
THERETO.
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Exide Corporation:
We have audited the accompanying consolidated balance sheets of Exide
Corporation (a Delaware corporation) and subsidiaries as of March 31, 1995 and
1996, 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, 1996. 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, 1995 and 1996, and the results of their
operations and their cash flows for each of the three fiscal years in the
period ended March 31, 1996, 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 accompanying
index to consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Philadelphia, Pa.,
June 28, 1996
F-2
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(IN THOUSANDS)
MARCH 31
----------------------
1995 1996
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents............................. $ 63,361 $ 47,259
Receivables, net of allowance for doubtful accounts of
$23,274 and $45,350.................................. 335,388 600,329
Inventories........................................... 476,481 595,161
Prepaid expenses and other............................ 16,785 28,612
Deferred income taxes................................. 19,388 20,672
---------- ----------
Total current assets................................ 911,403 1,292,033
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Land.................................................. 48,320 62,086
Buildings and improvements............................ 124,260 220,546
Machinery and equipment............................... 355,189 463,431
Construction in progress.............................. 28,156 52,704
---------- ----------
555,925 798,767
Less--Accumulated depreciation and amortization....... (132,049) (220,045)
---------- ----------
Property, plant and equipment, net.................... 423,876 578,722
---------- ----------
OTHER ASSETS:
Goodwill, net......................................... 185,111 673,045
Investments in affiliates............................. 36,095 24,446
Deferred financing costs, net......................... 21,590 33,412
Deferred income taxes................................. 33,024 66,747
Other................................................. 26,490 43,024
---------- ----------
302,310 840,674
---------- ----------
Total assets........................................ $1,637,589 $2,711,429
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE DATA)
CURRENT LIABILITIES:
Short-term borrowings................................. $ 75,010 $ 8,310
Current maturities of long-term debt.................. 51,731 30,477
Accounts payable, trade and other..................... 191,534 279,225
Accrued interest...................................... 5,655 22,248
Accrued compensation.................................. 34,238 105,639
Product warranty reserve.............................. 19,053 37,654
Other current liabilities............................. 138,307 204,057
---------- ----------
Total current liabilities........................... 515,528 687,610
---------- ----------
LONG-TERM DEBT......................................... 518,394 1,301,238
---------- ----------
NONCURRENT RETIREMENT OBLIGATIONS...................... 92,809 127,320
---------- ----------
OTHER NONCURRENT LIABILITIES........................... 70,082 127,211
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 13 and 15)
MINORITY INTEREST...................................... 27,546 28,650
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 30,000,000 shares autho-
rized, 19,991,810 and 20,893,693 shares issued and
outstanding.......................................... 200 209
Additional paid-in capital............................ 443,446 490,919
Accumulated deficit................................... (25,837) (36,121)
Notes receivable--stock award plan.................... (1,774) (1,696)
Unearned compensation................................. (1,806) (710)
Minimum pension liability adjustment.................. (5,527) (5,956)
Cumulative translation adjustment..................... 4,528 (7,245)
---------- ----------
Total stockholders' equity.......................... 413,230 439,400
---------- ----------
Total liabilities and stockholders' equity.......... $1,637,589 $2,711,429
========== ==========
The accompanying notes are an integral part of these statements.
F-3
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE DATA)
FOR THE FISCAL YEAR ENDED MARCH 31
-------------------------------------
1994 1995 1996
----------- ----------- -----------
NET SALES............................... $ 679,649 $ 1,198,546 $ 2,342,616
COST OF SALES........................... 521,396 932,866 1,788,231
----------- ----------- -----------
Gross profit.......................... 158,253 265,680 554,385
----------- ----------- -----------
OPERATING EXPENSES:
Selling, marketing and advertising.... 69,810 130,774 272,076
General and administrative............ 26,685 70,744 153,086
----------- ----------- -----------
96,495 201,518 425,162
----------- ----------- -----------
Operating income.................... 61,758 64,162 129,223
INTEREST EXPENSE, net................... 33,150 52,565 120,600
OTHER EXPENSE, net...................... 597 874 1,893
----------- ----------- -----------
Income before income taxes, minority
interest, extraordinary loss and
cumulative effect of accounting
change............................... 28,011 10,723 6,730
PROVISION FOR INCOME TAXES.............. 10,794 5,160 6,300
----------- ----------- -----------
Income before minority interest,
extraordinary loss and cumulative
effect of accounting change.......... 17,217 5,563 430
MINORITY INTEREST....................... -- 1,072 (509)
----------- ----------- -----------
Income before extraordinary loss and
cumulative effect of accounting
change............................... 17,217 4,491 939
EXTRAORDINARY LOSS RELATED TO EARLY
RETIREMENT OF DEBT, net of income tax
benefit of $2,320 and $5,958........... -- (3,597) (9,600)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE--
ADOPTION OF SFAS 106................... (12,711) -- --
----------- ----------- -----------
Net income (loss)................... $ 4,506 $ 894 $ (8,661)
=========== =========== ===========
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Income before extraordinary loss and
cumulative effect of accounting
change............................... $ 1.56 $ 0.28 $ 0.05
Extraordinary loss.................... -- (0.22) (0.47)
Cumulative effect of accounting
change............................... (1.15) -- --
----------- ----------- -----------
Net income (loss)................... $ 0.41 $ 0.06 $ (0.42)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING... 11,058,185 16,191,075 20,384,806
=========== =========== ===========
The accompanying notes are an integral part of these statements.
F-4
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(IN THOUSANDS)
NOTES MINIMUM FOREIGN
ADDITIONAL RECEIVABLE-- PENSION CURRENCY
PREFERRED COMMON PAID-IN ACCUMULATED STOCK AWARD UNEARNED LIABILITY TRANSLATION
STOCK STOCK CAPITAL DEFICIT PLAN COMPENSATION ADJUSTMENT ADJUSTMENT
--------- ------ ---------- ----------- ------------ ------------ ---------- -----------
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
Net loss for fiscal
1996.................. -- -- -- (8,661) -- -- -- --
Common stock issued for
acquisitions.......... -- 9 48,135 -- -- -- -- --
Common stock issued
under employee stock
purchase plan......... -- -- 100 -- -- -- -- --
Forfeiture of common
stock grants.......... -- -- (762) -- 78 709 -- --
Amortization of
unearned compensation. -- -- -- -- -- 387 -- --
Cash dividends paid
($0.08/share) ........ -- -- -- (1,623) -- -- -- --
Minimum pension
liability adjustment.. -- -- -- -- -- -- (429) --
Translation adjustment. -- -- -- -- -- -- -- (11,773)
------- ---- -------- -------- ------- ------- ------- --------
BALANCES AT MARCH 31,
1996................... $ -- $209 $490,919 $(36,121) $(1,696) $ (710) $(5,956) $ (7,245)
======= ==== ======== ======== ======= ======= ======= ========
The accompanying notes are an integral part of these statements.
F-5
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE FISCAL YEAR ENDED MARCH 31
------------------------------------
1994 1995 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $ 4,506 $ 894 $ (8,661)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities--
Depreciation and amortization........ 30,613 48,524 106,717
Cumulative effect of accounting
change.............................. 12,711 -- --
Extraordinary loss................... -- 3,597 9,600
Deferred income taxes................ 7,266 (863) 300
Original issue discount on notes..... 7,941 8,942 12,411
Provision for losses on accounts
receivable.......................... 379 3,238 4,016
Minority interest.................... -- 1,072 (509)
Changes in assets and liabilities
excluding effects of acquisitions--
Receivables.......................... (11,912) (32,608) (24,973)
Inventories.......................... (7,701) (138,568) 46,832
Prepaid expenses and other........... (5,960) 14,522 16,522
Payables and accrued expenses........ 19,636 32,984 (131,035)
Other, net........................... (8,115) (10,868) (7,901)
---------- ----------- -----------
Net cash provided by (used in)
operating activities.............. 49,364 (69,134) 23,319
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of certain businesses..... (7,707) (262,995) (401,325)
Capital expenditures................... (47,164) (61,257) (106,385)
Proceeds from sale of property, plant
and equipment......................... 12 1,356 20,619
---------- ----------- -----------
Net cash used in investing activi-
ties.............................. (54,859) (322,896) (487,091)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term
borrowings............................ -- 20,402 (71,701)
Repayment of U.S. Credit Agreement
borrowings............................ (66,000) (105,000) (194,500)
Borrowings under U.S. Credit Agreement. -- 286,500 --
Repayment of European term loans....... -- (1,421) (51,265)
Repayment of Former European Facilities
Agreement............................. -- -- (156,873)
Borrowings under European Facilities
Agreement............................. -- -- 436,940
Issuance of 2.9% Convertible Senior
Subordinated Notes.................... -- -- 287,797
Issuance of 10% Senior Notes........... -- -- 300,000
Repayment of Guaranteed Unsecured Loan
Notes................................. -- -- (35,282)
Repayment of Spanish Convertible Notes. -- -- (23,675)
Redemption of preferred stock.......... (6,462) -- --
Proceeds from public offerings, net of
fees.................................. 116,499 247,519 --
Dividends paid......................... (276) (1,284) (1,623)
Decrease in other debt................. (5,060) (4,211) (9,455)
Debt issuance costs.................... -- (24,191) (30,890)
---------- ----------- -----------
Net cash provided by financing
activities........................ 38,701 418,314 449,473
---------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS.................... -- 3,370 (1,803)
---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. 33,206 29,654 (16,102)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.................................. 501 33,707 63,361
---------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD. $ 33,707 $ 63,361 $ 47,259
========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized). $ 24,080 $ 41,442 $ 86,557
Income taxes......................... $ 2,349 $ 4,047 $ 9,243
The accompanying notes are an integral part of these statements.
F-6
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER-SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations
Exide Corporation and all of its majority-owned subsidiaries (the "Company")
is a leading manufacturer and marketer of starting, lighting and ignition
("SLI") batteries. The Company produces SLI batteries for both the aftermarket
and original equipment manufacturers ("OEM") markets in North America and
Europe. The Company also manufactures and markets industrial batteries in
Europe. Industrial sales include both standby and traction battery lines.
Individual customers include telecommunication companies, European navies and
the electric vehicle operations of large European companies. Other products
manufactured include batteries for trucks, farm equipment and other off-road
vehicles, boats, garden tractors and golf carts, battery chargers and
accessories, wheel weights, and remanufactured starters and alternators.
Seasonality and Weather
The automotive aftermarket is seasonal as retail sales of replacement
batteries are generally higher in the fall and winter (the Company's second
and third fiscal quarters). Accordingly, demand for the Company's automotive
batteries is generally highest in the fall and early winter as retailers build
inventories in anticipation of the winter season. European sales are
concentrated in the fourth calendar quarter (the Company's third fiscal
quarter), due to the shipment of batteries for the winter season and the
practice of many industrial battery customers (particularly governmental and
quasi governmental entities) of deferring purchasing decisions until the end
of the calendar year. Demand for automotive batteries is significantly
affected by weather conditions. Unusually cold winters or hot summers
accelerate battery failure and increase demand for automotive replacement
batteries.
Major Customers
The Company has a number of major customers both in North America and in
Europe. The Company's five largest customers are large U.S. retailers which
account for 40%, 26% and 16% of consolidated net sales in fiscal 1994, 1995
and 1996, respectively. Included among these five customers is NAPA, a North
American customer, which accounted for approximately 16.2%, 9.4% and 5.3% of
consolidated net sales in fiscal 1994, 1995 and 1996, respectively.
Principles of Consolidation
The consolidated financial statements include the accounts of Exide
Corporation and all of its majority- owned subsidiaries. All significant
intercompany transactions have been eliminated.
The investments in and the operating results of 20%- to 50%-owned companies
are included in the consolidated financial statements on the basis of the
equity method of accounting. The Company's equity in 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 a separate
component of stockholders' equity and transaction gains and losses are
included in Other Expense, net. The Company recorded transaction (losses)
gains of $(48), $(837) and $6,453 in fiscal 1994, 1995 and 1996, respectively.
F-7
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories, which consist of material, labor and overhead, are stated at
the lower of cost or market. Cost is determined by the last-in, first-out
("LIFO") method for most U.S. inventories and by the first-in, first-out
("FIFO") method for all remaining inventories.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is calculated
by the straight-line method over the estimated useful lives of depreciable
assets. Accelerated methods are used for tax purposes. Useful lives of
depreciable assets, by class, are as follows:
Buildings and improvements..... 5 to 40 years
Machinery and equipment........ 3 to 10 years
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 $725, $1,678 and $2,341 of interest costs
during the fiscal years ended March 31, 1994, 1995 and 1996, respectively.
Depreciation expense was $25,007, $38,417 and $77,397 for the fiscal years
ended March 31, 1994, 1995 and 1996, respectively.
Goodwill
Goodwill is amortized over 40 years on a straight-line basis. Accumulated
amortization as of March 31, 1995 and 1996, was $13,864 and $29,517,
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.
Other Assets
Other assets consist principally of prepaid pension costs related to
overfunded pension plans and noncurrent receivables.
Estimated Warranty Costs
The Company recognizes the estimated cost of warranty obligations in the
period in which the related products are sold. These estimates are based on
historical trends.
Interest Rate Agreements
The differential to be paid or received is accrued as interest rates change
and is recognized over the life of the agreements.
F-8
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 in accounting for deferred taxes. If it is more likely than
not that some portion or all of a deferred tax asset will not be realized, a
valuation allowance is recognized.
Noncurrent Retirement Obligations
Noncurrent retirement obligations consist principally of reserves for
pension obligations, postretirement health care and other retirement benefits.
Other Noncurrent Liabilities
Other noncurrent liabilities consist principally of reserves for
environmental cleanup and for severance associated with restructurings and
plant closures.
Earnings Per Share
The net income (loss) per common and common equivalent share is based on the
weighted average number of common and common equivalent shares outstanding
during the period. Fully diluted earnings per share are not materially
different from primary earnings per share.
Revenue Recognition
The Company records a sale upon transfer of title to the customer.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Risks Associated with International Operations and Currency Risk
The Company's international operations are subject to risks normally
associated with foreign operations, including, but not limited to, the
disruption of markets, changes in export or import laws, restrictions on
currency exchanges, and the modification or introduction of other government
policies with potentially adverse effects. As a result of its recent
acquisitions (Note 3), the majority of the Company's sales and expenses are
denominated in currencies other than U.S. dollars and changes in exchange
rates may have a material effect on the Company's reported results of
operations and financial position. In addition, a significant portion of the
Company's indebtedness relating to foreign acquisitions is denominated in U.S.
dollars whereas the related sales are denominated in foreign currencies.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets" which requires
asset impairment losses to be recognized if the sum
F-9
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of future expected cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset. The Company is required to adopt
the provisions of this Statement in fiscal 1997. Management is in the process
of evaluating the impact of adoption; however, they do not believe the
adoption will have a significant impact on results of operations or financial
position.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" which defines a fair value based method of accounting for
employee stock compensation plans and encourages, but does not require, the
use of this method of accounting for financial statement purposes. If an
entity continues to measure compensation cost for those plans using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees," pro forma disclosures of net
income and earnings per share are required to show the effect of using the
fair value based method of accounting. The Company is required to adopt this
Statement in fiscal 1997 and has elected to follow the disclosure only method.
2. STOCKHOLDERS' EQUITY:
Effective October 28, 1993, the Company completed an initial public offering
("IPO") of its common stock, which raised $92,000 (before fees and expenses)
for the issuance of 4,600,000 shares of common stock including the underwriter
overallotment option. In connection with the IPO, the Company increased the
authorized shares of common stock from 1,000 to 30,000,000. The shareholders
exchanged all outstanding shares of common stock for shares of common stock of
the Company on a 1.29-to-1 basis. The fiscal 1994 share and per-share amounts
reflect the effects of the IPO. The Company also repurchased the remaining
Preferred Stock at carrying value for $6,462 held by Wilmington Securities
("WSI") and certain members of management.
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 $258,750 (before fees and expenses)
through the issuance of 5,175,000 additional shares of common stock, including
the underwriter overallotment option.
3. ACQUISITIONS:
In May 1995, the Company acquired 99.7% of the outstanding 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). Subsequent open market purchases of CEAc stock have
increased the ownership to 100%. The cost of the acquisition has been
allocated on the basis of the estimated fair value of the assets acquired and
the liabilities assumed. Included in the liabilities is $79,000 related to
severance benefits to be paid to certain employees who will be terminated as a
result of the Company's European consolidation and targeted plant closings.
Through March 31, 1996, $7,800 of severance benefits have been paid. Remaining
expenditures are expected to occur over the next several years as the Company
is required to comply with European Union and other applicable regulations. In
accordance with Emerging Issues Task Force Issue No. 87-11 ("EITF 87-11"),
reserves of $12,000 have been established for the expected 12-month operating
losses attributable to certain manufacturing and distribution facilities
acquired that have been identified for closure and sale. As of March 31, 1996,
$10,100 has been incurred and charged against such reserves.
This acquisition was accounted for as a purchase and the results of CEAc's
operations are included in the Company's consolidated statement of operations
effective June 1, 1995. CEAc, which is headquartered in France, is one of the
largest SLI producers and the largest industrial battery manufacturer in
Europe, with operations primarily in France, Italy and Germany.
F-10
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 remaining 5% ownership to Tudor at the
tender offering price in accordance with the terms of the purchase agreement.
After completion of this sale and subsequent open market purchases of Tudor
stock, the Company's ownership in Tudor is approximately 95.8%. In addition,
the Company provided a letter of credit which guaranteed payment of the
convertible bonds held by that same shareholder. Tudor, which is headquartered
in Madrid, Spain, is the third-largest lead acid battery producer in Western
Europe.
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 allocated on
the basis of the estimated fair value of the assets acquired and the
liabilities assumed. Included in the liabilities are reserves established, in
accordance with EITF 87-11, for the actual 12-month operating losses
attributed to certain manufacturing and distribution facilities acquired that
have been identified for closure and sale. Approximately $23,600 of such
reserves were established, all of which have been utilized. In addition, the
Company recorded a liability of $74,000, including $19,000 recorded in fiscal
1996, related to severance benefits to be paid to certain employees who will
be terminated as a result of the restructuring and plant closings. At certain
locations, government approval is required before notice can be given to
employees. Total goodwill resulting from the CEAc and Tudor acquisitions was
$585,000.
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 BIG's
operations 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 value of the assets acquired and the liabilities
assumed. This acquisition resulted in goodwill of approximately $30,084. BIG
is an SLI battery manufacturer based in Wales.
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 entity, Exide Batteries Limited. In
exchange for PT Sapta's interest in Gemala, the Company gave PT 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 at any time after
five years from the closing date of the transaction for a defined multiple of
earnings.
In January 1996, the Company acquired the remaining 25% minority interest in
a subsidiary of CEAc, in exchange for 350,000 shares of the Company's common
stock valued at $17,238.
On August 31, 1995, the Company acquired Schuylkill Holdings, Inc. ("SHI")
from Heller Financial, Inc. ("Heller") through a merger, and purchased all of
SHI's stock options and subordinated notes from various holders and the
secured debt of SHI's operating subsidiary, Schuylkill Metals Corporation, the
owner of two lead smelters in Louisiana and Missouri. The Company paid $2,000
in cash for SHI's stock, options and notes; for the secured debt, it issued
593,210 shares of its common stock valued at $31,000, paid $3,700 in cash and
issued a contingent note, the value of which will be based on market lead
prices. Under the terms of the purchase agreement, the Company is required to
make an additional payment to Heller in fiscal 2000 if lead prices for the
four-and-one-half-year period subsequent to the acquisition date reach defined
levels. Based on the Company's current projection of lead prices for such
period, in the fourth quarter of fiscal 1996, the Company increased goodwill
by $10,000. The Company and Heller also entered into an agreement to share
certain tax liabilities of SHI. The purchase price was allocated primarily to
receivables, inventories and fixed assets and resulted in $22,000 of goodwill.
F-11
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. In June 1996, the Company sold certain assets related to a division
of Evanite for $13,000 cash.
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 summarized unaudited pro forma consolidated results of
operations for the fiscal years ended March 31, 1995 and 1996, illustrate the
estimated effects of the acquisitions, as if the transactions were consummated
as of the beginning of each fiscal year presented:
1995 1996
---------- ----------
Net sales.......................................... $2,292,729 $2,474,640
---------- ----------
Loss before extraordinary item..................... $ (5,484) $ (5,271)
---------- ----------
Net loss........................................... $ (9,081) $ (14,871)
---------- ----------
Pro forma earnings per common and common equivalent
share:
Loss before extraordinary item................... $ (0.27) $ (0.26)
---------- ----------
Net loss......................................... $ (0.44) $ (0.72)
---------- ----------
Pro forma adjustments include only the effects of events directly
attributable to a transaction that are factually supportable and expected to
have a continuing impact. Pro forma adjustments reflecting anticipated
"efficiencies" in operations resulting from a transaction are not permitted
and, therefore, are not reflected herein. The above unaudited pro forma
financial information is not necessarily indicative of the results that would
actually have been obtained if the transactions had been effected on the dates
indicated or that may be obtained in the future.
4. INVENTORIES:
Inventories as of March 31, 1995 and 1996, are as follows:
1995 1996
-------- --------
Raw materials.......................................... $ 98,872 $138,809
Work-in-process........................................ 43,840 94,340
Finished goods......................................... 333,769 362,012
-------- --------
$476,481 $595,161
======== ========
At March 31, 1995 and 1996, inventories valued by the LIFO method were
approximately 42% and 29% of consolidated inventories, respectively. If all
inventories had been determined using the first-in, first-out method, such
inventories would have been $459,414 and $578,094 at March 31, 1995 and 1996,
respectively. The carrying amount of inventories on a LIFO basis exceeds
replacement cost. LIFO inventories reflect the fair value of inventories as of
August 31, 1989, when all of the outstanding common shares of the Company were
acquired
F-12
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in a leveraged buyout, as inventories subsequently produced cost less to
manufacture. The Company believes that no write-down of the carrying amount of
inventories to replacement cost is necessary, as no loss will be realized upon
their final sale.
In connection with the purchase of lead for anticipated manufacturing
requirements, the Company enters into commodity forward and futures contracts.
These contracts are used as a hedging strategy to help protect against
volatility in lead prices. During fiscal 1996, lead prices increased
significantly. The Company remains at risk for possible changes in the market
value of the commodity contracts; however, such risk should be mitigated by
price changes in lead. The contracts are accounted for as hedges and,
accordingly, gains or losses are deferred and recognized in inventory upon
execution of the contract. At March 31, 1996, the Company had outstanding
contracts hedging lead purchases through December 1997 at fixed prices of
approximately $88,697 for 127,400 metric tons.
5. SHORT-TERM BORROWINGS:
At March 31, 1995 and 1996, short-term borrowings consisted of various
operating lines of credit and working capital facilities maintained by certain
of the Company's foreign subsidiaries. These borrowings are secured by
receivables, inventories or property. These facilities, which are typically for
one-year renewable terms, generally bear interest at the current market rates
plus up to 1%. As of March 31, 1995 and 1996, the weighted average interest
rate on these borrowings was 8.9% and 10.9%, respectively.
6. LONG-TERM DEBT:
Following is a summary of the Company's long-term debt at March 31, 1995 and
1996:
1995 1996
-------- ----------
U.S. Credit Agreement borrowings primarily at LIBOR
plus 2.5% at March 31, 1995 (8.8%).................... $194,500 $ --
10% Senior Notes, due April 15, 2005................... -- 300,000
10.75% Senior Notes, due December 15, 2002............. 150,000 150,000
12.25% Senior Subordinated Deferred Coupon Debentures,
due December 15, 2004................................. 79,772 89,856
2.90% Convertible Senior Subordinated Notes, due
December 15, 2005..................................... -- 290,124
European Facilities Agreement, borrowings primarily at
LIBOR plus 1.5% (ranging from 5.6% to 10.9% at March
31, 1996)............................................. -- 436,940
European Term Loans at rates ranging from 5.0% to 11.9%
at
March 31, 1995 and 7.6% to 10.1% at March 31, 1996.... 63,286 12,021
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, 1995 (6.1%), due on demand.................. 35,868 --
Other, primarily capital lease obligations at interest
rates ranging from 3.7% to 11.0% due in installments
through 2015, and other debt.......................... 23,000 52,774
-------- ----------
570,125 1,331,715
Less--Current maturities............................... 51,731 30,477
-------- ----------
$518,394 $1,301,238
======== ==========
F-13
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In December 1995, the Company issued 2.9% Convertible Senior Subordinated
Notes due December 15, 2005, with a face amount of $397,900 discounted to
$287,797, after the underwriters' exercise of their overallotment option.
These notes have a coupon rate of 2.9% with a yield to maturity of 6.75%. The
notes are convertible into the Company's common stock at a conversion rate of
12.5473 shares per $1,000 principal amount at maturity, subject to adjustments
in certain events. The Company used the funds to repay indebtedness under the
U.S. Credit Agreement.
On November 30, 1995, the Company entered into a Pan-European,
multicurrency, multiborrower credit facility ("European Facilities
Agreement"). The facility contains a Tranche A term loan in the amount of
236,000 French francs (U.S. $46,905), a Tranche B term loan in the amount of
930,000 French francs (U.S. $184,839), and a revolving facility of 1,403,000
French francs (U.S. $278,849). The Tranche A term loan matures on November 30,
2000, and the Tranche B term loan matures on November 30, 2002. Both term
loans require semiannual principal payments throughout their terms. The
revolving facility expires on September 30, 2002. Substantially all of the
Company's European bank debt, including indebtedness under the former European
Facilities Agreement that was utilized to finance a portion of the CEAc
acquisition, was refinanced with this European Facilities Agreement.
Borrowings under the European Facilities Agreement bear interest at local
market rates (comparable to LIBOR) plus a margin of 1.5% per annum, reducing
in 0.25% increments beginning after one year to 1.0% so long as the European
borrowing group, as defined, meets and maintains certain interest coverage and
leverage tests.
Borrowings under the European Facilities Agreement are supported by
guarantees of most of the Company's European subsidiaries and secured by
pledges of the stock of the Company's Euro Exide, CEAc and Tudor subsidiaries.
The European Facilities Agreement contains a number of financial and other
covenants customary for such agreements including restrictions on new
indebtedness, liens, minimum net worth, leverage rates, acquisitions and
capital expenditures.
In April 1995, the Company issued $300,000 in aggregate principal amount of
10% Senior Notes, the net proceeds of which were used, along with borrowings
under the U.S. Credit Agreement, to finance the CEAc acquisition. The 10%
Senior Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after April 15, 2000, initially at 105% of the principal
amount, plus accrued interest, declining to 100% of the principal amount, plus
accrued interest on or after April 15, 2002.
Effective August 30, 1994, the Company entered into a new U.S. Credit
Agreement that initially provided a borrowing capacity of $550,000 with three
components: Term Loan A ($100,000), having a five-year term; Term Loan B
($100,000), having a seven-year term; and a Revolving Credit Facility
($350,000, subsequently reduced to $185,000 as of March 31, 1996), expiring
September 30, 1999. Both Term Loan A and Term Loan B were repaid during fiscal
1996. The Revolving Credit Facility provides for the Company's working capital
and letter of credit needs. As of March 31, 1996, the Company had $11,751 of
letters of credit outstanding and $173,249 of additional availability under
the Revolving Credit Facility. Subsequent to March 31, 1996, the Revolving
Credit Facility was reduced to $165,000 and borrowings are limited by the
amount of eligible domestic receivables and inventory. The U.S. Credit
Agreement contains a number of financial and other covenants that, among other
things, place restrictions on dividends, new indebtedness, liens, acquisitions
and capital expenditures. Substantially all of the assets, less receivables
sold, of the Company's U.S. operations are pledged as collateral for the U.S.
Credit Agreement.
Initial borrowings under the new U.S. Credit Agreement 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.
F-14
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Debt issuance costs of $20,228 were incurred in connection with the new U.S.
Credit Agreement. Amortization of deferred financing costs related to the
current and previous Credit Agreements amounted to $1,418 in fiscal 1994,
$2,249 in fiscal 1995 and $3,002 in fiscal 1996. In fiscal 1995, the Company
expensed $2,000 of bridge loan commitment fees.
In connection with the issuance of the 12.25% Senior Subordinated
Debentures, 10.75% Senior Notes, 10% Senior Notes and 2.9% Convertible Senior
Subordinated Notes, the Company incurred financing costs of $27,813.
Amortization related to this senior debt during fiscal 1994, 1995 and 1996 was
$649, $784 and $2,215, respectively.
Tudor and certain of its subsidiaries had outstanding term loan arrangements
with financial institutions secured primarily by property. The Spanish
convertible debentures were issued by Tudor in December 1993 and were
refinanced in connection with the European Facilities Agreement in November
1995.
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). The Loan Notes were secured by a Company-purchased, British
pound-denominated certificate of deposit (cash equivalent) of equal amount. On
April 13, 1995, the certificate of deposit was redeemed and the proceeds were
used to fully redeem the Loan Notes.
In fiscal 1996, deferred financing costs were written off due to early
repayment of the former European Facilities Agreement, European Term Loans,
Spanish Convertible Debentures and Term Loan A and Term Loan B under the U. S.
Credit Agreement, as well as permanent reductions in the Revolving Credit
Facility under the U.S. Credit Agreement, resulting in an extraordinary loss
of $9,600 net of $5,958 income tax benefit.
The Company enters into interest rate hedge agreements to manage interest
costs and exposure to changing interest rates. 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 and European Facilities
Agreements to no more than 8% and no less than 5.5% graduating up to 7.5%
through December 30, 1997. 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. During
fiscal 1994, 1995 and 1996, the Company recognized $2,433, $24 and $580,
respectively, of additional interest expense related to these swap and collar
agreements.
Annual principal payments required under long-term debt obligations are as
follows:
FISCAL YEAR AMOUNT
----------- ---------
1997.............................. $ 30,477
1998.............................. 42,812
1999.............................. 42,793
2000.............................. 41,072
2001.............................. 40,826
Thereafter........................ 1,133,735
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
F-15
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
The components of net periodic pension cost for the defined benefit plans
and pension expense for the defined contribution plans for the fiscal years
ended March 31, 1994, 1995 and 1996, are as follows:
1994 1995 1996
------- ------- --------
Defined Benefit Plans:
Service cost of current
period................... $ 616 $ 1,217 $ 1,378
Interest cost on projected
benefit obligation....... 3,834 4,609 5,474
Actual return on plan as-
sets..................... (5,809) 3,173 (11,721)
Net amortization and de-
ferrals.................. 2,058 (7,909) 7,306
------- ------- --------
Net defined benefit pen-
sion expense........... 699 1,090 2,437
Defined Contribution Plan... 2,039 2,003 2,167
------- ------- --------
Total pension expense... $ 2,738 $ 3,093 $ 4,604
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
------------------
1995 1996
-------- --------
Actuarial present value of:
Vested benefit obligation............................. $ 60,597 $ 70,309
-------- --------
Accumulated benefit obligation........................ $ 62,838 $ 73,300
-------- --------
Actuarial present value of:
Projected benefit obligation.......................... $ 64,497 $ 74,617
Plan assets at fair value............................. 48,833 60,414
-------- --------
Plan assets less than projected benefit obligation.... (15,664) (14,203)
Prior service cost.................................... 1,624 1,614
Unrecognized net loss................................. 9,124 8,826
Additional minimum liability recognized............... (9,234) (10,087)
-------- --------
Accrued pension cost recognized in the consolidated
balance sheet........................................ $(14,150) $(13,850)
======== ========
The weighted average interest rates used in determining the projected
benefit obligation were 8.5% and 7.75%, respectively, as of March 31, 1995 and
1996. 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, 1995 and 1996. The pension plan assets are invested primarily in
equity and fixed income securities.
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
F-16
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
additional minimum liability $6,567 and $853, the intangible asset $55 and
$193, and the charge against equity $6,512 and $660 (tax-effected to $4,197
and $417) in fiscal 1995 and 1996, respectively.
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 and $4,953 in
fiscal 1995 and 1996, respectively. The accrued pension liability, reflected
in Noncurrent Retirement Obligations as of March 31, 1995 and 1996, relates to
the defined benefit plans which are not funded, approximate the projected
benefit obligation. The projected benefit obligation of such plans is $59,600
and $72,700, as of March 31, 1995 and 1996, of which $56,300 and $67,600,
respectively, is vested. The discount rates used in determining the actuarial
present value of the projected benefit obligation ranged from 6.5% to 9.5% and
the assumed increase in future compensation levels ranged from 3.5% to 5% in
fiscal 1995 and 1996.
With respect to funded plans, as of March 31, 1996, the Company recognized
$10,400 of prepaid pension costs reflected in Other Assets representing the
overfunded status of a defined benefit plan. The projected benefit obligation
of the plan as of March 31, 1996, is $40,700, of which $26,000 is vested, and
the plan assets at fair value are $51,100. The discount rate used in
determining the projected benefit obligation was 7.75%, the rate of increase
in future compensation levels was 6.5% and the expected long-term rate of
return on plan assets was 9.5%.
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 the United States. In addition, a
limited number of the Company's active U.S. employees may become eligible for
those benefits if they reach normal retirement age while working for the
Company. Prior to fiscal 1994, the Company accounted for these costs on a pay-
as-you-go basis. In the first quarter of fiscal 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 following table sets forth the plan's postretirement benefit liability
as of March 31:
1995 1996
------- -------
Accumulated postretirement benefit obligation ("APBO"):
Retirees, beneficiaries and dependents................... $10,370 $12,399
Fully eligible actives................................... 400 563
Not fully eligible actives............................... 450 1,855
------- -------
Total.................................................. 11,220 14,817
Unrecognized gain (loss)................................... 1,138 (2,242)
------- -------
Accrued postretirement benefit cost recognized in the
consolidated balance sheet................................ $12,358 $12,575
======= =======
F-17
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company charges postretirement benefit costs as accrued, based on
actuarial calculations. The net periodic postretirement benefit cost for
fiscal 1994, 1995 and 1996 included the following components:
1994 1995 1996
------ ---- ------
Service cost............................................. $ 135 $ 99 $ 95
Interest cost............................................ 1,019 856 1,032
------ ---- ------
Net periodic postretirement benefit cost................. $1,154 $955 $1,127
The significant assumptions used to calculate the net periodic
postretirement benefit cost and the accumulated postretirement benefit
obligation as of March 31, 1995 and 1996, were a discount rate of 8.0% and
7.75%, respectively, and medical costs that are assumed to increase at a rate
of 9% per year during fiscal 1996 grading down to 5% per year by 2003. 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, 1996, by approximately $1,247, and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost by
approximately $115.
9. STOCK GRANTS AND OPTIONS:
On April 28, 1993, the Board of Directors adopted an Incentive Compensation
Plan, under which certain members of the Company's management were granted
811,662 shares of the Company's common stock. These shares vest over a five-
year period and have certain restrictions related to sale, transferability,
and 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.
In October 1993, the Board of Directors adopted the Long Term Incentive Plan
("Incentive Stock Plan"), which may grant awards to key employees in the form
of incentive stock options, nonqualified stock options, restricted shares of
common stock or units valued on the basis of long-term performance of the
Company ("Performance Units"). Options may be accompanied by stock
appreciation rights ("Rights"). The maximum aggregate number of shares of
common stock with respect to which options, restricted shares, Performance
Units and Rights granted without accompanying options that may be granted
pursuant to the Incentive Stock Plan is 700,000 shares.
During fiscal 1995, a total of 40,000 restricted shares of the Company's
common stock were granted to certain employees. The market value of the shares
awarded on the date of grant ( $1,935) 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 and $387 in fiscal 1995 and 1996,
respectively. In fiscal 1996, grants for 20,000 shares of the restricted stock
were canceled.
Stock grant and option transactions during fiscal 1994, 1995 and 1996 were
as follows:
1994 1995 1996
-------- -------- -------
Incentive Compensation Plan:
Grants outstanding at April 1............ -- 811,662 788,472
Granted.................................. 811,662 -- --
Canceled................................. -- (23,190) (23,972)
Exercised................................ -- -- (10,822)
Grants outstanding at March 31........... 811,662 788,472 753,678
Exercise price........................... $ 2.25 $ 2.25 $ 2.25
F-18
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1994 1995 1996
---- ------ ---------
Stock Grants:
Grants outstanding at
April 1................ -- -- 40,000
Granted................. -- 40,000 --
Canceled................ -- -- (20,000)
Exercised............... -- -- --
Grants outstanding at
March 31............... -- 40,000 20,000
Grant price............. -- $48.38 $ 48.38
Incentive Stock Plan:
Options outstanding at
April 1................ -- -- --
Granted................. -- -- 102,000
Canceled................ -- -- --
Exercised............... -- -- --
Options outstanding at
March 31............... -- -- 102,000
Exercise price range.... -- -- $29.50 to
$50.00
10. INCOME TAXES:
The provision for income taxes includes federal, state and foreign taxes
currently payable and those deferred because of temporary differences between
the financial statement and tax bases of assets and liabilities. The
components of the provision for income taxes for the fiscal years ended March
31, 1994, 1995 and 1996, are as follows:
1994 1995 1996
------- ------- --------
Current:
Federal......................................... $ 1,286 $ 2,940 $ --
State........................................... 1,366 218 700
Foreign......................................... 876 2,865 5,300
------- ------- --------
3,528 6,023 6,000
------- ------- --------
Deferred:
Federal......................................... 6,866 (4,253) (23,838)
State........................................... 400 (911) (2,347)
Foreign......................................... -- 4,301 26,485
------- ------- --------
7,266 (863) 300
------- ------- --------
Total provision............................... $10,794 $ 5,160 $ 6,300
======= ======= ========
Major differences between the federal statutory rate and the effective tax
rate are as follows:
1994 1995 1996
---- ---- -----
Federal statutory rate.................................... 35.0% 35.0% 35.0%
State taxes, net of federal benefit....................... 4.1 (4.2) (22.6)
Nondeductible goodwill.................................... 3.5 15.3 87.1
Difference in rates on foreign subsidiaries............... -- 0.8 11.5
Other, net................................................ (3.8) 1.2 (17.4)
---- ---- -----
Effective tax rate...................................... 38.8% 48.1% 93.6%
==== ==== =====
F-19
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of March 31, 1995 and 1996:
DEFERRED TAX
ASSETS (LIABILITIES)
---------------------
1995 1996
---------- ----------
Deferred Tax Assets:
Operating loss and tax credit carryforwards......... $ 44,672 $ 133,870
Compensation reserves............................... 22,218 37,440
Environmental reserves.............................. 12,888 16,539
Interest............................................ 6,660 10,584
Retirement benefits................................. 6,494 14,553
Self-insurance...................................... 3,681 4,536
Warranty............................................ 2,951 3,310
Other............................................... 15,402 18,607
Valuation allowance................................. (30,528) (129,477)
--------- ----------
84,438 109,962
Deferred Tax Liabilities:
Depreciation/property basis......................... (25,285) (13,824)
Inventory basis difference.......................... (6,741) (5,879)
Other............................................... -- (3,423)
--------- ----------
(32,026) (23,126)
--------- ----------
Net deferred tax asset................................ $ 52,412 $ 86,836
========= ==========
As of March 31, 1996, the Company has net operating loss carryforwards for
U.S. income tax purposes of approximately $86,300, which expire in years 2006
through 2012. Certain of these carryforwards have preacquisition tax
attributes, which will reduce goodwill upon realization. For financial
reporting purposes, a valuation allowance has been recognized to offset the
deferred tax assets related to these preacquisition tax attributes and certain
other deferred tax assets for which it is more likely than not that the
benefits will not be realized.
As of March 31, 1996, certain of the Company's European subsidiaries have
net operating loss and tax credit carryforwards for income tax purposes of
approximately $262,097 which expire in years 1997 through 2003. Most of these
carryforwards are preacquisition tax attributes, which will reduce goodwill
upon realization. For financial reporting purposes, a valuation allowance has
been recognized to offset the deferred tax assets related to these
preacquisition tax attributes and certain nondeductible reserves for which it
is more likely than not that related tax benefits will not be realized. During
fiscal 1996, non-U.S. pre-tax income of the Company was $71,900. Substantially
all of the increase in the valuation allowance relates to deferred tax assets
associated with the European acquisitions.
The Company's net deferred tax assets include certain amounts of net
operating loss carryforwards principally in the U.S., which management
believes are realizable through a combination of anticipated tax planning
strategies and forecasted future taxable income. The Company intends to
implement the necessary tax planning strategies to realize the benefit of such
deferred tax assets. However, failure to achieve forecasted future taxable
income might affect the ultimate realization of recorded net deferred tax
assets.
As of March 31, 1996, the Company has not provided for withholding or U.S.
federal income taxes on undistributed earnings of foreign subsidiaries since
such earnings are expected to be reinvested indefinitely.
F-20
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $75,000
(increased from $40,000 effective December 20, 1995 after being reduced from
$50,000 effective February 17, 1994). As of March 31, 1995 and 1996, gross
uncollected receivables sold under the Receivables Sale Agreement were $43,880
and $112,109, respectively. Losses on receivables sold under this agreement
for the fiscal years ended March 31, 1994, 1995 and 1996, were $1,593, $1,616
and $2,554, respectively, and are included in Other Expense, net in the
Consolidated Statement of Operations.
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 1994, 1995 and 1996, the Company
received payments under this agreement of $694, $174 and $124, respectively.
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.
North America
The Company has been advised by the U.S. Environmental Protection Agency
("EPA") that it is a "Potentially Responsible Party" ("PRP") under the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") or similar state laws at 53 federally defined Superfund or state
equivalent sites. At 23 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, 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 three Superfund sites. Other than these
three sites, the Company's volumetric allocation exceeds 5% at only seven such
Superfund sites (with respect to two of which the
F-21
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company's share of liability has been paid) and its volumetric allocation at
the five sites where the Company's liability has not yet been fully paid
averages 14.5%.
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 incremental
cost of remediation for this approach is estimated to be approximately
$16,000, a substantial portion of the total remedial costs constitute capital
improvements. If the innovative technology is not commercially feasible, the
alternative remediation plan, which entails relocation of the 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, which has been reserved.
The Company is also the primary PRP at the Jones Tire & Battery Superfund
Site in Alabama. Like 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 (less than 2%). 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 $1,430. The
EPA issued a letter in August 1995 stating no further remedial or
investigative action is needed at this site; however, the EPA has referred the
site to the Alabama Department of Environmental Management for final closure.
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 that it has been forced to expend on this matter may 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.
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, cash flows, financial condition or results of operations.
The Company's policy is to accrue for environmental costs when it is probable
that a liability has been incurred and the amount of such liability is
reasonably estimable. While the Company believes its current estimates of
future remediation costs are reasonable, future findings or changes in
estimates could have a material effect on the recorded reserves.
F-22
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1996, the amount of such reserves on the Company's balance sheet was
$28,854. Of this total amount, $22,448 was included in "Other Noncurrent
Liabilities." Because environmental liabilities are not accrued until a
liability is determined to be probable and reasonably estimable, not all
potential future environmental liabilities have been included in the Company's
environmental reserves and, therefore, additional earnings charges are
possible.
In 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. The Company seeks to have the court determine that
CNA and other insurance companies owe the Company a duty to defend and to
reimburse the Company 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 under its insurance policies. The Company is negotiating with
several of the carriers to affect settlement of this matter. Based upon the
current status of these negotiations, during the fourth quarter of fiscal
1996, after consultation with legal counsel, the Company recorded a $7,000
receivable and a corresponding reduction of operating expenses. Legal counsel
and management believe such recovery is probable and expect the ultimate
recovery may be higher.
Europe
The Company is subject to numerous environmental, health and safety
requirements and is exposed to differing degrees of liabilities and compliance
costs arising from its past and current manufacturing and recycling activities
in various European countries. The laws and regulations applicable to such
activities differ from country to country and also substantially differ from
U.S. laws and regulations. Except as disclosed herein, the Company believes,
based upon reports from its foreign subsidiaries and/or independent qualified
opinions, that it is in substantial compliance with all material
environmental, health and safety requirements in each country, except as noted
below.
Certain facilities in France, Germany and Spain are not in compliance with
certain limits contained in air and wastewater treatment discharge permits. In
every case, the Company is working cooperatively with appropriate authorities
to come into compliance. It is possible that the Company could be subject to
fines or penalties with regard to these violations, although management
believes any such fines/penalties will not be material. The cost to upgrade
the facilities to attain compliance is not expected to be material. The
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 plans to consolidate its European manufacturing
operations, it is probable that certain environmental costs will be incurred.
An estimate of the probable liability has been included in the Tudor and CEAc
purchase price allocations.
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. Certain of
F-23
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
these financial instruments are with major financial institutions and expose
the Company to market and credit risks and may at times be concentrated with
certain counterparties or groups of counterparties. The creditworthiness of
counterparties is continually reviewed, and full performance is anticipated.
The methods and assumptions used to estimate the fair value of each class of
financial instruments are set forth below:
. Cash and cash equivalents, accounts receivable and accounts payable--the
carrying amounts of these items are a reasonable estimate of their fair
values at March 31, 1996.
. 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.
. 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 U.S. and European Facilities 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, 1996, the
Company would be obligated to pay $2,881, based on quotes from financial
institutions.
. Lead forward and futures contracts--the estimated fair value of the
outstanding contracts at March 31, 1996, exceed the contract value by
$14,493, based on quotes from brokers.
The carrying values and estimated fair values of the Company's long-term
debt for which the amounts differ are as follows at March 31, 1996:
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
10% Senior Notes...................................... $300,000 $306,870
10.75% Senior Notes................................... 150,000 154.410
12.25% Senior Subordinated Debentures................. 89,856 91,949
2.9% Convertible Senior Subordinated Notes............ 290,124 236,253
15. COMMITMENTS AND CONTINGENCIES:
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 claims
infringement of three Tekmax patents dealing with a device to insert battery
plates into battery separators and processes for doing so. The complaint seeks
damages in excess of the jurisdictional requirement of $50 (although plaintiff
requested $6,000 before the suit was filed). In the course of trial
preparation, plaintiff voluntarily dismissed the claims related to the
infringement of one of the patents and the Company obtained summary judgment
as to the claims of one other patent. The trial of the claims related to the
single patent now in controversy is scheduled to begin in July 1996.
Management, after consultation with legal counsel, 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.
F-24
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is now or recently has been involved in several related lawsuits
pending in state and federal courts in Alabama and North Carolina. These
actions are related because they contain allegations that the Company sold
used batteries as new. The only one of these actions which was certified as a
class action by the trial court was subsequently decertified by action of the
Appellate Court and was subsequently dismissed on June 12, 1996. The remaining
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. The Company is seeking summary dismissal of this action. The
Company disputes all material allegations of these matters and intends to
vigorously defend itself.
The Company is involved in various other claims and litigation incidental to
the conduct of its business. Based on consultation with legal counsel,
management does not believe that any claims or litigation to which the Company
is a party will have a material adverse effect on the Company's financial
condition or results of operations. In the fourth quarter of fiscal 1996, the
Company paid $5,548 as a result of an unfavorable verdict from the U.S. Court
of Appeals in a patent infringement matter. Such amount was recorded as Other
Expense.
Future minimum lease payments under operating and capital leases that have
initial or remaining noncancelable lease terms in excess of one year at March
31, 1996, are:
FISCAL YEAR OPERATING CAPITAL
----------- --------- -------
1997..................................................... $ 35,436 $ 3,064
1998..................................................... 27,460 3,068
1999..................................................... 18,279 2,776
2000..................................................... 10,740 2,658
2001..................................................... 5,331 2,561
Thereafter............................................... 14,484 24,692
-------- -------
Total minimum payments................................... $111,730 38,819
--------
Less interest on capital leases.......................... (14,869)
-------
Total principal payable on capital leases................ $23,950
=======
Rent expense amounted to $14,322, $21,994 and $37,468 for the fiscal years
ended March 31, 1994, 1995 and 1996, respectively.
The Company has various purchase commitments for materials, supplies and
items of permanent investment incident to the ordinary conduct of business. In
the aggregate, such commitments are not at prices in excess of current market.
F-25
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1995 and 1996:
FISCAL QUARTER ENDED
-------------------------------------------
JULY 3, OCTOBER 2, JANUARY 1, MARCH 31,
1994 1994 1995 1995
-------- ---------- ------------ ---------
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)
Per share:
Income (loss) before
extraordinary loss........... $ -- $ 0.68 $ 0.69 $ (0.80)
Extraordinary loss............ -- (0.24) -- --
-------- -------- -------- --------
Net income (loss)............. $ -- $ 0.44 $ 0.69 $ (0.80)
======== ======== ======== ========
FISCAL QUARTER ENDED
-------------------------------------------
JULY 2, OCTOBER 1, DECEMBER 31, MARCH 31,
1995 1995 1995 1996
-------- ---------- ------------ ---------
Net sales....................... $432,320 $628,907 $719,929 $561,460
Gross profit.................... 89,094 145,558 184,370 135,363
Income (loss) before
extraordinary loss............. (14,678) 10,286 22,583 (17,252)
Net income (loss)............... (14,678) 10,286 12,995 (17,264)
Per share:
Income (loss) before
extraordinary loss........... $ (0.74) $ 0.51 $ 1.10 $ (0.83)
Extraordinary loss............ -- -- (0.47) --
-------- -------- -------- --------
Net income (loss)............. $ (0.74) $ 0.51 $ 0.63 $ (0.83)
======== ======== ======== ========
F-26
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
-------- ---------- -------- ----------
Income (loss) before income
taxes, minority interest and
extraordinary loss.............. $ (5,318) $ 16,041 $ -- $ 10,723
-------- ---------- -------- ----------
Identifiable assets.............. $691,391 $ 772,740 $173,458 $1,637,589
-------- ---------- -------- ----------
NORTH
AMERICA EUROPE OTHER CONSOLIDATED
-------- ---------- -------- ------------
Year ended March 31, 1996:
Sales to unaffiliated customers.. $926,543 $1,416,073 $ -- $2,342,616
-------- ---------- -------- ----------
Income (loss) before income
taxes, minority interest and
extraordinary loss.............. $(64,822) $ 71,552 $ -- $ 6,730
-------- ---------- -------- ----------
Identifiable assets.............. $691,832 $1,827,061 $192,536 $2,711,429
======== ========== ======== ==========
Other includes cash and cash equivalents, deferred tax assets, investments
and deferred financing costs.
F-27
SCHEDULE II
EXIDE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(AMOUNTS IN THOUSANDS)
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO WRITE- END
OF PERIOD EXPENSE OFFS OTHER OF PERIOD
---------- ---------- -------- ------- ----------
Year Ended March 31,
1996:
Allowance for doubtful
accounts.............. $23,274 $4,016 $ (7,423) $25,483(1) $45,350
======= ====== ======== ======= =======
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
======= ====== ======== ======= =======
- --------
(1) Acquisitions of certain businesses.
F-28
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 of 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, Wilmington
Securities, Inc. and certain other holders of the Registrant's
Common Stock, incorporated by reference to Exhibit 4.14 to the 1993
Registration Statement.
4.5 Registration Rights Agreement dated as of December 15, 1995 among
the Registrant and the placement agents for the Notes issued under
the Indenture filed as Exhibit 4.7.
4.6 Indenture dated as of April 28, 1995, between the Registrant and The
Bank of New York, as trustee, incorporated by reference to Exhibit
99.3 of the Registrant's Form 8-K dated June 2, 1995 (the "CEAc 8-
K").
4.7 Indenture dated as of December 15, 1995 between the Registrant and
The Bank of New York, as trustee.
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.
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.
EXHIBITS:
---------
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.
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, as amended, 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.
EXHIBITS:
---------
10.26 Facilities Agreement dated November 30, 1995, as amended, among
certain of the Registrant's subsidiaries, the banks listed for the
Credit Agreement, Citibank International plc and other lenders.
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.
27.0 Financial data schedule