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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
----------------------
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 offices) (Zip Code)
Registrant's telephone number, including area code (248) 258-0080
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
. Aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 26, 1997 was approximately $396,000,000.
. 21,336,067 outstanding shares of the Registrant's common stock as of June 26,
1997.
(DOCUMENTS INCORPORATED BY REFERENCE)
Portions of the Proxy Statement relating to the Annual Meeting of Stockholders
to be held August 12, 1997, are incorporated 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 16
Item 3 Legal Proceedings 18
Item 4 Submission of Matters to a Vote of Security Holders 19
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 20
Item 6 Selected Financial Data 21
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
Item 8 Financial Statements and Supplementary Data 28
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 29
PART III
Item 10 Directors and Executive Officers of the Registrant 29
Item 11 Executive Compensation 29
Item 12 Description of Capital Stock 29
Item 13 Certain Relationships and Related Transactions 30
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K 30
SIGNATURES 32
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES F-1
EXIDE CORPORATION
PART I
Item 1. Business
(a) General Development of Business
The Company is a Delaware corporation organized in 1966 to succeed to the
business of a New Jersey corporation founded in 1888 by Thomas A Edison. The
principal executive offices of the Company are located at 1400 North Woodard
Avenue, Bloomfield Hills, Michigan 48304, telephone number (248) 258-0080.
Exide Corporation (together with its subsidiaries, "Exide" or the
"Company") is the leading manufacturer and marketer of starting, lighting and
ignition ("SLI") batteries in the world. During 1994 and 1995 through its
acquisitions of B.I.G. Batteries Group Limited ("BIG"), Sociedad Espanola del
Acumulador Tudor, S.A. ("Tudor") and Compagnie Europeenne d'Accumulateurs S.A.
("CEAc"), as well as its assumption of the customers of Gemala Battery Company
Limited ("Gemala Battery"), the Company became Europe's largest producer
and marketer of SLI batteries and industrial batteries.
Rationalization and Consolidation
The Company is currently implementing a comprehensive overall European
rationalization and consolidation strategy with respect to its recent 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 continues to rationalize its
distribution system, reducing the number of warehouses and improving its
delivery systems. In addition, the Company is rationalizing its product range,
significantly reducing the number of stockkeeping units and improving inventory
management. The Company anticipates that this consolidation will produce
significant cost savings. Exide is also rationalizing its SLI battery brand
strategy in Europe and will concentrate its sales and marketing efforts on its
strongest brands, including Exide, Tudor, Fulmen, Sonnenschein and Hagen
Batterie.
The Company's strategy will reduce its total number of automotive and
industrial battery manufacturing facilities in Europe from 30 as of June 30,
1995 to 12 by the year 2000. To date, the Company has not experienced any
significant labor problems in its restructuring program.
The Company plans to continue rationalizing its manufacturing and
production facilities in North America as well. The Company has closed four
manufacturing facilities in North America within the last two fiscal years.
North America
Exide and its affiliates have a unit market share in SLI batteries of
1
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 acquiring General Battery
Corporation in 1987, the installation of more efficient equipment and processes
and continued vertical integration. The Company's relatively high level of
vertical integration, through lead smelting, plastics reprocessing and separator
production, reduces the effects on Exide of changes in the market prices of raw
materials and can result in substantial raw material cost savings. In August
1995 the Company acquired Schuylkill Holdings, Inc. ("Schuylkill"), a U.S.
company that operates two secondary lead smelters. Exide continues to increase
production at its Bristol, Tennessee battery manufacturing facility, which the
Company intends to be similar to its Salina, Kansas plant, which the Company
believes is the highest volume and one of the lowest cost automotive battery
plants in the world.
For the fiscal year ended March 31, 1997, Exide's North American operations
accounted for approximately 37% of Exide's consolidated net sales.
Europe
Exide targeted the European market as an attractive opportunity because it
is the largest battery market outside of North America and because the Company
believes that its experience with rationalization and consolidation of
manufacturing and distribution operations can be successfully applied in Europe.
The Company believes the battery manufacturing industry in Europe is undergoing
rationalization and consolidation activity similar to that which has occurred in
the United States over the last twenty years. The key components of the
Company's European strategy include maintaining or improving (i) strong market
shares, (ii) broad geographic coverage, (iii) low production costs, (iv)
distribution systems, (v) strong customer relationships and (vi) experienced
management.
In implementing this strategy, the Company acquired two European battery
manufacturers in 1994 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. In October 1994, Exide acquired for
approximately $229.0 million 89.4% (subsequently increased to 95.8%) of the
outstanding capital stock and 25% of the convertible bonds of Tudor,
headquartered in Madrid, Spain, which was the third largest lead acid battery
producer in Western Europe. In March 1994, the Company acquired BIG, an SLI
battery manufacturer based in Wales, for approximately $35.0 million. In
addition, in September 1994, the Company assumed the customers of, and began to
temporarily operate the facilities of, Gemala Battery, a battery producer based
in England. In exchange, the owner of Gemala Battery received an 18.5% interest
in the combined operations of BIG and
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Gemala Battery.
Exide is the leading manufacturer and marketer of SLI and industrial
batteries in Europe with major market presence in most European countries. The
Company believes it is one of the lowest cost, highest quality suppliers of SLI
and industrial batteries in Europe. SLI batteries and industrial batteries
accounted for approximately 52% and 43%, respectively, of the net sales of
Exide's European operations for the fiscal year ended March 31, 1997.
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 1997 were of automotive replacement
batteries. Exide also produces SLI batteries for the European original equipment
manufacturing ("OEM") market. The Company plans to focus its SLI battery
marketing efforts on certain of its strong brands. As in the automotive market,
the Company's industrial battery brands, including Exide, Hagen Batterie, Tudor,
Fulmen, Sonnenschein, Chloride Motive Power, Magneti Marelli and BIG, are well
recognized in their markets.
The Company's European operations are vertically integrated (although to a
lesser extent than its North American operations), with four secondary lead
smelters in Europe. The Company supplies a large part of its own European needs
for plastic components.
For the fiscal year ended March 31, 1997, Exide's European operations
accounted for approximately 63% of Exide's consolidated net sales.
(b) Financial Information About Industry Segments
The Company is primarily engaged in one industry segment, namely, the
manufacture, distribution and sale of lead acid batteries and related
accessories. (See Note 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.
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Products
SLI Batteries. SLI batteries for the automotive aftermarket and the OEM
market represented 67% of consolidated revenues of Exide for the fiscal year
ended March 31, 1997. 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,
Exide maintenance-free batteries that require no watering and have an extended
shelf life and the Exide 911 Emergency Vehicle Battery that employs patented
technology to provide the high performance required for emergency vehicles. In
addition, the Company has introduced a sealed recombinant battery in Europe,
which the Company believes will present a significant opportunity as it has a
longer shelf life and is the first battery sealed in such a manner that allows
the battery to be relocated from the engine to the passenger compartment of the
vehicle.
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 27% of
consolidated revenues of Exide for the fiscal year ended March 31, 1997. 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.
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. The traction battery market is divided into the
OEM market, comprised of the manufacturers of electric vehicles, and the
replacement market, which includes large users of electric vehicles as well as
OEM dealer networks.
In 1991 Exide sold its North American industrial battery product line to
Yuasa-Exide, Inc. ("YEI"), an entity in which the Company has a 13.5% interest.
YEI, 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 consolidated revenues of Exide for the fiscal year ended March
31, 1997. The Company also produces battery chargers and has expanded its
presence in the North American automotive market by adding its Speed Clip line
of battery related accessories and wheel weights and its Sure Start line of
4
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, which is the Company's principal
market. The aftermarket is influenced more by the age and number of vehicles in
service than new production levels and tends to be less cyclical than the OEM
market. In April 1994, Sears Roebuck and Co. ("Sears"), one of the largest
retailers of SLI batteries in the United States, selected the Company as the
primary supplier of its batteries, including the Die Hard brand and in June
1997, the relationship was expanded. The Company is now the principal battery
supplier to Sears and affiliated companies including Sears Auto Centers, Sears
Hardware and the new NTB National Tire and Battery stores. Exide is the leading
supplier for most of the 20 largest battery retailers in the United States,
including Sears, NAPA Distribution Centers, Kmart Corp., CSK Inc., Paccar and
The Pep Boys-Manny, Moe & Jack. The Company also produces SLI batteries for the
OEM market in North America. Customers include Chrysler Corporation, for whom
the Company is the primary battery supplier, as well as John Deere, E-Z-GO, Ford
New Holland, Mitsubishi Motor Manufacturing Company, NAVISTAR and others.
Current management, which is led by Arthur M. Hawkins, Chairman,
President and Chief Executive Officer, who joined Exide in 1985, has transformed
the Company into a marketing-driven business by developing a new customer base
focused on leading mass-merchandisers, auto supply chains and wholesalers and
introducing merchandise displays, innovative packing and programs to assist
customers in marketing and inventory management. To support and expand this
customer base, Exide has expanded its Company-owned distribution system from 12
wholesale branch outlets in 1985 to approximately 130 today. These outlets,
which distribute Exide batteries to both large accounts and local dealers and
other small volume customers, also allow Exide to collect used batteries for
recycling in the Company's lead smelters as part of its recycling program aimed
at reducing costs and protecting the environment. In addition, in recent years
the Company has introduced several new products including an advanced line of
maintenance-free batteries and an emergency vehicle battery. The Company, which
markets its products under various trademarks including Exide, Willard and
Prestolite, has strengthened its brand recognition through promotional
activities, including sponsoring a NASCAR Winston Cup racing team. The Company
also produces and markets, under license from NASCAR, the Exide NASCAR Select
line of batteries and remanufactured starters and alternators. 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
5
European countries. Approximately 52% of the sales of Exide's European
operations in fiscal 1997 were of SLI batteries. The Company has a leading
position in the aftermarket in most European countries. Exide's replacement SLI
battery brands include Fulmen, Sonnenschein, Tudor, Hagen Batterie, LYAC Power,
SONNAK, Anker, BIG and Exide. In addition to the markets in which it has a
direct presence through manufacturing subsidiaries, the Company markets
batteries in and exports batteries to approximately 50 other countries.
The Company is one of the major suppliers to Fiat S.p.A. ("Fiat"), the
Volkswagen group (Volkswagen AG/AUDI AG/Seat/Skoda Automobilova AS), the PSA
group (Peugeot S.A./Citroen), the Renault group and Volvo. By assuming the
customers of Gemala Battery, the Company is also a supplier to Ford Motor Co. in
Europe. As development supplier to the PSA group and several other automobile
manufacturers, Exide works closely with such customers as they develop new
models with varying requirements. As in the United States, OEM battery sales
are closely linked to new vehicle sales.
The Company has the leading market share in industrial batteries in
western Europe. The Company's standby batteries are used for
telecommunications, uninterruptible power supplies, security systems,
submarines, power plants, railways and miscellaneous mobile applications (such
as wheelchairs and golf carts). Major standby battery customers include
telecommunications companies and European armed forces. Major traction battery
customers in Europe include the electric vehicle operations of the Linde group
(Still GmbH, LL Fenwicks, Fiat and Lansing), Clark and Jungheinrich, and to a
wide variety of customers in the aftermarket, ranging from large industrial
concerns to small warehouses. Technical expertise and assistance and customer
service are more important in the industrial battery markets than in the SLI
battery markets and the Company has technical service agreements with a number
of its customers.
Customers. The Company has a number of major retail and OEM customers,
both in North America and Europe. No single customer accounted for more than
10% of consolidated net sales. The Company does not believe that a material
part of its business is dependent upon a single customer the loss of which would
have a material impact on the long-term business of the Company. However, the
loss of one or more of the Company's largest customers would have a negative
short-term impact on the Company's results of operations.
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
6
Company's wholesale outlet distribution system has grown to constitute the third
largest distribution system of SLI batteries in the United States. The
development of its wholesale outlet distribution system, which is supplemented
by regional accounts, small battery wholesalers and battery specialists, has
been a key component in the Company's success and has enabled the Company to
provide cost effective product distribution to the Company's national accounts.
Europe. Exide's European operations distribute their aftermarket SLI
batteries primarily through battery wholesalers, OEM dealer networks,
hypermarkets, European purchasing centers and oil companies, although on a
country by country basis distribution strategy varies greatly. Battery
wholesalers sell and distribute batteries to a network of automotive parts
retailers, service stations, independent retailers and supermarkets throughout
Europe. Wholesalers, who sell to repair shops and service stations, and OEM
dealers represent the large majority of this market, but supermarket chains,
replacement 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.
Research and Development; Quality
In North America, Exide has increased its number of engineers from just 2
in 1985 to 68 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 NASCAR Select line
featuring superior performance and durability characteristics. Exide has
received over 100 new patents since 1985 and is now working on the next
generation of power solutions. The Company's presence in the North American OEM
markets for automobiles and commercial vehicles, particularly its close working
relationship with Chrysler Corporation, helps it to remain current with
technological innovations. Similarly, Exide through its European operations,
devotes substantial efforts to research and development and benefits from its
appointment as development supplier to several major automobile manufacturers.
The Company has received the maximum research
7
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. These efforts include not
only research with lead acid batteries but also more exotic battery technologies
such as lithium ion. The Company participated in the development of an electric
vehicle which has set various speed and endurance records and was demonstrated
at the 1994 Indianapolis 500. The Company is participating in electric vehicle
battery research projects funded by the European Union and a consortium of
battery manufacturers and by the Spanish Ministry of Industry and Energy. The
Company is also running a demonstration fleet in conjunction with the Tennessee
Valley Authority ("TVA").
Exide's performance and product quality has been widely recognized by its
customers. In 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, Navistar QA 7 Award, NAPA Excellence Through
Performance Award, Kmart Innovation of Products and Marketing Award, 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.
For 1997, Exide's quality systems have achieved another milestone by being
recognized for its compliance to QS-9000 standards.
Exide's European operations have received awards for quality automotive
OEM production, including the Formel Q and Most Value to Customer awards from
Volkswagen, and one of the Company's batteries was chosen as the best
replacement battery in France in a study conducted by Auto Plus, a French
automobile magazine. In the industrial market, the Company's standby batteries
have received quality approval certificates from such major telecommunications
companies as the Deutsches Bundespost Telekom and from European defense
organizations. Many of the Company's European facilities have been recognized
for meeting ISO standards.
Manufacturing, Raw Materials and Suppliers
North America. The major reasons for the Company's emergence as the low-
cost producer in the United States and Canadian automotive battery industry have
been the achievement of economies of scale through strategic acquisitions, the
8
consolidation of facilities, the Company's relatively low labor costs and
increased vertical integration in the areas of lead smelting, plastics and
battery separators. Since 1985 and following the acquisition of General Battery
in May 1987, the Company consolidated the operations of 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 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 such smelters in August 1995 through its purchase of Schuylkill, the
Company was purchasing a larger portion of its lead requirements, making the
cost of its batteries more sensitive to lead price changes. The Company obtains
batteries for recycling from its customers and through its wholesale
distribution outlet system. 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.
The Company also produces most of its U.S. plastic molding requirements
utilizing plastic obtained through in-house reclamation of spent battery cases
as part of its recycling program.
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 substantially
all of its North
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American requirements of battery separators. The Company has not experienced any
material stoppage or slowdown in production as a result of the unavailability,
or delays in the availability, of raw materials.
Europe. The Company operates manufacturing plants in France, Italy, Spain,
Portugal, Germany, the United Kingdom and elsewhere in Europe. Through CEAc's
investment in Turkey and its acquisition in Poland, and Tudor's investment in
India, the Company has a presence in Eastern Europe and Asia as well.
Exide has four secondary lead smelters in Europe that supply approximately
32% 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 always 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 is
in the process of lowering fixed and variable production costs through plant
closings, thereby increasing capacity utilization at the remaining plants,
shifting production to lower cost areas and reducing overhead. In conjunction
with its plant closings, the Company is rationalizing its distribution system,
reducing the number of warehouses and improving its delivery systems. In
addition, the Company is reducing administrative expenses by eliminating
duplicate functions and services and plans to rationalize its product range,
significantly reducing the number of stockkeeping units and improving inventory
management. The Company anticipates that this consolidation and rationalization
will produce significant cost savings.
Competition
North America. The United States and Canadian market for SLI and
specialty batteries is mature and highly competitive. Battery manufacturers
compete primarily on the basis of price, quality, service, warranty period and
timeliness of delivery. Generally, sales are made without long-term contracts.
Because the domestic industry has had excess capacity, competition and increased
pressure for cost reduction from SLI battery customers in the SLI aftermarket
and from automotive OEMs and other customers in the OEM markets for SLI
batteries have resulted in declining prices in the last several years and some
smaller competitors were unable to survive.
The Company's primary domestic competitors are Johnson Controls, Inc.,
Delco Remy (a division of General Motors Corporation) and GNB Incorporated (a
subsidiary of Pacific Dunlop, Ltd.). Regional manufacturers are also
significant,
10
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. The 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 previous years. However, during fiscal 1997, this trend has been reversed due
to significantly higher lead costs. Currency fluctuations among the European
countries can have considerable competitive effects. Among Exide's competitors
in Europe are VB Autobatterie GmbH ("Varta/Bosch"), Hawker Batteries, Fiamm,
Delco Remy, Autosil, Hoppecke, Yuasa and Matsushita.
Backlog
The Company does not have a material amount of backlog orders.
Employees
North America. As of March 31, 1997, the Company employed approximately
1,550 salaried employees and approximately 4,480 hourly employees in North
America. Approximately 43% of such salaried employees are engaged in sales,
service and marketing and approximately 45% in manufacturing and engineering.
Approximately 31% of its hourly employees are represented by unions. Relations
with the unions are generally good. Contracts covering approximately 721 and 494
of the Company's union employees expire in fiscal 1998 and 1999, respectively,
and the remainder thereafter.
Europe. As of March 31, 1997, the Company employed approximately 3,523
salaried employees and approximately 6,261 hourly employees in Europe.
Approximately 17% of such salaried employees are engaged in sales, service and
marketing and approximately 63% in manufacturing and engineering. The Company's
hourly employees are generally represented by unions. Relations with the unions
are generally good. Contracts covering the Company's European union employees
expire on various dates through 1999.
Trademarks and Patents
The Company owns or has a license to use various trademarks which are of
value in the conduct of its business. Illustrative of the licenses the Company
enters into is a recent agreement with the National Association for Stock Car
Auto Racing, Inc. ("NASCAR(C)") pursuant to which Exide has the exclusive rights
to market batteries and related accessories bearing the NASCAR name and logo.
The Company has launched a program to market a line of very high quality
batteries and accessories bearing the name NASCAR Select. The initial market
acceptance of these products is most encouraging. While the Company believes
such trademarks and trade names enhance the brand recognition of its products
and therefore are important to its business, the Company also believes that its
products, engineering
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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 54 federally defined Superfund
or state equivalent sites. At 31 of these sites, the Company has either paid or
is in the process of paying its share of liability. Other than the sites
specifically discussed below, 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 has greater than 50% liability at only one Superfund site.
The
12
Company recently paid its share at another site where it was a primary PRP,
discussed below. Other than these sites, the Company's volumetric contribution
exceeds 5% at only five Superfund sites at which the Company's share of
liability has not been paid as of March 31, 1997. The current volumetric
contribution at these five sites averages 12.8%. 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. Management believes,
however, that its PRP status at these Superfund sites will not have a material
adverse effect on the Company's business or financial condition because, based
on the Company's experience, it is reasonable to expect that the liability will
be roughly proportionate to its volumetric contribution of waste to the site.
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") in 1992. The ROD provides two
alternative remedies, one which employs an innovative technology advocated by
the Company which has not yet been used for lead remediation on a production
volume basis, and one which employs a tested and accepted stabilization
technology. EPA sued the Company and the District Court held the Company liable
for the site cleanup. To avoid additional litigation expense, the Company signed
a consent decree to remediate the site with EPA and paid $3.0 million of EPA's
$6.5 million past costs.
The Company was 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 Company remediated the Wortham site at a cost of $.4 million.
The Company has completed the field work in the first quarter of fiscal 1998 and
is awaiting final approval from the Texas Natural Resources Conservation
Commission. No significant future costs are expected for this site.
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.
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
13
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.
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 is 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
specifically for 11 of the Superfund sites. Because environmental liabilities
are not accrued until liability is determined to be probable and reasonably
estimable, not all potential future environmental liabilities have been included
in the Company's environmental reserves and, therefore, additional earnings
charges are possible.
In 1993, the CNA Insurance Companies ("CNA") 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 Corporation, et
al., (the "CNA Action") CNA sought to have the court determine that CNA owed 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 named Northwest Industries, Fruit of the Loom and over 75 other
insurance companies as defendants.
The Company has reached settlements with all but one of its insurers with
respect to the Company's environmental liabilities. 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 Company has taken an active role in addressing environmental issues
associated with its business and has a staff of more than 70, not including
consultants, focusing on environmental, safety and health matters. The Company
maintains numerous permits with the EPA, various state agencies and provincial
regulatory authorities which allow the Company to transport, store and recycle
spent lead acid batteries, lead-bearing hazardous wastes and certain other
hazardous wastes in the United States.
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
14
comprehensive materials recycling program. Under this program, the Company
obtains spent lead-acid batteries through its wholesale distribution outlet
system and lead-bearing materials from third parties. These materials are
transported to the Company's secondary lead smelting facilities. Batteries are
separated at the smelters into three constituent units: lead, dilute sulfuric
acid and plastic casing material. The lead is reclaimed and refined into lead
alloys for use at the Company's battery manufacturing facilities. The plastic
from battery cases is broken into pieces and extruded into pellets by adding
strengtheners and other additives. The pellets are then used at the Company's
battery casing molding facility to make new battery cases. The dilute sulfuric
acid solution is neutralized and discharged in accordance with federal, state
and provincial permits. The Company is investigating methods of recycling spent
battery acid.
Europe. 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."
Certain facilities in France, Poland 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 in the subject facilities.
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
15
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. See Note 13 of
Notes to the Company's Consolidated Financial Statements appearing elsewhere
herein.
(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 2015. In addition to these
properties, Tudor holds a portfolio of undeveloped land totaling approximately
39 acres of which it divests portions from time to time.
Approximate
Location Square Footage Use
- -------------------- --------------------- --------------------------------
North America:
Auburn Hills, MI 5,000 (leased) OEM Engineering and Sales
Baton Rouge, LA 176,000 Secondary Lead Smelting
Bloomfield Hills, MI 10,000 (leased) Executive Offices
Bristol, TN 120,000 (leased) Automotive Accessory Manufacturing
Bristol, TN 510,000 (leased) Battery Manufacturing
Burlington, IA 189,000 Battery Manufacturing
Cannon Hollow, MO 120,000 Secondary Lead Smelting
Cooper, TX 30,000 (leased) Starter and Alternator Manufacturing
Corydon, IN 161,000 Separator Manufacturing
Drummondville, 72,000 Distribution Center
Quebec, Canada
Frankfort, IN 211,000 Distribution Center
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 240,000 Battery Manufacturing
Maple, Ontario, Canada 169,000 Distribution and Administration
Muncie, IN 174,000 Secondary Lead Smelting
16
Approximate
Location Square Footage Use
- ------------------- -------------------- -------------------------------
North Bay, Ontario, 30,000 Battery Charger Manufacturing
Canada
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 280,000 Battery Manufacturing
Reading, PA 77,000 Distribution Center
Salina, KS 260,000 (leased) Battery Manufacturing
Salina, KS 100,000 Distribution Center
Sumner, WA 56,000 (leased) Distribution Center
Europe and Other:
Florival, Belgium 290,000 Distribution Center
Herlev, Denmark 15,000 Executive Offices
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) Administration
Auxerre, France 176,000 SLI Battery Manufacturing
Gennevilliers, France 55,000 Executive Offices
Nanterre, France 169,000 SLI Battery Manufacturing
Nimes, France 120,000 SLI Battery Manufacturing
Perrone, France 96,000 Battery Plastics Manufacturing
Pont Ste Maxence, 71,000 Secondary Lead Smelting
France
Vierzon, France 174,000 Industrial Battery Manufacturing
Budingen, Germany 258,000 Industrial Battery Manufacturing
Budingen, Germany 15,000 Lithium Cells Manufacturing
Kassel, Germany 212,000 Distribution Center
Soest, Germany 386,000 Industrial Battery Manufacturing
Weiden, Germany 208,000 Industrial Battery Manufacturing
Schimitari, Greece 69,000 SLI Battery Manufacturing
Maarssen, Holland 26,000 Executive Offices
Vlaardingen, Holland 51,000 Industrial Battery Assembly
Avellino, Italy 35,000 Lids and Containers Manufacturing
Bergamo, Italy 203,000 Lids, Containers and Separators Manufacturing
Casalnuovo, Italy 483,000 Industrial Battery Manufacturing
Fumane, Italy 65,000 SLI Battery Manufacturing
Romano Di Lombardia, 266,000 (leased) SLI Battery Manufacturing
Italy
Horten, Norway 108,000 (leased) Industrial Battery Manufacturing
17
Approximate
Location Square Footage Use
- ------------------- -------------------- -------------------------------
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), 21,000 Secondary Lead Smelting
Portugal
Azambuja (Azai), 21,000 Lids and Containers Manufacturing
Portugal
Lisbon, Portugal 12,000 Executive Offices
Cubas, Spain 323,000 Secondary Lead Smelting
Azuqueca de Henares, 434,000 SLI Battery Manufacturing and Research
Spain
Torrejon de Ardoz, 54,000 Industrial Battery and NiCad Manufacturing
Spain
Loeches, Spain 12,000 (leased) Traction Chargers Manufacturing
Malpica, Zaragoza, 213,000 SLI Battery Manufacturing
Spain
S. Esteban de Gormaz, 63,000 Secondary Lead Smelting
Spain
Madrid, Spain 38,000 (leased) Executive Offices
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
In August 1996, a Portland, Oregon jury found that the Company infringed a
patent relating to a device for inserting battery plates into battery
separators, and awarded damages of $5.0 million. Later, the Court, acting on the
jury's verdict, entered a judgment against Exide for $5.5 million. On April 28,
1997, the Court denied Exide's post-trial motions relating to the judgment. On
May 16, 1997, Exide filed its Notice of Appeal. On May 21, 1997, plaintiffs
filed a cross appeal. Exide, following consultation with its independent patent
counsel, intends to vigorously prosecute the
18
appeal. Management and legal counsel remain confident that the jury verdict and
the court's judgment relating to the patent asserted at trial will be reversed
and that the cross appeal is without merit and, therefore, shall be rejected.
Exide anticipates receiving a decision on the appeal some time during the first
quarter of 1998.
The Company is now or recently has been involved in several related
lawsuits pending in state and federal courts in Alabama, North Carolina and
South Carolina. These actions contain allegations that the Company sold old or
used batteries as new batteries. One action that had been certified as a class
action was later decertified by the Alabama Supreme Court and has now been
dismissed. In another action, the judge directed a verdict in favor of the
Company following presentation of the plaintiff's evidence. That case is now on
appeal. The remaining actions seek compensatory and punitive damages and, in one
case, injunctive relief. The Company disputes the material legal claims in these
matters and 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 $5.6 million as a result of an unfavorable verdict from the U.S.
Court of Appeals in a patent infringement matter. Such amount was recorded as
Other Expense (Income), net.
Item 4. Submission of Matters to a Vote of Security Holders
None
19
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Common Stock is listed and traded on the New York Stock Exchange under
the symbol EX. The reported range of the high and low prices of the Common Stock
on the New York Stock Exchange Composite Tape and dividends paid are shown in
the following table for the periods indicated.
Sales Prices Quarterly
------------------ Cash
High Low Dividends
------- ------- -----------
(per share)
Fiscal 1996:
First Quarter $44-1/2 $29-1/2 $0.02
Second Quarter 53-7/8 42-1/2 0.02
Third Quarter 50 41-1/4 0.02
Fourth Quarter 51-1/8 23-1/4 0.02
Fiscal 1997:
First Quarter $30-1/4 $18-7/8 $0.02
Second Quarter 28-1/2 22-1/2 0.02
Third Quarter 28-7/8 22-5/8 0.02
Fourth Quarter 25-1/2 16 0.02
At June 26, 1997 the reported last sale price of the stock was $ 21-9/16.
As of May 30, 1997, there were 546 record holders of Common Stock.
20
Item 6. Selected Financial Data (In thousands, except per-share data):
Fiscal Year Ended March 31
--------------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- ---------- ---------- ----------
Income Statement Data:
Net sales $578,755 $679,649 $1,198,546 $2,342,616 $2,333,230
Gross profit 131,021 161,003 264,018 558,354 595,276
Operating expenses 83,851 99,245 199,856 429,131 453,798
Operating income 47,170 61,758 64,162 129,223 141,478
Interest expense, net 35,261 33,150 52,565 120,600 118,837
Income taxes 3,400 10,794 5,160 6,300 14,732
Income before extraordinary loss
and cumulative effect of
accounting change 5,153 17,217 4,491 939 18,992
Extraordinary loss (10,363)/(1)/ -- (3,597)/(2)/ (9,600)/(3)/ (2,767)/(4)/
Cumulative effect of accounting
change/(5)/ -- (12,711) -- -- --
Net income (loss) (5,210) 4,506 894 (8,661) 16,225
Preferred dividends 4,996 -- -- -- --
Net income (loss) applicable to
common stock (10,206) 4,506 894 (8,661) 16,225
Net income (loss) per common and
common equivalent share (1.22) 0.41 0.06 (0.42) 0.77
Balance sheet data (at end of
year):
Working capital 132,339 153,711 395,875 598,895 630,440
Property, plant and
equipment, net 136,392 181,147 423,876 578,722 521,836
Total assets 474,868 629,090 1,637,589 2,711,429 2,438,495
Total debt 305,562 291,821 645,135 1,340,025 1,289,682
Preferred stock 6,462 -- -- -- --
Common stockholders' equity 45,096 164,450 413,230 439,400 371,410
Other data: EBITDA/(6)/ 72,427 91,465 110,759 230,131 267,309
Ratio of earnings to fixed
charges/(7)/ 1.2x 1.7x 1.2x 1.0x 1.2x
Capital expenditures 20,266 47,164 61,257 106,385 84,200
Net cash provided by (used in)
operating activities 24,959 49,364 (69,134) 36,058 78,126
Net cash used in investing
activities (21,845) (54,859) (322,896) (499,830) (61,652)
Net cash provided by (used in)
financing activities (2,948) 38,701 418,314 449,473 (17,000)
21
(1) During fiscal 1993, the Company recorded a loss of $10,400 (net of a tax
benefit of $1,900) resulting from the early extinguishment of debt in
connection with the refinancing of its previously existing debt.
(2) During fiscal 1995, the Company recorded a loss of $3,600 (net of a tax
benefit of $2,300) resulting from the early retirement of the former
U.S. Credit Agreement in connection with entering a new U.S. Credit
Agreement.
(3) During fiscal 1996, the Company recorded a loss of $9,600 (net of a tax
benefit of $6,000) from the early retirement of debt under the U.S. Credit
Agreement.
(4) During fiscal 1977, the Company recorded a loss of $2,800 with no
income tax effect resulting from a modification of debt in connection with
entering into a series of bond swap agreements for $38,000 (principal
amount) of its 10% and 10.75% Senior Notes.
(5) Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") #106 which resulted in a charge of $12,700
with no income tax effect because of the uncertainty of deductibility at
that time.
(6) Represents earnings before interest, taxes, depreciation of property, plant
and equipment, amortization of goodwill and equity in earnings of joint
ventures. EBITDA should not be considered as an alternative to net income
as an indicator of the Company's operating performance or to cash flows as
a measure of liquidity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
(7) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income (loss) before income taxes 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.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
General
-------
The mild winters of 1995-1996 and 1996-1997 had a substantial adverse effect on
the Company's results of operations for fiscal 1996 and 1997. 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
22
where possible. During the fourth quarter of fiscal 1997 total stockholders'
equity decreased by $61.0 million due to foreign currency translation
adjustments associated with the weakening of foreign currencies relative to the
U.S. dollar.
Results of Operations
Year Ended March 31, 1997 Compared with Year Ended March 31, 1996
Net sales decreased less than 1% ($9.4 million) to $2,333.2 million in
fiscal 1997 from $2,342.6 million in fiscal 1996. This net decrease principally
represents the adverse impact of changes in foreign exchange rates versus the
U.S. dollar ($93.0 million) and lower automotive and non-battery sales ($87.0
million), offset by the incremental effect related to the inclusion of CEAc for
the entire twelve months of fiscal 1997 (ten months in fiscal 1996) of $123.0
million and higher selling prices in North America and Europe of approximately
$50.0 million. Industrial battery sales (included above) for fiscal year 1997
were $631.1 million versus $613.6 million in fiscal 1996. This increase is also
primarily attributed to the inclusion of CEAc for the entire twelve months of
fiscal 1997 offset by the adverse impact of foreign exchange rates. See Note 2
to the Company's Consolidated Financial Statements appearing elsewhere herein.
Gross profit increased $36.9 million (6.6%) and gross profit margin
increased by 1.7 percentage points in fiscal 1997 versus 1996. The increases in
gross profit and gross profit margin were principally the result of the
inclusion of CEAc for the entire twelve months of fiscal 1997 ($29.0 million),
cost reductions generated by the European manufacturing rationalization/
consolidation process, and North American and European selling price increases,
offset by higher lead costs ($36.0 million), the adverse impact of foreign
exchange rates ($25.0 million) and the margin associated with the decline in
automotive and non-battery revenues.
Operating expenses increased $24.7 million, or 5.7% in fiscal 1997 versus
1996, primarily due to the inclusion of CEAc for the entire twelve months of
fiscal 1997 ($33.9 million), offset by the impact of foreign exchange rates
($16.0 million).
Operating income increased $12.3 million, or 9.5%, primarily as a result of
the matters discussed above.
Interest expense decreased $1.8 million, or 1.5% primarily due to lower
European interest rates and borrowing levels associated with reduced working
capital levels related to the rationalization/consolidation process, offset by
the incremental interest cost attributable to the inclusion of CEAc for the
entire twelve months of fiscal 1997.
Other expense (income), net was $12.4 million income for fiscal 1997 versus
$1.8 million expense for fiscal 1996. This $14.2 million change principally
relates to the $8.3 million gain on the sale of Evanite and the absence of a
$5.5 million
23
judgement (recognized in fiscal 1996) related to a patent infringement claim,
offset by a $1.7 million higher loss on the sales of receivables (due to a
larger facility arrangement).
Income before income taxes, minority interest and extraordinary loss
increased $28.3 million primarily as a result of the matters discussed above.
Provision for income taxes increased $8.4 million due to the higher level
of earnings.
Net income increased $24.9 million, primarily as a result of the matters
discussed above and a $6.8 million reduction from fiscal 1996 to 1997 in the
extraordinary loss related to the early retirement of debt.
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 and Co.,
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 2 to the Company's Consolidated Financial
Statements appearing elsewhere herein. Gross profit increased $294.3 million
while the gross profit margin increased by 1.8 percentage points in fiscal 1996
versus 1995. The increase in gross profit was principally the result of the
inclusion of CEAc ($232.9 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 $85.1 million. The Company's gross profit margin increased due
to higher gross margins in Europe, partially offset by higher lead costs and
usage.
Operating expenses increased $229.3 million, or 114.7%, compared to fiscal
year 1995, primarily due to the inclusion of CEAc ($160.6 million), and the full
year impact of Tudor ($53.3 million), for a combined $213.9 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 ($7.2
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
24
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.
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 5 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.
Seasonality and Weather
The automotive aftermarket is seasonal as retail sales of replacement
batteries are generally higher in the fall and winter (the Company's second and
third fiscal quarters). Accordingly, demand for the Company's automotive
batteries is generally highest in the fall and early winter as retailers build
inventories in anticipation of the winter season. European sales are
concentrated in the fourth calendar quarter (the Company's third quarter), due
to the shipment of batteries for the winter season and the practice of many
industrial battery customers (particularly governmental and quasi governmental
entities) of deferring purchasing decisions until the end of the calendar year.
Demand for automotive batteries is significantly affected by weather conditions.
Unusually cold winters or hot summers accelerate battery failure and increase
demand for automotive replacement batteries.
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. 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 U.S.
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
25
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
1998 and beyond the Company also expects to meet its liquidity requirements in
the same manner.
Funds generated (used) from operations were $(69.1) million, $36.1 million
and $78.1 million in fiscal 1995, fiscal 1996 and fiscal 1997, respectively.
Because of the seasonality of the Company's business, more funds are typically
generated in its third and fourth fiscal quarters. During fiscal 1997, improved
operating profitability and a reduction in working capital requirements were
mostly responsible for the additional funds generated. Offsetting this was the
use of cash for the Company's European restructuring activities, which require
large amounts of cash for severance associated with plant closures. During
fiscal 1997, the Company closed three plants in Europe and one plant 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, discussed below, and also has substantial borrowing availability
under its U.S. Credit Agreement.
The Company's capital expenditures were $61.3 million in fiscal 1995,
$106.4 million in fiscal 1996 and $84.2 million in fiscal 1997. Capital
expenditures increased over 1995 levels in fiscal 1996 and 1997 principally due
to the European acquisition and Schuylkill Metals in fiscal 1996 and on-going
European capital expenditures in Europe in fiscal 1997. 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 5
to the Company's Consolidated Financial Statements appearing elsewhere herein.
However, the Company believes that it has sufficient resources for its capital
expenditure programs from operating cash flows and borrowing availability under
its existing credit agreements.
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 million French
francs (U.S. $41.8 million), a Tranche B term loan in the amount of 930 million
French francs (U.S. $164.9 million), and a revolving facility of 1,403 million
French francs (U.S. $248.7 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.
26
As of March 31, 1997, the Company had $25.0 million outstanding on its U.S.
Credit Agreement, including letters of credit, and $367.8 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 had an interest rate swap agreement which effectively fixed LIBOR
interest rates on $50.0 million at 6.2% through May 16, 1997. Additionally,
effective March 29, 1997, 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. The agreements effectively limit the MIBOR
base interest rate on 11 billion Spanish peseta (U.S.$77.1 million) of
borrowings and the PIBOR base interest rate on 575 million French franc
(U.S.$101.9 million) of borrowings under the European Facilities Agreement to no
more than 7.5% and 6%, respectively, and no less than 3.5% and 2%, respectively.
Additionally, the Company entered into a series of bond swap agreements which
effectively converted $38.0 million (principal amount) of the 10% and 10 3/4%
Senior Notes into a variable LIBOR interest rate through December 15, 1999 and
April 15, 2000. The Company has the right to terminate the $38.0 million bond
swap agreements at any time before maturity. See Note 5 to the Company's
Consolidated Financial Statements appearing elsewhere herein.
As of March 31, 1997 the Company had $175.1 million available under its
U.S. Credit Agreement. Effective March 1997, the maximum capacity was increased
to $200.0 million, of which $50.0 million is reserved for a Tranche D variable
rate term loan which will mature on June 15, 2001. As of March 31, 1997, the
Company's European and Canadian operations had borrowing availability of
approximately $81.5 million. See Note 5 to the Company's Consolidated Financial
Statements appearing elsewhere herein.
Subsequent to March 31, 1997, the Company announced several financing
arrangements. On May 7, 1997, the Company redeemed $108.1 million (face value)
of its outstanding 12.25% Zero-Coupon Bonds for $104.1 million. The Company
financed the tender offer through borrowings under the U.S. Credit Agreement,
$50 million of which was from the new $50 million Tranche D variable rate term
loan and the balance was financed with borrowings from the revolver. On April
23, 1997, the Company issued 175 million Deutsche mark (U.S. $103.0 million) 9
1/8% Senior Notes due on April 15, 2004. The Company used the funds to repay
indebtedness under the European Facilities Agreement.
Additionally, the Company's planned acquisition of DETA (see Note 18 to the
Company's Consolidated Financial Statements appearing elsewhere herein) will
effectively be financed through the European Facilities Agreement.
The Company believes it has adequate reserves for offsite and onsite
environmental remediation costs. See "Business-Environmental, Health and Safety
27
Matters" and "Future Environmental Developments."
As of March 31, 1997, 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
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The biographical information under the heading Election of Directors in the
Company's definitive Proxy Statement for its annual meeting of stockholders to
be held on August 12, 1997, is hereby incorporated by reference.
In addition to the executive officers named in the biographical section,
Messrs. George J. Tinker and William J. Rankin are executive officers.
28
Mr. Tinker (age 52) 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. In May
1997, Mr. Tinker resigned following completion of his agreed upon assignments
relating to the consolidation of the Company's European acquisitions. He will
continue to work as a consultant with the Company focusing on customer and
industry relations.
Mr. Rankin (age 59), Executive Vice President of the Company, has been
primarily responsible for operations since June 1987. Mr. Rankin was formerly on
the Board of Directors. His prior experience was with Monroe Automotive
Equipment Company where he served as Vice President of Manufacturing as well as
Vice President of Product Engineering.
Item 11. Executive Compensation
The information under the heading Executive Compensation in the Company's
definitive Proxy Statement for its annual meeting of stockholders to be held on
August 12, 1997, is hereby incorporated by reference.
Item 12. Description of Capital Stock
The information under the heading Stock Ownership in the Company's
definitive Proxy Statement for its annual meeting of stockholders to be held on
August 12, 1997, is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
The information under the heading Certain Transactions in the Company's
definitive Proxy Statement for its annual meeting of stockholders to be held on
August 12, 1997, is hereby incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) Index to Financial Statements
See Index to Consolidated Financial Statements and Schedule at page F-1.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
29
(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.
CAUTIONARY STATEMENT FOR PURPOSES OF THE
SAFE HARBOR PROVISION OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information, this report may be deemed to contain
"forward-looking" statements. The Company desires to avail itself of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") and is including this cautionary statement for the express purpose of
availing itself of the protection afforded by the Act.
Examples of forward-looking statements include, but are not limited to (a)
projections of revenues, cost of raw materials, income or loss, earnings or loss
per share, capital expenditures, growth prospects, dividends, the effect of
currency translations, capital structure and other financial items, (b)
statements of plans of and objectives of the Company or its management or Board
of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulating
authorities, (c) statements of future economic performance and (d) statements of
assumptions, such as the prevailing weather conditions in the Company's market
areas, underlying other statements and statements about the Company or its
business.
The Company's core business, the design, manufacture and sale of lead acid
batteries, and the Company's structure involves risk and uncertainty. Important
factors that could affect the Company's results include, but are not limited to
(i) unseasonable weather (warm winters and cool summers) which adversely affects
demand for automotive and some industrial batteries, (ii) the Company's
substantial debt and debt service requirements which restrict the Company's
operational and financial flexibility, as well as imposing significant interest
and financing costs, (iii) the Company's assets include the tax benefits of net
operating loss carry forwards, realization of which are dependent upon future
taxable income, (iv) lead, which experiences significant fluctuations in market
price and which, as a hazardous material, may give rise to costly environmental
and safety claims, can affect the Company's results because it is a major
constituent in most of the Company's products, (v) the battery markets in North
America and Europe are very competitive and, as a result, it is often difficult
to maintain margins, (vi) the Company's consolidation and rationalization of
recently acquired European entities requires substantial management time and
financial and other resources and is not without risk, and (vii) foreign
operations involve risks such as disruption of markets, changes in import and
export laws, currency restrictions and currency exchange rate fluctuations.
Therefore, the Company cautions each reader of this report to carefully consider
those factors hereinabove set forth, because such factors have, in some
instances, affected and in the future could affect, the ability of the Company
to achieve its projected results and may cause actual results to differ
materially from those expressed herein.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EXIDE CORPORATION
By: /s/ Arthur M. Hawkins
---------------------
Arthur M. Hawkins,
President Principal Executive Officer
By: /s/ Alan E. Gauthier
--------------------
Alan E. Gauthier
Principal Financial and
Accounting Officer
Date: June 27, 1997
-------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
By: /s/ Arthur M. Hawkins By: /s/ Douglas N. Pearson
---------------------------- ---------------------------------
Arthur M. Hawkins, President Douglas N. Pearson, Executive
Chairman of the Board and Vice President, President - North
Director American Operations and Director
By: /s/ Alan E. Gauthier By: /s/ Earl Dolive
---------------------------- ---------------------------------
Alan E. Gauthier, Executive Earl Dolive
Vice President and Director Director
By: /s/ Robert H. Irwin By: /s/ Thomas J. Reilly, Jr.
--------------------------- ---------------------------------
Robert H. Irwin Thomas J. Reilly, Jr.
Director Director
By: /s/ Arthur R. Taylor By: /s/ James T. Watson
---------------------------- ---------------------------------
Arthur R. Taylor James T. Watson
Director Director
31
Exhibits:
- --------
3.1 Restated Certificate of Incorporation of the Registrant, incorporated by
reference to Exhibit 4.1 of the Registrant's Registration Statement on
Form S-3 (No. 333-29991).
3.2 Restated Bylaws of the Registrant, incorporated by reference to Exhibit
of same number to the 1993 Registration Statement.
4.1 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 (the
"Debenture Indenture").
4.3 Third Supplemental Indenture, dated May 6, 1997, to the Debenture
Indenture.
4.4 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.
4.5 Registration Rights Agreement among the Registrant, Wilmington
Securities, Inc. and certain other holders of the Registrant's Common
Stock, incorporated by reference to Exhibit 4.14 to the 1993 Registration
Statement.
4.6 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.
4.7 Indenture dated as of April 28, 1995, between the Registrant and The Bank
of New York, as trustee, incorporated by reference to Exhibit 99.3 of the
Registrant's Form 8-K dated June 2, 1995.
4.8 Indenture dated as of December 15, 1995 between the Registrant and The
Bank of New York, as trustee, incorporated by reference to Exhibit 4.7 to
the 1996 Form 10-K.
4.9 Fiscal and Paying Agency Agreement, dated April 23, 1997, by and among
Exide Holding Europe S.A., Exide Corporation, The Bank of New York and
Deutsche Bank Aktiengesellschaft.
10.1 Receivables Purchase Agreement, dated as of March 31, 1997, among Exide
U.S. Funding Corporation, Three Rivers Funding Corporation and the
Registrant.
10.2 Sale Agreement, dated March 31, 1997, between the Registrant and Exide
U.S. Funding Corporation.
32
10.3 Employment Agreement dated June 15, 1985 between the Registrant and
Arthur M. Hawkins, incorporated by reference to Exhibit 10.4 of the
Registrant's Registration Statement on Form S-1 (No. 33-13632), as
amended (the "S-1 Registration Statement").
10.4 Employment Agreement dated June 15, 1985 between the Registrant and
Douglas N. Pearson, incorporated by reference to Exhibit 10.5 to the S-1
Registration Statement.
10.5 Employment Agreement dated June 1, 1987 between the Registrant and
William J. Rankin.
10.6 Amendment dated July 7, 1988 to Employment Agreement between the
Registrant and Douglas N. Pearson, incorporated by reference to Exhibit
10.2 to the Registrant's Form 10-Q for the quarter ended October 2, 1988.
10.7 Stock Purchase Agreement dated May 27, 1987 among the Registration, Fruit
of the Loom, Inc. and Northwest Industries Leasing Company, incorporated
by reference to Exhibit 2 to the S-1 Registration Statement.
10.8 Lease Agreement dated July 1, 1988 between the Registrant and an officer
of the Registrant pertaining to Chippewa Trail Lodge, incorporated by
reference to Exhibit 10.28 to the 1989 10-K.
10.9 Amendment to Lease Agreement dated October 24, 1988 between the
Registrant and Chippewa Trail Lodge, Inc., incorporated by reference to
Exhibit 10.29 to the 1989 10-K.
10.10 Assignment of Lease dated July 1, 1988 between an officer of the
Registrant and Chippewa Trail Lodge, Inc., incorporated by reference to
Exhibit 10.30 to the 1989 10-K.
10.11 Assignment and Assumption of Lease dated October 24, 1988 between an
officer of the Registrant and Chippewa Trail Lodge, Inc., incorporated by
reference to Exhibit 10.31 to the 1989 10-K.
10.12 Lease Agreement dated August 1, 1978 pertaining to the Reading,
Pennsylvania administrative office facilities, amended as of April 1,
1979, incorporated by reference to Exhibit 10.20 to the S-1 Registration
Statement.
10.13 Lease Agreement dated February 1, 1974 pertaining to the Manchester, Iowa
manufacturing facilities, incorporated by reference to Exhibit 10.21 to
the S-1 Registration Statement.
10.14 Lease Agreements (Series A and Series B) dated September 1, 1976
pertaining to the Salina, Kansas manufacturing facilities, incorporated
by reference to Exhibit 10.22 to the S-1 Registration Statement.
33
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 Exide 1993 Long Term Incentive Plan, incorporated by reference to Exhibit
10.25 to the 1993 Registration Statement.
10.22 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.
10.23 Composite copy of the 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 incorporated by reference
to Exhibit 10.25 to the 1996 Form 10-K.
10.24 Twelfth Amendment, dated March 31, 1997, to the Credit Agreement.
10.25 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.
10.26 Lease Agreement dated February 7, 1994, pertaining to the Bristol,
Tennessee incorporated by reference to Exhibit 10.27 to the 1996 Form
10-K.
34
manufacturing facility and related amendment dated May 1995.
11.1 Statement re computation of per-share earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of independent public accountants
27.0 Financial data schedule.
35
EXIDE CORPORATION AND SUBSIDIARIES
----------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
-------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED BALANCE SHEETS F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
CONSOLIDATED SUPPORTING SCHEDULE FILED:
II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES F-35
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, 1996 and
1997, 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, 1997. 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, 1996 and 1997, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
March 31, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index to consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
June 24, 1997
F-2
EXIDE CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In thousands, except share and per-share data)
For the Fiscal Year Ended March 31
--------------------------------------------------
1995 1996 1997
----------- ----------- -----------
Net sales $ 1,198,546 $ 2,342,616 $ 2,333,230
Cost of sales 934,528 1,784,262 1,737,954
----------- ----------- -----------
Gross profit 264,018 558,354 595,276
----------- ----------- -----------
Operating expenses:
Selling, marketing and advertising 135,774 276,076 290,076
General and administrative 59,744 137,086 145,869
Goodwill amortization 4,338 15,969 17,853
----------- ----------- -----------
199,856 429,131 453,798
----------- ----------- -----------
Operating income 64,162 129,223 141,478
Interest expense, net 52,565 120,600 118,837
Other expense (income), net 874 1,893 (12,382)
----------- ----------- -----------
Income before income taxes, minority interest and
extraordinary loss 10,723 6,730 35,023
Provision for income taxes 5,160 6,300 14,732
----------- ----------- -----------
Income before minority interest and extraordinary loss 5,563 430 20,291
Minority interest 1,072 (509) 1,299
----------- ----------- -----------
Income before extraordinary loss 4,491 939 18,992
Extraordinary loss related to early retirement of debt,
net of income tax benefit of $2,320, $5,958 and $0 (3,597) (9,600) (2,767)
----------- ----------- -----------
Net income (loss) $ 894 $ (8,661) $ 16,225
=========== =========== ===========
Net income (loss) per common and common
equivalent share:
Income before extraordinary loss $ 0.28 $ 0.05 $ 0.90
Extraordinary loss (0.22) (0.47) (0.13)
----------- ----------- -----------
Net income (loss) $ 0.06 $ (0.42) $ 0.77
=========== =========== ===========
Weighted average number of common and common
equivalent shares outstanding 16,191,075 20,384,806 21,204,241
=========== =========== ===========
The accompanying notes are an integral part of these statements.
F-3
EXIDE CORPORATION AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands, except share and per-share data)
March 31
-----------------------
ASSETS 1996 1997
------ ---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 47,259 $ 42,706
Receivables, net of allowance for doubtful accounts
of $45,350 and $3886 605,573 569,683
Inventories 595,161 533,514
Prepaid expenses and other 17,840 21,889
Deferred income taxes 20,672 23,667
---------- ----------
Total current assets 1,286,505 1,191,459
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Land 62,086 50,873
Buildings and improvements 220,546 205,826
Machinery and equipment 463,431 500,883
Construction in progress 52,704 40,190
---------- ----------
798,767 797,772
Less--accumulated depreciation and amortization (220,045) (275,936)
---------- ----------
Property, plant and equipment, net 578,722 521,836
---------- ----------
OTHER ASSETS:
Goodwill, net 673,045 596,254
Investments in affiliates 23,123 24,016
Deferred financing costs, net 33,412 26,770
Deferred income taxes 66,747 40,306
Other 49,875 37,854
---------- ----------
846,202 725,200
---------- ----------
Total assets $2,711,429 $2,438,495
========== ==========
The accompanying notes are an integral part of these statements.
(Continued)
F-4
EXIDE CORPORATION AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED BALANCE SHEETS (Continued)
---------------------------------------
(In thousands, except share and per-share data)
March 31
--------------------------
1996 1997
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 8,310 $ 16,123
Current maturities of long-term debt 30,477 37,488
Accounts payable, trade and other 279,225 236,889
Accrued interest 22,248 24,671
Accrued compensation 105,639 98,316
Product warranty reserve 37,654 36,243
Other current liabilities 204,057 111,289
---------- ----------
Total current liabilities 687,610 561,019
---------- ----------
LONG-TERM DEBT 1,301,238 1,236,071
---------- ----------
NONCURRENT RETIREMENT OBLIGATIONS 127,320 107,756
---------- ----------
OTHER NONCURRENT LIABILITIES 127,211 142,791
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 13 and 15)
MINORITY INTEREST 28,650 19,448
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 30,000,000 and 60,000,000
shares authorized, 20,893,693 and 21,336,757 shares
issued and outstanding 209 213
Additional paid-in capital 490,919 489,427
Accumulated deficit (36,121) (21,569)
Notes receivable--stock award plan (1,696) (1,696)
Unearned compensation (710) (516)
Minimum pension liability adjustment (5,956) (4,993)
Cumulative translation adjustment (7,245) (89,456)
---------- ----------
Total stockholders' equity 439,400 371,410
---------- ----------
Total liabilities and stockholders' equity $2,711,429 $2,438,495
========== ==========
The accompanying notes are an integral part of these statements.
F-5
EXIDE CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE FISCAL YEARS ENDED MARCH 31, 1995, 1996 and 1997
--------------------------------------------------------
(In thousands, except share and per-share data)
Notes Minimum Foreign
Additional Receivable- Pension Currency
Common Paid-In Accumulated Stock Award Unearned Liability Translation
Stock Capital Deficit Plan Compensation Adjustment Adjustment
------ ---------- ----------- ----------- ------------ ---------- -----------
Balance 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
---- -------- -------- ------- ------- ------- --------
Balance at March 31, 1995 200 443,446 (25,837) (1,774) (1,806) (5,527) 4,528
Net loss for fiscal 1996 -- -- (8,661) -- -- -- --
Common stock issued for
acquisitions 9 48,135 -- -- -- -- --
Common stock issued under
employee stock purchase plan -- 100 -- -- -- -- --
Forfeiture of common stock
grants -- (762) -- 78 709 -- --
Amortization of unearned
compensation -- -- -- -- 387 -- --
Cash dividends paid ($0.08/share) -- -- (1,623) -- -- -- --
Minimum pension liability
adjustment -- -- -- -- -- (429) --
Translation adjustment -- -- -- -- -- -- (11,773)
---- -------- -------- ------- ------- ------- --------
Balance at March 31, 1996 209 490,919 (36,121) (1,696) (710) (5,956) (7,245)
Net income for fiscal 1997 -- -- 16,225 -- -- -- --
Common stock issued for
acquisitions (Note 2) 4 (1,741) -- -- -- -- --
Common stock issued under
employee stock purchase plan -- 211 -- -- -- -- --
Common stock issued pursuant
to Board of Directors grants -- 38 -- -- -- -- --
Amortization of unearned
compensation -- -- -- -- 194 -- --
Cash dividends paid ($0.08/share) -- -- (1,673) -- -- -- --
Minimum pension liability
adjustment -- -- -- -- -- 963 --
Translation adjustment -- -- -- -- -- -- (82,211)
---- -------- -------- ------- ------- ------- --------
Balance at March 31, 1997 $213 $489,427 $(21,569) $(1,696) $ (516) $(4,993) $(89,456)
==== ======== ======== ======= ======= ======= ========
The accompanying notes are an integral part of these statements.
F-6
EXIDE CORPORATION AND SUBSIDIARIES
----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
For the Fiscal Year Ended March 31
------------------------------------
1995 1996 1997
---------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 894 $ (8,661) $ 16,225
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities-
Depreciation and amortization 48,524 106,717 115,308
Extraordinary loss 3,597 9,600 2,767
Gain on sale of business -- -- (8,344)
Deferred income taxes (863) 300 6,255
Original issue discount on notes 8,942 12,411 19,502
Provision for losses on accounts receivable 3,238 4,016 4,638
Minority interest 1,072 (509) 1,299
Changes in assets and liabilities excluding effects
of acquisitions and divestitures-
Receivables (32,608) (24,973) (27,382)
Inventories (138,568) 46,832 22,717
Prepaid expenses and other 14,522 16,522 (6,766)
Payables and accrued expenses 32,984 (131,035) (72,424)
Other, net (10,868) 4,838 4,331
--------- --------- ---------
Net cash provided by (used in) operating activities (69,134) 36,058 78,126
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of certain businesses (262,995) (401,325) (15,057)
Capital expenditures (61,257) (106,385) (84,200)
Proceeds from sales of assets 1,356 7,880 37,605
--------- --------- ---------
Net cash used in investing activities (322,896) (499,830) (61,652)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings 20,402 (71,701) 9,080
Repayment of U.S. Credit Agreement borrowings (105,000) (194,500) --
Borrowings under U.S. Credit Agreement 286,500 -- 17,000
Repayment of European term loans (1,421) (51,265) (11,138)
Repayment of Former European Facilities Agreement -- (156,873) --
Repayment of European Facilities Agreement -- -- (25,329)
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) --
Proceeds from public offering, net of fees 247,519 -- --
Dividends paid (1,284) (1,623) (1,673)
Decrease in other debt (4,211) (9,455) (3,445)
Debt issuance costs (24,191) (30,890) (1,495)
--------- --------- ---------
Net cash provided by (used in) financing activities 418,314 449,473 (17,000)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 3,370 (1,803) (4,027)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 29,654 (16,102) (4,553)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 33,707 63,361 47,259
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 63,361 $ 47,259 $ 42,706
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest (net of amounts capitalized) $ 41,442 $ 86,557 $ 92,726
Income taxes $ 4,047 $ 9,243 $ 15,224
The accompanying notes are an integral part of these statements.
F-7
EXIDE CORPORATION AND SUBSIDIARIES
----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(In thousands, except share and per-share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of Exide Corporation
and all of its majority-owned subsidiaries (collectively the "Company"). All
significant intercompany transactions have been eliminated.
Investments in affiliates largely represents investments accounted for by the
cost method. Investments in 20%- to 50%-owned companies are included in the
consolidated financial statements on the basis of the equity method of
accounting. The Company's equity in the net income (loss) of these companies is
not material.
Nature of Operations
The Company is a leading manufacturer and marketer of starting, lighting and
ignition ("SLI") batteries. The Company produces SLI batteries for both the
aftermarket and original equipment manufacturers ("OEM") in North America and
Europe. The Company also manufactures and markets industrial batteries in
Europe. Industrial sales include both standby and traction battery lines.
Individual customers include telecommunication companies, European navies and
the electric vehicle operations of large European companies. Other products
manufactured include batteries for trucks, farm equipment and other off-road
vehicles, boats, garden tractors and golf carts, battery chargers and
accessories, wheel weights, and remanufactured starters and alternators.
Seasonality and Weather
The automotive aftermarket is seasonal as retail sales of replacement batteries
are generally higher in the fall and winter (the Company's second and third
fiscal quarters). Accordingly, demand for the Company's automotive batteries is
generally highest in the fall and early winter as retailers build inventories in
anticipation of the winter season. European sales are concentrated in the fourth
calendar quarter (the Company's third fiscal quarter) due to the shipment of
batteries for the winter season and the practice of many industrial battery
customers (particularly governmental and quasi-governmental entities) of
deferring purchasing decisions until the end of the calendar year. Demand for
automotive batteries is significantly affected by weather conditions. Unusually
cold winters or hot summers accelerate battery failure and increase demand for
automotive replacement batteries.
F-8
Major Customers
The Company has a number of major retail and OEM customers, both in North
America and Europe. No single customer accounted for more than 10% of
consolidated net sales. The Company does not believe that a material part of its
business is dependent upon a single customer the loss of which would have a
material impact on the long-term business of the Company. However, the loss of
one or more of the Company's largest customers would have a negative short-term
impact on the Company's results of operations.
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 (income), net. The Company recorded transaction losses (gains) of $837,
$(6,453) and $(5,796) in fiscal 1995, 1996 and 1997, respectively.
For disclosure purposes, foreign currency amounts have been translated to U.S.
dollars using the March 31, 1997 spot rate.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories, which consist of material, labor and overhead, are stated at the
lower of cost or market. Cost is determined by the last-in, first-out ("LIFO")
method for most U.S. inventories and by the first-in, first-out ("FIFO") method
for all remaining inventories.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is calculated by
the straight-line method over the estimated useful lives of depreciable assets.
Accelerated methods are used for tax purposes. Useful lives of depreciable
assets, by class, are as follows:
Buildings and improvements 5 to 40 years
Machinery and equipment 3 to 10 years
F-9
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 $1,678, $2,341 and $2,444 of interest costs
during fiscal years 1995, 1996 and 1997, respectively. Depreciation expense was
$38,417, $77,397 and $82,842 for fiscal years 1995, 1996 and 1997, respectively.
Goodwill
Goodwill is amortized over 40 years on a straight-line basis. Accumulated
amortization as of March 31, 1996 and 1997, was $29,517 and $44,229,
respectively. It is the Company's policy to review goodwill (and other
intangible assets) for possible impairment on the basis of whether the carrying
amount of such assets is fully recoverable from projected, undiscounted net cash
flows of the related business. If such review indicates that the carrying amount
of goodwill and other intangible assets is not recoverable, then the Company's
policy is 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 monthly over the life of the agreements.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 109, which requires the use of 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.
F-10
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 (see Note 16).
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share," which will be effective for the Company in fiscal
1998. Primary and fully diluted earnings per share will be replaced by basic and
diluted earnings per share. Prior period results will be restated. The most
significant difference is that basic earnings per share no longer assume
potentially dilutive securities in the computation. The adoption of SFAS No. 128
is not expected to have a significant impact on the Company's currently reported
earnings per share.
Revenue Recognition
The Company records a sale upon transfer of title to the customer, which
typically occurs upon shipment.
Advertising
The Company generally expenses advertising costs as incurred. The Company is
also party to certain sponsorship agreements, whereby they recognize the related
costs over the life of the agreement. Unamortized amounts under such agreements
are not material at March 31, 1996 and 1997.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Risks Associated with International Operations and Currency Risk
The Company's international operations are subject to risks normally associated
with foreign operations, including, but not limited to, the disruption of
markets, changes in export or import laws, restrictions on currency exchanges,
and the modification or introduction of other government policies with
potentially adverse effects. The majority of
F-11
the Company's sales and expenses are denominated in currencies other than U.S.
dollars, and changes in exchange rates may have a material effect on the
Company's reported results of operations and financial position. In addition, a
significant portion of the Company's indebtedness relating to foreign
acquisitions is denominated in U.S. dollars whereas the related sales are
denominated in foreign currencies. During the fourth quarter of fiscal 1997,
major European currencies weakened significantly which resulted in a large
reduction of stockholders' equity.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the
current presentation.
Recently Issued Accounting Standards
In fiscal 1998, the Company will adopt SFAS No. 129, "Disclosure of Information
about Capital Structure." This statement was issued in conjunction with SFAS No.
128 and is intended to standardize capital structure disclosure requirements and
to expand the number of companies subject to the requirements. The Company is
currently in compliance with the capital structure disclosure requirements, and
does not expect its disclosures to materially change under SFAS No. 129.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement was effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. SFAS No. 125
provides accounting and reporting standards based on consistent application of a
financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, and
derecognizes liabilities when extinguished. In the fourth quarter of fiscal
1997, the Company amended its Receivables Sale Agreement to ensure the sale of
the Company's accounts receivable qualified as a sale under SFAS No. 125 (see
Note 11).
2. ACQUISITIONS AND DIVESTITURES:
In July 1996, the Company acquired the majority of the stock of Metalurgica De
Cubas S.L. ("Cubas"), a secondary lead smelter located near Madrid, Spain, for
approximately $7,500. In November 1996, the remaining stock was purchased for
approximately $3,200. The acquisition was accounted for as a purchase and the
results of Cubas' operations are included in the Company's consolidated
statements of operations effective July 1, 1996. 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 $7,300.
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
F-12
market purchases of CEAc stock have increased the ownership to 100%. The cost of
the acquisition has been allocated on the basis of the estimated fair value of
the assets acquired and the liabilities assumed. In accordance with Emerging
Issues Task Force Issue No. 87-11 ("EITF 87-11"), reserves of $12,000 were
established in fiscal 1996 for the expected 12-month operating losses
attributable to certain manufacturing and distribution facilities acquired that
were identified for closure and sale, all of which have been utilized.
This acquisition was accounted for as a purchase, and the results of CEAc's
operations are included in the Company's consolidated statements of operations
effective June 1, 1995. CEAc, which is headquartered in France, was one of the
largest SLI producers and the largest industrial battery manufacturer in Europe,
with operations primarily in France, Italy and Germany.
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 that guaranteed payment of the convertible bonds
held by that same shareholder. Tudor, which is headquartered in Madrid, Spain,
was 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 statements 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 12-month operating losses attributed to certain
manufacturing and distribution facilities acquired that were identified for
closure and sale. Approximately $23,600 of such reserves were established, all
of which have been utilized.
With respect to its European acquisitions, the Company recorded liabilities of
$153,000, related to severance benefits to be paid to certain employees who will
be terminated as a result of the consolidation and targeted plant closings.
Through March 31, 1997, $62,500 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. Based
on exchange rates at the acquisition dates, total goodwill resulting from the
CEAc and Tudor acquisitions was $585,000.
In April 1996, the Company acquired 14.4% of the remaining 15.6% minority
interest in a subsidiary of Tudor for $3,562.
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 B.I.G. Batteries Group Limited and PT Sapta contributed its interest
in Gemala Holdings Limited
F-13
("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 the Company 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. Pursuant to the purchase, the holder of these shares will receive 366,009
additional shares of the Company's common stock in 1997 as an adjustment in the
number of shares issued for changes in the Company's stock price. The total
adjusted value of the acquisition was $14,000, which resulted in a reduction to
goodwill and additional paid-in capital of approximately $3,200.
On August 31, 1995, the Company acquired Schuylkill Holdings, Inc. ("SHI") from
Heller Financial, Inc. ("Heller") through a merger, and purchased all of SHI's
stock options and subordinated notes from various holders and the secured debt
of SHI's operating subsidiary, Schuylkill Metals Corporation, the owner of two
lead smelters in Louisiana and Missouri. The Company paid $2,000 in cash for
SHI's stock, options and notes; for the secured debt, it issued 593,210 shares
of its common stock valued at $31,000, paid $3,700 in cash and issued a
contingent note, the value of which will be based on future market lead prices.
Under the terms of the purchase agreement, the Company is required to make an
additional payment to Heller in fiscal 2000 if lead prices for the four-and-one-
half-year period subsequent to the acquisition date reach defined levels. Based
on the Company's projection of lead prices for such period, in the fourth
quarter of fiscal 1996, the Company increased goodwill by $10,000. The Company
and Heller also entered into an agreement to share certain tax liabilities of
SHI. The purchase price was allocated primarily to receivables, inventories and
fixed assets and resulted in $22,000 of goodwill.
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 was a manufacturer, and the
Company's primary supplier, of battery separators. On February 21, 1995, the
Company 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. On December 27, 1996, the Company sold substantially
all of the remaining net assets, except for certain assets related to the
battery separator business, of Evanite for approximately $23,000 (subject to
final adjustments) and recorded a gain of approximately $8,300, which is
included in Other expense (income), net in the accompanying consolidated
statements of operations.
F-14
The following summarized unaudited pro forma consolidated results of operations
for the fiscal year ended March 31, 1996, illustrates the estimated effects of
the CEAc and SHI acquisitions, as if the transactions were consummated as of
April 1, 1995.
1996
----------
Net sales $2,474,640
==========
Loss before extraordinary item $ (5,271)
==========
Net loss $ (14,871)
==========
Pro forma earnings per common and common
equivalent share:
Loss before extraordinary item $ (0.26)
==========
Net loss $ (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. The pro forma effects of the fiscal 1997 acquisitions
are not material.
3. INVENTORIES:
March 31,
------------------------
1996 1997
-------- --------
Raw materials $138,809 $117,038
Work-in-process 94,340 70,805
Finished goods 362,012 345,671
-------- --------
$595,161 $533,514
======== ========
At March 31, 1996 and 1997, inventories valued by the LIFO method were
approximately 29% and 33% of consolidated inventories, respectively. If all
inventories had been determined using the first-in, first-out method, such
inventories would have been $578,094 and $516,447 at March 31, 1996 and 1997,
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 in a leveraged buyout, as inventories subsequently produced cost less
to manufacture. The Company believes that no write-down of the carrying amount
of inventories to replacement cost is necessary, as no loss will be realized
upon their final sale.
In connection with the purchase of lead for anticipated manufacturing
requirements, the Company enters into commodity forward and futures contracts.
These contracts are used as a hedging strategy to help protect against
volatility in lead prices. The Company remains at risk for possible changes in
the market value of the commodity contracts; however, such
F-15
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, 1997, the Company had
outstanding contracts hedging lead purchases through May 1998 at fixed prices of
approximately $34,411 for 47,700 metric tons.
4. SHORT-TERM BORROWINGS:
At March 31, 1996 and 1997, 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, 1996 and 1997, the weighted average interest rate on these
borrowings was 10.9% and 12.0%, respectively.
5. LONG-TERM DEBT:
Following is a summary of the Company's long-term debt at March 31, 1996 and
1997:
1996 1997
---------- ----------
U.S. Credit Agreement borrowings primarily
at LIBOR plus 2.5%; 8.2% at March 31, 1997 $ -- $ 17,000
10% Senior notes, due April 15, 2005 300,000 300,000
10.75% Senior notes, due December 15, 2002 150,000 150,000
12.25% Senior subordinated deferred coupon
debentures, due December 15, 2004 89,856 101,187
Convertible senior subordinated notes, due
December 15, 2005 290,124 298,295
European Facilities Agreement, borrowings
primarily at LIBOR plus 1.25% at rates
ranging from 5.6% to 10.9% at March 31,
1996, and 4.8% to 7.8% at March 31, 1997 436,940 356,865
European Term Loans at rates ranging from
7.6% to 10.1% at March 31, 1996, and 8.7%
at March 31, 1997 12,021 883
Other, primarily capital lease obligations at
interest rates ranging from 3.7% to 11.2% due
in installments through 2015 52,774 49,329
---------- ----------
1,331,715 1,273,559
Less - Current maturities (30,477) (37,488)
---------- ----------
$1,301,238 $1,236,071
========== ==========
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
F-16
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"). As of March 31,
1997, this facility contained a Tranche A term loan in the amount of 236,000
French francs (U.S. $41,840), a Tranche B term loan in the amount of 930,000
French francs (U.S. $164,879), and a revolving facility of 1,403,000 French
francs (U.S. $248,737). 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. The
Company was in compliance with these covenants at March 31, 1997.
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 $165,000), expiring September 30, 1999. Both Term Loan A and Term
Loan B were repaid during fiscal 1996. Effective March 31, 1997, the U.S. Credit
Agreement was amended to provide $50,000 of additional borrowing capacity under
Term Loan D maturing on June 15, 2001. The Revolving Credit Facility provides
for the Company's working capital and letter of credit needs and is permanently
reduced $15,000 annually for three years beginning September 30, 1996. As of
March 31, 1997, the Company had $7,891 of letters of credit outstanding and
$125,109 of additional availability under the Revolving Credit Facility.
Borrowings under
F-17
the Revolving Credit Facility 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. The
Company was in compliance with these covenants at March 31, 1997. 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 in fiscal 1995 that
resulted in an extraordinary loss in fiscal 1995 of $3,597, net of $2,320 income
tax benefit. The new U.S. Credit Agreement also provided funding for the
acquisition of Tudor.
Debt issuance costs of $20,228 were incurred in fiscal 1996 in connection with
the new U.S. Credit Agreement. Amortization of deferred financing costs related
to the current and previous Credit Agreements amounted to $2,249, $3,002 and
$1,544 in fiscal 1995, 1996 and 1997, respectively. 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 expense
related to this senior debt during fiscal 1995, 1996 and 1997 was $784, $2,215
and $2,831, respectively.
In fiscal 1996, deferred financing costs were written off due to early repayment
of the former European Facilities Agreement, European Term Loans, Spanish
Convertible Debentures and Term Loan A and Term Loan B under the U.S. Credit
Agreement, as well as permanent reductions in the Revolving Credit Facility
under the U.S. Credit Agreement, resulting in an extraordinary loss of $9,600
net of $5,958 income tax benefit.
During fiscal 1997, the Company entered into a series of bond swap agreements
for $19,975 (principal amount) of its 10% Senior Notes and $18,000 (principal
amount) of its 10.75% Senior Notes. Under the agreements, the Company pays LIBOR
plus 1.75% to a counterparty and receives from the counterparty the fixed coupon
rate payments made by the Company. At the end of the agreements, the
counterparty is guaranteed repayment of its open market purchase price of the
Notes which exceeded face value by $1,848. This debt modification was accounted
for as an extinguishment of debt, and the related write-off of unamortized
deferred financing costs along with the premium paid by the counterparty
resulted in an extraordinary loss of $2,767. No income tax benefit on the
extraordinary loss was recognized.
The Company enters into 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 that reduce the impact of
changes in interest rates on a portion of the Company's floating rate debt.
These agreements effectively limit the LIBOR base interest rate on $100,000 of
borrowings under the U.S. Credit and European Facilities Agreements to no more
than 8% and no less than 5.5% graduating up to 7.5% through December 30, 1997.
Effective May 17, 1995, the Company entered into an interest rate swap
F-18
agreement that fixed the LIBOR base interest rate on a notional amount of
$50,000 at 6.21% for two years. Additionally, effective March 29, 1997, the
Company entered into two interest rate collar agreements which reduce the impact
of changes in interest rates on a portion of the Company's floating rate debt.
The agreements effectively limit the MIBOR base interest rate on 11,000,000
Spanish peseta (U.S. $77,055) of borrowings and the PIBOR base interest rate on
575,000 French franc (U.S. $101,948) of borrowings under the European Facilities
Agreement to no more than 7.5% and 6%, respectively, and no less than 3.5% and
2%, respectively. During fiscal 1995, 1996 and 1997, the Company recognized $24,
$580 and $1,952, respectively, of additional interest expense related to these
swap and collar agreements.
Counterparties to bond swap transactions and interest rate hedge agreements are
major financial institutions. Management believes the risk of incurring losses
related to credit risk is remote and any losses would be immaterial.
In April 1997, the Company initiated a tender offer and during May 1997 retired,
pursuant to the tender offer, approximately 98% of its 12.25% Senior
Subordinated Debentures for approximately $104,000, resulting in an
extraordinary loss of approximately $6,000, which will be recorded in the first
quarter of fiscal 1998. The tender offer was financed with borrowings under the
U.S. Credit Agreement.
In April 1997, Exide Holding Europe, a wholly-owned European subsidiary of the
Company, privately issued 175,000 German deutsche mark (U.S. $103,000) of 9.125%
Senior Notes due 2004. The proceeds of the offering were used to repay a portion
of the borrowings under the European Facilities Agreement.
Annual principal payments required under long-term debt obligations, reflective
of the April and May 1997 financing transactions, are as follows:
Fiscal Year Amount
----------- ------
1998 $ 37,488
1999 39,948
2000 199,082
2001 38,152
2002 288,499
Thereafter 670,390
6. STOCKHOLDERS' EQUITY:
During fiscal 1994, the Company completed an initial public offering ("IPO") and
secondary offering of its common stock, which raised $126,000 (before fees and
expenses) for the issuance of 5,600,000 shares of common stock.
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.
F-19
On August 14, 1996, the Company amended its certificate of incorporation to
increase the total number of authorized shares of common stock from 30,000,000
shares to 60,000,000 shares.
7. EMPLOYEE BENEFIT PLANS:
North American Pension Plans
The Company has noncontributory defined benefit pension plans covering
substantially all hourly employees in North America. Plans covering hourly
employees provide pension benefits of stated amounts for each year of credited
service. Substantially all salaried employees in North America are covered
under a defined contribution plan, which requires the Company to contribute 4%
of eligible employees' salaries on an annual basis.
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, 1995, 1996 and 1997, are as follows:
1995 1996 1997
------- -------- -------
Defined benefit plans:
Service cost of current period $ 1,217 $ 1,378 $ 1,726
Interest cost on projected benefit obligation 4,609 5,474 6,068
Actual return on plan assets 3,173 (11,721) (7,979)
Net amortization and deferrals (7,909) 7,306 2,386
------- -------- -------
Net defined benefit pension expense 1,090 2,437 2,201
Defined contribution plan 2,003 2,167 2,150
------- -------- -------
Total pension expense $ 3,093 $ 4,604 $ 4,351
======= ======== =======
It is the Company's policy to make contributions sufficient to meet the minimum
contributions required by law and regulation.
F-20
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
-------------------------
1996 1997
-------- -------
Actuarial present value of:
Vested benefit obligation $ 70,309 $76,332
======== =======
Accumulated benefit obligation $ 73,300 $79,639
======== =======
Actuarial present value of:
Projected benefit obligation $ 74,617 $81,663
Plan assets at fair value 60,414 75,124
-------- -------
Plan assets less than projected benefit obligation (14,203) (6,539)
Prior service cost 1,614 1,557
Unrecognized net loss 8,826 6,694
Additional minimum liability recognized (10,087) (8,983)
-------- -------
Accrued pension cost $(13,850) $(7,271)
======== =======
The weighted average discount rate used in determining the projected benefit
obligation was 7.75% as of March 31, 1996 and 1997. 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, 1996, and 6.0% and
9.5%, respectively, as of March 31, 1997. 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's minimum additional
pension liability of $10,087 and $8,983 consists of intangible assets of $924
and $1,424 and charges against equity of $9,163 and $7,682 (tax effected to
$5,956 and $4,993) at March 31, 1996 and 1997, 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 North American plans.
Total pension expense related to the European plans was $4,953 and $5,914 in
fiscal 1996 and 1997, respectively. The accrued pension liability, reflected in
Noncurrent Retirement Obligations as of March 31, 1996 and 1997, which relates
to the defined benefit plans that are not funded, approximates the projected
benefit obligation. The projected benefit
F-21
obligation of such plans is $72,700 and $69,300, as of March 31, 1996 and 1997,
of which $67,600 and $61,200, respectively, is vested. The discount rates used
in determining the actuarial present value of the projected benefit obligation
ranged from 6.5% to 8.5%, and the assumed increase in future compensation levels
ranged from 3.5% to 5% in fiscal 1996 and 1997.
With respect to funded plans, as of March 31, 1996 and 1997, the Company
recognized $10,400 and $9,300, respectively, of prepaid pension costs reflected
in Other Assets, representing the overfunded status of certain defined benefit
plans. The projected benefit obligation of the plans as of March 31, 1996 and
1997, is $40,700 and $47,000, respectively, of which $26,000 and $30,000 is
vested, and the plan assets at fair value are $51,100 and $52,300, respectively.
The discount rate used in determining the projected benefit obligation were
7.75% and 8.00%, respectively as of March 31, 1996 and 1997, the rate of
increase in future compensation levels were 6.5% and 7.0% and the expected long-
term rate of return on plan assets were 9.5% and 9.0%.
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 U.S. In addition, a limited
number of the Company's active U.S. employees may become eligible for those
benefits if they reach normal retirement age while working for the Company. The
Company accrues the estimated cost of providing postretirement benefits during
the employees' applicable years of service.
The following table sets forth the plan's postretirement benefit liability as of
March 31:
1996 1997
------- -------
Accumulated postretirement benefit obligation:
Retirees, beneficiaries and dependents $12,399 $13,203
Fully eligible actives 563 534
Not fully eligible actives 1,855 1,552
------- -------
Total 14,817 15,289
Unrecognized loss (2,242) (2,410)
------- -------
Accrued postretirement benefit cost $12,575 $12,879
======= =======
The net periodic postretirement benefit cost for fiscal 1995, 1996 and 1997
included the following components:
1995 1996 1997
----- ------ ------
Service cost $ 99 $ 95 $ 102
Interest cost 856 1,032 1,121
----- ------ ------
Net periodic postretirement benefit cost $ 955 $1,127 $1,223
===== ====== ======
The significant assumptions used to calculate the net periodic postretirement
benefit cost and the accumulated postretirement benefit obligation as of March
31, 1996 and 1997, were
F-22
a discount rate of 7.75% and medical costs that are assumed to increase at a
rate of 9% per year grading down to 5% per year by 2004. The effect of a one-
percentage-point increase in the assumed health care cost trend rate would
increase the accumulated postretirement benefit obligation as of March 31, 1997,
by approximately $1,345, and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost by approximately $126.
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 after five
years 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
$387 and $194 in fiscal 1996 and 1997, respectively. In fiscal 1996, grants for
20,000 shares of the restricted stock were canceled.
During fiscal 1997 the Company approved a plan whereby Directors of the Company
are granted common stock as part of their total compensation. Under this plan
1,500 shares were granted during fiscal 1997.
F-23
Stock grant and option transactions are summarized as follows:
Incentive
Compensation Incentive
Plan Stock Grants Stock Plan
------------ ------------ ----------
Shares under option:
Outstanding at April 1, 1994 811,662 -- --
Granted -- 40,000 --
Exercised -- -- --
Canceled (23,190) -- --
------- ------- -------
Outstanding at April 1, 1995 788,472 40,000 --
Granted -- -- 102,000
Exercised (10,822) -- --
Canceled (23,972) (20,000) --
------- ------- -------
Outstanding at April 1, 1996 753,678 20,000 102,000
Granted -- 1,500 577,000
Exercised -- -- --
Canceled -- -- --
------- ------- -------
Outstanding at March 31, 1997 753,678 21,500 679,000
======= ======= =======
Options available for grant at
March 31, 1997 -- -- 21,000
======= ======= =======
Shares under the Incentive Compensation Plan were exercised at $2.25 per share
in fiscal 1996. For outstanding shares under option at March 31, 1997, option
prices ranged from $25.875 to $50.00 (and averaged $27.39) per share related to
the Incentive Stock Plan and $2.25 per share for the Incentive Compensation
Plan. The outstanding stock options under the Incentive Stock Plan have an
average remaining contractual life of 8.33 years at March 31, 1997. At March
31, 1997, options for 30,400 shares of common stock under the Incentive Stock
Plan with an aggregate purchase price of $910 were exercisable.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 encourages a fair-value-based method of accounting
for employee stock options and similar equity instruments. SFAS No. 123 also
allows an entity to continue to account for stock-based employee compensation
using the intrinsic value for equity instruments using APB Opinion No. 25. As
provided for in SFAS No. 123, the Company elected to continue the intrinsic
value method of expense recognition. Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation expense for the stock
option plans been determined consistent with the provisions of SFAS No. 123, the
Company's net income (loss) and net income (loss) per
F-24
common and common equivalent share would have been the pro forma amounts
indicated below:
Fiscal Year Ended March 31
-----------------------------
1996 1997
------------ -----------
Net Income (Loss):
As Reported $(8,661) $16,225
Pro Forma $(8,858) $15,617
Net Income (Loss) Per Common and
Common Equivalent Share:
As Reported $ (0.42) $ 0.77
Pro Forma $ (0.43) $ 0.74
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following range of assumptions used
for the five option grants which occurred during fiscal 1996 and 1997:
Fiscal Year Ended March 31
-----------------------------------
1996 1997
--------------- ----------------
Volatility 34.3% 31.3% - 33.5%
Risk-free interest rate 6.4% 6.3% - 6.5%
Expected life in years 5.5 5.25 - 10.0
Dividend yield 0.4% 0.4%
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, 1995,
1996 and 1997, are as follows:
1995 1996 1997
-------------- ---------------- --------------
Current:
Federal $ 2,940 $ -- $ --
State 218 700 --
Foreign 2,865 5,300 8,477
------- -------- -------
6,023 6,000 8,477
------- -------- -------
Deferred:
Federal (4,253) (23,838) --
State (911) (2,347) --
Foreign 4,301 26,485 6,255
------- -------- -------
(863) 300 6,255
------- -------- -------
Total provision $ 5,160 $ 6,300 $14,732
======= ======== =======
F-25
Major differences between the federal statutory rate and the effective tax rate
are as follows:
1995 1996 1997
---------- ---------- ----------
Federal statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit (4.2) (22.6) --
Nondeductible goodwill 15.3 87.1 16.6
Difference in rates on foreign subsidiaries 0.8 11.5 (6.8)
Other, net 1.2 (17.4) (2.7)
------ ------ ------
Effective tax rate 48.1% 93.6% 42.1%
===== ====== =====
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of March 31, 1996 and 1997:
1996 1997
----------- -----------
Deferred tax assets:
Operating loss and tax credit carryforwards $ 133,870 $ 146,199
Compensation reserves 37,440 31,260
Environmental reserves 16,539 15,507
Interest 10,584 14,155
Retirement benefits 14,553 11,740
Self-insurance 4,536 3,805
Warranty 3,310 3,212
Other 18,607 13,664
Valuation allowance (129,477) (152,718)
--------- ---------
109,962 86,824
--------- ---------
Deferred tax liabilities:
Depreciation/property basis (13,824) (12,695)
Inventory basis difference (5,879) (7,183)
Other (3,423) (4,180)
--------- ---------
(23,126) (24,058)
--------- ---------
Net deferred tax assets $ 86,836 $ 62,766
========= =========
As of March 31, 1997, the Company has net operating loss carryforwards for U.S.
income tax purposes of approximately $79,950, 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, 1997, certain of the Company's European subsidiaries have net
operating loss carryforwards for income tax purposes of approximately $301,772,
of which $97,762 expire in years 1998 through 2004. Most of these carryforwards
are preacquisition tax attributes, which will reduce goodwill upon realization.
For financial
F-26
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.
Non-U.S. pre-tax income of the Company was $18,800, $71,900 and $72,300 in
fiscal 1995, 1996 and 1997, respectively (see Note 17). Most of the increase in
the valuation allowance is offset by increases in deferred tax assets associated
with the European acquisitions, which resulted from finalizing the prior year
tax returns.
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, 1997, 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.
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). In connection with the Receivables Sale
Agreement, during fiscal 1997 the Company established a wholly owned, bankruptcy
remote subsidiary, Exide Funding, Inc., to purchase accounts receivable at a
discount from the Company on a continuous basis, subject to certain limitations
as described in the Receivables Sale Agreement. Exide U.S. Funding Corporation
simultaneously sells the accounts receivable at the same discount to the
Purchasers. As of March 31, 1996 and 1997, gross uncollected receivables sold
under the Receivables Sale Agreement were $112,109 and $102,187, respectively.
Losses on receivables sold under this agreement for fiscal years 1995, 1996 and
1997 were $1,616, $2,554 and $4,290, respectively, and are included in Other
expense (income), net in the Consolidated Statements of Operations.
12. RELATED-PARTY TRANSACTIONS:
The Company purchased $20,493, $20,290 and $4,920 of product from Yuasa-Exide,
Inc. ("YEI"), a 13.5%-owned affiliate, during fiscal 1995, 1996 and 1997,
respectively. The Company also sold $10,850, $10,618 and $6,580 of product to
YEI during fiscal 1995, 1996 and 1997, respectively. In addition, the Company
provides certain administrative services and pays certain expenses for YEI. YEI
reimbursed the Company for these costs totalling $4,867, $2,282 and $1,753
during fiscal 1995, 1996 and 1997, repsectively. As of March 31, 1996 and 1997,
the Company had a net receivable of $2,119 and $5,051, respectively.
F-27
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 54 federally defined Superfund or state
equivalent sites. At 31 of these sites, the Company has either paid or is in
the process of paying its share of liability. In most instances, the Company's
obligations are not expected to be significant because its portion of any
potential liability appears to be minor to insignificant in relation to the
total liability of all PRPs that have been identified and are viable. The
Company's share of the anticipated remediation costs associated with all of the
Superfund sites where it has been named a PRP, based on the Company's estimated
volumetric contribution to each site, is included in the environmental
remediation reserves discussed below.
Because the Company's liability under such statutes may, as a technical matter,
be imposed on a joint and several basis, the Company's liability may not
necessarily be based on volumetric allocations and could be greater than the
Company's estimates. Management believes, however, that its PRP status at these
Superfund sites will not have a material adverse effect on the Company's
business or financial condition because, based on the Company's experience, it
is reasonable to expect that the liability will be roughly proportionate to its
volumetric contribution of waste to the sites.
The Company currently has greater than 50% liability at only one Superfund site,
discussed below. The Company recently paid its share at another site where it
was a primary PRP, also discussed below. Other than these sites, the Company's
volumetric allocation exceeds 5% at only five sites at which the Company's share
of liability has not been paid as of March 31, 1997. The current volumetric
allocation at these five sites averages 12.8%.
The Company is the primary PRP at the Brown's Battery Breaking Superfund site
located in Pennsylvania. The site was operated by third-party owners in the
1960s and early 1970s. The EPA issued a Record of Decision ("ROD") in 1992
adopting an innovative technology advocated by the Company as the first
alternative remedy, and traditional stabilization as the second alternative
remedy. The Company has established its reserves based upon its estimates of
the remediation cost. During fiscal 1997, the Company signed a consent decree
and paid $3,000 of the EPA's $6,500 in past costs.
F-28
The Company was the primary PRP at the Wortham Lead Salvage State Superfund Site
located in Texas, another site that was owned and operated by third parties.
The Company remediated the Wortham Site at a cost of $400, which was completed
in the first quarter of fiscal year 1998. Post-closure activities are not
expected to be significant.
The Company is also involved in the assessment and remediation of various other
properties, including certain Company-owned or -operated facilities. Such
assessment and remedial work is being conducted pursuant to a number of state
and federal environmental laws and with varying degrees of involvement by state
and federal authorities. Where reasonably estimable, the costs of such projects
have been accrued in reserves established by the Company, as discussed below.
In addition, certain environmental matters concerning the Company are pending in
federal and state courts or with regulatory agencies.
While the ultimate outcome of the foregoing environmental matters is uncertain,
after consultation with legal counsel, management does not believe the
resolution of these matters will have a material adverse effect on the Company's
business, cash flows, financial condition or results of operations. The
Company's policy is to accrue for environmental costs when it is probable that a
liability has been incurred and the amount of such liability is reasonably
estimable. While the Company believes its current estimates of future
remediation costs are reasonable, future findings or changes in estimates could
have a material effect on the recorded reserves.
The Company has established reserves for on-site and off-site environmental
remediation costs and believes that such reserves are adequate. As of March 31,
1997, the amount of such reserves on the Company's balance sheet was $27,249. Of
this amount, $25,589 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 sought to have the court determine that
CNA owed no duty to the Company for costs to defend environmental actions and to
pay response costs, property damage and bodily injury claims resulting from
environmental conditions. The Company vigorously defended this suit and sought
to have the court determine that CNA and numerous other insurance carriers were
required to defend the Company and to reimburse or indemnify it for certain
response costs, property damage and bodily injury claims allegedly resulting
from environmental conditions. In fiscal 1997, the Company reached settlement
with most of the carriers in an amount aggregating $17,309. This settlement,
which was reflected in cost of sales, offset certain legal costs that the
Company incurred in fiscal 1997, as well as the elimination of $7,000 of legal
fees deferred in fiscal 1996. Negotiations with the remaining insurance
carrier is ongoing. Based upon the current status of these negotiations and
after consultation with legal counsel, the Company recorded a $5,250 receivable
during the fourth quarter of fiscal 1997. Legal counsel and
F-29
management believe that such recovery is probable and anticipate that the
ultimate recovery might 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 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 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:
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. 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, 1997.
. 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
Agreements 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, 1997, the
Company would be obligated to pay $1,181, based on quotes from financial
institutions.
. Lead forward and futures contracts--The contract value of the outstanding
contracts at March 31, 1997, exceeds the estimated fair value by $1,426,
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, 1997:
Estimated
Carrying Fair
Value Value
-------- ---------
10.00% Senior Notes $300,000 $298,500
10.75% Senior Notes 150,000 154,500
12.25% Senior Subordinated Debentures 101,187 103,400
2.90% Convertible Senior Subordinated Notes 298,295 222,824
F-31
15. COMMITMENTS AND CONTINGENCIES:
In August 1996, a Portland, Oregon jury found that the Company infringed a
patent relating to a device for inserting battery plates into battery
separators, and awarded damages of $5,000. Later, the Court, acting on the
jury's verdict, entered a judgment against the Company for $5,456. On April 28,
1997, the Court denied the Company's post-trial motions relating to the
judgment. On May 16, 1997, the Company filed its Notice of Appeal. On May 21,
1997, plaintiffs filed a cross appeal. The Company, following consultation with
its independent patent counsel, intends to vigorously prosecute the appeal.
Management and legal counsel remain confident that the jury verdict and the
court's judgment relating to the patent asserted at trial will be reversed and
that the cross appeal is without merit and, therefore, shall be rejected. The
Company anticipates receiving a decision on the appeal some time during the
first quarter of 1998.
The Company is now or recently has been involved in several related lawsuits
pending in state and federal courts in Alabama, North Carolina and South
Carolina. These actions contain allegations that the Company sold old or used
batteries as new batteries. One action that had been certified as a class action
was later decertified by the Alabama Supreme Court and has now been dismissed.
In another action, the judge directed a verdict in favor of the Company
following presentation of the plaintiff's evidence. That case is now on appeal.
The remaining actions seek compensatory and punitive damages and, in one case,
injunctive relief. The Company disputes the material legal claims in these
matters and 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 (income),
net.
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, 1997, are:
Fiscal Year Operating Capital
----------- --------- -------
1998 $ 36,587 $ 3,398
1999 28,742 3,087
2000 20,101 2,764
2001 11,811 2,200
2002 8,411 2,035
Thereafter 31,234 18,668
-------- -------
Total minimum payments $136,886 32,152
========
Less - Interest on capital leases (9,798)
-------
Total principal payable on capital
leases (included in Note 5) $22,354
=======
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Rent expense amounted to $21,994, $47,837 and $52,701 for fiscal years 1995,
1996 and 1997, respectively.
The Company has various purchase commitments for materials, supplies and other
items incident to the ordinary course of business. In the aggregate, such
commitments are not at prices in excess of current market.
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of the Company's unaudited quarterly consolidated
results of operations for fiscal years 1996 and 1997:
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 88,703 146,537 185,803 137,311
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)
======== ======== ======== ========
Fiscal Quarter Ended
--------------------------------------------------------------
June 30, September 29, December 29, March 31,
1996 1996 1996 1997
---------- ------------- ------------ ---------
Net sales $556,020 $587,403 $677,544 $512,263
Gross profit 130,701 155,816 179,174 129,585
Income (loss) before
extraordinary loss (11,119) 11,691 26,205 (7,785)
Net income (loss) (11,119) 11,691 26,205 (10,552)
Per share:
Income (loss) before
extraordinary loss $ (0.53) $ 0.56 $ 1.26 $ (0.37)
Extraordinary loss -- -- -- (0.13)
-------- -------- -------- --------
Net income (loss) $ (0.53) $ 0.56 $ 1.26 $ (0.50)
======== ======== ======== ========
Fully diluted earnings per share were $1.13 in the third quarter of fiscal 1997.
F-33
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 Intercompany
America Europe Other Eliminations 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 861,096 1,827,834 191,213 (168,714) 2,711,429
Year ended March 31, 1997:
Sales to unaffiliated
customers $872,985 $1,460,346 $ -- $ (101) $2,333,230
Income (loss) before income
taxes, minority interest and
extraordinary loss
(891) 75,914 -- (40,000) 35,023
Identifiable assets 863,210 1,656,758 157,465 (238,938) 2,438,495
Other includes cash and cash equivalents, deferred tax assets, investments and
deferred financing costs.
18. SUBSEQUENT EVENTS:
On June 1, 1997, the Company announced that it had agreed to acquire three
related German producers and marketers of SLI and industrial batteries, DETA
Akkumularorenwerk GmbH, MAREG Accumulatoren GmbH, and FRIWO SILBERKRAFT GmbH
(together "DETA") for approximately $35,000 plus assumed debt of approximately
$68,000. The purchase price is subject to a postclosing adjustment based on the
net equity of DETA as of May 31, 1997. DETA competes in most western European
countries and is the largest supplier of SLI batteries to BMW in Germany. The
transaction is subject to, among other things, the approval of appropriate
governmental authorities.
In June 1997, certain of the Company's European subsidiaries established a
receivables sale facility with a bank to sell selected trade accounts receivable
of the Company, up to a maximum of $175,000. The initial proceeds are expected
to be approximately $100,000 and will be used to repay a portion of borrowings
under the European Facilities Agreement.
F-34
SCHEDULE II
EXIDE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (Amounts in thousands)
---------------------------------------------------------------------
Balance at Additions Balance
Beginning Charged to at End of
of Period Expense Write-offs Other (1) Period
---------- ---------- ---------- ---------- ---------
Year ended March 31, 1997:
Allowance for doubtful accounts $45,350 $4,638 $ (7,531) $(3,971) $38,486
======= ====== ======== ======= =======
Year ended March 31, 1996:
Allowance for doubtful accounts $23,274 $4,016 $ (7,423) $25,483 $45,350
======= ====== ======== ======= =======
Year ended March 31, 1995:
Allowance for doubtful accounts $ 4,846 $3,238 $(12,508) $27,698 $23,274
======= ====== ======== ======= =======
(1) Represents primarily acquisitions of certain businesses in fiscal 1995 and
1996 and currency translation and disposition in fiscal 1997.
F-35