Back to GetFilings.com
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal quarter ended June 30, 2002
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-11263
-----------------
EXIDE TECHNOLOGIES
(Exact Name of Registrant as Specified in Its Charter)
Delaware 23-0552730
(State or other (I.R.S. Employer)
jurisdiction of
incorporation or Identification Number)
organization)
210 Carnegie Center,
Suite 500
Princeton, New Jersey 08540
(Address of principal (Zip Code)
executive offices)
(609) 627-7200
(Registrant's telephone number, including area code)
-----------------
Indicate by a check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [_] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of August 14, 2002, 27,383,084 shares of common stock were outstanding.
================================================================================
EXIDE TECHNOLOGIES AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)................................. 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001................... 3
CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 2002 AND MARCH 31,
2002........................................................... 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001................... 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS............. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................... 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS...... 30
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................ 32
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................ 33
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................. 34
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 34
ITEM 5. OTHER INFORMATION................................................ 34
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 34
SIGNATURES............................................................... 35
2
EXIDE TECHNOLOGIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per-share data)
For the
Three Months Ended
------------------
June 30, June 30,
2002 2001
-------- --------
NET SALES......................................................................... $554,989 $631,237
COST OF SALES..................................................................... 444,659 492,376
-------- --------
Gross profit................................................................... 110,330 138,861
-------- --------
OPERATING EXPENSES:
Selling, marketing and advertising............................................. 62,052 73,961
General and administrative..................................................... 45,093 40,736
Restructuring and other (Note 11).............................................. 6,288 --
Goodwill impairment charge (Note 7)............................................ 37,000 --
Other (income) expense, net.................................................... (5,203) 1,482
-------- --------
145,230 116,179
-------- --------
Operating income (loss)........................................................ (34,900) 22,682
-------- --------
INTEREST EXPENSE, net............................................................. 27,615 33,622
REORGANIZATION ITEMS, net (Note 5)................................................ 12,098 --
-------- --------
Loss before income taxes, minority interest and cumulative effect of change in
accounting principle......................................................... (74,613) (10,940)
INCOME TAX PROVISION (BENEFIT).................................................... 2,048 (4,048)
-------- --------
Loss before minority interest and cumulative effect of change in accounting
principle.................................................................... (76,661) (6,892)
MINORITY INTEREST................................................................. (21) (169)
-------- --------
Net loss before cumulative effect of change in accounting principle............ (76,640) (6,723)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE............................... -- (496)
-------- --------
Net loss....................................................................... $(76,640) $ (7,219)
======== ========
NET INCOME LOSS PER SHARE, BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE:
Basic and Diluted.............................................................. $ (2.80) $ (0.26)
======== ========
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE PER
SHARE........................................................................... $ -- $ (0.02)
======== ========
NET LOSS PER SHARE (Note 14):
Basic and Diluted.............................................................. $ (2.80) $ (0.28)
======== ========
WEIGHTED AVERAGE SHARES:
Basic and Diluted.............................................................. 27,383 25,451
======== ========
The accompanying notes are an integral part of these statements.
3
EXIDE TECHNOLOGIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per-share data)
June 30, March 31,
2002 2002
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 56,594 $ 31,703
Receivables, net of allowance for doubtful accounts of $59,073 and $53,203,
respectively.................................................................. 571,945 304,797
Inventories (Note 8)............................................................ 429,055 404,667
Prepaid expenses and other...................................................... 38,355 19,302
Deferred income taxes........................................................... 29,218 28,900
---------- ----------
Total current assets...................................................... 1,125,167 789,369
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, Net.............................................. 541,653 530,220
---------- ----------
OTHER ASSETS:
Goodwill, net (Note 7)....................................................... 427,714 416,926
Other intangibles, net (Note 7).............................................. 48,400 48,680
Investments in affiliates.................................................... 5,665 4,821
Deferred financing costs, net................................................ 12,121 12,610
Deferred income taxes........................................................ 67,980 69,819
Other........................................................................ 51,488 43,423
---------- ----------
613,368 596,279
---------- ----------
Total assets.............................................................. $2,280,188 $1,915,868
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term borrowings (Note 12).............................................. $ 9,525 $ 10,999
Current maturities of long-term debt (Note 12)............................... 29,169 1,075,925
Accounts payable............................................................. 221,470 290,378
Accrued expenses............................................................. 215,711 363,933
---------- ----------
Total current liabilities................................................. 475,875 1,741,235
LONG-TERM DEBT (Note 12)........................................................ 635,694 326,348
NONCURRENT RETIREMENT OBLIGATIONS............................................... 123,326 176,675
OTHER NONCURRENT LIABILITIES.................................................... 32,173 209,336
LIABILITIES SUBJECT TO COMPROMISE (Note 6)...................................... 1,597,428 --
---------- ----------
Total liabilities......................................................... 2,864,496 2,453,594
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)
MINORITY INTEREST............................................................... 19,976 18,016
---------- ----------
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value 100,000 shares authorized; 27,383 shares issued and
outstanding................................................................... 274 274
Additional paid-in capital...................................................... 570,589 570,589
Accumulated deficit............................................................. (867,759) (791,119)
Notes receivable--stock award plan.............................................. (665) (665)
Accumulated other comprehensive loss (Note 4)................................... (306,723) (334,821)
---------- ----------
Total stockholders' deficit............................................... (604,284) (555,742)
---------- ----------
Total liabilities and stockholders' deficit............................... $2,280,188 $1,915,868
========== ==========
The accompanying notes are an integral part of these statements.
4
EXIDE TECHNOLOGIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
For the
Three Months Ended
--------------------
June 30, June 30,
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $ (76,640) $ (7,219)
Adjustments to reconcile net loss to net cash used in operating activities--
Depreciation and amortization................................................ 22,629 26,383
Net (gain) loss on asset sales............................................... (407) (931)
Deferred income taxes........................................................ -- (2,409)
Amortization of original issue discount on notes............................. 428 2,744
Provision for doubtful accounts.............................................. 1,513 2,131
Non-cash provision for restructuring......................................... 2,949 --
Goodwill impairment charge................................................... 37,000 --
Minority interest............................................................ (21) (169)
Amortization of deferred financing costs..................................... 3,015 2,538
Net change from sales of receivables:
European securitization................................................... (124,793) --
U.S. securitization....................................................... (117,455) --
Other, net................................................................ (19,475) (1,123)
Changes in assets and liabilities excluding effects of acquisitions and divestitures
Receivables.................................................................. 15,261 40,781
Inventories.................................................................. 794 (7,335)
Prepaid expenses and other................................................... (5,671) (392)
Accounts payable............................................................. 10,006 (49,157)
Accrued expenses............................................................. 28,047 (42,786)
Noncurrent liabilities....................................................... (9,239) (3,408)
Other, net................................................................... (3,506) (5,831)
--------- ---------
Net cash used in operating activities.................................. (235,565) (46,183)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (8,223) (27,482)
Proceeds from sales of assets................................................... 407 3,500
--------- ---------
Net cash used in investing activities.................................. (7,816) (23,982)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings.................................... (1,995) 4,742
Borrowings under Senior Secured Credit Facilities Agreement..................... 6,191 278,054
Repayments under Senior Secured Credit Facilities Agreement..................... (2,727) (190,733)
Borrowings under DIP Facility................................................... 255,068 --
Repayments under DIP Facility................................................... (97,576) --
European asset securitization................................................... 130,475 --
Decrease in other debt.......................................................... (6,749) (2,264)
Financing costs and other....................................................... (19,422) (2,948)
Dividends paid.................................................................. -- (503)
--------- ---------
Net cash provided by financing activities.............................. 263,265 86,348
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS................................................................... 5,007 (170)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................... 24,891 16,013
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................................... 31,703 23,072
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................................ $ 56,594 $ 39,085
========= =========
The accompanying notes are an integral part of these statements.
5
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(Dollars in thousands, except per-share data)
(Unaudited)
(1) BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the
accounts of Exide Technologies (the "Company") and all of its majority-owned
subsidiaries. The accompanying financial statements are presented in accordance
with the requirements of Form 10-Q and consequently do not include all of the
disclosures normally required by generally accepted accounting principles or
those normally made in the Company's Annual Report on Form 10-K. Accordingly,
the reader of this Form 10-Q may wish to refer to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 2002 for further information.
The financial information contained herein is unaudited.
The financial information has been prepared in accordance with the Company's
customary accounting practices. In the opinion of management, the accompanying
consolidated financial information includes all adjustments of a normal
recurring nature necessary for a fair statement of the results of operations
and financial position for the periods presented.
The accompanying interim unaudited condensed consolidated financial
statements as of June 30, 2002 and for the three months then ended have been
prepared in accordance with Statement of Position 90-7 ("SOP 90-7"), "Financial
Reporting by Entities in Reorganization under the Bankruptcy Code."
Accordingly, all pre-petition liabilities subject to compromise have been
segregated in the unaudited condensed consolidated balance sheets and
classified as Liabilities Subject To Compromise, at the estimated amount of
allowable claims. Liabilities not subject to compromise are separately
classified. Additional pre-petition claims (liabilities subject to compromise)
may arise due to the rejection of executory contracts or unexpired leases, or
as a result of the allowance of contingent or disputed claims. Revenues,
expenses, realized gains and losses, and provision for losses resulting from
the reorganization are reported separately as Reorganization items, net, in the
unaudited condensed consolidated statements of operations. However, since the
Chapter 11 filing occurred subsequent to March 31, 2002, SOP 90-7 is not
applicable with respect to the accompanying comparative fiscal 2002 unaudited
condensed consolidated financial statements, and may lack comparability to that
extent. These interim unaudited condensed consolidated financial statements
have been prepared on a going concern basis, which assumes continuity of
operations and realization of assets and satisfaction of liabilities in the
ordinary course of business.
The ability of the Company to continue as a going concern is predicated,
among other things, on the confirmation of a reorganization plan, compliance
with the provisions of the debtor-in-possession ("DIP") financing facility
("DIP Credit Facility"), the ability of the Company to generate the required
cash flows from operations and, where necessary, obtaining financing sources
sufficient to satisfy future obligations. As a result of the Chapter 11 filing
and consideration of various strategic alternatives, including possible asset
sales, the Company expects that any reorganization plan will likely result in
material changes to the carrying amount of assets and liabilities in the
unaudited condensed consolidated financial statements.
In the first quarter of fiscal 2002, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS 138 (collectively,
"SFAS 133"). SFAS 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. The adoption of SFAS 133
resulted in an income statement charge, reflected as a Cumulative effect of
change in accounting principle, of $496, or $0.02 per basic and diluted share
in the first quarter of fiscal 2002. Also, a cumulative effect adjustment
reduced Accumulated other comprehensive loss by $541 in the same period.
6
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Certain reclassifications of prior period financial statements have been
made to conform to the current interim period presentation.
(2) PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
On April 15, 2002 ("Petition Date"), Exide Technologies (together with its
subsidiaries unless the context requires otherwise, "Exide" or the "Company")
and three of its wholly-owned, U.S. subsidiaries (RBD Liquidation, LLC, Exide
Delaware, LLC and Exide Illinois, Inc.; together with Exide collectively, the
"Debtors") filed voluntary petitions for reorganization under Chapter 11 of the
federal bankruptcy laws ("Bankruptcy Code" or "Chapter 11") in the United
States Bankruptcy Court for the District of Delaware ("Bankruptcy Court") under
case numbers 02-11125 through 02-11128 (jointly administered for procedural
purposes before the Bankruptcy Court under case number 02-11125JCA).
The Debtors are currently operating their business as debtors-in-possession
pursuant to the Bankruptcy Code.
The Company decided to file itself and certain of its subsidiaries for
reorganization under Chapter 11 as it offered the most efficient alternative to
restructure its balance sheet and access new working capital while continuing
to operate in the ordinary course of business. The Company has a heavy debt
burden, caused largely by a debt-financed acquisition strategy and the
significant costs of integrating those acquisitions. Other factors leading to
the reorganization included the impact of adverse economic conditions on the
Company's markets, particularly telecommunications, ongoing competitive
pressures and recent capital market volatility. These factors contributed to a
loss of revenues and resulted in significant operating losses and negative cash
flows, severely impacting the Company's financial condition and its ability to
maintain compliance with debt covenants.
As debtors in possession under Chapter 11 the Debtors are authorized to
continue to operate as an ongoing business, but may not engage in transactions
outside the ordinary course of business without the approval of the Bankruptcy
Court. The Company's operations outside of the U.S. are not included in the
Chapter 11 proceedings. However, in connection with the Chapter 11 filing, the
Company entered into a "Standstill and Subordination Agreement" with its
Pre-Petition Senior Secured Credit Facility Lenders, whereby those lenders have
agreed to forbear collection of principal payments on foreign borrowings under
this facility from non-debtor subsidiaries until December 2003, subject to
earlier termination upon the occurrence of certain events.
On May 10, 2002, the Company received final Bankruptcy Court approval to
access the $250,000 DIP Credit Facility. The DIP Credit Facility will be used
to supplement cash flows from operations during the reorganization process
including the payment of post-petition ordinary course trade and other
payables, the payment of certain permitted pre-petition claims, working capital
needs, letter of credit requirements and for other general corporate purposes.
Under Section 362 of the Bankruptcy Code, actions to collect pre-petition
indebtedness, as well as most other pending litigation, are stayed. Absent an
order of the Bankruptcy Court, substantially all pre-petition liabilities are
subject to settlement under a plan of reorganization to be approved by the
Bankruptcy Court. Although the Debtors expect to file a reorganization plan
that provides for emergence from bankruptcy as a going concern, there can be no
assurance that a reorganization plan will be proposed by the Debtors or
confirmed by the Bankruptcy Court, or that any such plan will be successfully
implemented.
Under the Bankruptcy Code, the Debtors may also assume or reject executory
contracts, including lease obligations, subject to the approval of the
Bankruptcy Court and certain other conditions. Parties affected by
7
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
these rejections may file claims with the Bankruptcy Court in accordance with
the reorganization process. Due to the timing of the Chapter 11 proceedings,
the Company cannot currently estimate or anticipate what impact the rejection
and subsequent claims of executory contracts may have on the reorganization
process.
On June 14, 2002, the Company filed with the Bankruptcy Court schedules and
statements of financial affairs setting forth, among other things, the assets
and liabilities of the Debtors as shown by our books and records on the
Petition Date, subject to the assumptions contained in certain notes filed in
connection therewith. All of the schedules are subject to further amendment or
modification. The Bankruptcy Code provides for a claims reconciliation and
resolution process, although a bar date for filing claims has not yet been
established. As the ultimate number and amount of allowed claims is not
presently known, and because any settlement terms of such allowed claims are
subject to a confirmed plan of reorganization, the ultimate distribution with
respect to allowed claims is not presently ascertainable.
The United States Trustee has appointed an unsecured creditors committee.
The official committee and its legal representatives have a right to be heard
on all matters that come before the Bankruptcy Court.
At this time, it is not possible to predict the effect of the Chapter 11
reorganization process on our business, various creditors and security holders,
or when it may be possible to emerge from Chapter 11. Our future results are
dependent upon our confirming and implementing, on a timely basis, a plan of
reorganization. The Company believes, however, that under any reorganization
plan, the Company's common stock would likely be substantially, if not
completely, diluted or cancelled as a result of the conversion of debt to
equity or with respect to any other compromise of interests. Further, it is
also likely that the Company's senior notes and convertible subordinated notes
will suffer substantial impairment.
The ultimate recovery, if any, by creditors, security holders and/or common
shareholders will not be determined until confirmation of a plan or plans of
reorganization. No assurance can be given as to what value will be ascribed in
the bankruptcy proceedings to each of these constituencies. Accordingly, Exide
urges appropriate caution be exercised with respect to existing and future
investments in any of these securities.
8
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(3) DEBTORS' FINANCIAL INFORMATION
The unaudited condensed combined financial statements of the Debtors are
presented below. These statements reflect the financial position, results of
operations and cash flows of the combined Debtor subsidiaries, including
certain amounts and activities between Debtors and non-debtor subsidiaries of
the Company which are eliminated in the unaudited condensed consolidated
financial statements. The unaudited condensed combined financial statements of
the Debtors are presented as follows:
EXIDE TECHNOLOGIES AND SUBSIDIARIES
DEBTORS' CONDENSED COMBINED STATEMENT OF OPERATIONS
(Unaudited, in thousands)
For the Period
From April 15,
2002 Through
June 30, 2002
--------------
NET SALES............................. $215,848
COST OF SALES......................... 174,819
--------
Gross profit................... 41,029
--------
OPERATING EXPENSES:
Selling, marketing and advertising. 22,070
General and administrative......... 17,540
Restructuring and other............ 4,612
Other (income) expense, net........ (678)
--------
43,544
--------
Operating loss................. (2,515)
--------
INTEREST EXPENSE...................... 12,797
REORGANIZATION ITEMS, net (Note 5).... 10,559
--------
Loss before income taxes........... (25,871)
INCOME TAX PROVISION.................. --
--------
NET LOSS.............................. $(25,871)
========
9
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
EXIDE TECHNOLOGIES AND SUBSIDIARIES
DEBTORS' CONDENSED COMBINED BALANCE SHEET
(Unaudited, in thousands)
June 30,
2002
----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 4,315
Receivables, net.................................... 149,937
Intercompany receivables............................ 41,706
Inventories......................................... 176,955
Prepaid expenses and other.......................... 24,464
----------
Total current assets............................ 397,377
----------
PROPERTY, PLANT AND EQUIPMENT, net..................... 265,149
----------
OTHER ASSETS:
Goodwill and other intangibles, net................. 40,965
Investments in affiliates........................... 2,324
Deferred financing costs, net....................... 9,558
Intercompany notes receivable....................... 225,548
Other............................................... 7,595
----------
285,990
----------
Total assets.................................... $ 948,516
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.................................... $ 59,589
Accrued interest payable............................ 13,128
Accrued expenses, other............................. 21,380
----------
Total current liabilities....................... 94,097
LONG-TERM DEBT (DIP Facility).......................... 157,492
NONCURRENT RETIREMENT OBLIGATIONS...................... 2,204
LIABILITIES SUBJECT TO COMPROMISE...................... 1,597,428
----------
Total liabilities............................... 1,851,221
STOCKHOLDERS' DEFICIT
Total stockholders' deficit..................... (902,705)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT..... $ 948,516
==========
10
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
EXIDE TECHNOLOGIES AND SUBSIDIARIES
DEBTORS' CONDENSED COMBINED STATEMENT OF CASH FLOWS
(Unaudited, in thousands)
For the Period
From April 15,
2002 Through
June 30, 2002
--------------
CASH RECEIPTS:
Third party receipts.......................... $ 233,973
Borrowings under DIP Credit Facility.......... 255,068
---------
Total cash receipts....................... 489,041
CASH DISBURSEMENTS:
Supplier payments............................. (71,120)
Repurchase of securitized accounts receivable. (117,455)
Financing costs, fees and interest............ (17,425)
Capital expenditures.......................... (3,331)
Freight and logistics......................... (16,709)
Leasing and rental costs...................... (6,638)
Payroll and benefits.......................... (54,159)
Professional / consulting fees................ (4,664)
Taxes......................................... (5,791)
Utilities..................................... (7,441)
Other disbursements........................... (32,132)
Intercompany loans to non-filing entities..... (55,000)
Repayments under DIP Credit Facility.......... (97,576)
---------
Total cash disbursements.................. (489,441)
---------
Net cash flow............................. (400)
CASH AT BEGINNING OF PERIOD:..................... 4,715
---------
CASH AT END OF PERIOD:........................... $ 4,315
=========
The unaudited condensed consolidated statements of operations also includes
Reorganization items, net (consisting of professional fees) for the period
prior to the Petition Date from April 1 to April 14, 2002.
(4) COMPREHENSIVE LOSS
Total comprehensive loss and its components are as follows:
For the
Three Months Ended
------------------
June 30, June 30,
2002 2001
-------- --------
Net loss........................................... $(76,640) $ (7,219)
Cumulative effect of change in accounting principle -- 541
Reclassification to earnings of cash flow hedges... 2,083 (4,086)
Change in cumulative translation adjustment........ 26,015 (11,304)
-------- --------
Total comprehensive loss........................... $(48,542) $(22,068)
======== ========
11
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(5) REORGANIZATION ITEMS
Reorganization items represent amounts the Company incurred as a result of
Chapter 11 and are presented separately in the unaudited condensed consolidated
statements of operations. For the three months ended June 30, 2002, the
following have been incurred:
For the
Three Months Ended
June 30, 2002
------------------
Professional fees......... $10,170
Employee costs............ 375
Interest income........... (530)
Other..................... 2,083
-------
Total reorganization items $12,098
=======
Net cash paid for reorganization items during the three months ended June
30, 2002 was $4,636.
The following paragraphs provide additional information relating to costs
that were recorded in the line Reorganization items, net in the unaudited
condensed consolidated statements of operations for the three months ended June
30, 2002:
Professional fees
In the first quarter of fiscal 2003, the Company recorded $10,170 for
professional fees. Professional fees include financial, legal and valuation
services directly associated with the reorganization process.
Employee costs
The Company has implemented a retention plan that has received final
Bankruptcy Court approval and provides for cash incentives to key members of
our management team. The retention plan is expected to encourage employees to
continue their employment through the reorganization process. During the first
quarter of fiscal 2003 the Company recognized a charge of $375 related to this
program. No payments were made during the first quarter of fiscal 2003.
Interest income
Interest income represents interest income earned by the Debtors as a result
of assumed excess cash balances due to the Chapter 11 filing.
Other
Other represents contractual claims arising from termination of pre-petition
financial instruments.
(6) LIABILITIES SUBJECT TO COMPROMISE
Under U.S. bankruptcy law, actions by creditors to collect indebtedness the
Company owes prior to the Petition Date are stayed and certain other
pre-petition contractual obligations may not be enforced against the Debtors.
The Company has received approval from the Bankruptcy Court to pay certain
pre-petition liabilities including employee salaries and wages, benefits and
other employee obligations. All pre-petition liabilities of the
12
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Debtors have been classified as liabilities subject to compromise in the
unaudited condensed consolidated balance sheets. Adjustments to these amounts
may result from negotiations, payments authorized by the Bankruptcy Court,
rejection of executory contracts including leases or other events. Amounts that
we have recorded may ultimately be different than amounts filed by our
creditors under the Bankruptcy Court claims reconciliation and resolution
process.
The following table summarizes the components of the liabilities classified
as Liabilities Subject To Compromise in the unaudited condensed consolidated
balance sheet as of June 30, 2002:
June 30,
2002
----------
Accounts payable....................... $ 96,537
Accrued interest payable............... 19,403
Restructuring reserve.................. 13,734
Warranty reserve....................... 32,230
Accrued expenses....................... 153,447
Retirement obligations................. 82,402
Long-term debt......................... 1,055,393
Other liabilities...................... 144,282
----------
Total liabilities subject to compromise $1,597,428
==========
(7) ACCOUNTING FOR GOODWILL AND INTANGIBLES
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141
"Business Combinations" ("SFAS 141") and SFAS No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
SFAS 141 also specifies the criteria applicable to intangible assets acquired
in a purchase method business combination to be recognized and reported apart
from goodwill. SFAS 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment, at least annually. SFAS 142 also requires that intangible assets
with definite useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and be reviewed for impairment.
The Company adopted SFAS 141 and 142 effective April 1, 2001. Upon adoption
of SFAS 142, the Company no longer amortizes goodwill.
During the first quarter of fiscal 2003, the Company experienced
deterioration in the performance of its European Network Power business. This
deterioration was not known or forecasted as of March 31, 2002. In accordance
with SFAS 142, the goodwill associated with the Network Power business was
reviewed for impairment due to the fact that circumstances indicated the
carrying value may not be recoverable. As a result, the Company has recognized
a goodwill impairment charge in the amount of $37,000. This amount is
additional to the $105,000 goodwill impairment charge taken in the third
quarter of fiscal 2002 within the Network Power segment. The impairment charge
was determined based upon a comparison of the book carrying value of this
reporting segment, including goodwill, against its fair value, estimated using
a discounted cash flow model. If the assumptions used in determining the fair
value of reporting units change or there is significant erosion of business
results, such changes could result in additional impairment charges in future
periods.
13
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summarized goodwill activity for the first quarter of fiscal 2002 is as
follows:
Total
--------
Goodwill, net at March 31, 2002 $416,926
Impairment charge.............. (37,000)
Currency translation........... 47,788
--------
Goodwill, net at June 30, 2002. $427,714
========
Subsequent to the impairment charge mentioned above, the amounts of
Goodwill, net at June 30, 2002 allocated to the Company's Transportation and
Motive Power segments were approximately $249,000 and $179,000, respectively.
All goodwill of the Network Power segment has now been written off.
(8) INVENTORIES
Inventories, valued by the first-in, first-out ("FIFO") method, consist of:
June 30, March 31,
2002 2002
-------- ---------
Raw materials.. $ 90,801 $ 81,089
Work-in-process 84,631 79,416
Finished goods. 253,623 244,162
-------- --------
$429,055 $404,667
======== ========
In connection with the inventory management component of the Company's
restructuring and reorganization programs, during the third quarter of fiscal
2002, the Company recorded a charge to write-down excess inventories by
approximately $10,000. The charge was determined after an assessment of the
Company's five-year business plan and updated demand forecasts, the continued
weakening of the Company's business segments, particularly the
telecommunications market, and ongoing stock keeping unit (SKU)
rationalization. The Company expects to complete the disposition of these
identified inventories during fiscal 2003.
(9) ENVIRONMENTAL MATTERS
The Company, particularly as a result of its manufacturing, distribution and
recycling operations, is subject to numerous environmental laws and regulations
and is exposed to liabilities and compliance costs arising from its past and
current handling, releasing, storing and disposing of hazardous substances and
hazardous wastes. The Company's operations are also subject to occupational
safety and health laws and regulations, particularly relating to monitoring of
employee health. The Company devotes certain of its resources to attaining and
maintaining compliance with environmental and occupational health and safety
laws and regulations and does not currently believe environmental, health or
safety compliance issues will have a material adverse effect on the Company's
business, financial condition or results of operations. The Company believes
that it is in substantial compliance with all material environmental, health
and safety requirements.
North America
The Company has been advised by the U.S. Environmental Protection Agency or
state agencies that it is a "Potentially Responsible Party" ("PRP") under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
or similar state laws at 90 federally defined Superfund or state equivalent
sites. At 61
14
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of these sites, the Company has either paid or is in the process of paying its
share of the liability. In most instances, the Company's obligations are not
expected to be significant because its portion of any potential liability
appears to be minor or insignificant in relation to the total liability of all
PRPs that have been identified and are financially viable. The Company's share
of the anticipated remediation costs associated with all of the Superfund sites
where it has been named a PRP, based on the Company's estimated volumetric
contribution of waste to each site, is included in the environmental
remediation reserves discussed below.
Because the Company's liability under such statutes may be imposed on a
joint and several basis, the Company's liability may not necessarily be based
on volumetric allocations and could be greater than the Company's estimates.
Management believes, however, that its PRP status at these Superfund sites will
not have a material adverse effect on the Company's business or financial
condition because, based on the Company's experience, it is reasonable to
expect that the liability will be roughly proportionate to its volumetric
contribution of waste to the sites.
The Company currently has greater than 50% liability at three Superfund
sites. Other than these sites, the Company's allocation exceeds 5% at seven
sites for which the Company's share of liability has not been paid as of June
30, 2002. The current allocation at these seven sites averages approximately
22%.
The Company is also involved in the assessment and remediation of various
other properties, including certain Company owned or operated facilities. Such
assessment and remedial work is being conducted pursuant to a number of state
and federal environmental laws and with varying degrees of involvement by state
and federal authorities. Where probable and reasonably estimable, the costs of
such projects have been accrued by the Company, as discussed below. In
addition, certain environmental matters concerning the Company are pending in
federal and state courts or with certain environmental regulatory agencies.
International
The Company is subject to numerous environmental, health and safety
requirements and is exposed to differing degrees of liabilities, compliance
costs, and cleanup requirements arising from its past and current activities in
various international locations including Europe. The laws and regulations
applicable to such activities differ from country to country and also
substantially differ from U.S. laws and regulations. The Company believes that
it is in substantial compliance with all material environmental, health and
safety requirements in each country.
The Company expects that its international operations will continue to incur
capital and operating expenses in order to maintain compliance with evolving
environmental, health and safety requirements or more stringent enforcement of
existing requirements in each country.
Consolidated
While the ultimate outcome of the foregoing environmental matters is
uncertain, after consultation with legal counsel, management does not believe
the resolution of these matters, individually or in the aggregate, will have a
material adverse effect on the Company's long-term business, financial
condition or results of operations.
The Company has established reserves for on-site and off-site environmental
remediation costs and believes that such reserves are adequate. As of June 30,
2002 and March 31, 2002 the amount of such reserves on the Company's unaudited
condensed consolidated balance sheets was $73,217 and $70,543, respectively.
15
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Because environmental liabilities are not accrued until a liability is
determined to be probable and reasonably estimable, not all potential future
environmental liabilities have been included in the Company's environmental
reserves and, therefore, additional earnings charges are possible. Also, future
findings or changes in estimates could have a material effect on the recorded
reserves and cash flows.
In the U.S., the Company has advised each state and federal authority with
whom we have negotiated plans for environmental investigations or remediation
of the Company's Chapter 11 filing as required by those agreements or
applicable rules. In some cases these authorities may require the Company to
undertake certain agreed remedial activities under a modified schedule, or may
seek to negotiate or require modified remedial activities. Such requests have
been received at several sites and are the subject of ongoing discussions. At
this time no requests or directives have been received which, individually or
in the aggregate, would alter the Company's reserves or have a material adverse
effect on the Company's business, financial condition or results of operations.
(10) COMMITMENTS AND CONTINGENCIES
Bankruptcy Considerations
As of the Petition Date, substantially all pending litigation against the
Debtors was stayed, and absent further order of the Bankruptcy Court, no party
may take any action to recover on pre-petition claims against the Debtors. We
cannot predict what action, if any, the Bankruptcy Court may take with respect
to pending litigation.
Former Senior Executives of the Company: Arthur M. Hawkins, Douglas N. Pearson
and Alan E. Gauthier.
Exide established a $13,400 reserve in fiscal 2000 to cover litigation
related to allegations that used batteries were sold as new. The Company has
resolved these claims, including the third quarter fiscal 2002 settlement of
the sole remaining "legacy" action, Houlihan v. Exide. As a result of the
Houlihan settlement, the Company recorded an additional expense in the third
quarter of fiscal 2002 of $1,400 for reimbursement of legal fees. At June 30,
2002, there is approximately a $2,500 reserve remaining, representing the
Company's estimate of its remaining obligations under the Houlihan and other
"legacy" settlements.
On March 23, 2001, Exide reached a plea agreement with the U.S. Attorney for
the Southern District of Illinois, resolving an investigation of the conduct of
certain former senior executives of the Company. Under the terms of that
settlement Exide agreed to pay a fine of $27,500 over five years, to
five-years' probation and to cooperate with the U.S. Attorney in her
prosecution of Arthur M. Hawkins, Douglas N. Pearson and Alan E. Gauthier,
former senior executives of the Company. The payment terms of the plea
agreement are dependent upon the Company's compliance with the plea agreement
during the five-year probation period. Generally, the terms of the probation
would permit the U.S. Government to reopen the case against Exide if the
Company violates the terms of the plea agreement or other provisions of law.
The plea agreement was lodged with the U.S. District Court for the Southern
District of Illinois, and accepted on February 27, 2002. The Company reserved
$31,000 for this matter, including expected costs and out-of-pocket expenses,
in the first quarter of fiscal 2001, and an additional $1,000 in the third
quarter of fiscal 2002. At June 30, 2002, approximately $27,500 of this reserve
remains. As a result of the imposition of the automatic stay arising upon the
Company's Chapter 11 filing, the Company has not made the first installment
payment of its $27,500 fine. The Company is uncertain as to the effect of this
non-payment and the Bankruptcy Code with respect to the plea agreement.
Exide is currently involved in litigation with the former senior executives
referenced above. The former senior executives made claims to enforce
separation agreements, reimbursement of legal fees, and other
16
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
contracts, and Exide has filed claims and counterclaims asserting fraud, breach
of fiduciary duties, misappropriation of corporate assets and civil conspiracy.
In addition, Exide has filed an action in the Bankruptcy Court against the
former senior executives to recover certain payments of legal fees Exide was
required to advance to such individuals prior to the Petition Date.
The Company has filed a claim with its insurers for reimbursement of the
amounts paid to the former executives, and believes it is entitled to obtain
substantial reimbursement for those amounts. However, the Company has not
recognized any receivable for such reimbursements as of June 30, 2002.
Hazardous Materials
Exide is involved in several lawsuits pending in state and federal courts in
South Carolina, Pennsylvania, Indiana, and Tennessee. These actions allege that
Exide and its predecessors allowed hazardous materials used in the battery
manufacturing process to be released from certain of its facilities, allegedly
resulting in personal injury and/or property damage.
In January 2002, the counsel that brought the South Carolina actions filed
additional claims in the Circuit Court for Greenville County, South Carolina.
The Company's preliminary review of these claims suggest they are without
merit, and the Company plans to vigorously defend itself in these matters. The
Company does not believe any reserves are currently warranted for these claims.
GNB Acquisition
In July 2001, Pacific Dunlop Holdings (US), Inc. ("PDH") and several of its
foreign affiliates (the "Sellers") under the various agreements through which
Exide acquired GNB, filed a complaint in the Circuit Court for Cook County,
Illinois alleging breach of contract, unjust enrichment, and conversion against
Exide and three of its foreign affiliates. The Sellers maintain they are
entitled to approximately $17,000 in cash assets acquired by the defendants
through their acquisition of GNB. In December, 2001, the Court denied the
defendants' motion to dismiss the complaint, without prejudice to re-filing the
same motion after discovery proceeds. The defendants have filed an answer and
counterclaim. On July 8, 2002, the Court authorized discovery to proceed as to
all parties except Exide. To the extent this action implicates Exide's
interests, management plans to vigorously defend the action and pursue the
counterclaim.
In December 2001, PDH filed a separate action in the Circuit Court for Cook
County, Illinois, seeking recovery of $3,100 for amounts allegedly owed by
Exide under various agreements between the parties. The claim arises from
letters of credit and other security for workers compensation insurance
policies, allegedly provided by PDH for GNB's performance of certain of GNB's
obligations to third parties, that PDH claims Exide was obligated to replace.
Exide's answer contested the amounts claimed by PDH and Exide filed a
counterclaim. Although this action has been consolidated with the Cook County
suit concerning GNB's cash assets, the claims relating to this action are
currently subject to the automatic bankruptcy stay.
Other
On June 6, 2002, McKinsey & Company International filed suit against Exide
Holding Europe, S.A., Compagnie Europeene D'accumulateurs, S.A., Euro Exide
Corporation Ltd., Exide Italia S.r.l, Deutsche Exide GmbH and Exide
Transportation Holding Europe, S.L. in the U.S. District Court for the Southern
District of New York, seeking to compel arbitration of McKinsey's request for
payment of approximately $5,000 in consulting fees. The Company intends to
defend the suit and denies liability thereunder.
17
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Exide is a defendant in an arbitration proceeding initiated in October of
2001, by Margulead Limited ("Margulead"). In June of 1997, GNB, now an
operating division of Exide, entered into an agreement with Margulead to build
a facility to test and develop certain lead acid battery recycling technology
developed by Margulead. This agreement was terminated by Exide after the
Margulead technology failed to meet initial performance criteria. Margulead now
alleges breach of contract and has requested damages in the amount of
approximately $2,600, which represents the projected cost of building a testing
facility. Margulead has indicated that it may amend its claim to seek up to
$9,000 in damages. Because Margulead is a foreign entity and the arbitration is
pending in London, the arbitration is currently proceeding notwithstanding
Exide's Chapter 11 proceedings. The Company intends to defend the claim and
denies liability thereunder.
The Company is involved in various other claims and litigation incidental to
the conduct of its business. Based on consultation with legal counsel,
management does not believe that any such claims or litigation to which the
Company is a party, either individually or in the aggregate, will have a
material adverse effect on the Company's financial condition, cash flows or
results of operations, although quarterly or annual operating results may be
materially affected.
(11) RESTRUCTURING
The Company previously implemented certain restructuring activities as part
of an overall program to reduce costs, eliminate excess capacity and improve
cash flows, including activities in connection with the September 2000
acquisition of GNB.
In addition, during the first quarter of fiscal 2003 the Company recognized
a restructuring charge of $6,288, representing $3,339 for severance and related
costs and $2,949 for a non-cash charge related to the write-down of machinery
and equipment. These charges resulted from actions completed during the first
quarter of fiscal 2003 related to the closure of a North American Network Power
facility and the closure of a Transport facility in Cwmbran, Wales.
Approximately 300 positions, principally plant employees, have been eliminated
in connection with these plans. Further severance charges are expected to be
recognized in future periods in connection with the Cwmbran, Wales facility
closure as additional positions are eliminated.
Summarized restructuring reserve activity follows:
Severance Closure
Costs Write-Offs Costs Total
--------- ---------- ------- -------
Balance at March 31, 2002................. $16,500 $ -- $15,300 $31,800
Charges, fiscal 2003...................... 3,339 2,949 -- 6,288
Payments, charge-offs and currency changes (311) (2,949) 1,176 (2,084)
------- ------- ------- -------
Balance at June 30, 2002.................. $19,528 $ -- $16,476 $36,004
======= ======= ======= =======
Remaining expenditures principally represent (i) severance and related
benefits payable, per employee agreements and or regulatory requirements over
periods up to three years (ii) lease commitments for certain closed facilities,
branches, and offices, as well as leases for excess and permanently idle
equipment payable in accordance with contractual terms, over periods up to five
years and (iii) certain other closure costs including dismantlement and costs
associated with removal obligations incurred in connection with the exit of
facilities. Approximately $13,734 of this reserve represents a Liability
Subject To Compromise.
(12) DEBT
At June 30, 2002, short-term borrowings of $9,525 consisted of various
operating lines of credit and working capital facilities maintained by certain
of the Company's non-U.S. subsidiaries. Certain of these
18
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
borrowings are secured by receivables, inventories and/or property. These
borrowing facilities, which are typically for one-year renewable terms,
generally bear interest at current local market rates plus up to one percent.
Total debt at June 30, 2002 comprises the following:
June 30,
2002
----------
Debt Not Subject To Compromise:
DIP Credit Facility--Borrowings at LIBOR plus 3.75%............................................ $ 157,492
Senior Secured Global Credit Facilities Agreement (Europe)--Borrowings primarily at
LIBOR plus 4.75% to 5.25%.................................................................... 261,382
9.125% Senior Notes (Deutsche mark denominated, due April 15, 2004)............................ 88,268
European Accounts Receivable Securitization.................................................... 137,523
Other, including capital lease obligations and other loans at interest rates generally ranging
from 0.0% to 11.0% due in installments through 2015(1)....................................... 20,198
----------
Total debt not subject to compromise....................................................... 664,863
Less--current maturities (included in total debt not subject to compromise above).............. 29,169
----------
$ 635,694
==========
Debt Subject To Compromise:
Senior Secured Global Credit Facilities Agreement (U.S.)--Borrowings primarily at LIBOR
plus 4.75% to 5.25%.......................................................................... 432,885
10% Senior Notes, due April 15, 2005........................................................... 300,000
Convertible Senior Subordinated Notes, due December 15, 2005................................... 321,132
Other.......................................................................................... 1,376
----------
Total debt subject to compromise........................................................... $1,055,393
==========
- --------
(1) includes various operating lines of credit and working capital facilities
maintained by certain of the Company's non-U.S. subsidiaries.
On April 15, 2002, the Company and three of its wholly-owned U.S.
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the Bankruptcy Code. In connection with the filing, the Company also entered
into a "Standstill and Subordination Agreement" with its Pre-petition Senior
Secured Credit Facility lenders, whereby the lenders have agreed to forbear
collections of principal payments on foreign borrowings under this facility
from non-debtor subsidiaries until December 2003, subject to earlier
termination upon the occurrence of certain events. Borrowings under the Senior
Secured Credit Facility by Debtors within the Chapter 11 case are subject to
compromise. See Note 2 for further discussion of the Company's bankruptcy
considerations and reorganization plans.
On April 17, 2002 the Company received interim Bankruptcy Court approval of
a $250,000 DIP Credit Facility and final Bankruptcy Court approval for such
facility on May 10, 2002. The DIP Credit Facility is being used to supplement
cash flows from operations during the reorganization process including the
payment of post-petition ordinary course trade and other payables, the payment
of certain permitted pre-petition claims, working capital needs, letter of
credit requirements and other general corporate purposes.
On April 17, 2002, approximately $129,000 of the DIP Credit Facility was
drawn down, $117,000 being used to terminate and repurchase uncollected
securitized accounts receivable under the Company's then existing U.S.
receivables sale facility, and the balance for financing costs and related
fees. The DIP Credit Facility is a secured revolving credit and term loan
facility under which Exide Technologies is the borrower with certain U.S.
19
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
subsidiaries acting as guarantors. The DIP Credit Facility is afforded super
priority claim status in the Chapter 11 case and is collateralized by first
liens on certain eligible U.S. assets of the Company, principally accounts
receivable, inventory and property.
The revolving credit tranche of the DIP Credit Facility provides for
borrowing up to $121,000, of which up to $65,000 is available to Exide
Technologies for on-lending to its foreign subsidiaries. An additional $50,000
sub-facility is also available to the foreign subsidiaries based on certain
collateral asset values in the United Kingdom, Canada and Australia. To the
extent funds are borrowed under the DIP and on-lent to foreign subsidiaries,
additional liens on certain assets of the borrowing foreign subsidiary and
related guarantees are required. Up to $40,000 of the revolving credit tranche
is available for letters of credit. Total availability under the DIP Credit
Facility as of June 30, 2002 was $50,900.
Borrowings under the DIP Credit Facility bear interest at Libor plus 3.75%
per annum. Borrowings are limited to eligible collateral under the DIP Credit
Facility. Eligible collateral under the DIP Credit Facility includes accounts
receivable, inventory and certain property. Availability to the Company is
impacted by changes in both the amounts of the collateral and qualitative
factors (such as aging of accounts receivable and inventory reserves) as well
as cash requirements of the business such as trade credit terms. The DIP Credit
Facility contains certain financial covenants requiring the Company to maintain
monthly specified levels of earnings before interest, taxes, depreciation,
amortization, restructuring and certain other defined charges, as well as
limits on capital expenditures and cash restructuring expenditures. The DIP
Credit Facility also contains other customary covenants, including certain
reporting requirements and covenants that restrict the Company's ability to
incur indebtedness, create or incur liens or guarantees, enter into leases,
sell or dispose of assets, change the nature of the Company's business or enter
into related party transactions. The Company believes it was in compliance with
the DIP Credit Facility covenants as of June 30, 2002. The Company has
presented to its banks an operating plan which assumes that the Company will
maintain compliance with its covenants through June 30, 2003. Currently, the
Company expects to maintain adequate financial resources during the next twelve
months (considering both funds available under the DIP Credit Facility and cash
flows generated from operations) while pursuing its strategic options and
development of a plan of reorganization. However, no assurance can be given
that the Company will maintain compliance with its covenants or have adequate
financial resources available during the next twelve months. Failure to
maintain compliance with these covenants in the future would result in an event
of default which, absent cure within defined grace periods or obtaining
appropriate waivers, would restrict the Company's availability to funds
necessary to maintain its operations and assist in funding of its
reorganization plans. The Company has obtained waivers under the DIP Credit
Facility and Standstill and Subordination Agreement for late delivery of its
audited financial statements for the fiscal year ended March 31, 2002.
The DIP Credit Facility matures on the earlier of February 15, 2004, 30 days
before the pre-petition Revolving Credit and Tranche A Senior Secured Credit
Facilities mature or the date on which the Company emerges from bankruptcy.
On May 31, 2002, the Company entered into a new $177,500 European accounts
receivable securitization facility. This facility replaced the Company's then
existing $175,000 European securitization program. The new facility is
accounted for as a secured borrowing in accordance with the requirements of
SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" whereby the accounts receivable and related
borrowings are recorded on the Company's unaudited condensed consolidated
balance sheet.
(13) INTEREST EXPENSE, NET
Interest income of $380 and $436 is included in the line Interest expense,
net in the unaudited condensed consolidated statements of operations for the
three months ended June 30, 2002 and June 30, 2001, respectively. Interest
income earned as a result of assumed excess cash balances due to the Chapter 11
filing is recorded in the
20
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
line Reorganization items, net in the unaudited condensed consolidated
statements of operations, for the three months ended June 30, 2002. See Note 5.
As of the Petition Date, the Company ceased accruing interest on certain
unsecured pre-petition debt classified as Liabilities subject to compromise in
the unaudited condensed consolidated balance sheets in accordance with SOP
90-7. Interest is being accrued on certain pre-petition debt to the extent that
the Company believes it is probable of being deemed an allowed claim by the
Bankruptcy Court. Interest at the stated contractual amount on pre-petition
debt that was not charged to results of operations for the three months ended
June 30, 2002 was approximately $8,626.
(14) NET LOSS PER SHARE
Basic loss per share is computed using the weighted average number of common
shares outstanding for the period, while diluted loss per share is computed
assuming conversion of all dilutive securities such as options, convertible
debt and warrants. In all periods presented net losses were incurred, therefore
dilutive common stock equivalents were not used in the calculation of earnings
per share as they would have an anti-dilutive effect.
(15) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting for
Exit or Disposal Activities" ("SFAS 146"). SFAS 146 provides guidance on the
recognition and measurement of liabilities for costs associated with exit or
disposal activities that are initiated after December 31, 2002. The Company is
currently reviewing SFAS 146 to determine the impact upon adoption.
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No's. 4, 44, and 64 Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement requires gains and losses from extinguishments of
debt to be classified as an extraordinary item only if the criteria in Opinion
30 has been met. Further, lease modification with economic effects similar to
sale-leaseback transactions must be accounted for in the same manner as
sale-leaseback transactions. While the technical corrections to existing
pronouncements are not substantive in nature, in some instances they may change
accounting practice. The provision of this Statement related to the rescission
of SFAS No. 4 and the amendment of SFAS No. 13 are effective beginning in
fiscal 2003 and for transactions occurring after May 15, 2002, respectively,
and are not expected to have a significant impact on the Company's unaudited
condensed consolidated financial statements. All other provisions are effective
for financial statements issued on or after May 15, 2002, and did not have a
significant impact on our unaudited condensed consolidated financial statements
presented herein.
In June 2001 and August 2001, the FASB issued SFAS No. 143 "Accounting for
Asset Retirement Obligations", ("SFAS 143") and SFAS No. 144 "Accounting for
the Impairment or Disposal of Long-Lived Assets", ("SFAS 144"), respectively.
SFAS 143 is effective for financial statements issued for fiscal years
beginning after June 15, 2002. The Company is required to adopt SFAS 143 on
April 1, 2003. The provisions of SFAS 143 address financial accounting and
reporting requirements for obligations associated with the retirement of
tangible long-lived assets and the associated retirement costs and requires
companies to record an asset and related liability for the cost associated with
the retirement of long-lived tangible assets if a legal liability to retire the
asset exists. The Company is in the process of completing its evaluation of the
impact of this statement.
SFAS 144 is effective for the Company beginning April 1, 2003. SFAS 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets and supersedes SFAS No.
21
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
121 and the accounting and reporting provisions of the Accounting Principles
Board ("APB") Opinion No. 30. SFAS 144 retains the basic principles of SFAS 121
for long lived assets to be disposed of by sale or held and used and broadens
discontinued operations presentation to include a component of an entity that
is held for sale or that has been disposed of.
(16) SEGMENT INFORMATION
Beginning October 1, 2001, the Company changed its organizational structure
such that operations are managed and reported in three segments:
Transportation, Motive Power and Network Power.
The Company previously operated its battery business within the
Transportation and Industrial segments through September 30, 2001. The previous
Industrial segment was split between Network Power and Motive Power. Network
Power applications include batteries for telecommunications systems, fuel cell
load leveling, electric utilities, railroads, photovoltaic and other critical
uninterruptible power supply markets. Motive Power applications include
batteries for a broad range of equipment uses including lift trucks, mining and
other commercial vehicles. Transportation uses include automotive, heavy duty,
agricultural, marine and other batteries, as well as new technologies being
developed for hybrid vehicles and new 42-volt automobile applications.
The prior year segment data below has been restated to reflect the current
year presentation. In addition, prior year segment data has been restated to
reflect the current year presentation of corporate costs not allocated to
business segments. Certain asset information required to be disclosed is not
reflected below as it is not allocated by segment nor utilized by management in
the Company's operations.
Selected financial information concerning the Company's reportable segments
is as follows:
For the Three Months Ended June 30, 2002
---------------------------------------------------------------
Transportation Motive Power Network Power Other Consolidated
-------------- ------------ ------------- -------- ------------
Net sales.............. $353,469 $110,888 $ 90,632 $ -- $554,989
Gross profit........... 63,894 24,876 21,560 -- 110,330
Operating income (loss) 22,929 3,536 (38,090) (23,275) (34,900)
For the Three Months Ended June 30, 2001
---------------------------------------------------------------
Transportation Motive Power Network Power Other Consolidated
-------------- ------------ ------------- -------- ------------
Net sales.............. $378,650 $121,694 $130,893 $ -- $631,237
Gross profit........... 63,579 32,560 42,722 -- 138,861
Operating income (loss) 17,378 10,540 22,081 (27,317) 22,682
22
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Dollars in thousands, except per-share data).
Overview
On April 15, 2002, Exide Technologies and three of its wholly-owned U.S.
subsidiaries (the "Debtors") filed voluntary petitions for reorganization under
Chapter 11 of the Bankruptcy Code as it offered the most efficient alternative
to restructure its balance sheet and access new working capital while
continuing to operate in the ordinary course of business. The Company has a
heavy debt burden, caused largely by a debt-financed acquisition strategy and
the significant costs of integrating those acquisitions. Other factors leading
to the reorganization included the impact of current adverse economic
conditions, particularly in the telecommunications industry, ongoing
competitive pressures, and recent capital market volatility. These factors
contributed to a loss of revenues and have resulted in significant operating
losses and negative cash flows, severely impacting the Company's financial
condition and its ability to maintain compliance with debt covenants.
The Company's operations outside of the U.S. are not included in the Chapter
11 proceedings.
On May 10, 2002 the Company received final Bankruptcy Court approval to
access its entire $250,000 DIP Credit Facility. The DIP Credit Facility
requires maintenance of certain financial covenants and other restrictions on
matters such as indebtedness, guarantees and future asset sales.
Under the Bankruptcy Code, actions to collect pre-petition indebtedness, as
well as most other pending litigation, are stayed. In addition, the Debtors may
also assume or reject executory contracts, including lease obligations, subject
to the approval of the Bankruptcy Court and certain other conditions.
Factors Which Affect Our Financial Performance
Competition. The global Transportation, Motive Power and Network Power
battery markets, particularly in North America and Europe, are highly
competitive. In recent years, competition has continued to intensify and we
continue to come under increasing pressure for price reductions. This
competition has been exacerbated by excess capacity and fluctuating lead prices
as well as low-priced Asian imports impacting our markets.
Exchange Rates. We are exposed to foreign currency risk in most European
countries, principally from fluctuations in the Euro and British Pound. We are
also exposed, although to a lesser extent, to foreign currency risk in
Australia and the Pacific Rim. Movements of exchange rates against the U.S.
dollar can result in variations in the U.S. dollar value of our non-U.S. sales.
In some instances, gains in one currency may be offset by losses in another.
Our results for the periods presented herein were adversely impacted by the
overall weakness in European currencies.
Markets. We are subject to concentrations of customers and sales in several
geographic regions and are dependent on customers in certain industries,
including the automotive, telecommunications, and material handling markets.
Economic difficulties experienced in these markets and geographic locations
have and continue to impact our financial results.
Weather. Unusually cold winters or hot summers accelerate automotive
battery failure and increase demand for automotive replacement batteries.
Interest Rates. We are exposed to fluctuations in interest rates on our
variable rate debt.
23
Lead. Lead is the principal material by weight used in the manufacture of
batteries, representing approximately one-quarter of our cost of goods sold.
The market price of lead fluctuates. Generally, when lead prices decrease, many
of our customers seek disproportionate price reductions from us, and when lead
prices increase, customers may resist price increases.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and results
of operations are based upon the Company's unaudited condensed consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the U.S. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and the related
disclosure of contingent assets and liabilities. On an ongoing basis, the
Company evaluates its estimates based on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
The Company believes that certain critical accounting policies and estimates
disclosed in the Company's Annual Report on Form 10-K (the "10-K") for the
fiscal year ended March 31, 2002 affect the preparation of its unaudited
condensed consolidated financial statements. The reader of this Report may wish
to refer to the 10-K for further information.
The accompanying unaudited condensed consolidated financial statements have
been prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business,
and with respect to fiscal 2003, in accordance with SOP 90-7 with regard to the
reporting requirements of entities in reorganization under the Bankruptcy Code.
The ability of the Company to continue as a going concern is predicated
upon, among other things, on confirmation of a bankruptcy reorganization plan,
compliance with the provisions of both the DIP Credit Facility and other
ongoing borrowing arrangements as well as the ability to generate cash flows
from operations and where necessary obtaining financing sources sufficient to
satisfy the Company's future obligations. As a result of the Chapter 11 filing,
and consideration of various strategic alternatives, including possible asset
sales, the Company would expect that any reorganization plan will likely result
in material changes to the carrying amount of assets and liabilities in the
unaudited condensed consolidated financial statements. The unaudited condensed
consolidated financial statements do not, however, include adjustments, if any,
to reflect the possible future effects on the recoverability and classification
of recorded assets or the amounts and classifications of liabilities that may
result from the outcome of these uncertainties.
Results of Operations
Three months ended June 30, 2002 compared with the three months ended June
30, 2001.
Overview
Net loss for the first quarter of fiscal 2003 was ($76,640) or ($2.80) per
diluted share versus a net loss of ($7,219) or ($0.28) per diluted share last
year. Included in the consolidated net loss for the first quarter of fiscal
2003 is a non-cash charge of $37,000 for goodwill impairment resulting from an
evaluation of results and updated projections of the Network Power business,
following the recent deterioration of this segment's
24
European performance. Results also include first quarter fiscal 2003
restructuring costs of $6,288 and reorganization items in connection with the
Bankruptcy of $12,098.
Net Sales
Net sales were $554,989 in the first quarter of fiscal 2003 versus $631,237
in the first quarter of fiscal 2002. The decrease in net sales was due to sales
declines in all three of the Company's business segments. Currency positively
impacted net sales by $13,287, principally from appreciation of the Euro
against the U.S. dollar.
Net sales in the Transportation segment were $353,469 in the first quarter
of fiscal 2003 versus $378,650 in the first quarter of fiscal 2002.
Transportation revenues in North America declined due to reduced unit volumes
principally due to lost business and territories in our aftermarket accounts,
while European volumes were relatively consistent with the prior year. Currency
positively impacted Transportation net sales, principally in Europe in fiscal
2003 by approximately $6,536.
Motive Power sales for the first quarter of fiscal 2003 were $110,888 versus
$121,694 in the first quarter of fiscal 2002. The decrease was due to general
softness in the overall economies in Motive Power's two major markets: The U.S.
and Western Europe. Currency positively impacted Motive Power net sales in
fiscal 2003 by approximately $3,988.
Network Power sales for the first quarter of fiscal 2003 were $90,632 versus
$130,893 in the first quarter of fiscal 2002. The lower sales volumes were a
direct result of the significantly weaker telecommunications markets including
the adverse affect of the slowdown in Europe, similar to that seen in North
America during fiscal 2002. Currency positively impacted Network Power net
sales in fiscal 2003 by approximately $2,863.
Gross Profit
Gross profit was $110,330 in the first quarter of fiscal 2003 versus
$138,861 in the first quarter in the prior year. The gross profit margin
decreased to 19.9% in the first quarter of fiscal 2003 from 22.0% in the first
quarter of fiscal 2002, primarily due to the lower sales volumes and higher
production costs related to under-absorption of fixed overheads. The
unfavorable absorption impacts were reduced by the Company's continued plant
rationalization and headcount reduction programs. Stronger European currencies
versus the U.S. dollar favorably impacted gross profit by approximately $3,173.
Transportation gross profit was $63,894 in the first quarter versus $63,579
last year. The affect of lower North American sales volumes was more than
offset by the benefits from plant rationalization and headcount reductions and
European currency affects. Gross margins were 18.1% in the current year versus
16.8% in the prior year.
Motive Power gross profit was $24,876 this quarter versus $32,560 in the
same quarter last year. The decrease was due to lower sales volumes, an
unfavorable sales mix (smaller size battery systems) and higher production
costs related to under-absorption of fixed overheads. Gross margin as a percent
of net sales was 22.4% in the current year versus 26.8% last year.
Network Power gross profit was $21,560 this quarter versus $42,722 in the
same quarter last year. The decrease was due to significantly weaker demand in
the telecommunications market and higher production costs related to
under-absorption of fixed overheads. Gross profit margins were also negatively
impacted by changes in
25
sales mix including reduced sales of higher margin products. Gross margin as a
percent of net sales was 23.8% in the current year versus 32.6% last year.
Operating Expenses
Operating expenses increased from $116,179 in the first quarter of fiscal
2002 to $145,230 in the first quarter of fiscal 2003. Included in operating
expenses are restructuring charges of $6,288 and a goodwill impairment charge
of $37,000 this year. Excluding these charges, operating expenses were
$101,942. Fiscal 2003 selling, marketing and advertising costs in each of the
Company's business segments were favorably impacted by lower sales volumes and
the Company's cost-reduction programs, primarily through headcount reductions.
General and administrative expenses in fiscal 2003 were unfavorably impacted by
higher pension costs, ongoing information technology costs and consulting fees
unrelated to reorganization efforts. Also, stronger European currencies
unfavorably impacted operating expenses by approximately $2,436 in fiscal 2002.
Transportation operating expenses decreased from $46,201 in the first
quarter of fiscal 2002 to $40,965 in the first quarter of fiscal 2003, Motive
Power operating expenses decreased from $22,020 in fiscal 2002 to $21,340 in
fiscal 2003, and Network Power operating expenses increased from $20,641 in
fiscal 2002 to $59,650 in fiscal 2003. Excluding the first quarter fiscal 2003
impairment charge, Network Power operating expenses were $22,650.
Corporate and other operating expenses were $23,275 in the first quarter of
fiscal 2003 versus $27,317 in the first quarter of fiscal 2002. The change is
due primarily to currency gains on U.S. dollar denominated borrowings in
Europe; which had been hedged in the prior period.
Income Taxes
In the first quarter of fiscal 2003, an income tax provision of $2,048 was
recorded on a loss of $74,613. In the first quarter of fiscal 2002, an income
tax benefit of $4,048 was recorded on a loss of $10,940. The effective tax rate
was (2.7)% and 37.0% in the first quarter of fiscal 2003 and fiscal 2002,
respectively.
The effective tax rate for the first quarter of fiscal year 2003 was
impacted by recognition of valuation allowances on tax benefits generated from
current period losses, in both the U.S. and certain international regions, as
well as the nondeductibility of the Network Power goodwill impairment charge.
The effective tax rate for the first quarter of fiscal 2002 was impacted by tax
benefits recorded on losses incurred.
Interest Expense, Net
Interest expense, net decreased $6,007 from $33,622 in the first quarter of
fiscal 2002 to $27,615 in the first quarter of fiscal 2003. The decrease in
interest expense is principally attributed to ceasing accruing certain interest
on pre-petition debt classified as Liabilities subject to compromise in the
Company's unaudited condensed consolidated balance sheet in accordance with SOP
90-7. Interest at the stated contractual amount on debt that was not charged to
operations for the quarter ended June 30, 2002 was approximately $8,626.
Reorganization Items
Reorganization items represent amounts the Company incurred as a result of
the Chapter 11 filing and are presented separately in the unaudited
consolidated statements of operations. Reorganization charges for the quarter
ended June 30, 2002 were $12,098. These charges comprise the following items:
professional fees including financial and legal services; employee retention
costs for key members of management, charge for termination of an interest rate
swap as a consequence of the Bankruptcy and interest income earned as a result
of having assumed excess cash balances due to the Chapter 11 filing. See Note 5.
26
Liquidity and Capital Resources
Capital Structure
Following discussions with the Company's principal lenders and evaluation of
possible capital structure alternatives, on April 15, 2002 Exide Technologies
and three of its wholly-owned U.S. subsidiaries filed for reorganization under
Chapter 11 as it offered the most efficient alternative to restructure its
balance sheet and access new working capital while continuing to operate in the
ordinary course of business. The Company's operations outside of the U.S. are
not included in the Chapter 11 proceedings. However, in connection with the
bankruptcy filing, the Company entered into a "Standstill and Subordination
Agreement" with the Pre-petition Senior Secured Credit Facility Lenders,
whereby the lenders agreed to forbear collection of principal payments on
foreign borrowings under this facility from non-debtor subsidiaries until
December 2003, subject to earlier termination for the occurrence of certain
events. In addition, the Company continues to accrue and pay interest of the
Debtors under the pre-petition Senior Secured Credit Facility subject to
liquidity calculations prescribed in the DIP Credit Facility.
On April 17, 2002 the Company received interim Bankruptcy Court approval of
a $250,000 DIP Credit Facility and final Bankruptcy Court approval for such
facility on May 10, 2002. The DIP Credit Facility was arranged by Citicorp
N.A., and Salomon Smith Barney is being used to supplement cash flows from
operations during the reorganization process including the payment of certain
permitted pre-petition claims, working capital needs, letter of credit
requirements and other general corporate purposes.
Upon closing, approximately $129,000 of the DIP Credit Facility was drawn
down, approximately $117,000 being used to terminate and repurchase uncollected
securitized accounts receivable under the Company's then existing U.S.
receivables sale facility, and the balance for financing costs and related fees.
The DIP Credit Facility is a secured revolving credit and term loan facility
under which Exide Technologies is the borrower with certain U.S. subsidiaries
acting as guarantors. The DIP Credit Facility is afforded super priority claim
status in the Chapter 11 case and is collateralized by first liens on certain
eligible U.S. assets of the Company, principally accounts receivable, inventory
and property, plant and equipment.
The revolving credit tranche of the facility provides for borrowings up to
$121,000, of which up to $65,000 is available to Exide Technologies for
on-lending to its foreign subsidiaries, subject to borrowing base availability.
An additional $50,000 sub-facility is also available to the foreign
subsidiaries based on certain collateral asset values in the United Kingdom,
Canada and Australia. To the extent funds are borrowed under the DIP Credit
Facility and on lent to foreign subsidiaries, additional liens on certain
assets of the borrowing foreign subsidiary and related guarantees are required.
Up to $40,000 of the revolving credit tranche is available for letters of
credit.
Borrowings under the DIP Credit Facility bear interest at base rate plus
2.75% per annum or LIBOR plus 3.75% per annum. Borrowings are limited to
eligible collateral under the DIP financing. Availability to the Company is
impacted by changes in both the amounts of the collateral and qualitative
factors (such as aging of accounts receivable and inventory reserves) as well
as cash requirements of the business such as trade credit terms. The DIP Credit
Facility contains certain financial covenants requiring the Company to maintain
specified levels of monthly earnings before interest, taxes, depreciation,
amortization, restructuring and certain other defined charges, as well as
limits on capital expenditures and cash restructuring expenditures. The DIP
facility also contains other customary covenants, including certain reporting
requirements and covenants that restrict the Company's ability to incur
indebtedness, create or incur liens or guarantees, make investments or
restricted payments, enter into leases, sell or dispose of assets, change the
nature of its business or enter into related party transactions. The Company
believes it was in compliance with DIP Credit Facility Covenants as of June 30,
2002. The Company has presented to its banks an operating plan which assumes
that the Company will maintain compliance with its covenants in fiscal 2003.
Currently the Company expects to maintain adequate financial
27
resources during fiscal 2003 (considering both funds available under the DIP
Credit facility and cash flows generated from operations) while pursuing its
strategic options and development of a plan of reorganization. However, no
assurance can be given that the Company will maintain compliance with its
covenants or have adequate financial resources available during fiscal 2003.
Failure to maintain compliance with these covenants would result in an event of
default, which absent cure within defined grace periods or obtaining
appropriate waivers, would restrict the Company's availability to funds
necessary to maintain its operations and assist in funding of our
reorganization plans. The Company has obtained waivers under the DIP Credit
Facility and Standstill and Subordination Agreement for late delivery of its
audited consolidated financial statements for the fiscal year ended March 31,
2002.
The DIP Credit Facility matures on the earlier of February 15, 2004, 30 days
before the pre-petition Revolving Credit and Tranche A Senior Secured Credit
Facility matures or the date the Company emerges from bankruptcy.
As of June 30, 2002 total availability under the DIP Credit Facility was
approximately $50,900.
As described above, in connection with its Bankruptcy filing, the Company
also entered into a "Standstill and Subordination Agreement" with its $900,000
pre-petition Senior Secured Credit Facility lenders. Under the agreement the
lenders agreed to forebear collection of any principal payments on foreign
borrowings under this facility by non-debtor subsidiaries until December 2003,
subject to earlier termination upon the occurrence of certain events.
Borrowings under the pre-petition Senior Secured Credit Facility by debtors are
subject to compromise.
Interest obligations for the non-debtor subsidiaries, will continue to be
accrued and paid when due. The Standstill and Subordination Agreement contains
essentially the same financial covenants as the DIP Credit Facility.
On May 31, 2002 the Company entered into a new $177,500 European accounts
receivable securitization facility. This facility replaced the Company's
existing $175,000 European securitization program. The new facility is
accounted for as a secured borrowing in accordance with the requirements of FAS
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" whereby the accounts receivable and related
borrowings are recorded on the Company's unaudited condensed consolidated
balance sheet.
Sources of Cash
Cash flows provided by financing activities were $263,265 and $86,348 in the
first quarter of fiscal 2003 and fiscal 2002, respectively. The cash flows
provided by financing activities in the first quarter of fiscal 2003 relate
primarily to net borrowings under the DIP Credit Facility and refinancing of
the European accounts receivable securitization program. The cash flows
provided by financing activities in the first quarter of fiscal 2002 related
primarily to net borrowings under the Global Credit Facilities Agreement.
Prior to the Company's Chapter 11 filing and since that time the Company has
experienced a tightening of trade credit availability and terms. In the future
there can be no assurance that the Company will be able to obtain and return to
trade credit on terms traditionally obtained.
The Company generated $407 and $3,500 in cash from the sale of non-core
businesses and other assets in fiscal 2003 and fiscal 2002, respectively.
Proceeds from these sales were primarily used to reduce debt.
Total debt at June 30, 2002 (including amounts subject to compromise) was
$1,729,781. See Note 12 to the unaudited condensed consolidated financial
statements for composition of such debt. Indebtedness of the Debtors as of the
Petition Date, amounting to approximately $1,055,393, is subject to settlement
under a plan of reorganization to be voted upon by creditors and equity holders
and approved by the Bankruptcy Court.
28
Going forward, in addition to operating cash flows, the Company's principal
sources of liquidity will be the DIP Credit Facility, plus proceeds from any
asset sales. The Company is considering various asset sales, and in connection
therewith has engaged The Blackstone Group to evaluate potential opportunities.
No commitments have been made as to any specific asset sales.
Uses of Cash
Cash flows used by operating activities were $235,565 (net of $261,723
related to the net change from sales of receivables) in the first quarter of
fiscal 2003. This compares to cash flows used by operating activities of
$46,183 (of which $1,123 related to the net change from sales of receivables)
in the same period of fiscal 2002. Excluding the affect of accounts receivable
securitization activity, comparative cash flows benefited from higher prior
year payments of accounts payable and accrued expenses in the first quarter of
fiscal 2002, offset by the affect of lower general sales volume levels. The
uncertainties of the Chapter 11 filing could also have a negative impact on the
Company's ability to attract and retain customers. NAPA recently advised the
Company of its intent to source a component of its requirements from
competitors. The Company currently estimates that this action could result in
potential lost volume of 800,000 units annually.
The Company's liquidity needs arise primarily from the funding of working
capital needs, obligations on indebtedness and capital expenditures. Because of
the seasonality of our business, more cash has been typically generated in our
third and fourth fiscal quarters than the first and second quarters. Greatest
cash demands from operations have historically occurred during the months of
June through October.
Capital expenditures were $8,223 and $27,482 in the first quarter of fiscal
2003 and fiscal 2002, respectively. Capital expenditures during the first
quarter of fiscal 2003 were impacted by the timing of the Chapter 11 filing and
related liquidity availability.
The Company has noncontributory defined benefit pension plans covering
substantially all hourly employees in North America. Cash contributions to
these plans are made in accordance with the minimum requirements of ERISA.
Because of the recent down-turn in equity markets, among other factors, these
plans are currently significantly under-funded. Based upon current assumptions
and regulatory requirements, the Company's minimum future cash contribution
requirements are expected to increase significantly in fiscal years 2004
through 2007.
Financial Instruments and Market Risk
The Company on occasion has used financial instruments, including fixed and
variable rate debt as well as swap, forward and option contracts to finance its
operations and to hedge interest rate currency and certain lead purchasing
requirements. The swap, forward, and option contracts are entered into for
periods consistent with related underlying exposures and do not constitute
positions independent of those exposures. The Company does not enter into
contracts for speculative purposes nor is it a party to any leveraged
instruments.
On October 18, 2000, we entered into a $60,000 two year interest rate swap
agreement for which we paid a quarterly fixed rate of 6.55% and received a
three-month LIBOR rate. This swap hedged a portion of the variable interest
exposure on our $900,000 Global Credit Facilities Agreement Tranche B Term
Loans. The swap was terminated in connection with the bankruptcy and the cost
of settlement reflected as a reorganization item and Liability Subject to
Compromise in the unaudited condensed consolidated financial statements.
The Company's ability to utilize financial instruments has been
significantly restricted because of the Chapter 11 cases and the resultant
tightening, and or elimination of credit availability with counter-parties.
Accordingly, the Company is now exposed to greater risk with respect to its
ability to manage exposures to fluctuations in foreign currencies, interest
rates, and lead prices.
29
Related and Certain Other Parties
The services of Lisa J. Donahue, Chief Financial Officer and Chief
Restructuring Officer, are provided to the Company pursuant to a Services
Agreement, dated October 25, 2001, between the Company and JA&A Services LLC.
Under the Services Agreement, the Company is charged an hourly fee for Ms.
Donahue's and other temporary employees' services, and Ms. Donahue, a principal
in JA&A Services LLC, is compensated independently by JA&A Services LLC. JA&A
Services LLC is an affiliate of Alix Partners, LLC, a financial advisory and
consulting firm specializing in corporate restructuring, which has been
retained by the Company in connection with its financial restructuring. Ms.
Donahue is also a principal in Jay Alix & Associates. Fees incurred by the
Company during the first quarter of fiscal 2003 under the Services Agreement
were $3,122.
Other Matters
The SEC has issued comments on the following reports of the Company: Annual
Report on Form 10-K for the fiscal year ended March 31, 2001; Amended Form 10-K
for the fiscal year ended March 31, 2001; Quarterly Report on Form 10-Q for the
period ended June 30, 2001; Quarterly Report on Form 10-Q for the period ended
September 30, 2001; Form 8-K/A dated December 13, 2000; and Form 8-K dated
March 23, 2001. The Company has responded to the SEC's comments. The Company
believes the information in this report fairly presents in all material
respects the financial condition and results of operation of the Company. There
can be no assurance, however, that the SEC will not have additional comments or
reach a determination different than that of the Company's.
Item 3. Quantitative and Qualitative Disclosures About Market Risks.
Changes to the quantitative and qualitative market risks as of June 30, 2002
are described in Management's Discussion and Analysis--Liquidity and Capital
Resources. Also, see our Form 10-K for the fiscal year ended March 31, 2002 for
further information.
30
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISION OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information, this report may be deemed to contain
"forward-looking" statements. The Company desires to avail itself of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") and is including this cautionary statement for the express purpose of
availing itself of the protection afforded by the Act.
Examples of forward-looking statements include, but are not limited to (a)
projections of revenues, cost of raw materials, income or loss, earnings or
loss per share, capital expenditures, growth prospects, dividends, the effect
of currency translations, capital structure and other financial items, (b)
statements of plans of and objectives of the Company or its management or Board
of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulating
authorities, (c) statements of future economic performance and (d) statements
of assumptions, such as the prevailing weather conditions in the Company's
market areas, underlying other statements and statements about the Company or
its business.
Factors that could cause actual results to differ materially from these
forward looking statements include, but are not limited to, the following
General Factors such as: (i) the Company's ability to implement business
strategies and financial reorganization and restructuring plans, (ii)
unseasonable weather (warm winters and cool summers) which adversely affects
demand for automotive and some industrial batteries, (iii) the Company's
substantial debt and debt service requirements which restrict the Company's
operational and financial flexibility, as well as imposing significant interest
and financing costs, (iv) the Company is subject to a number of litigation
proceedings, the results of which could have a material adverse effect on the
Company and its business, (v) the Company's assets include the tax benefits of
net operating loss carry forwards, realization of which are dependent upon
future taxable income, (vi) lead, which experiences significant fluctuations in
market price and which, as a hazardous material, may give rise to costly
environmental and safety claims, can affect the Company's results because it is
a major constituent in most of the Company's products, (vii) the battery
markets in North America and Europe are very competitive and, as a result, it
is often difficult to maintain margins, (viii) the Company's consolidation and
rationalization of acquired entities requires substantial management time and
financial and other resources and is not without risk, (ix) foreign operations
involve risks such as disruption of markets, changes in import and export laws,
currency restrictions and currency exchange rate fluctuations, (x) the Company
is exposed to fluctuations in interest rates on our variable debt which can
affect the Company's results, (xi) general economic conditions, (xii) the
ability to acquire goods and services and/or fulfill labor needs at budgeted
costs and Bankruptcy Considerations such as: (a) the Company's ability to
continue as a going concern, (b) the Company's ability to operate in accordance
with the terms of and maintain compliance with covenants of the DIP Credit
Facility and other financing arrangements, (c), the Company's ability to obtain
Bankruptcy Court approval with respect to motions in the Chapter 11 cases from
time to time, (d) the Company's ability to develop, confirm and consummate a
plan of reorganization with respect to the Chapter 11 cases, (e) the Company's
ability to attract, motivate and retain key personnel, (f) the Company's
ability to obtain and maintain normal terms with vendors and service providers,
(g) the Company's ability to maintain contracts that are critical to our
business, and (h) the Company's ability to attract and retain customers.
Therefore, the Company cautions each reader of this Report carefully to
consider those factors hereinabove set forth, because such factors have, in
some instances, affected and in the future could affect, the ability of the
Company to achieve its projected results and may cause actual results to differ
materially from those expressed herein.
31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Bankruptcy Considerations
As of the Petition Date, substantially all pending litigation against the
Debtors was stayed. We cannot predict what action, if any, the Bankruptcy Court
may take with respect to pending litigation.
Former Senior Executives of the Company: Arthur M. Hawkins, Douglas N.
Pearson and Alan E. Gauthier.
Exide established a $13,400 reserve in fiscal 2000 to cover litigation
related to allegations that used batteries were sold as new. The Company has
resolved these claims, including the third quarter fiscal 2002 settlement of
the sole remaining "legacy" action, Houlihan v. Exide. As a result of the
Houlihan settlement, the Company recorded an additional expense in the third
quarter of fiscal 2002 of $1,400 for reimbursement of legal fees. At June 30,
2002, there is approximately a $2,500 reserve remaining, representing the
Company's estimate of its remaining obligations under the Houlihan and other
"legacy" settlements.
On March 23, 2001, Exide reached a plea agreement with the U.S. Attorney for
the Southern District of Illinois, resolving an investigation of the conduct of
certain former senior executives of the Company. Under the terms of that
settlement Exide agreed to pay a fine of $27,500 over five years, to
five-years' probation and to cooperate with the U.S. Attorney in her
prosecution of Arthur M. Hawkins, Douglas N. Pearson and Alan E. Gauthier,
former senior executives of the Company. The payment terms of the plea
agreement are dependent upon the Company's compliance with the plea agreement
during the five-year probation period. Generally, the terms of the probation
would permit the U.S. Government to reopen the case against Exide if the
Company violates the terms of the plea agreement or other provisions of law.
The plea agreement was lodged with the U.S. District Court for the Southern
District of Illinois, and accepted on February 27, 2002. The Company reserved
$31,000 for this matter, including expected costs and out-of-pocket expenses,
in the first quarter of fiscal 2001, and an additional $1,000 in the third
quarter of fiscal 2002. At June 30, 2002, approximately $27,500 of this reserve
remains. As a result of the imposition of the automatic stay arising upon the
Company's Chapter 11 filing, the Company has not made the first installment
payment of its $27,500 fine. The Company is uncertain as to the effect of this
non-payment and the Bankruptcy Code with respect to the plea agreement.
Exide is currently involved in litigation with the former senior executives
referenced above. The former senior executives made claims to enforce
separation agreements, reimbursements of legal fees, and other contracts, and
Exide has filed claims and counterclaims asserting fraud, breach of fiduciary
duties, misappropriation of corporate assets and civil conspiracy. In addition,
Exide has filed an action in the Bankruptcy Court against the former senior
executives to recover certain payments of legal fees Exide was required to
advance to such individuals prior to the Petition Date.
The Company has filed a claim with its insurers for reimbursement of the
amounts paid to the former executives, and believes it is entitled to obtain
substantial reimbursement for those amounts. However, the Company has not
recognized any receivable for such reimbursements at June 30, 2002.
Hazardous Materials
Exide is involved in several lawsuits pending in state and federal courts in
South Carolina, Pennsylvania, Indiana, and Tennessee. These actions allege that
Exide and its predecessors allowed hazardous materials used in the battery
manufacturing process to be released from certain of its facilities, allegedly
resulting in personal injury and/or property damage.
In January 2002, the counsel that brought the South Carolina actions filed
additional claims in the Circuit Court for Greenville County, South Carolina.
The Company's preliminary review of these claims suggest they
32
are without merit, and the Company plans to vigorously defend itself in these
matters. The Company does not believe any reserves are currently warranted for
these claims.
GNB Acquisition
In July 2001, Pacific Dunlop Holdings (US), Inc. ("PDH") and several of its
foreign affiliates (the "Sellers" under the various agreements through which
Exide and its affiliates acquired GNB) filed a complaint in the Circuit Court
for Cook County, Illinois alleging breach of contract, unjust enrichment, and
conversion against Exide and three of its foreign affiliates. The Sellers
maintain they are entitled to approximately $16,400 in cash assets acquired by
the defendants through their acquisition of GNB. In December 2001, the Court
denied the defendants' motion to dismiss the complaint, without prejudice to
re-filing the same motion after discovery proceeds. The defendants have filed
an answer and a counterclaim. On July 8, 2002, the Court authorized discovery
to proceed as to all parties except Exide. To the extent this action implicates
Exide's interests, management plans to vigorously defend the action and pursue
the counterclaim.
In December 2001, PDH filed a separate action in the Circuit Court for Cook
County, Illinois seeking recovery of approximately $3,100 for amounts allegedly
owed by Exide under various agreements between the parties. The claim arises
from letters of credit and other security for workers compensation insurance
policies allegedly provided by PDH for GNB's performance of certain of GNB's
obligations to third parties that PDH claims Exide was obligated to replace.
Exide's answer contested the amounts claimed by PDH and Exide filed a
counterclaim. Although this action has been consolidated with the Cook County
suit concerning GNB's cash assets, the claims relating to this action are
currently subject to the automatic bankruptcy stay.
Other
On June 6, 2002, McKinsey & Company International filed suit against Exide
Holding Europe, S.A., Compagnie Europeene D'accumulateurs, S.A., Euro Exide
Corporation Ltd., Exide Italia S.r.l, Deutsche Exide GmbH and Exide
Transportation Holding Europe, S.L. in the U.S. District Court for the Southern
District of New York, seeking to compel arbitration of McKinsey's request for
payment of approximately $5,000 in consulting fees. The Company intends to
defend the suit and denies liability thereunder.
Exide is a defendant in an arbitration proceeding initiated in October of
2001, by Margulead Limited ("Margulead"). In June of 1997, GNB, now an
operating division of Exide, entered into an agreement with Margulead to build
a facility to test and develop certain lead acid battery recycling technology
developed by Margulead. This agreement was terminated by Exide after the
Margulead technology failed to meet initial performance criteria. Margulead now
alleges breach of contract and has requested damages in the amount of
approximately $2,600, which represents the projected cost of building a testing
facility. Margulead has indicated that it may amend its claim to seek up to
$9,000 in damages. Because Margulead is a foreign entity and the arbitration is
pending in London, the arbitration is currently proceeding notwithstanding
Exide's Chapter 11 proceedings. The Company intends to defend the claim and
denies liability thereunder.
The Company is involved in various other claims and litigation incidental to
the conduct of its business. Based on consultation with legal counsel,
management does not believe that any such claims or litigation to which the
Company is a party, either individually or in the aggregate, will have a
material adverse effect on the Company's financial condition, cash flows or
results of operations, although quarterly or annual operating results may be
materially affected.
Item 2. Changes in Securities and Use of Proceeds.
None.
33
Item 3. Defaults Upon Senior Securities.
As a result of the Chapter 11 cases, certain of the Company's pre-petition
debt arrangements are in default. See Note 2 (Proceedings Under Chapter 11 of
the Bankruptcy Code) and Note 12 (Debt) to the Company's unaudited condensed
consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits. None.
Reports on Form 8-K.
On April 17, 2002, the Company filed an interim report on Form 8-K to
report its April 15, 2002 filing in the U.S. Bankruptcy Court for the
District of Delaware for protection under Chapter 11 of the U.S.
Bankruptcy Code.
On July 15, 2002, the Company filed an interim report on Form 8-K
stating that it expected to file its Annual Report on Form 10-K for the
fiscal year ended March 31, 2002 on or prior to July 31, 2002.
On August 1, 2002, the Company filed an interim report on Form 8-K
stating that it expected to file its Annual Report on Form 10-K for the
fiscal year ended March 31, 2002 by August 31, 2002.
34
SIGNATURES
Pursuant to the requirements 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 TECHNOLOGIES
By: /s/ LISA J. DONAHUE
-----------------------------
Lisa J. Donahue
Chief Financial Officer and
Chief Restructuring Officer
Date: August 19, 2002
Lisa J. Donahue
EXIDE TECHNOLOGIES
By: /s/ IAN J. HARVIE
-----------------------------
Ian J. Harvie
Vice President, Corporate
Controller
Date: August 19, 2002
Ian J. Harvie
35