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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended March 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number 1-11263
EXIDE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware 23-0552730
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
645 Penn Street
Reading, Pennsylvania 19601
Telephone: (610) 378-0500
(Address, including zip code, and telephone number, including
area code, of Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [_].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 23, 2000 was approximately $172,568,000. There were
21,403,831 outstanding shares of the Registrant's common stock as of June 23,
2000.
(DOCUMENTS INCORPORATED BY REFERENCE)
Portions of the Proxy Statement relating to the Annual Meeting of
Stockholders to be held August 11, 2000, are incorporated into Part III of this
report.
EXIDE CORPORATION
PART I
Item 1. Business
(a) General Discussion of Business
Exide is a Delaware corporation organized in 1966 to succeed to the
business of a New Jersey corporation founded in 1888. Our principal executive
offices are located at 645 Penn Street, Reading, Pennsylvania 19601 and our
telephone number is (610) 378-0500.
We are the largest producer of lead acid batteries in the world, with
fiscal 2000 net sales of approximately $2.2 billion. Through acquisitions,
including GNB Technologies, Inc. discussed below, and internal growth, we hope
to become the world leader in electric energy storage solutions. We manufacture
automotive batteries in North America and automotive and industrial batteries in
Europe. We market our automotive batteries to a broad range of retailers and
distributors of replacement batteries and automotive original equipment
manufacturers. Our industrial batteries consist of traction batteries, such as
those for use in forklift trucks and other electric vehicles, and standby
batteries used for back-up power applications, such as those for
telecommunications systems.
Prior to 1994, we operated primarily in North America. As a result of an
acquisition program, we have become the largest battery manufacturer in Europe.
Our European and North American operations represented 64% and 36%,
respectively, of our fiscal 2000 net sales. Our customers include NAPA,
DaimlerChrysler, CSK, Kmart, The Pep Boys, and John Deere International in the
North American market and Volkswagen, Fiat, PSA, Renault, Telefonica and the
Linde Group in the European market.
Beginning in April 2000, we reorganized into the following six global
business units to better serve our customers worldwide:
. Transportation: Original Equipment
. Transportation: Aftermarket
. Motive Power
. Standby
. Military
. Emerging Technologies
Robert A. Lutz, Chairman and Chief Executive Officer, leads our new Office
of the Chairman, which includes Craig H. Muhlhauser, our newly appointed
President and Chief Operating Officer, and Kevin R. Morano, our newly appointed
Executive Vice President and Chief Financial Officer. Mr. Lutz was most recently
the Vice Chairman, President and Chief Operating Officer of Chrysler
Corporation.
Pending Acquisition of GNB
On May 9, 2000, we announced an agreement to acquire global battery maker
GNB Technologies, Inc. ("GNB") from Pacific Dunlop Limited. Headquartered in
Atlanta, Georgia with sales of approximately $1 billion annually, GNB is a
leading U.S. and Pacific Rim manufacturer of both automotive and industrial
batteries. GNB has operations in the U.S., Australia, New Zealand, Canada,
Europe, Japan, South Asia, China, India and the Middle East. GNB produces
automotive batteries under the Champion, Stowaway and National brands, among
others, and is a major supplier to automotive manufacturers in North America and
Australia. GNB also supplies
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industrial batteries in North America, including those used in both motive and
standby-power applications. The acquisition, for consideration of approximately
$368 million (including $333 million in cash and four million Exide common
shares) plus the assumption of liabilities, cleared U.S. antitrust review in
June 2000 and is expected to close in fiscal 2001, subject to financing and
other foreign regulatory approvals and settlement of certain non-compete
agreements.
(2) Financial Information About Segments
During fiscal 2000, we were primarily engaged in one industry segment,
namely, the manufacture, distribution and sale of lead acid batteries within
North America and Europe. See Note 16 to the Company's Consolidated Financial
Statements appearing elsewhere herein.
(3) Narrative Description of Business
Exide is the largest producer of lead acid batteries in the world, with
fiscal 2000 net sales of approximately $2.2 billion. We manufacture automotive
batteries in North America and automotive and industrial batteries in Europe.
Beginning in fiscal 2001, we began a strategic focus to address existing and
potential customer needs on a global basis with the creation of six global
business units:
. Transportation: Original Equipment
. Transportation: Aftermarket
. Motive Power
. Standby
. Military
. Emerging Technologies
Transportation: Original Equipment and Aftermarket
Transportation batteries include batteries for cars, trucks, off-road
vehicles, agricultural and construction vehicles, motorcycles, recreational
vehicles, boats, and other similar applications. Transportation batteries
represented approximately 64% of our net sales for fiscal 2000. We believe we
have the most complete and technologically innovative line of transportation
batteries in the North American and European markets. We market our products
under various trademarks including Exide, Willard, Tudor, DETA, Centra, Fulmen
and Prestolite. We also produce and market the Exide Select, including the
Orbital Battery, and NASCAR Select lines of batteries that are officially
licensed by NASCAR.
In North America, we are the second largest manufacturer of transportation
batteries. The market is divided between sales to original equipment
manufacturers and aftermarket sales.
The North American transportation battery market experienced significant
consolidation in the early 1990s, resulting in four principal battery
manufacturers. In recent years, aggressive price competition has been the
defining characteristic of this market. We believe this was the result of
increased buying power among our customers resulting from industry
consolidation. The aftermarket battery market in North America has a more
concentrated customer base than the European battery market.
In Europe, we are the largest manufacturer of transportation batteries.
The European transportation battery market was fragmented until Exide purchased
four automotive battery manufacturers beginning in 1994. As a result of its
acquisitions, Exide now has the largest combined automotive battery market share
in Europe.
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Transportation: Original Equipment
The original equipment manufacturer market consists of the sales of
batteries to manufacturers of automobiles and trucks, buses and off-road
agricultural and construction vehicles.
The following represents the most important factors affecting the original
equipment manufacturer market:
. The strength of the market for passenger cars, light trucks and sports
utility vehicles
. Significant consolidation in the automotive industry (e.g. DaimlerChrysler,
Renault/Nissan, Ford/Volvo, GM/Saab/Fiat)
. Globalization of original equipment manufacturer procurement activities,
which pressure suppliers to do likewise and result in product
standardization and lower prices
. Movement of several original equipment manufacturers into the aftermarket
business (i.e. Ford/Kwik Fit)
. Emergence of multi-battery and managed electrical energy systems
Exide plans to address these factors by taking advantage of our:
. strong market position,
. global manufacturing and distribution system,
. knowledge of lead-acid and advanced battery technologies, and
. advanced research and development.
Our original equipment manufacturer customers in North America include
DaimlerChrysler, for whom we are the primary battery-supplier, as well as John
Deere International, Mitsubishi, Case/New Holland, and Navistar.
Our principal European original equipment manufacturer customers are Fiat,
VW/Audi, the PSA group (Peugeot S.A./Citroen), the Renault group, BMW and Ford.
Transportation: Aftermarket
We sell aftermarket batteries principally through retail automotive parts
chains and mass merchandisers, car and truck dealers, and wholesale distributors
who supply service stations, repair shops, automotive and farm-equipment
dealers, and small retailers. We also produce automotive-type transportation
batteries for commercial applications, such as trucks, farm equipment, tractors
and other off-road vehicles, as well as specialty batteries for marine and
garden tractor applications. We believe the market for these specialty
batteries is increasing faster than the market for conventional automotive
batteries.
Demand for conventional automotive replacement batteries is influenced by
the following principal factors: (1) the number of vehicles in use, (2) average
battery life, (3) the average age of vehicles and their condition, (4) seasonal
weather conditions and (5) general population growth and economic conditions.
The ratio of battery usage to vehicles in use has increased slightly in recent
years, reflecting higher average miles of vehicle usage and an increasing number
of vehicles used in warm climates. Aftermarket demand is more stable than the
original equipment market since it is not affected by the cyclical nature of new
vehicle demand. The replacement market is also larger in general than the
original equipment segment, since automotive batteries tend to require
replacement every three to five years.
We market our aftermarket batteries to a broad range of retailers and
distributors. We are the leading supplier for NAPA Distribution Centers as
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well as many of the largest battery retailers in the United States, including
Kmart, Pep Boys and CSK Inc. We are also the largest supplier of authorized
replacement batteries for DaimlerChrysler and John Deere International, and we
began supplying to Briggs & Stratton in the fourth quarter of fiscal year 2000.
Our North American aftermarket operations includes our branch division.
Our wholesale distribution branches throughout the United States and Canada sell
and distribute batteries and other products to local auto parts retailers,
service stations, repair shops, fleet operators, battery jobbers and other
smaller volume customers. The branches also deliver batteries to our national
account customers' stores and collect used and spent batteries for recycling.
Our branch system is supplemented by regional accounts, small battery
wholesalers, and installers.
We are constantly striving to improve our aftermarket battery products. We
are emphasizing our more profitable products, such as our NASCAR-licensed Exide
Select and Orbital Select product lines, and have selectively instituted price
increases for some products. During fiscal 2000, we introduced our "Fresh Check"
seal and plain language dating on every North American manufactured aftermarket
battery.
Our principal North American automotive battery products include the
following:
Product Description
Exide standard, heavy-duty This is our principal product line and includes
and premium a comprehensive range of maintenance-free lead-
acid batteries from our basic low-cost battery
with average power and cold cranking amps and a
50-60 month warranty to our premium battery with
enhanced power and a 72-month warranty. We sell
these batteries under the Exide brand name and
various private labels.
Exide Select, officially Our Exide Select batteries are officially
licensed by NASCAR licensed by NASCAR, and sell for a premium over
ordinary batteries due to their exceptional
quality and the strong brand loyalty of NASCAR
fans. Exide Select batteries include a number of
features differentiating them from ordinary
batteries, including their increased durability,
resistance to vibration and premature failure,
and extended battery performance and life.
Exide Select Orbital We recently introduced this innovative spiral
wound battery in North America as the Exide
Select Orbital/NASCAR. Through its patented
technology and state-of-the-art recombinant
design, this battery holds its charge longer,
has a shelf life of up to 18 months (compared to
three to six months for conventional batteries),
can be recharged in a fraction of the time
needed for conventional batteries, has greater
power output and resists vibration better than
any standard lead-acid battery, including our
NASCAR Select line. This battery is totally
sealed, which completely eliminates leaks and
spills and allows it to be shipped via overnight
carrier.
We also produce automotive-type batteries for commercial applications, such
as trucks, farm equipment, tractors and other off-road vehicles, as well as
specialty batteries for marine and garden tractor applications for the
recreational vehicle market. We produce the Full Timer battery, which employs
advanced technology as the large engines, sophisticated electronics and
extensive on-board accessories common in today's recreational vehicles require
increased power. For the marine market, we produce the Exide Select Orbital
Marine, which brings all the advantages of Exide's patented Orbital technology
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to the marine market. The Orbital Marine maintains nearly a full charge during
the off season, and can be easily recharged when necessary by most conventional
charging systems, unlike typical marine gel-cell batteries that often require
specialized charging equipment and long charging times. This battery is also
totally sealed, making it ideal for closed environments (such as inside a boat
hull). The Exide Select Orbital Marine starting battery will even deliver full
power if accidentally submerged. We also produce the Nautilus Gold Dual Purpose,
a combination battery, replacing separate starting and deep cycle batteries in
two-battery marine and recreational vehicle systems, and the Nautilus Mega
Cycle, a high performance, dual terminal battery. We believe that the markets
for these specialty batteries are increasing faster than the market for
conventional automotive batteries.
We have a leading position in the automotive aftermarket in most European
countries and our customers include ADI, KWIK FIT and many other leading
aftermarket battery distributors. We sell our aftermarket batteries in Europe
under a variety of well-known brand names, including Exide, Fulmen, DETA, Tudor,
SONNAK, and Centra.
Sales of automotive batteries in the European aftermarket are affected by
the same major factors influencing the aftermarket in North America. In Europe,
mass merchandisers are not yet as important as they are in North America, but
they have gained market share in recent years. Also, buying groups representing
smaller battery resellers have grown and begun to expand to cover multiple
countries. Nonetheless, the European aftermarket is still much less concentrated
than that in North America. We believe Exide's worldwide operations have made us
the best-positioned manufacturer to supply mass merchandisers, buying groups and
individual resellers.
Our European operations distribute their aftermarket automotive batteries
primarily through battery wholesalers, OEM dealer networks, hypermarkets,
European purchasing centers and oil companies. Wholesalers and OEM dealers have
traditionally represented the majority of this market, but supermarket chains,
replacement-parts stores (represented by purchasing associations) and
hypermarkets have become increasingly important. Battery wholesalers now sell
and distribute batteries to a network of automotive parts retailers, service
stations, independent retailers, and supermarkets throughout Europe.
Our European product offerings vary by market. We generally offer a basic
model, an upgrade model, a premium model and various niche products in each
market. The following describes our product offerings in the United Kingdom and
is representative of our product offerings elsewhere in Europe:
Product Description
Basic This is our standard low-cost battery. It uses traditional
lead-acid technology, has average power and cold-cranking
capabilities, carries a 12-month warranty and is adequate for
most conventional automotive uses. The same or similar battery
is marketed under private label brand names in France, Germany
and Spain, under the Basic name in Italy and under various
other names in other markets.
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Classic This is our upgrade model. It still uses traditional lead-acid
technology, but has increased power and cold-cranking
capabilities. This battery carries a 24-month warranty and
sells for an approximately 15% premium over our Basic battery.
The Classic is our best-selling battery in the European market.
The same or similar batteries are marketed under the Equipe
name in France, the Classic name in Germany, the Leader name in
Italy, the Tudor name in Spain and under various other names in
other markets.
Ultra This is our premium model. It has a number of features that
differentiate it from ordinary batteries, including 30% more
power and a 36-month warranty. The Ultra sells for an
approximately 25% premium over our Basic battery. The same or
similar batteries are marketed under the Formula name in
France, the Top Start Plus name in Germany, the Ultra name in
Italy, the Millennium 3 name in Spain and under various other
names in other markets.
STR/STE Our STR batteries use recombination technology to allow a lead
acid battery to be installed in the passenger compartment of an
automobile with no risk of fluid loss or acid fumes. We
recently announced the introduction of batteries using our new
STE (sealed technology evolution) technology, which uses a gas
permeable membrane to prevent leakage of battery fluid while
permitting gas to escape. Our STE technology has been approved
for use by BMW and was included in some models beginning with
the 2000 model year.
Maxxima This is the equivalent of the Exide Select Orbital described
above. We will market this battery under the Maxxima brand name
throughout Europe.
Industrial Batteries: Motive Power and Standby
Sales of industrial batteries represented approximately 33% of our net
sales for fiscal 2000. Industrial batteries include motive power batteries and
standby batteries. In Europe, we believe we have the leading position in both
the motive power and standby segments of the industrial battery market.
Technical expertise and assistance and customer service are more important
in the industrial battery market than in the transportation battery market. We
have technical service agreements with a number of our customers. As with
transportation batteries, we work closely with our customers as they develop new
products, designing batteries to meet their individual needs. We built our
European industrial battery business primarily by acquiring existing
manufacturers with established brand names, and we continue to market our
products under these brands, as they each have an established reputation for
quality and expertise in particular technologies.
Motive Power Batteries
Our motive power batteries are fundamentally two-volt cells assembled in
numerous combinations and sizes to provide capacities ranging from 30 Ah to 1500
Ah. Apart from specializing in conventional vented lead acid technology
utilizing leading edge tubular positive-plate cell design, Exide also offers
other battery technologies to satisfy ever-changing motive power requirements.
These include maintenance-free monobloc batteries incorporating gelled
electrolyte and copper-stretched metal technology (CSM) for optimum high
performance applications.
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The materials handling industry provides the single largest market for
motive power batteries, typically including forklifts, electric counter balance
trucks, pedestrian pallet trucks, low level order pickers, turret trucks, tow
tractors, reach trucks and VNA (very narrow aisle) trucks.
Other market segments requiring motive power products include;
scrubber/dryer and sweeper machines in the floor cleaning market, scissor lifts,
access platforms and telescopic zooms in the access market, buggies and carts in
the golf market, mobility equipment in the wheelchair market, mining
locomotives, electric road vehicles, electric boats and submarines.
Complementary to our motive power battery portfolio is an extensive range
of battery chargers, watering and maintenance equipment and battery transfer
equipment. Combined with the company's technological and service expertise, we
are well positioned, globally, to offer complete solutions for motive power
markets.
Much like the transportation battery market, the motive power battery
market is divided into the original equipment market, comprised of the
manufacturers of the electric vehicles described above, and the replacement
market, which includes large users of such electric vehicles as well as original
equipment dealer networks. Our major motive power customers in Europe include
the materials-handling operations of the Linde Group (Germany), Junghreinrich
Group (Germany), Atlet (Sweden), BT Rolatruc (Sweden) and Nacco Material
Handling (U.S.). We also sell our motive power products to a wide range of
customers in the aftermarket, ranging from large industrial concerns and retail
distributors to small warehouse and manufacturing operations. In Europe, we
generally sell customers a complete package of batteries, chargers and services
and, increasingly, are providing full service maintenance contracts. The
majority of our sales are to original equipment manufacturers, especially since
these manufacturers increasingly rent, rather than sell, their electric vehicles
to end users. This trend tends to favor us, as we have larger market shares in
the original equipment market. We sell our motive power batteries, chargers,
accessories and post-sale service primarily through our own sales organization
in each country and use distributors and agents for export from Europe. Our
service group, the largest in Europe, is an important component of our marketing
efforts, particularly as the vehicle manufacturers make up a larger part of the
market and require service assistance whenever they sell or rent their products.
We distribute motive power batteries through OEM dealers, independent
distributors and directly to large fleet users. Our European operations also
distribute traction batteries through their own branch network.
The European motive power market depends primarily on the strength of the
market for materials handling equipment, which in turn is influenced by general
economic conditions affecting the demand for this type of equipment. This
market has benefited from a trend toward electric (rather than internal
combustion) industrial vehicles and by the growth of warehousing and mass
merchandisers in Europe. The increasing domination of this market by original
equipment manufacturers of these vehicles, rather than end users, has given the
manufacturers greater buying power. Furthermore, with the advent of the Euro
and the greater price transparency that comes with it, these vehicle
manufacturers have been able to standardize prices at a lower level.
Standby Batteries
Standby (also known as stationary) batteries are used for back-up power
applications, to ensure continuous power supply in case of main (primary) power
failure or outage. In today's electronic and digital world, back-up power
devices incorporating standby batteries are used in most electric power systems,
including those used in telecommunications, computers, hospitals, airports,
traffic control, elevators, security/alarm systems, electrical power plant
systems and military equipment.
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One of the largest and fastest growing standby segments is
telecommunications. Consumers of telecommunications batteries consist of
manufacturers of switches and other equipment, and the system operators. The
growth in the battery demand for telecommunications has been especially fueled
by the deployment in every country of multiple cellular and wireless mobile
communication systems where each transmitting base station requires a set of
standby batteries. Other telecommunications applications include central and
local switching systems (PABX), satellite stations, optical fiber repeating
boxes, cable TV boxes and radio transmission stations. In these applications,
the batteries are usually packaged with a 48V DC power system.
The next largest segment of the standby market is uninterruptable power
supplies (UPS) that are used in computer installations, such as for banks,
airlines and to back up servers for the internet. UPS battery customers consist
of the system manufacturers and end users. Growth in this area has paralleled
the growth in computer systems.
The European standby market has a diverse customer base. Our major standby
battery product customers include telecommunications companies, such as British
Telecom, France Telecom, Deutsche Telekom, Telecom Italia, Telefonica of Spain
and Vodaphone; manufacturers of telecommunications equipment, such as Ericsson,
Ascom and Alcatel; manufacturers and end users of UPS primarily for mainframe
computer systems, such as Siemens and Emerson-Liebert; electrical generating
companies and various European governments and armed forces. We sell our
products directly to these customers and promote our products by holding
seminars, participating in trade shows and distributing technical literature.
Given the importance of service and technical assistance, our European
operations generally ship standby batteries directly to system suppliers and UPS
manufacturers who include the standby batteries in their equipment and
distribute products to end users.
Our standby batteries are marketed under four well-recognized brands:
Sonnenschein, Tudor, Hagen and Fulmen. Sonnenschein is being developed as our
global standby brand while our other brands are used on a more limited local
basis. Our batteries come in a variety of shapes and sizes and are generally
categorized according to both their technology and their end use.
We produce standby batteries using three main technologies:
Technology Description
Dryfit This technology is utilized in our maintenance-free sealed
batteries (valve-regulated) using a gel electrolyte.
Maintenance-free sealed batteries have progressively
replaced other types of standby batteries in the market
because of their convenience - they can be used in both
vertical and horizontal positions. The Dryfit gel
electrolyte technology was invented by Exide (Sonnenschein)
and presents the added advantages of high reliability and a
proven operating life of up to 18 years. Our ten Dryfit
product ranges offer a wide array of features such as heat
resistance, deep discharge resistance, long shelf life, and
high cyclic performances. Dryfit is regarded by many
customers as the most reliable standby battery in the
market.
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AGM This technology is also used in maintenance-free sealed
batteries, but differs from Dryfit in that these batteries
feature an absorbent glass mat as a separator. More
economical than Dryfit, this technology is particularly well
adapted to shorter back-up time and can feature up to a 10-
year design life. A total of five different ranges are
available to cover most of the market requirements. A number
of new product developments are currently being processed
including higher rated UPS batteries and high power density
batteries featuring exceptional volumetric performances.
Flooded This technology is used in traditional products offering
high reliability but requiring regular maintenance. The
basic construction involves positive flat or tubular
positive plates. Among other features, transparent
containers and easily accessible internal construction allow
consumers to check the precise battery status and predict
potential failures, thus enhancing reliability.
Military
Exide is one of the world's leading suppliers of submarine batteries
utilizing copper-stretched metal technology (CSM). Our customers include the
navies of France, Italy, Spain, Germany, Denmark, Norway, Sweden, Turkey,
Singapore and many other countries.
Although our core business has traditionally been lead-acid batteries, we
are also an important provider of non lead-acid batteries for high-technology
military and space applications. Our lithium primary batteries are on board
every space shuttle flight.
Emerging Technologies
Emerging Technologies is responsible for identifying new energy storage
technologies we can commercialize as part of stand-alone products or systems.
We believe we will benefit from the general trend towards increasing
requirements for stored energy, as necessitated by the rapid expansion of such
areas as mobile data transmission, mobile communications and business-to-
business use of the internet.
Developing technologies, including advanced batteries, fuel cells, ultra
capacitors, personal transportation systems and portable information systems
have the potential to be successfully commercialized by Exide through the
utilization of our in-house technology development, our joint-venture partners,
and future technology acquisitions from both private and public sources. We are
also pursuing several long-term development programs with key customers
targeting specific products.
Dual-Graphite Technology
Our dual-graphite technology is the first advanced battery technology
program in our pipeline targeted for full commercial development. In December
of 1999, we acquired a controlling interest in Lion Compact Energy, a privately
held company conducting research in dual-graphite technology. Lion Compact
Energy has produced numerous prototype batteries using dual-graphite energy
storage. We estimate that, in full production, the dual-graphite battery will
produce more than three times the power of today's most advanced batteries.
Additionally, the new batteries should occupy far less space, at about half the
weight and cost less than today's most advanced production batteries.
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The initial applications being pursued for our dual-graphite battery
include electric vehicles and hybrid electric vehicles, standby power for
utility companies, laptop computers and portable military equipment.
Markets
In North America, we are the second largest manufacturer of automotive
batteries. The North American automotive battery market has a more concentrated
customer base than that in Europe. We compete for sales in both the aftermarket
and the original equipment market primarily with three other major battery
manufacturers. The North American automotive battery market has experienced
aggressive price competition for many years.
In Europe, we are the largest manufacturer of both automotive and
industrial batteries, with a broad range of product offerings and a pan-European
customer base. The European battery market has undergone consolidation in
recent years, and Exide has been a major participant in this process.
Historically, there was less price competition in European battery markets than
in North America. Recently, however, intense price competition has emerged as a
number of competitors have sought to increase market share. This price
competition has been made worse by an environment of low-priced imports, excess
capacity and declining lead prices.
Quality
We recognize that product performance and quality are critical to our
success and have spent the past five years in a company-wide quality improvement
effort. As a result, we now believe that our product performance and quality
are equal to or better than that of any market participant.
Our quality effort begins in the design phase. We design our batteries to
meet and exceed industry benchmark quality standards, using robust design
parameters and quality materials to achieve reliability and durability. Our
commitment to quality continues through our production process. We have quality
audit processes in each of our production facilities and our plant managers'
compensation is based, in part, on the achievement of quality objectives. We
have established an employee Lead Quality Continuous Improvement Team, and many
of our plants also give quality-related bonuses to all hourly employees. Our
quality program extends past the point of sale. We offer warranties on our
products and conduct regular customer satisfaction surveys. All of our North
American battery operations are now QS 9000 compliant.
In Europe, all of our major factories are ISO 9001 approved and we have
grade-A quality certification from Renault and PSA Group, BMW, VW/Audi and Fiat
and Q1 approval from Ford. In addition, several of our European plants are AQAP
approved by the military. We also hold individual certifications from 100% of
our major industrial battery customers, such as Deutsche Telekom, Telecom
Italia, Telefonica, French Railways (SNCF), as well as from large systems
integrators such as Siemens, Ericsson and Alcatel. All of our traction
batteries meet the applicable BSI or DIN standards.
Research and Development
We are committed to introducing new and technologically advanced products
that provide better performance and value to the customer. To support this
commitment, we dedicate significant effort to research and development. Our
research and development team benefits all of our global business units by
continually improving and advancing our existing technologies.
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We operate five research and development facilities in the United States
and Europe. Scientists and engineers at each of these facilities are currently
focused on projects to enhance the lead-acid battery.
We also operate six product/process-development centers around the world.
These centers work cooperatively to define and improve our production processes
and are currently working on projects related to continuous grid making
processes, battery assembly automation and various other efficiency and quality
improvement programs. By maintaining these various sites, we have been able to
transfer technologies and processes among our various operating facilities,
thereby adapting best practices from around the world for use in our various
production facilities.
We believe our research and development efforts provide us with a
competitive advantage in technological innovation. We are constantly working on
new products, including smart batteries capable of indicating state of charge,
and advanced batteries with gelled electrolyte for other applications. At the
same time, original equipment manufacturers are designing vehicles with more
compact engine compartments. To compete effectively, we have to continue to
design smaller and more flexible batteries that can generate increased power.
We are also working closely with European original equipment manufacturers
to develop, and have supplied them with prototypes of, new 36- and 42-volt
batteries for the next generation of dual-battery automotive electrical systems.
As the power requirements of automotive electronics continue to increase,
automotive manufacturers are designing new vehicles that will require higher
voltage electrical systems needing larger or multiple batteries. These new
systems will generally require a 12-volt battery for lighting systems and other
low power consumption accessories within the automobile and a 36-volt or 42-volt
battery, which is needed for the next generation of combined starter
motor/alternators and for high power-consumption accessories such as AC power
and electrical heating and cooling systems. European original equipment
manufacturers plan to include high-voltage electrical systems in certain luxury
models as early as the 2002 model year. We believe our European experience with
these higher voltage electrical systems will provide us with a competitive
advantage when the North American OEM market moves toward a higher voltage
electrical system, which is anticipated by model year 2004.
Patents, Trademarks and Licenses
We own or have a license to use various trademarks that are of value in the
conduct of our business. For example, our agreement with NASCAR grants us the
exclusive right to market batteries and related accessories under the officially
licensed NASCAR name and logo until 2002, and allows us to market the Exide
Select line. While we believe such trademarks and trade names enhance the brand
recognition of our products and therefore are important to our business, we
believe our products, engineering skills, reputation for quality and
relationships with our customers are also important for the maintenance and
growth of our business. An unaffiliated firm has rights to the Exide mark in
approximately 37 foreign countries and Exide Electronics Group, Inc., an
unaffiliated company, is licensed to use the Exide name on certain devices.
We have been issued many patents worldwide, including over 200 U.S. and
European patents issued since 1994. Additionally, we have several patents in
process covering design of lead-acid batteries and battery manufacturing
equipment. The dual-graphite battery development effort has three base patents,
three pending patents and an additional twelve patent disclosures. While we
believe patents are important to our business operations, we also believe the
loss of any single patent or several patents would not have a material adverse
effect on our company. A competitor manufactures and sells a spiral wound
automotive battery, which has some similarities to our new
11
Orbital Battery. Although we believe our battery does not infringe this
competitor's patents, we cannot assure that this competitor will not claim that
it does.
Manufacturing, Raw Materials and Suppliers
Lead is the principal raw material in the manufacture of batteries,
representing approximately one-third of the cost of goods sold. We can obtain
substantially all of our domestic lead requirements through the operation of our
four secondary lead recycling plants, which reclaim lead by recycling spent
lead-acid batteries. We obtain batteries for recycling from our customers and
through our wholesale distribution outlet system.
Other key raw materials and components in the production of batteries
include lead oxide and chemicals, which are generally available from multiple
sources. We have not experienced any material stoppage or slowdown in production
as a result of the unavailability, or delays in the availability, of raw
materials.
Competition
Our North American and European markets are each very competitive and some
of our competitors are larger and have greater financial resources than Exide.
The manufacturers in these markets compete primarily on the basis of price,
quality, technical innovation, service and warranty period. Well-recognized
brand names are also important for aftermarket customers who do not purchase
batteries made under their own labels. Most sales are made without long term
contracts.
In the North American transportation aftermarket, we believe that Johnson
Controls, Inc. has the largest market position, followed by Exide. Other
principal competitors in this market are GNB, who we recently entered into an
agreement to acquire, Delphi Automotive Systems and East Penn Manufacturing Co.,
Inc. Price competition in this market has been severe in recent years.
Competition is strongest in the mass merchandiser channel where large customers
use their buying power to command lower prices. Pricing, while still important,
is less of a factor than service with smaller customers such as those served by
our branch system.
Our largest competitors in the North American original equipment market are
Delphi Automotive Systems, Johnson Controls, Inc. and GNB. Original equipment
manufacturers change battery suppliers less frequently than aftermarket
customers, but because of their size can force market participants to compete on
price and other terms.
We expect North American competition to remain intense. We seek to
maintain and grow our market positions through our branding and emphasis on
technologically advanced products, such as the Orbital battery, our branded
products and our substantially improved product quality and customer service.
Exide has the largest market position in Europe in automotive batteries,
both aftermarket and original equipment, as well as in industrial batteries.
Our closest competitor in the automotive markets is Varta, followed by Fiamm,
Hoppeke, and Autosil. In the industrial market Hawker is the next largest after
Exide, followed by Fiamm, Hoppeke and Yuasa.
The European battery markets, particularly in the automotive original
equipment and industrial areas, have undergone severe price competition.
Cost savings from our ongoing plant rationalization program will allow us
to continue to meet this strong price competition in order to maintain our
customer relationships and market positions until the competitive environment
12
improves. We will also continue to compete on the basis of our pan-European
presence and our technological capabilities, as well as our strong brands.
Environmental, Health and Safety Matters
As a result of our manufacturing and secondary lead smelting operations, we
are subject to numerous environmental laws and regulations and are exposed to
liabilities and compliance costs arising from the past and current storage,
handling, release and disposal of hazardous substances and hazardous wastes. Our
operations are also subject to occupational safety and health laws and
regulations, particularly relating to the monitoring of employee health. The
Company devotes significant resources to attaining and maintaining compliance
with environmental and occupational health and safety laws and regulations and
does not currently believe that environmental, health or safety compliance
issues will have a material adverse effect on our business or financial
condition.
North America. We have been advised by the U.S. Environmental Protection
Agency or state agencies that we are a Potentially Responsible Party under the
Comprehensive Environmental Response, Compensation and Liability Act or similar
state laws at 75 federally defined Superfund or state equivalent sites. At 44
of these sites, we have either paid or are in the process of paying our share of
liability. In most instances, our obligations are not expected to be
significant because our portion of any potential liability appears to be minor
to insignificant in relation to the total liability of all potentially
responsible parties that have been identified and are viable. Our share of the
anticipated remediation costs associated with all of the Superfund sites where
we have been named a Potentially Responsible Party, based on our estimated
volumetric contribution to each site, is included in the environmental
remediation reserves discussed below.
Because our liability under such statutes may, as a technical matter, be
imposed on a joint and several basis, our liability may not necessarily be based
on volumetric allocations and could be greater than our estimates. We believe,
however, that our Potentially Responsible Party status at these Superfund sites
will not have a material adverse effect on our business or financial condition
because, based on our experience, it is reasonable to expect that our liability
will be roughly proportionate to our volumetric contribution of waste to the
sites.
We currently have greater than 50% liability at only one Superfund site,
discussed below. Other than this site, our allocation exceeds 5% at only six
sites at which our share of liability has not been paid as of March 31, 2000.
The current allocation at these six sites averages approximately 18%.
We are the primary Potentially Responsible Party at the Brown's Battery
Breaking Superfund site located in Pennsylvania. The site was operated by
third-party owners in the 1960s and early 1970s. In 1992, the Environmental
Protection Agency issued a Record of Decision identifying several alternate
remedies. During fiscal 1997, we signed a consent decree and paid $3.0 million
of the Environmental Protection Agency's past costs and we are not responsible
for any other past costs. We have established reserves based upon our estimates
of the remediation cost.
We are also involved in the assessment and remediation of various other
properties, including certain Exide-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 reserved as discussed below. In addition, certain
environmental matters concerning our Company are pending in federal and state
courts or with regulatory agencies.
We are involved in certain legal proceedings in Indiana in which state
13
authorities allege that we have improperly characterized and handled plastic
wastes generated in connection with our materials recycling program (see below).
While the final resolution of these proceedings is not yet known, we may incur
civil penalties in connection with such resolution, which could in some cases
exceed $100,000. We do not expect that the resolution of any of these
proceedings will substantially affect either the continued functioning of our
recycling program or our operations generally.
Environmental conditions at our properties could lead to claims for
personal injury, property damage or damages to natural resources. We are
currently subject to a number of such claims, including matters alleging illness
arising from exposures to lead in the vicinity of our former facility in Greer,
South Carolina and property damage and personal injury claims associated with
our Reading, Pennsylvania facilities. We have established reserves based upon
our estimates of exposure associated with these matters, which are included in
the environmental reserves discussed below.
During fiscal 1998, we reached an agreement with former owners of our
company whereby we agreed to release and indemnify the former owners from all
environmental matters relative to certain sites. We have received $8.17 million
under this agreement through fiscal 2000 with an additional $1.83 million to be
received in fiscal 2001.
We have taken an active role in addressing environmental issues associated
with our business focusing on environmental, safety and health matters. We
maintain numerous permits with the Environmental Protection Agency, various
state agencies and provincial regulatory authorities which allow us to
transport, store and recycle spent lead acid batteries, lead-bearing hazardous
wastes and certain other hazardous wastes within and between the United States
and Canada.
To protect the environment, minimize future liability and help ensure a
stable supply of lead to our battery manufacturing facilities, we have developed
a comprehensive materials recycling program. Under this program, we obtain spent
lead-acid batteries through our wholesale distribution outlet system and lead
bearing materials from third parties. These materials are transported to our
secondary lead smelting facilities. Batteries are separated at the smelters into
three constituent units: lead, dilute sulfuric acid and plastic casing material.
The lead is reclaimed and refined into lead alloys for use at our battery
manufacturing facilities. The plastic from battery cases is broken into pieces
and extruded into pellets by adding strengtheners and other additives. The
pellets are sold or used at our battery casing molding facility to make new
battery cases. The dilute sulfuric acid solution is neutralized and discharged
in accordance with federal, state and provincial permits.
Europe. We are subject to numerous environmental, health and safety
requirements and are exposed to differing degrees of liabilities, compliance
costs, and cleanup requirements arising from our past and current activities in
various European countries. The laws and regulations applicable to such
activities differ from country to country and also substantially differ from
U.S. laws and regulations. We expect that our European operations will continue
to incur capital and operating expenses in order to maintain compliance with
evolving environmental, health and safety requirements or for more stringent
enforcement of existing requirements in each country. In addition, accelerated
consolidation of our European operations could increase our expenditures.
During fiscal 1999, we sold our plant in Soest, Germany to an unrelated
entity. As part of that sale, Exide indemnified the purchasers against certain
environmental liabilities. Also during fiscal 2000, we completed an assessment
of the environmental condition of our Cubas de Sangre smelter in Spain, and were
advised by the Madrid regional authorities that a cleanup would be required.
Exide has proposed remediating the Cubas site with an advanced
14
technology that would remove lead impacts over an extended period of time. We
have established reserves for the Soest and Cubas sites, as part of our global
environmental reserves.
While the ultimate outcome of the foregoing environmental matters is
uncertain, after consultation with legal counsel, we do not believe the
resolution of the foregoing matters, individually or in the aggregate, will have
a material adverse effect on our financial condition or results of operations,
although quarterly operating results may be materially affected. We have
established reserves for onsite and offsite environmental remediation costs and
litigation exposures and believe that such reserves are adequate. These reserves
consist of amounts accrued for our active facilities, closed facilities, and
specifically for 22 of the Superfund sites. While we believe our current
estimates of future remediation costs are reasonable, future findings or changes
in estimates could have a material effect on the recorded reserves. The Company
has established reserves for on-site and off-site environmental remediation
costs and believes that such reserves are adequate. As of March 31, 2000, the
amount of such reserves on the Company's consolidated balance sheet was $34.2
million. Of this amount, $23.4 million was included in other noncurrent
liabilities. Because environmental liabilities are not accrued until a liability
is determined to be probable and reasonably estimable, not all potential future
environmental liabilities have been included in the Company's environmental
reserves and, therefore, additional earnings charges are possible.
Employees
Total worldwide employment was approximately 16,100 at March 31, 2000.
North America. As of March 31, 2000, we employed approximately 1,500
salaried employees and approximately 3,700 hourly employees in North America.
Approximately 60% of such salaried employees are engaged in sales, service and
marketing and approximately 40% in manufacturing and engineering. Approximately
26% of our hourly employees are represented by unions. Relations with the unions
are generally good. Contracts covering approximately 500 and 200 of our union
employees expire in fiscal 2001 and 2002, respectively, and the remainder
thereafter.
Europe. As of March 31, 2000, we employed approximately 3,800 salaried
employees and approximately 7,100 hourly employees in Europe. Approximately 75%
of such salaried employees are engaged in sales, service and marketing and
approximately 25% in manufacturing and engineering. Our hourly employees are
generally represented by unions. Relations with the unions are generally good.
Contracts covering most of our European union employees expire on various dates
through calendar year 2000.
Backlog
We do not have a material amount of backlog orders.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
See Note 16 to the Company's Consolidated Financial Statements appearing
elsewhere herein.
15
Item 2. Properties
The chart below lists the location of our principal facilities. All of the
facilities are owned unless otherwise indicated. All owned properties and the
leases for the leased properties are subject to liens under our credit
agreement. The leases for leased facilities expire at various dates through
2015.
Approximate
Location Square Footage Use
- -------------------------------- ----------------------------- -------------------------------------
North America:
Baton Rouge, LA 176,000 Secondary Lead Smelting
Bristol, TN 631,000 Battery Manufacturing
Burlington, IA 190,000 Battery Manufacturing
Cannon Hollow, MO 137,000 Secondary Lead Smelting
Cooper, TX 115,000 (leased) Starter and Alternator
Lampeter, PA 82,000 Battery Plastics Manufacturing
Manchester, IA 286,000 Battery Manufacturing
Maple, Ontario, Canada 169,000 Battery Manufacturing,
Distribution and Administration
Muncie, IN 174,000 Secondary Lead Smelting
Reading, PA 125,000 Secondary Lead Smelting and
Poly Reprocess
Reading, PA 135,000 Executive Offices
Reading, PA 280,000 Battery Manufacturing
Reading, PA 77,000 Distribution Center
Salina, KS 260,000 (leased) Battery Manufacturing
Salina, KS 100,000 (leased) Distribution Center
Europe and Other:
Bolton, England 274,000 Industrial Battery Manufacturing
Auxerre, France 176,000 Automotive Battery Manufacturing
Gennevilliers, France 55,000 (leased) Executive Offices
Lille, France 484,000 Industrial Battery Manufacturing
Nanterre, France 169,000 Automotive Battery Manufacturing
Pont Ste Maxence, France 71,000 Secondary Lead Smelting
Bad Lauterberg, Germany 458,500 Manufacturing, Administrative
and Warehouse
Budingen, Germany 278,000 Industrial Battery Manufacturing
Weiden, Germany 208,000 Industrial Battery Manufacturing
Casalnuovo, Italy 483,000 Industrial Battery Manufacturing
Romano Di Lombardia, Italy 266,000 (leased) Automotive Battery Manufacturing
Poznan, Poland (five) 887,000 Automotive Battery Manufacturing
Castaheira do Riatejo, Portugal 471,000 Automotive and Industrial Battery
Manufacturing
Cubas, Spain 323,000 Secondary Lead Smelting
Azuqueca de Henares, Spain 434,000 Automotive Battery Manufacturing
and Research
Malpica, Zaragoza, Spain 213,000 Automotive Battery Manufacturing
Manzanares, Spain 438,000 Automotive Battery Manufacturing
Madrid, Spain 7,244 (leased) Executive Offices
Zaragoza, Spain 248,000 Industrial Battery Manufacturing
Manisa, Turkey 145,000 Automotive Battery Manufacturing
Cwmbran, Wales 105,000 Automotive Battery Manufacturing
In addition, we also lease distribution outlets in the U.S. and Europe.
We believe that our facilities are in good operating condition, adequately
maintained, and suitable to meet our present needs and future plans.
16
Item 3. Legal Proceedings
Exide is now or recently has been involved in several lawsuits pending in
state and federal courts in Alabama, California, Mississippi, Pennsylvania,
South Carolina, Tennessee and Texas, some of which were brought as purported
class actions. These actions allege that Exide sold old or used batteries as
new batteries, sold defective and mislabeled batteries and improperly credited
customer accounts. The plaintiffs in these cases are seeking compensatory and
punitive damages and injunctive relief.
In May 2000, Exide and counsel for the plaintiffs agreed to a settlement,
subject to several material contingencies, applicable notice, and court
approval, in the following battery quality cases: Martin v. Exide, filed July
12, 1998 in the United States District Court for the District of South Carolina
(the "Martin case"); Lush et al. v. Exide, filed November 18, 1999 in the
Circuit Court for Claiborne County, Mississippi; Gamma Group, et al. v. Exide,
filed January 29, 1999 in the United States District Court for the Eastern
District of Pennsylvania and Exide v. East Alabama Auto Parts Anniston, Inc.,
filed April 24, 1996 in the Circuit Court of Calhoun County Alabama (the "East
Alabama case"). In May 2000, Exide also reached an agreement in principle on a
settlement of a claim in intervention brought by the Attorney General for the
State of Alabama (the Alabama Attorney General had intervened in the East
Alabama case in November 1999). Exide has reserved approximately $ 13.4 million
for the settlement of the private claims and the Alabama Attorney General claim.
Mathis Battery Company, et al. v. Exide, filed September 4, 1998 in the
Chancery Court for Weakley County, Tennessee (the "Mathis case") and Mills v.
Exide, filed December 6, 1999 in the United States District Court for the
Central District of California (the "Mills case") are battery quality claims
that are still pending against Exide. The Mathis case is a putative class
action filed by lawyers who represent the plaintiff in the Martin case and
alleges substantially the same claims alleged in the Martin case. The court has
not certified the Mathis case and the case has been stayed. Exide expects that
if the settlement of the Martin case is approved, the Mathis case will be
dismissed.
The Mills case arises under an unusual provision of California law, which
was recently limited by a decision of the California Supreme Court, and Exide
intends to defend that matter vigorously.
Additionally, the settlements do not resolve two putative class actions,
both styled Dynamic Enterprises, Inc. et al. v. Exide Corp., which were filed in
1998 in the United States District Court for the Eastern District of Texas and
are still pending. In the first case, the plaintiffs seek to represent battery
resellers alleging used-as-new claims. Exide has opposed a motion for class
certification in that case and awaits a ruling. The second case, also a
putative class action, involves allegations that Exide has improperly converted
or withheld customer credit balances. Exide recently began a nationwide
campaign to issue checks for outstanding credit balances and has moved for
summary judgment in that case. Exide has asked the court to rule on the motion
for summary judgment prior to hearing argument on a pending class certification
motion. Exide expects a ruling in the second case after July 13, 2000.
In December 1999, the Mississippi Attorney General issued a subpoena to
Exide. The Attorney General is investigating the sale of alleged defective and
used batteries, alleged mislabeling of batteries, alleged improper crediting of
customer accounts and alleged provision of misleading investor information.
Exide fully and completely responded to the subpoena in January 2000, and there
is no action by the Mississippi Attorney General against Exide to date.
17
As previously reported, Exide voluntarily brought certain issues to the
attention of the Securities and Exchange Commission (the "SEC"), and has
cooperated with its investigation.
On September 17, 1999, Exide sued Sears, Roebuck and Co. in the Circuit
Court of Cook County, Illinois seeking damages for breach of contract in an
amount not less than $15 million. On November 12, 1999, Sears filed a
counterclaim against Exide and a claim against a former Sears purchasing
employee alleging inducement to breach his fiduciary duty to Sears, common law
fraud, aiding and abetting and conspiracy. On December 17, 1999, Exide
responded to Sears' counterclaim and filed a third-party complaint against
former Chief Executive Officer Arthur Hawkins, former Chief Financial Officer
Alan Gauthier, and former Executive Vice President Douglas Pearson. The third-
party defendants have moved to dismiss Exide's third-party complaint, asserting
that the claims can be heard in other pending litigation involving the parties
(discussed below). That motion is pending before the court.
Exide is currently involved in litigation with certain former members of
senior management relating to their separation agreements. One of these cases,
Arthur M. Hawkins v. Exide, filed July 6, 1999 in the U.S. District Court for
the Eastern District of Michigan, involves a claim by Mr. Hawkins to enforce his
separation agreement with Exide. Exide has filed a counterclaim asserting
fraud, breach of fiduciary duty, misappropriation of corporate assets and civil
conspiracy. Messrs. Gauthier and Pearson have filed actions in the U.S.
District Court for the Eastern District of Pennsylvania alleging breach of
contract; these actions are respectively titled Gauthier v. Exide and Pearson v.
Exide, and were respectively filed on August 17, 1999 and July 9, 1999. Exide
has filed counterclaims against Messrs. Gauthier and Pearson as well, asserting
fraud, breach of fiduciary duty, misappropriation of corporate assets and civil
conspiracy. Pearson v. Exide and Gauthier v. Exide were consolidated for pre-
trial proceedings; discovery in these cases is ongoing and they are currently
scheduled to be called in the August 18, 2000 trial pool.
Exide is now involved in several lawsuits pending in state and federal
courts in South Carolina and Pennsylvania. These actions allege that Exide and
its predecessors allowed hazardous materials used in the battery manufacturing
process to be released from certain of its facilities, allegedly resulting in
personal injury and/or property damage. The following lawsuits of the above
type were filed on August 25, 1999 in the Circuit Court for Greenville County,
South Carolina and are currently pending: Joshua Lollis v. Exide; Buchanan v.
Exide; Agnew v. Exide; Patrick Miller v. Exide; Kelly v. Exide; Amanda Thompson
v. Exide; Jonathan Talley v. Exide; Smith v. Exide; Lakeisha Talley v. Exide;
Brandon Dodd v. Exide; Prince v. Exide; Andriae Dodd v. Exide; Dominic Thompson
v. Exide; Snoddy v. Exide; Antoine Dodd v. Exide; Roshanda Talley v. Exide;
Fielder v. Exide; Rice v. Exide; Logan Lollis v. Exide and Dallis Miller v.
Exide. Finally, the following lawsuits of this type are currently pending in
the Court of Common Pleas for Berks County, Pennsylvania: Grillo v. Exide, filed
on May 24, 1995; Blume v. Exide, filed on March 4, 1996; Esterly v. Exide, filed
on May 30, 1995 and Saylor v. Exide, filed on October 18, 1996. Discovery in
these cases is ongoing.
On June 26, 2000, Johnson Controls, Inc. ("JCI") filed a lawsuit in the
United States District Court for the Northern District of Illinois, Eastern
Division, against Exide and three of its former officers. The suit alleges
commercial bribery relating back to JCI's loss of a contract to Exide in 1994.
Allegations of improper payments to a Sears employee were made public over a
year ago as part of the Florida Attorney General Investigation and subsequently
in several civil cases. JCI has stated that its complaint is based on "public
records". Exide believes that JCI's allegations and conclusions are not
supported by publicly available information and that the lawsuit was threatened
and subsequently filed to pressure Exide into commercial concessions and to
potentially interfere with the GNB acquisition. Exide does not believe that the
suit will have any material adverse effect on its financial condition. Exide
will file a civil counter-claim and is considering referring the matter to the
appropriate authorities for possible criminal prosecution.
18
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, both individually and in the aggregate, will have a material
adverse effect on the Company's financial condition or results of operations,
although quarterly or annual operating results may be materially affected.
Item 4 Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock is listed and traded on The New York Stock Exchange under
the symbol "EX". The following table presents the high and low sales prices for
our common stock as reported on The New York Stock Exchange Composite Tape and
dividends paid for the quarters indicated.
SALES PRICES DIVIDENDS
FISCAL YEAR ENDING MARCH 31 HIGH LOW DECLARED
----------- --------- --------
(per share)
1998:
First Quarter $23.125 $14.625 $0.02
Second Quarter 23.125 18.750 0.02
Third Quarter 34.250 20.563 0.02
Fourth Quarter 27.000 16.313 0.02
1999:
First Quarter $21.750 $16.625 $0.02
Second Quarter 19.125 9.125 0.02
Third Quarter 20.938 5.375 0.02
Fourth Quarter 21.500 11.000 0.02
2000:
First Quarter $16.375 $10.000 $0.02
Second Quarter 14.625 9.375 0.02
Third Quarter 11.125 7.438 0.02
Fourth Quarter 17.500 7.438 0.02
The last reported sale price of the common stock on The New York Stock
Exchange on June 23, 2000 was $8.0625 per share. As of June 23, 2000, we had
approximately 21,403,831 shares of our common stock outstanding and there were
600 record holders of common stock.
19
Item 6. Selected Financial Data (In thousands, except per share data):
The following table sets forth selected financial data for Exide. You
should read this information in conjunction with our consolidated financial
statements and notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that appear elsewhere in this document.
The selected financial information for the fiscal years ending March 31, 1996,
1997, 1998 and 1999 has been restated. See Note 1 to the Consolidated Financial
Statements herein.
Fiscal Year Ended March 31
-------------------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(Restated) (Restated) (Restated) (Restated)
Income Statement Data
Net sales $2,342,616 $2,333,230 $2,273,126 $2,374,278 $2,194,447
Gross profit 552,806 590,976 604,091 559,256 532,492
Selling, marketing and 276,076 290,076 311,683 334,638 319,476
advertising expenses
General and 137,086 145,869 135,606 169,744 145,770
administrative expenses
Goodwill amortization 15,969 17,853 16,922 20,016 17,165
Operating income (loss) 123,675 137,178 139,880 34,858 (3,517)
Interest expense, net 120,600 118,837 112,301 111,679 103,988
Income taxes 6,300 14,197 14,010 23,001 10,769
Income (loss) before extraordinary 939 15,227 19,535 (126,693) (136,042)
loss
Extraordinary loss (1)(2)(3)(4) (9,600) (2,767) (28,513) (301) --
Net income (loss) $ (8,661) $ 12,460 $ (8,978) $ (126,994) $ (136,042)
Basic net income (loss) per share $(0.44) $0.61 $(0.44) $(5.98) $(6.40)
Diluted net income (loss) per share $(0.42) $0.59 $(0.42) $(5.98) $(6.40)
Other Financial Data
EBITDA (5) $ 230,131 $ 263,009 $ 260,925 $ 141,653 $ 90,104
Cash provided by (used in):
Operating activities 36,058 78,126 167,499 77,219 95,648
Investing activities (499,830) (61,652) (76,182) (22,356) (12,623)
Financing activities 449,473 (17,000) (95,446) (70,238) (73,987)
Capital expenditures 106,385 84,200 87,315 76,211 63,953
Ratio of earnings to fixed charges (6) 1.0x 1.2x 1.3x 0.2x 0.0x
Balance Sheet Data (at period end)
Working capital $ 581,828 $ 595,296 $ 518,922 $ 301,663 $ 213,468
Property, plant and equipment, net 578,722 521,836 535,113 543,702 443,344
Total assets 2,694,362 2,436,275 2,331,549 2,195,816 1,901,461
Total debt 1,340,025 1,289,682 1,248,983 1,205,806 1,118,385
Common stockholders' equity (deficit) 422,333 350,578 274,954 134,135 (66,376)
1. During fiscal 1996, the Company recorded a loss of $9,600 (net of a
tax benefit of $5,958) from the early retirement of debt under the
U.S. Credit Agreement.
2. During fiscal 1997, the Company recorded a loss of $2,767 with no
income tax effect resulting from a modification of debt in connection
with entering into a series of bond swap agreements for $38,000
(principal amount) of its 10% and 10 3/4% Senior Notes.
20
3. During fiscal 1998, the Company recorded a loss of $28,513 (net of a tax
benefit of $3,667) resulting from a modification of debt in connection with
entering a bond swap agreement for $21,000 (principal amount) of its 10%
Senior Notes; the retirement of its 10.75% Senior Notes and the remainder
of its 12.25% Senior Subordinated Deferred Coupon Debentures; the
retirement of the U.S. Credit Agreements and European Facilities Agreement
in connection with entering into the Senior Secured Global Credit
Facilities Agreement; a modification of debt in connection with reducing
the maximum commitment on the European Facilities Agreement; and the
redemption of $108,119 (face value) of its outstanding 12.25% Zero-Coupon
Bonds.
4. During fiscal 1999, the Company recorded a loss of $301 with no income tax
effect resulting from a modification of debt in connection with entering
into bond swap agreements for $4,430 (principal amount) of its 10% Senior
Notes.
5. Represents earnings before interest, taxes, depreciation of property, plant
and equipment, goodwill and other amortization and losses on sales of
receivables. EBITDA should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
6. For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income (loss) before income taxes plus fixed charges (excluding
capitalized interest) and amortization of capitalized interest. Fixed
charges consist of interest expense, amortization of debt expense,
capitalized interest, and one-third of rent expense, deemed representative
of the interest factor.
21
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Factors Which Affect Our Financial Performance
In the last three fiscal years, our financial performance has been affected
by several major factors including:
Lead. Lead is the principal raw material used in the manufacture of
batteries, representing approximately one-third of our cost of goods sold. The
market price of lead fluctuates significantly. Generally, when lead prices
decrease, many of our customers seek disproportionate price reductions from us,
and when lead prices increase, customers tend to be more accepting of price
increases. Lead market prices declined substantially over the last three fiscal
years.
Competition. The automotive battery market in North America and the
automotive and industrial battery markets in Europe are highly competitive. In
recent years, competition has increased and we have come under increasing
pressure for price reductions. Price competition in Europe has been particularly
intense. This price competition has been exacerbated by an environment of low-
priced Asian imports, excess capacity and declining lead prices.
Exchange Rates. We are exposed to foreign currency risk in most European
countries, principally Germany, France, United Kingdom, Spain, and Italy.
Movements of exchange rates against the U.S. dollar can result in variations in
the U.S. dollar value of our non-US sales. In some instances gains in one
currency may be offset by losses in another. Our results for the periods
presented were adversely impacted by the overall weakness in European
currencies.
Weather. Unusually cold winters or hot summers accelerate battery failure
and increase demand for automotive replacement batteries. During the periods
discussed below, unusually warm winters resulted in fewer automotive battery
failures in North America and Europe and this adversely affected our aftermarket
sales.
Results of Operations
Year Ended March 31, 2000 Compared with Year Ended March 31, 1999
Excluding non-recurring or unusual charges, the Company reported net income
of $6.5 million, or $.31 per diluted share, for the fiscal year ended March 31,
2000, as compared to a restated net loss, excluding non-recurring or unusual
charges, of $8.5 million, or $.40 per diluted share, for the previous fiscal
year.
Earnings in fiscal 2000 were favorably impacted by:
. strong Industrial battery market demand in Europe, particularly in the
telecommunications sector in the latter part of the year.
. increases in average selling prices in the U.S. due to our continued focus
on a "better mix of customers".
. reduced costs in Europe due to general efficiency improvements.
22
These operating improvements were offset in part by:
. the negative impact of the weak Euro, which affected pre-tax earnings by
approximately $8.6 million.
. automotive aftermarket sales volume reductions in North America and Europe
due to unusually warm winter weather.
. continued pricing pressure in the European automotive aftermarket and OEM
businesses.
. increased selling, general and administrative costs in North America.
Including non-recurring or unusual items, the Company reported a net
loss of $136.0 million, or $6.40 per diluted share, for fiscal 2000, compared to
a net loss of $127.0 million, or $5.98 per diluted share, for fiscal 1999. The
Company recorded certain unusual or non-recurring charges aggregating $142.6
million in fiscal 2000, including $125.1 million in the fourth quarter. In
fiscal 1999, the Company recorded $118.4 million of non-recurring or unusual
charges described in the fiscal 1999 and fiscal 1998 comparison below. No tax
benefits were recorded on the non-recurring or unusual charges in fiscal 2000 or
fiscal 1999. The charges in fiscal 2000 consisted of:
. $13.4 million provision to cover resolution of "used as new" claims
litigation. The Company reached a tentative settlement covering the most
significant of our cases and we now believe the remaining claims can be
settled. The cash portion including legal fees, is less than $10 million.
The balance of the provision is in coupons that can be redeemed, for the
purchase of a new battery. The tentative agreement remains subject to court
approval and final negotiation.
. $39.3 million of restructuring charges, related primarily to the Company's
realignment to a customer-focused global business unit strategy, including
severance charges of $20.0 million and $19.3 million in asset write-downs
and closure costs related to planned closures of manufacturing operations
and other facilities including the Reading, Pennsylvania battery plant,
certain U.S. branch locations and the Company's ongoing consolidation of
European operations.
Additional restructuring charges may be recorded over the next several
years as additional plant closures and consolidation of administrative
functions are identified as part of the Company's program to improve our
cost structure.
. $18.4 million of write-downs to net realizable value related to the ongoing
divestiture of non-core businesses.
. An increase to the Company's environmental reserves of $3.0 million.
. Non-cash charges of $51.0 million related to asset write-downs and
adjustments of balance sheet reserves, including $23.9 million in warranty
reserves.
. The Company also recorded $17.5 million of unusual items in the third
fiscal quarter of fiscal 2000, including a charge for in-process research
and development of $14.3 million for the acquisition of Lion Compact Energy
and additional divestiture related charges of $3.2 million.
23
The Company restated results for fiscal 1999 and fiscal 1998 as a result of
the Company's former management team's improper authorization of the deferral of
a pre-fiscal 1998 charge until fiscal 1998 and 1999. This resulted in an
increase in earnings of $.14 per diluted share and $.03 per diluted share in
fiscal 1999 and fiscal 1998, respectively. This impact is reflected in the
discussion and reported results herein. There is no impact in fiscal 2000.
The Company changed its method of valuing inventory for U.S. battery
inventories from the last-in, first-out ("LIFO") method to the first-in, first-
out ("FIFO") method. This change did not impact the Company's earnings for any
of the periods presented. Generally accepted accounting principles require the
Company to restate for this particular accounting change. As such, retained
earnings for the earliest period presented have been restated herein.
The fiscal 2000 non-recurring or unusual charges discussed above, and the
fiscal 1999 charges specified in the fiscal 1999 and fiscal 1998 comparison
below, were the main factors impacting fiscal 2000 and fiscal 1999 as reported
operating results. Comparative results were as follows:
Net Sales. Net sales decreased $179.9 million or 7.6% to $2,194.4 million
as compared to $2,374.3 million in fiscal 1999. Included in this reduction is
the $23.9 million of warranty non-cash charge previously discussed. Unusual
charges of $10.3 million were recorded in fiscal 1999. Approximately $126
million or 70% of the fiscal 2000 decrease related to weakened currency rates in
Europe. The remaining decrease relates to the global automotive aftermarket
sales volume reduction along with continued automotive pricing pressure in
Europe, partially offset by average selling price increases in the U.S. and the
strong European Industrial market. Industrial battery sales (included above)
were $707.2 million in fiscal 2000 versus $730.7 million in fiscal 1999.
Gross Profit. Gross profit for fiscal 2000 decreased $26.8 million or 4.8%
to $532.5 million. Besides non-recurring or unusual charges of $35.7 million in
fiscal 2000 and $64.0 million in fiscal 1999, gross profit was favorably
impacted by the strong European Industrial market, average selling price
increases in the U.S. and reduced European manufacturing costs. These
improvements were mitigated by the weak Euro, the overall volume reductions in
the automotive aftermarket business and the European automotive pricing
pressures.
Operating Expenses. Operating expenses increased $11.6 million or 2.2% to
$536.0 million. Besides non-recurring or unusual charges of $69.7 million in
fiscal 2000 and $35.9 million in fiscal 1999, operating expenses were favorably
impacted by European general and administrative cost reductions and the weak
Euro, offset by increased expenses in North America.
Interest Expense, net. Interest expense, net decreased $7.7 million or 6.9%
to $104.0 million versus $111.7 million in 1999 as a result of lower borrowing
levels and the impact of weaker European currencies. Also included in interest
expense in fiscal 2000 was a non-recurring charge of $0.7 million.
Other (Income) Expense, net. Other (income) expense, net in fiscal 2000
was $16.0 million versus $28.9 million in 1999. Besides non-recurring or
unusual charges of $12.6 million in fiscal 2000 and $8.2 million in fiscal 1999,
other income was favorably impacted in fiscal 2000 by gains on certain sales of
land of approximately $4.5 million.
24
Income Tax Provision. Income tax expense decreased $12.2 million to $10.8
million. The U.S. and European non-recurring or unusual charges in both fiscal
years were not tax benefited.
Year Ended March 31, 1999 Compared with Year Ended March 31, 1998
Net Sales. Net sales increased $101.2 million or 4.4% to $2,374.3 million
as compared to $2,273.1 million in fiscal 1998. The increase was primarily
attributable to the following factors:
. The inclusion of DETA (a German industrial and automotive battery
manufacturer) acquired on September 1, 1997 for 12 months of fiscal 1999
versus 7 months of fiscal 1998 ($75.5 million).
. Higher automotive battery volumes in North America of 5.2% ($40.0
million)offset by higher sales deductions of $11.7 million.
Along with a full year of DETA sales, European sales were also
favorably impacted by exchange rates ($17.8 million) and slightly higher
automotive unit volume. These increases were partially offset by unfavorable
automotive battery pricing/mix in Europe, lower industrial sales (excluding the
full year effect of DETA) and a reduction in other European sales. Industrial
battery sales (included above) for fiscal 1999 were $730.7 million for fiscal
1999 versus $691.4 million in 1998.
Gross Profit. Gross profit for fiscal 1999 decreased $44.8 million or
7.4% to $559.3 million. The decrease in gross profit is largely a result of the
items discussed above and the following:
. A $44.3 million charge related to write-downs associated with exiting non-
core business activities and the closure of certain facilities,
. A $6.6 million loss on lead hedging contracts in North America,
. A $6.1 million charge for an adverse appellate court ruling in a patent
infringement lawsuit,
. A $3.7 million charge for the write-off of inventory and equipment related
to an abandoned project, and
. A $2.1 million charge for the write-off of unsaleable inventory specified
for the Russian market.
These decreases were partially offset by reduced manufacturing costs,
particularly in Europe, along with the impact of sales volume increases
mentioned above and a greater emphasis on sales of higher profit margin
batteries.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $60.2 million or 13.0% to $524.4 million. The
impact of including DETA for 12 months in fiscal 1999 versus only 7 months in
fiscal 1998 resulted in approximately $19.3 million of the increase. Also
contributing to this increase was:
. Charges of $8.8 million related to specific legal expenses, including
settlement of the Florida Attorney General investigation,
. A $8.5 million charge for increased bad debt reserves primarily related to
North American customers who have filed for bankruptcy,
25
. A $7.1 million charge related to separation packages of 25 executives and
additional retirement charges,
. A $4.8 million charge for uncollectable receivables from sales in Russia,
. The unfavorable impact of foreign exchange rates ($3.9 million) and
. A $2.4 million charge relating to write-downs associated with existing non-
core business activities.
Goodwill amortization increased $3.1 million or 18.3% to $20.0 million from
$16.9 million in 1998, resulting primarily from the write-off of goodwill
associated with the closure of a smelter operation and the write-off of impaired
goodwill from certain branch acquisitions of $2.4 million.
Operating Income. Operating income decreased $105.0 million as a result of
the matters discussed above.
Interest Expense. Interest expense decreased $0.6 million or 0.6% to $111.7
million versus $112.3 million in 1998 as a result of lower rates achieved
through debt restructuring completed in the third and fourth quarters of fiscal
year 1998.
Other (Income) Expense, net. Other (income) expense, net in 1999 was $28.9
million versus ($5.9) million in 1998 for a change of $34.8 million.
Contributing to this change was:
. Currency transaction losses in 1999 of $8.6 million versus currency
transaction gains of $6.8 million in 1998,
. A $6.0 million charge in 1999 recorded for an amendment fee related to
interest rate swap agreements and
. Fiscal 1998 included a $5.6 million gain from an involuntary conversion due
to a fire.
Income Tax Provision. Income tax expense increased $9.0 million to $23.0
million despite the $139.1 million reduction in pre-tax earnings. U.S. tax
losses and certain European tax losses were not tax benefited in fiscal 1999.
Net Income/Loss. The net loss increased from $9.0 million in fiscal 1998 to
$127.0 million in fiscal 1999 primarily as a result of the matters discussed
above offset by a $28.2 million reduction in extraordinary loss relating to the
early retirement of debt.
Seasonality and Weather
We sell most of our automotive aftermarket batteries during the fall and
early winter (our second and third fiscal quarters). Retailers buy automotive
batteries during these periods so they will have enough inventory when cold
weather strikes. In addition, many of our industrial battery customers in
Europe do not place their battery orders until the end of the calendar year.
The seasonality of our business increases our working capital requirements.
Demand for automotive aftermarket batteries is significantly affected by
the weather. Unusually cold winters or hot summers accelerate battery failure
and increase demand for automotive replacement batteries. Mild winters and
26
cool summers have the opposite effect. As a result, if our sales are reduced by
an unusually warm winter or cool summer, it is not possible for us to recover
these sales in later periods. Further, if our sales are adversely affected by
the weather, we cannot make offsetting cost reductions to protect our gross
margins in the short-term because a large portion of our manufacturing and
distribution costs are fixed.
Pending Acquisition of GNB
As discussed in Item 1, on May 9, 2000, the Company entered into an
agreement to acquire the global battery business of GNB for consideration of
approximately $368 million (including $333 million in cash and four million
Exide common shares) plus assumed liabilities. GNB is a leading U.S. and Pacific
Rim manufacturer of both automotive and industrial batteries with annual sales
of approximately $1.0 billion. The acquisition, which is expected to close in
fiscal 2001, is subject to foreign regulatory review, financing and settlement
of certain non-compete agreements. Financing is currently being arranged and is
expected to be sourced through a combination of debt and certain asset
securitizations.
Liquidity and Capital Resources
Our liquidity requirements arise primarily from the funding of seasonal
working capital needs, obligations on our indebtedness and capital expenditures.
Historically, we have met these liquidity requirements through operating cash
flows, borrowed funds and the proceeds of sales of accounts receivable and sale
leaseback transactions. Additional cash has been generated in the current year,
and will be generated in fiscal 2001 from the sale of non-core businesses. We
have a U.S. receivables purchase agreement and a European receivables purchase
agreement under which the other parties have committed (subject to certain
exceptions) to purchase selected accounts receivable from us, up to a maximum
commitment of $75.0 million and $175.0 million, respectively.
Because of the seasonality of our business, more cash is typically
generated in our third and fourth fiscal quarters than the first and second
quarters. Our greatest cash demands from operations occur during the months of
June through October. We believe we will be able to meet our requirements for
liquidity with cash generated from operations, reduced working capital
requirements, borrowings under the revolving credit portion of our credit
agreement, the proceeds from sales of accounts receivable under our
securitization facilities and/or sales of non-core businesses and assets.
EBITDA, excluding non-recurring or unusual items and discounts on
receivables sold, was $227.5 million for the current fiscal year versus $260.1
million in the prior year. Our cash flow from operating activities was $167.5
million (including $134.2 million related to sales of receivables), $77.2
million (including $29.3 million related to sales of receivables) and $95.6
million (net of a $23.5 million decrease related to sales of receivables) in
fiscal 1998, 1999 and 2000, respectively. Primary working capital year on year
is down approximately $118.6 million, due primarily to inventory reductions of
approximately $50.3 million and approximately $41.0 million from currency
effects.
Our capital expenditures were $87.3 million, $76.2 million and $64.0
million in fiscal 1998, 1999 and 2000, respectively. Our credit agreement
restricts the amount of capital expenditures which we can make, but we believe
that such restrictions will not adversely effect our capital expenditure
programs. Capital expenditures are estimated to be approximately $60.0 million
in fiscal 2001.
27
The Company generated more than $80.0 million in cash and assumed
liabilities from the sale of non-core businesses and other assets in fiscal
2000. Proceeds were used primarily to reduce debt. Businesses now planned to
be sold in fiscal 2001 are expected to generate cash in excess of $100 million.
In fiscal 2000 we recorded $39.3 million of restructuring charges, related
primarily to the Company's realignment to a customer-focused global business
unit strategy, including severance charges of $20.0 million and $19.3 million in
asset write-downs and closure costs related to planned closures of manufacturing
operations and other facilities including the Reading, Pennsylvania battery
plant, certain U.S. branch locations and the Company's ongoing consolidation of
European operations.
Additional restructuring charges may be recorded over the next several
years as additional plant closures and consolidation of administrative functions
are identified as part of the Company's program to improve our cost structure.
The expected cash portion of the charge, largely related to severance, will
be paid out primarily in fiscal 2001. These cash outlays will be offset by
prospective operating cost savings.
Debt levels decreased year on year by $88 million from $1.206 billion to
$1.118 billion principally due to reductions in inventory levels and cash
proceeds from the sale of non-core businesses in fiscal 2000. As of March 31,
2000, we had $344.1 million outstanding and $205.5 million available under our
credit agreement after consideration of $7.5 million of outstanding letters of
credit. The use of such availability may be limited by certain covenants in the
credit agreement. Increases in interest rates on such obligations could
adversely affect our results of operations and financial condition.
We have an interest rate collar agreement which reduces the impact of
changes in interest rates on a portion of our floating rate debt. The collar
agreement effectively limits the PIBOR (Paris Interbank Offered Rate) base
interest rate on 593.1 million French francs (U.S. $100 million) of borrowings
to no more than 6.6% and no less than 3.5% through December 23, 2000.
We have three currency and interest rate swap agreements which effectively
convert $175 million of borrowings under the credit agreement and certain inter-
company loans into 406.2 million French Francs (U.S. $68.5 million), 66.8
million Euros (U.S. $64.5 million) and 25.2 million British pounds sterling
(U.S. $42 million). We receive LIBOR and pay PIBOR and pounds sterling LIBOR.
Effective March 9, 2000 the Company assigned 382.5 million French Francs (U.S.
$64.5 million) of its existing currency and interest rate swap agreement to a
new counterparty and received a cash payment of Euro 8.5 million.
Simultaneously, the Company entered into a new 66.8 million Euro (U.S. $64.5
million) one-year currency and interest rate hedge agreement. The company
receives LIBOR plus 2.25% and pays Euro LIBOR plus 2.27%.
As of March 31, 2000, we have significant net operating loss carryforwards
in Europe and in the United States which are available, subject to certain
restrictions, to offset future U.S. and certain European countries' taxable
income. (See Note 9 to our Consolidated Financial Statements).
Our net deferred tax assets include certain amounts of net operating loss
carryforwards, principally in the U.S., which management believes are realizable
through a combination of anticipated tax planning strategies and forecasted
future taxable income. Failure to achieve forecasted future taxable income
might affect the ultimate realization of any remaining recorded net deferred tax
assets.
28
Effects of Inflation
Inflation has not had a material impact on our operations during the past
three years. We generally have been able to offset the effects of inflation
with price increases, cost-reduction programs and operating efficiencies.
Future Environmental Developments
We are subject to extensive federal, state, local and foreign
environmental, health and safety laws and regulations. Future environmental,
health and safety standards may be more stringent. We anticipate that such
potential standards could cause an increase in our capital expenditures and
operating costs. Unless and until the standards are adopted it is not possible
to estimate these costs with any certainty or to predict whether they will have
a material effect on our financial condition or results of operations. See
"Business-Environmental, Health and Safety Matters".
Year 2000 Issue
We successfully achieved Year 2000 compliance during the third quarter of
fiscal 2000. We are not aware of any open matters, however, we continue to
monitor Year 2000 compliance internally and with our vendors. Costs for Year
2000 remediations were approximately $4.3 million, which was consistent with
prior estimates. These costs were expensed as incurred with the exception of
capitalizable replacement hardware.
Conversion to the Euro Currency
On January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and a
common currency, the Euro. We conduct significant business in these member
countries. The transition period for the introduction of the Euro is between
January 1, 1999 and June 30, 2002. We have addressed the issues involved with
the introduction of the Euro and continue to address related issues with its
ongoing implementation. The more important issues facing us include:
. converting information technology systems,
. reassessing currency risk,
. negotiating and amending contracts, and
. processing tax and accounting records.
Based upon progress to date, we believe that use of the Euro has not and
will not have a significant impact on the manner in which we conduct our
business affairs and process our business and accounting records. Accordingly,
conversion to the Euro has not and is not expected to have a material effect on
our financial condition or results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
We are exposed to market risks from changes in foreign currency exchange
rates, certain commodity prices and interest rates. In order to manage these
risks, we participate in a risk management program, which includes entering into
certain foreign exchange and commodity forward contracts and options.
29
A discussion of our accounting policies for derivative instruments is
provided in Notes 1 and 5 to the financial statements. We maintain risk
management control systems to monitor foreign exchange, commodity and interest
rate risks, and related hedge positions. Positions are monitored using a variety
of analytical techniques including market value, sensitivity analysis, and
value-at-risk models. The following analyses are based on sensitivity analysis
tests which assume instantaneous, parallel shift in exchange rates and commodity
prices. For options and instruments with non-linear returns, appropriate models
are utilized to determine the impact of sensitivity shifts.
Foreign Currency Exchange Rate Risk
We have foreign currency exposures related to buying, selling and financing
in currencies other than the local currencies in which we operate. More
specifically, we are exposed to foreign currency risk related to uncertainty to
which future earnings or assets and liability values are exposed due to
operating cash flows and various financial instruments that are denominated in
foreign currencies. Currently, our most significant foreign currency exposures
relate to France, Italy, United Kingdom, Spain and Germany.
As of March 31, 2000, the net gain based on fair value of financial
instruments with exposure to foreign currency risk was about $10.2 million. The
potential loss in fair value liability for such financial instruments from a
hypothetical 10% adverse change in quoted foreign currency exchange rates would
be about $29.5 million. The model assumes a parallel shift in foreign currency
exchange rates; however, exchange rates rarely move in the same direction. The
assumption that exchange rates change in a parallel fashion may overstate the
impact of changing exchange rates.
Commodity Price Risk
We enter into commodity forward and option contracts. These contracts are
executed to offset our exposure to the potential change in prices mainly for
various metals used in the manufacturing of our lead acid batteries. No such
contracts were outstanding at March 31, 2000.
Interest Rate Risk
We have historically entered into interest rate swaps and other interest
sensitive forward and option contracts. Such contracts are executed to offset
our exposure to interest rate risk on our debt.
Certain Hedging Activities
On May 11, 1998, we entered into an interest rate bond swap agreement for
$4.4 million (principal amount) of our 10% Senior Notes. Under the agreement,
we paid LIBOR plus 1.75% to a counterparty and received from the counterparty
the fixed coupon rate payments we made. At the end of the agreement, the
counterparty was guaranteed repayment of its open market purchase price of the
notes, which exceeded face value by $233,000. This debt modification was
accounted for as an extinguishment of debt, and the related write-off of
unamortized deferred financing costs, along with the premium paid by the
counterparty, resulted in an extraordinary loss of $301,000.
In October 1998, we paid an amendment fee of $6.0 million to the
counterparty to the interest rate swap agreements related to $45.1 million of
our 10% Senior Notes due 2005. This fee was recorded as other expense in the
third fiscal quarter of 1999. In November 1998, we terminated the $45.1 million
interest rate swap agreements. In connection with such termination, we made a
cash payment of $4.6 million, of which $2.5 million was recorded as a
30
bond discount. In January 1999, we amended certain provisions (effective
December 27, 1998) of our existing credit agreement.
Recently Issued Accounting Pronouncements
SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that entities recognize derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Company is currently evaluating the impact of the statement and will be required
to adopt it in the first quarter of fiscal 2002.
Item 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements and Schedule at page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following sets forth certain biographical data regarding our current
directors and executive officers as of March 31, 2000:
Robert A. Lutz, 68, has served as Chairman and Chief Executive Officer of
Exide since December 1998 and a member of the Office of the Chairman since May
2000. Mr. Lutz retired in July 1998 as Vice Chairman of Chrysler. Previously,
Mr. Lutz was Chrysler's President and Chief Operating Officer responsible for
its car and truck operations worldwide, Mr. Lutz became President of Chrysler in
January 1991. Prior to joining Chrysler, Mr. Lutz held senior executive and
operating positions with Ford, GM and BMW. Mr. Lutz is also a director of
Northrop Grumman, ASCOM, a Swiss telecommunications and electronics company,
Silicon Graphics Incorporated and Kepner-Tregoe.
Craig H. Muhlhauser, 51, will begin his tenure as Exide's President and
Chief Operating Officer and a member of the Office of the Chairman effective
July 2000. Mr. Muhlhauser will also serve as the interim leader for Exide's
Transportation: Aftermarket Global Business Unit. From 1997 until shortly
before joining Exide, Mr. Muhlhauser held several senior executive positions
with Ford Motor Company and Visteon Automotive Systems, a $17.8 billion auto
systems and components supplier. Mr. Muhlhauser served as Vice President of
Global Marketing Sales and Service for Visteon before becoming a vice president
at Ford and President of Visteon. Before his tenure at Ford and Visteon, Mr.
Muhlhauser served as Senior Vice President of Sales and Services for United
Technologies Corporation, a global supplier of propulsion systems; he held this
position from 1995 until 1997.
31
Kevin R. Morano, 46, has served as Exide's Executive Vice President and
Chief Financial Officer and a member of the Office of the Chairman since May
2000. Before joining Exide, Morano served in a variety of executive positions
for ASARCO Incorporated, a copper mining, specialty chemicals and aggregates
producer. Mr. Morano held the position of President and Chief Operating Officer
of ASARCO from April 1999 until December 1999. Prior to serving as President and
Chief Operating Officer, Mr. Morano held the positions of ASARCO's Executive
Vice President and Chief Financial Officer from January 1998 until April 1999.
Mr. Morano also served as ASARCO's Vice President and Chief Financial Officer
from April 1993 until January 1998. Mr. Morano is a director of Apex Silver
Mines Limited.
Neil S. Bright, 53, has served as Exide's Executive Vice President, Motive
Power Global Business Unit since April 2000. Mr. Bright joined Chloride, a
subsidiary of Exide, in 1969 and has held a variety of positions with Chloride
and other Exide subsidiaries since that time.
Albrecht M. Leuschner, 62, has been Exide's Executive Vice President,
Standby Global Business Unit since April 2000. Dr. Leuschner joined Exide in
1997 as Managing Director for Exide's German Group. From 1983 until 1997, Dr.
Leuschner served as Chairman of CEAG AG and as Chief Executive Officer of DETA
Akkumulatorenwerk GmbH, a German battery maker.
Ronald J. Gardhouse, 53, has been Exide's Executive Vice President,
Transportation: Original Equipment Global Business Unit since April 2000. Mr.
Gardhouse was appointed Chairman of Exide Holding Europe in June 2000. Mr.
Gardhouse joined Exide in April 1999 as Executive Vice President and Chief
Financial Office of Exide Holding Europe. These positions with Exide followed
Mr. Gardhouse's retirement from a 24-year career with Chrysler. During his
tenure at Chrysler, Mr. Gardhouse served as President, Asia Pacific Operations
from July 1996 to April 1999 and Assistant Treasurer from 1993 to 1996.
Jack J. Sosiak, 61, has been Exide's senior executive in charge of human
resources since 1983, most recently as Executive Vice President, Human Resources
since February 1995.
John R. Van Zile, 48, has been Exide's Vice President, General Counsel and
Secretary since October 1996. Prior to joining Exide, Mr. Van Zile was
Assistant General Counsel/Assistant Secretary of Coltec Industries, a
manufacturer of commercial, industrial and aerospace products, a position he
held since January 1985.
Francois J. Castaing, 55, has served as a director of Exide since March
1999. Mr. Castaing is President of Castaing & Associates, an automotive
industry consulting firm, he began consulting shortly after his 1997 retirement
from Chrysler. From 1987 until his retirement from Chrysler, Mr. Castaing was
an executive with Chrysler. Among the positions that Mr. Castaing held with
Chrysler was that of Vice President of Vehicle Engineering, a position he held
from 1988 until 1996. In 1996, Mr. Castaing was promoted to Executive Vice
President of Chrysler.
Lynne V. Cheney, 58, has served as a director of Exide since February 2000.
Ms. Cheney is a Senior Fellow at the American Enterprise Institute for Public
Policy Research, which she joined in 1993. From 1986 until 1993, Ms. Cheney
served as Chairperson for the National Endowment for the Humanities.
Additionally, Ms. Cheney serves as a director for Lockheed Martin Corporation,
Reader's Digest Association, Inc., American Express/IDS Mutual Fund Group, and
Union Pacific Resources Group, Inc.
32
John A. James, 58, became a director of Exide in March 1999. Mr. James is
Chairman of the Board and Chief Executive Officer of The O-J Group, a group of
transportation-related companies, which he co-founded in 1971. Mr. James is
also a director of the Hartford Development Foundation and a member of the
National Association of Black Automotive Suppliers.
Jody G. Miller, 42, became a director of Exide in December 1999. Ms.
Miller is a Venture Partner with Maveron LLC, a Seattle-based venture capital
firm that she joined in February 2000. Before joining Maveron, from 1995 until
January 1999, Ms. Miller served in several senior executive positions with
Americast, a digital video and interactive services partnership between
Ameritech, BellSouth, GTE, SNET and the Walt Disney Company. While at
Americast, Ms. Miller served as Acting President and Chief Operating Officer,
Executive Vice President and Senior Vice President for Operations. In the
period between her tenures at Americast and Maveron, Ms. Miller served as a
consultant. Ms. Miller also served in the White House as special assistant to
the President from 1993 to 1995, where she was involved with matters such as
healthcare, welfare reform and NAFTA.
Heinz C. Prechter, 58, became a director of Exide in March 1999. Mr.
Prechter is Chairman of Prechter Holdings, a holding company he founded in 1965
that owns various manufacturing companies, one of which is a supplier of the
automobile industry. Mr. Prechter is also the Founding Chairman and Director of
Automotive Supplier Co-Operative. Mr. Prechter also sits on the Boards of The
Budd Company and Comerica Incorporated.
John E. Robson, 70, became a director of Exide in March 1999. Mr. Robson
is a Senior Advisor with Robertson Stephens, an investment banking firm, and has
been with Robertson Stephens since 1993. From 1989 to 1993, Mr. Robson served
as Deputy Secretary of the United States Treasury. Mr. Robson also served
previously as President and Chief Executive Officer of G D Searle, a global
pharmaceutical company, and Dean of Emory University's School of Business
Administration. Mr. Robson is also a director of ProLogis Trust, a global
provider of distribution services and facilities, Pharmacia Corporation and
Northrop Grumman Corporation.
ITEM 11. Executive Compensation
The information under the heading Executive Compensation in the Company's
definitive Proxy Statement for its annual meeting of stockholders to be held on
August 11, 2000, is hereby incorporated by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The information under the heading Stock Ownership in the Company's
definitive Proxy Statement for its annual meeting of stockholders to be held on
August 11, 2000, is hereby incorporated by reference.
ITEM 13. Certain Relationships and Related Transactions
The information under the heading Certain Transactions in the Company's
definitive Proxy Statement for its annual meeting of stockholders to be held on
August 11, 2000, is hereby incorporated by reference.
PART IV
33
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Index to Financial Statements
See Index to Consolidated Financial Statements and Schedule at
page F-1.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
(c) Exhibits Required by Item 601 of Regulation S-K
See Index to Exhibits.
(d) Financial Statement Schedules
See Index to Consolidated Financial Statements and Schedule at
page F-1.
34
CAUTIONARY STATEMENT FOR PURPOSES OF THE
SAFE HARBOR PROVISION OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information, this report may be deemed to contain
"forward-looking" statements. The Company desires to avail itself of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") and is including this cautionary statement for the express purpose of
availing itself of the protection afforded by the Act.
Examples of forward-looking statements include, but are not limited to (a)
projections of revenues, cost of raw materials, income or loss, earnings or loss
per share, capital expenditures, growth prospects, dividends, the effect of
currency translations, capital structure and other financial items, (b)
statements of plans of and objectives of the Company or its management or Board
of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulating
authorities, (c) statements of future economic performance and (d) statements of
assumptions, such as the prevailing weather conditions in the Company's market
areas, underlying other statements and statements about the Company or its
business.
The Company's core business, the design, manufacture and sale of lead acid
batteries, and the Company's structure involves risk and uncertainty. Important
factors that could affect the Company's results include, but are not limited to
(i) unseasonable weather (warm winters and cool summers) which adversely affects
demand for automotive and some industrial batteries, (ii) the Company's
substantial debt and debt service requirements which restrict the Company's
operational and financial flexibility, as well as imposing significant interest
and financing costs, (iii) the Company is subject to a number of litigation
proceedings, the results of which could have a material adverse effect on the
Company and its business, (iv) the Company's assets include the tax benefits of
net operating loss carry forwards, realization of which are dependent upon
future taxable income, (v) 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, (vi) the battery markets
in North America and Europe are very competitive and, as a result, it is often
difficult to maintain margins, (vii) the Company's consolidation and
rationalization of acquired European entities requires substantial management
time and financial and other resources and is not without risk, and (viii)
foreign operations involve risks such as disruption of markets, changes in
import and export laws, currency restrictions and currency exchange rate
fluctuations. Therefore, the Company cautions each reader of this report to
carefully consider those factors here-in-above 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.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EXIDE CORPORATION
By: /s/ Robert A Lutz
------------------------------------------
Robert A. Lutz
Chairman and
Chief Executive Officer
By: /s/ Kevin R. Morano
------------------------------------------
Kevin R. Morano
Executive Vice President and
Chief Financial Officer
Date: June 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
By: /s/ Robert A. Lutz By: /s/ John A. James
--------------------------------- ------------------------------------
Robert A. Lutz, Chairman and John A. James, Director
Chief Executive Officer
By: /s/ Kevin R. Morano By: /s/ Jody G. Miller
--------------------------------- ------------------------------------
Kevin R. Morano, Executive Jody G. Miller, Director
Vice President and Chief
Financial Officer
By: /s/ Kenneth S. Pawloski By: /s/ Heinz C. Prechter
--------------------------------- ------------------------------------
Kenneth S. Pawloski, Vice Heinz C. Prechter, Director
President, Corporate Controller
By: /s/ Francois J. Castaing By: /s/ John E. Robson
--------------------------------- ------------------------------------
Francois J. Castaing, Director John E. Robson, Director
By: /s/ Lynne V. Cheney
---------------------------------
Lynn V. Cheney, Director
36
INDEX TO EXHIBITS
*2.1 Coordinating Agreement, dated May 9, 2000, between Exide Corporation and
Pacific Dunlop Holdings (USA) Inc. and Amendments No. 1 and 2 thereto
dated June 19 and June 28, 2000, respectively; Stock Purchase Agreement
With Respect To Pacific Dunlop GNB Corporation, dated May 9, 2000,
between Exide Corporation and Pacific Dunlop Holdings (USA) Inc. and
Amendment thereto dated June 28, 2000; Asset Purchase Agreement, dated
June 28, 2000, between Pacific Dunlop Holdings (N.Z.) Limited and Exide
New Zealand Limited; Asset Purchase Agreement, dated June 28, 2000,
between GNB Battery Technologies Limited, Australian Battery Company
(Aust.) Pty Ltd, Pacific Dunlop Limited and Exide Australia Pty Limited;
Stock Purchase Agreement with respect to GNB Technologies NV, dated June
28, 2000, between P.D. International Pty Limited and Pacific Dunlop
Holdings (Europe) Ltd and Exide Holding Europe; Stock Purchase Agreement
with respect to GNB Technologies Limited, dated June 28, 2000, between
Pacific Dunlop Holdings (Europe) Ltd and Exide Holding Europe; Stock
Purchase Agreement with respect to GNB Technologies (China) Limited, dated
June 28, 2000, between Pacific Dunlop Holdings (Hong Kong) Limited and
Traeson Pte Ltd (to be renamed Exide Holding Asia Pte Limited); Asset
Purchase Agreement, dated June 28, 2000, between Pacific Dunlop Holdings
(Singapore) Pte Ltd and Bluewall Pte Ltd (to be renamed Exide Singapore
Pte Limited); Stock Purchase Agreement with respect to GNB Technologies
(India) Private Limited, dated June 28, 2000, between Pacific Dunlop
Holdings (Singapore) Pte Ltd and Traeson Pte Ltd (to be renamed Exide
Holding Asia Pte Limited); Trademark Purchase Agreement, dated June 28,
2000 between PD Licencing Pty Ltd and Exide Australia Pty Limited. The
registrant will furnish supplementally to the Commission on request
copies of any schedule to the foregoing which has been omitted.
3.1 Restated Certificate of Incorporation of the Registrant, incorporated by
reference to Exhibit 4.1 of the Registrant's Registration Statement on
Form S-3 (No. 333 - 29991).
3.2 Restated Bylaws of the Registrant, incorporated by reference to Exhibit
3.2 of the Registrant's 1999 Annual Report on Form 10-K.
3.3 Form of Rights Agreement dated as of September 18, 1998 between Exide
Corporation and American Stock Transfer and Trust Company, as Rights
Agent, including the form of Certificate of Designation, Preferences and
Rights of Junior Participating Preferred Shares, Series A attached thereto
as Exhibit A, the form of Rights Certificate attached thereto as Exhibit B
and the Summary of Rights attached thereto as Exhibit C, incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K
filed September 21, 1998; amendment to rights agreements dated as of
October 15, 1998.
4.1 Registration Rights Agreement among the Registrant, Wilmington Securities,
Inc. and certain other holders of the Registrant's Common Stock,
incorporated by reference to Exhibit 4.14 to the 1993 Registration
Statement.
4.2 Indenture dated as of April 28, 1995, between the Registrant and The Bank
of New York, as trustee, incorporated by reference to Exhibit 99.3 of the
Registrant's Form 8-K dated June 2, 1995.
4.3 Indenture dated as of December 15, 1995 between the Registrant and The
Bank of New York, as trustee, incorporated by reference to Exhibit 4.7 to
the Registrant's 1996 Annual Report on Form 10-K.
4.4 Fiscal and Paying Agency Agreement, dated April 23, 1997, by and among
Exide Holding Europe S.A., Exide Corporation, The Bank of New York and
37
Deutsche Bank Aktiengesellschaft, incorporated by reference to Exhibit
4.9 to the Registrant's 1997 Annual Report on Form 10-K.
10.1 Receivables Purchase Agreement, dated as of March 31, 1997, among
Exide U.S. Funding Corporation, Three Rivers Funding Corporation and
the Registrant, incorporated by reference to Exhibit 10.1 to the
Registrant's 1997 Annual Report on Form 10-K.
10.2 Sale Agreement, dated March 31, 1997, between the Registrant and Exide
U.S. Funding Corporation, incorporated by reference to Exhibit 10.2 to
the Registrant's 1997 Annual Report on Form 10-K.
10.3 Separation Agreement with James M. Diasio, effective June 1, 2000.
10.4.1 Employment Agreement with Robert A. Lutz, incorporated by reference to
Exhibit 10.7 to the Registrant's 1999 Annual Report on Form 10-K.
10.5 Lease Agreement (Series B) dated September 1, 1976 pertaining to the
Salina, Kansas manufacturing facilities, incorporated by reference to
Exhibit 10.22 to the Registrant's Registration Statement on Form S-1
(No. 33-13632), as amended (the "S-1 Registration Statement").
10.6 Exide Corporation 1993 Stock Incentive Plan, incorporated by reference
to Exhibit 99.1 to Registrant's Registration Statement on Form S-8
(File No. 333-413).
10.7 Exide Corporation 1993 Long Term Incentive Plan, incorporated by
reference to Exhibit 10.25 to the S-1 Registration Statement.
10.8 Exide Corporation Amended and Restated 1996 Non-Employee Directors
Stock Plan, incorporated by reference to Exhibit 10.25 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
28, 1998.
10.9 Exide Corporation 1997 Stock Option Plan, incorporated by reference to
Exhibit 10.20 to the Registrant's 1998 Annual Report on Form 10-K.
10.10 Exide Corporation 1999 Stock Incentive Plan, as amended, incorporated
by reference to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 3, 1999.
10.11 Amended and Restated Nonqualified Stock Option Agreement for Robert A.
Lutz, incorporated by reference to Exhibit 10.30 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended January 2,
2000.
10.12 Amended and Restated Nonqualified Stock Option Agreement for Ronald J.
Gardhouse.
10.13 Nonqualified Stock Option Agreement for Kevin R. Morano.
10.14 Agreement dated September 30, 1994, among Gemala (Isle of Man)
Limited, PT Sapta Panji Manggala, and B.I.G. Batteries Group Limited.
Deed dated September 30, 1994, among Euro Exide Corporation Limited,
Gemala (Isle of Man) Limited and B.I.G. Batteries Group Limited.
Master Agreement dated September 30, 1994 among Euro Exide Corporation
Limited, Gemala (Isle of Man) Limited, B.I.G. Batteries Group Limited
and PT Sapta Panji Manggala, incorporated by reference to Exhibit
10.24 of the December 1994 Registration Statement.
38
10.15 Credit and Guarantee Agreement dated December 19, 1997 among the
Registrant, certain of the Registrant's subsidiaries, Lehman Brothers
Inc., Credit Suisse First Boston, Lehman Commercial Paper Inc. and
other lenders and related amendment dated May 27, 1998, incorporated
by reference to Exhibit 10.22 to the Registrant's 1998 Annual Report
on Form 10-K; Second Amendment, dated January 8, 1999, incorporated by
reference to Exhibit 10.25 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 27, 1998; Third Amendment,
dated September 24, 1999, incorporated by reference to Exhibit 10.29
to the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended October 3, 1999.
10.16 Receivables Sale Agreement, dated June 3, 1997 among CMP Batteries
Limited, Exide (Dagenham) Limited, Fulmen (U.K.) Limited, B.I.G.
Batteries Limited and Exide Europe Funding LTD, incorporated by
reference to Exhibit 10.23 to the Registrant's 1998 Annual Report on
Form 10-K.
18.1 Preferability Letter.
21.1 Subsidiaries of the Registrant.
23.1 Consent of independent public accountants.
27.1 Financial data schedule.
* Will be filed subsequently.
39
EXIDE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
CONSOLIDATED BALANCE SHEETS F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
CONSOLIDATED SUPPORTING SCHEDULE FILED:
II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES F-35
All other schedules are omitted because they are not applicable, not required,
or the information required to be set forth therein is included in the
Consolidated Financial Statements or in the Notes thereto.
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Exide Corporation:
We have audited the accompanying consolidated balance sheets of Exide
Corporation (a Delaware corporation) and subsidiaries as of March 31, 1999 and
2000, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three fiscal years in the period
ended March 31, 2000 (1999 and prior as restated - see Note 1). These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Exide Corporation and
subsidiaries as of March 31, 1999 and 2000, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
March 31, 2000, in conformity with accounting principles generally accepted in
the United States.
As explained in Note 1 to the consolidated financial statements, the Company has
given retroactive effect to the change in accounting for inventory costing.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index to the consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
June 29, 2000
F-2
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per-share data)
For the Fiscal Year Ended March 31,
------------------------------------------------------
(Restated) (Restated)
1998 1999 2000
----------- ----------- -----------
NET SALES $ 2,273,126 $ 2,374,278 $ 2,194,447
COST OF SALES BEFORE ASSET SALES 1,669,035 1,815,022 1,640,371
NET LOSS ON ASSET SALES -- -- 21,584
----------- ----------- -----------
Gross profit 604,091 559,256 532,492
----------- ----------- -----------
OPERATING EXPENSES:
Selling, marketing and advertising 311,683 334,638 319,476
General and administrative 135,606 169,744 145,770
Restructuring -- -- 39,336
Purchased research and development -- -- 14,262
Goodwill amortization 16,922 20,016 17,165
----------- ----------- -----------
464,211 524,398 536,009
----------- ----------- -----------
Operating income (loss) 139,880 34,858 (3,517)
----------- ----------- -----------
INTEREST EXPENSE,net 112,301 111,679 103,988
OTHER (INCOME) EXPENSE, net (5,852) 28,852 16,043
----------- ----------- -----------
Income (loss) before income taxes, minority
interest and extraordinary loss 33,431 (105,673) (123,548)
INCOME TAX PROVISION 14,010 23,001 10,769
----------- ----------- -----------
Income (loss) before minority interest and
extraordinary loss 19,421 (128,674) (134,317)
MINORITY INTEREST (114) (1,981) 1,725
----------- ----------- -----------
Income (loss) before extraordinary loss 19,535 (126,693) (136,042)
EXTRAORDINARY LOSS RELATED TO EARLY
RETIREMENT OF DEBT, net of income tax benefit
of $3,667 in 1998 (28,513) (301) --
----------- ----------- -----------
Net income (loss) $ (8,978) $ (126,994) $ (136,042)
=========== =========== ===========
BASIC EARNINGS PER SHARE:
Income (loss) before extraordinary loss $ 0.95 $ (5.97) $ (6.40)
Extraordinary loss (1.39) (0.01) --
----------- ----------- -----------
Net income (loss) $ (0.44) $ (5.98) $ (6.40)
=========== =========== ===========
DILUTED EARNINGS PER SHARE:
Income (loss) before extraordinary loss $ 0.90 $ (5.97) $ (6.40)
Extraordinary loss (1.32) (0.01) --
----------- ----------- -----------
Net income (loss) $ (0.42) $ (5.98) $ (6.40)
=========== =========== ===========
WEIGHTED AVERAGE SHARES:
Basic 20,588 21,245 21,263
=========== =========== ===========
Diluted 21,642 21,245 21,263
=========== =========== ===========
The accompanying notes are an integral part of these statements.
F-3
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per-share data)
March 31,
-------------------------
(Restated)
1999 2000
---------- -----------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 20,596 $ 28,110
Receivables, net of allowance for doubtful
accounts of $54,111 and $64,177, respectively 388,665 379,490
Inventories 505,404 405,720
Prepaid expenses and other 20,541 16,026
Deferred income taxes 13,303 20,138
---------- -----------
Total current assets 948,509 849,484
---------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 543,702 443,344
---------- ----------
OTHER ASSETS:
Goodwill, net 566,173 501,117
Investments in affiliates 23,072 20,665
Deferred financing costs, net 16,967 12,796
Deferred income taxes 61,019 37,583
Other 36,374 36,472
---------- -----------
703,605 608,633
---------- -----------
Total assets $2,195,816 $ 1,901,461
========== ===========
The accompanying notes are an integral part of these statements.
(Continued)
F-4
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In thousands, except per-share data)
March 31,
----------------------------------------
(Restated)
1999 2000
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ---------------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 20,881 $ 24,666
Current maturities of long-term debt 30,439 32,047
Accounts payable 250,625 260,352
Accrued interest 27,181 28,882
Accrued compensation 70,292 66,734
Product warranty reserve 44,988 44,750
Other current liabilities 202,440 178,585
----------- -----------
Total current liabilities 646,846 636,016
----------- -----------
LONG-TERM DEBT 1,154,486 1,061,672
----------- -----------
NONCURRENT RETIREMENT OBLIGATIONS 134,051 128,827
----------- -----------
OTHER NONCURRENT LIABILITIES 108,652 123,329
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3, 12 and 14)
MINORITY INTEREST 17,646 17,993
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value 60,000 shares authorized;
21,359 and 21,401 shares issued and outstanding 213 214
Additional paid-in capital 490,147 490,399
Accumulated deficit (181,779) (319,530)
Notes receivable - stock award plan (786) (734)
Unearned compensation (129) -
Accumulated other comprehensive loss (173,531) (236,725)
----------- -----------
Total stockholders' equity (deficit) 134,135 (66,376)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 2,195,816 $ 1,901,461
=========== ===========
The accompanying notes are an integral part of these statements.
F-5
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE FISCAL YEARS ENDED MARCH 31, 1998, 1999 AND 2000
(In thousands, except per-share data)
Notes
Additional Receivable -
Common Paid-in Stock Award Unearned Accumulated
Stock Capital Plan Compensation Deficit
----- ---------- ----------- ------------ -----------
Balance at March 31, 1997,
as previously reported $ 213 $489,427 $(1,696) $(516) $ (21,569)
Cumulative effect of prior
period adjustments -- -- -- -- (20,832)
----- -------- ------- ----- ---------
Balance at March 31, 1997, as restated 213 489,427 (1,696) (516) (42,401)
----- -------- ------- ----- ---------
Net loss for fiscal 1998 -- -- -- -- (8,978)
Minimum pension liability
adjustment, net of tax -- -- -- -- --
Translation adjustment -- -- -- -- --
Comprehensive income (loss)
Common stock issued under
employee stock purchase plan -- 172 -- -- --
Common stock issued pursuant to
Board of Directors' grants -- 318 -- -- --
Forfeiture of common stock grants -- (66) 66 -- --
Payment for common stock grants -- -- 21 -- --
Amortization of unearned compensation -- -- -- 194 --
Cash dividends paid ($0.08/share) -- -- -- -- (1,699)
----- -------- ------- ----- ---------
Balance at March 31, 1998, as restated 213 489,851 (1,609) (322) (53,078)
===== ======== ======= ===== =========
Net loss for fiscal 1999 -- -- -- -- (126,994)
Minimum pension liability
adjustment, net of tax -- -- -- -- --
Translation adjustment -- -- -- -- --
Comprehensive income (loss)
Common stock issued under
employee stock purchase plan -- 148 -- -- --
Common stock issued pursuant to
Board of Directors' grants -- 165 (51) -- --
Forfeiture of common stock grants -- (17) 17 -- --
Payment for common stock grants -- -- 857 -- --
Amortization of unearned compensation -- -- -- 193 --
Cash dividends paid ($0.08/share) -- -- -- -- (1,707)
----- -------- ------- ----- ---------
Balance at March 31, 1999, as restated 213 490,147 (786) (129) (181,779)
===== ======== ======= ===== =========
Net loss for fiscal 2000 -- -- -- -- (136,042)
Minimum pension liability
adjustment, net of tax -- -- -- -- --
Translation adjustment -- -- -- -- --
Comprehensive income (loss)
Common stock issued under
employee stock purchase plan 1 165 -- -- --
Common stock issued pursuant to
Board of Directors' grants -- 87 -- -- --
Forfeiture of common stock grants -- -- 52 -- --
Amortization of unearned compensation -- -- -- 129 --
Cash dividends paid ($0.08/share) -- -- -- -- (1,709)
----- -------- ------- ----- ---------
Balance at March 31, 2000 $214 $490,399 $ (734) $ -- $(319,530)
===== ======== ======= ===== =========
Accumulated Other
----------------
Comprehensive Income (Loss)
---------------------------
Minimum
Pension
Liability Cumulative
Adjustment, Translation Comprehensive
Net of Tax Adjustment Income (Loss)
----------- ----------- -------------
Balance at March 31, 1997,
as previously reported $ (4,993) $ (89,456)
Cumulative effect of prior
period adjustments -- --
--------- ----------
Balance at March 31, 1997, as restated (4,993) (89,456)
========= ==========
Net loss for fiscal 1998 -- -- $ (8,978)
Minimum pension liability
adjustment, net of tax 2,226 -- 2,226
Translation adjustment -- (67,878) (67,878)
---------
Comprehensive income (loss) $ (74,630)
=========
Common stock issued under
employee stock purchase plan -- --
Common stock issued pursuant to
Board of Directors' grants -- --
Forfeiture of common stock grants -- --
Payment for common stock grants -- --
Amortization of unearned compensation -- --
Cash dividends paid ($0.08/shares) -- --
--------- ----------
Balance at March 31, 1998, as restated (2,767) (157,334)
========= ==========
Net loss for fiscal 1999 -- -- $(126,994)
Minimum pension liability
adjustment, net of tax 985 -- 985
Translation adjustment -- (14,415) (14,415)
---------
Comprehensive income (loss) $(140,424)
=========
Common stock issued under
employee stock purchase plan -- --
Common stock issued pursuant to
Board of Directors' grants -- --
Forfeiture of common stock grants -- --
Payment for common stock grants -- --
Amortization of unearned compensation -- --
Cash dividends paid ($0.08/share) -- --
--------- ----------
Balance at March 31, 1999, as restated (1,782) (171,749)
========= ==========
Net loss for fiscal 2000 -- -- $(136,042)
Minimum pension liability
adjustment, net of tax (311) -- (311)
Translation adjustment -- (62,883) (62,883)
---------
Comprehensive income (loss) $(199,236)
=========
Common stock issued under
employee stock purchase plan -- --
Common stock issued pursuant to
Board of Directors' grants -- --
Forfeiture of common stock grants -- --
Amortization of unearned compensation -- --
Cash dividends paid ($0.08/share)
--------- ----------
Balance at March 31, 2000 $ (2,093) (234,632)
========= ==========
The accompanying notes are an integral part of these statements.
F-6
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Fiscal Year Ended March 31,
---------------------------------------
1998 1999
(Restated) (Restated) 2000
----------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (8,978) $ (126,994) $ (136,042)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities -
Depreciation and amortization 103,584 123,153 95,706
Extraordinary loss 28,513 301 - -
Net loss on asset sales - - - - 21,584
Purchased research and development - - - - 14,262
Deferred income taxes 7,050 9,106 16,199
Original issue discount on notes 10,080 9,341 9,992
Provision for losses on accounts receivable 7,060 23,243 6,859
Provision for restructuring - - - - 39,336
Minority interest (114) (1,981) 1,725
Amortization of deferred financing costs 5,583 4,737 3,610
Net change from sales of receivables 134,187 29,263 (23,483)
Changes in assets and liabilities excluding
effects of acquisitions and divestitures -
Receivables (8,074) (26,353) (29,139)
Inventories (29,871) 51,307 50,324
Prepaid expenses and other (7,801) (749) 1,466
Payables and accrued expenses (34,272) (35,539) (1,162)
Other, net (39,448) 18,384 24,411
---------- ----------- -----------
Net cash provided by operating activities 167,499 77,219 95,648
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of certain businesses,
net of cash acquired (40,455) (14,825) (2,582)
Capital expenditures (87,315) (76,211) (63,953)
Equipment purchases held for sale (8,015) - - - -
Proceeds from sales of assets 50,303 41,707 53,105
Insurance proceeds from fire damage 9,300 26,973 807
---------- ----------- -----------
Net cash used in investing activities (76,182) (22,356) (12,623)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 2,743 3,439 7,486
Borrowings under Global Credit Facilities Agreement 540,022 606,791 639,089
Repayments under Global Credit Facilities Agreement (67,886) (659,471) (709,673)
Borrowings under U.S. Credit Agreement 272,500 - - - -
Repayment of U.S. Credit Agreement borrowings (289,500) - - - -
Borrowings under European Facilities Agreement 151,884 - - - -
Repayment of European Facilities Agreement (474,854) - - - -
Repayment of Acquired Debt (64,644) - - - -
Issuance of 9.125% Senior Notes 102,130 - - - -
Retirement of 10.75% Senior Notes (150,000) - - - -
Retirement of 12.25% Senior Subordinated Notes (106,002) - - - -
Increase (decrease) in other debt 7,002 (17,490) (8,448)
Debt issuance costs (17,142) (1,800) (732)
Dividends paid (1,699) (1,707) (1,709)
---------- ----------- -----------
Net cash used in financing activities (95,446) (70,238) (73,987)
---------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (2,964) 358 (1,524)
---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,093) (15,017) 7,514
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 42,706 35,613 20,596
---------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 35,613 $ 20,596 $ 28,110
========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for -
Interest (net of amount capitalized) $ 96,415 $ 93,995 $ 89,955
Income taxes (net of refunds) $ 6,423 $ 10,852 $ 16,180
The accompanying notes are an integral part of these statements.
F-7
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per-share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of Exide Corporation
and all of its majority owned subsidiaries (collectively the "Company"). All
significant intercompany transactions have been eliminated.
Investments in affiliates largely represents investments accounted for by the
cost method. Investments in 20% to 50% owned companies are included in the
consolidated financial statements on the basis of the equity method of
accounting. The Company's equity in the net income (loss) of these companies is
not material.
Nature of Operations
The Company is the largest manufacturer and marketer of lead acid batteries in
the world consisting of automotive batteries in North America and automotive and
industrial batteries in Europe. The Company markets automotive batteries to a
broad range of retailers and distributors of replacement batteries and
automotive original equipment manufacturers. The Company's industrial batteries
consist of traction batteries, such as those used in forklift trucks and
other electric vehicles, and standby batteries used for back-up power
applications, such as those for telecommunication systems.
See Note 2 for a discussion of the Company's realignment to a Global Business
Unit structure effective April 1, 2000. See Note 3 for a discussion of our
pending acquisition of GNB Technologies, Inc.
Seasonality and Weather
The automotive aftermarket is seasonal as retail sales of replacement batteries
are generally higher in the fall and winter. Accordingly, demand for the
Company's automotive batteries is generally highest in the fall and early winter
(the Company's second and third fiscal quarters) as retailers build inventories
in anticipation of the winter season. European sales are concentrated in the
fourth calendar quarter (the Company's third fiscal quarter) due to the shipment
of batteries for the winter season and the practice of many industrial battery
customers (particularly governmental and quasi-governmental entities) of
deferring purchasing decisions until the end of the calendar year. Demand for
automotive batteries is significantly affected by weather conditions. Unusually
cold winters or hot summers accelerate battery failure and increase demand for
automotive replacement batteries. Mild winters and cool summers have the
opposite effect.
Major Customers and Concentration of Credit
The Company has a number of major retail and original equipment manufacture
("OEM") customers, both in North America and Europe. No single customer
accounted for more than 10% of consolidated net sales during any of the fiscal
years presented. The Company does not believe that a material part of its
business is dependent upon a single customer, the loss of which would have a
material long-term impact on the business of the Company. However, the loss of
one or more of the Company's largest customers would most likely have a negative
short-term impact on the Company's results of operations.
F-8
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the fourth fiscal quarter of 1999, the Company terminated its supplier
agreement with a major retail customer. Costs associated with the contract
termination included write-offs of inventory of $1,900 included in cost of
sales, and prepaid customer incentives of $5,400 which were reflected as a
reduction of net sales.
During fiscal 1998 and 1999 certain of the Company's North American retail
customers declared bankruptcy. In connection with these bankruptcies, the
Company recorded provisions for losses on accounts receivable of $6,300 and
$5,800 during 1998 and 1999, respectively.
Foreign Currency Translation
The functional currency of each of the Company's foreign subsidiaries is
primarily the respective local currency. Assets and liabilities of the
Company's foreign subsidiaries and affiliates are translated into U.S. dollars
at the current rate of exchange existing at year-end, and revenues and expenses
are translated at average monthly exchange rates. Translation gains and losses
are recorded as a component of other comprehensive income within stockholders'
equity. Foreign currency gains and losses from certain inter-company
transactions meeting the indefinite reversal criteria of SFAS No. 52 "Foreign
Currency Translation" are also recorded as a component of other comprehensive
income. Transaction gains and losses not meeting this indefinite reversal
criteria are included in other (income) expense, net. The Company recorded net
transaction (gains) losses of ($6,815),$8,600 and $897 in fiscal 1998, 1999 and
2000, respectively.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Inventories
Inventories, which consist of material, labor and overhead, are stated at the
lower of cost or market using the first-in, first-out ("FIFO") method. See
"Restatement" within this footnote for discussion of the Company's change in
valuing its U.S. battery inventory.
Property, Plant and Equipment
Property, Plant and Equipment at March 31 consists of:
1999 2000
--------- ---------
Land $ 46,628 $ 32,659
Buildings and improvements 244,538 213,143
Machinery and equipment 539,121 528,242
Construction in progress 24,216 16,747
--------- ---------
854,503 790,791
Less - Accumulated depreciation (310,801) (347,447)
--------- ---------
Property, plant and equipment, net $ 543,702 $ 443,344
========= =========
F-9
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property, plant and equipment are stated at cost. Depreciation is calculated by
the straight-line method over the estimated useful lives of depreciable assets.
Accelerated methods are used for tax purposes. Useful lives of depreciable
assets, by class, are as follows:
Buildings and improvements 5 to 40 years
Machinery and equipment 3 to 10 years
Cost and accumulated depreciation for property retired or disposed of are
removed from the accounts, and any gain or loss on disposal is credited or
charged to earnings. Expenditures for maintenance and repairs are charged to
expense as incurred. In connection with constructing property and equipment,
the Company capitalized $1,277, $967 and $159 of interest costs during fiscal
years 1998, 1999 and 2000, respectively. Depreciation expense was $78,097,
$96,750 and $76,257 for fiscal years 1998, 1999 and 2000, respectively.
Goodwill
Goodwill is amortized over 40 years on a straight-line basis. Accumulated
amortization as of March 31, 1999 and 2000, was $76,659 and $84,849,
respectively. It is the Company's policy to review goodwill (and other long-
lived assets) for possible impairment, when an indication of impairment exists,
on the basis of whether the carrying amount of such assets is fully recoverable
from projected, undiscounted net cash flows of the related business. If such a
review would indicate that the carrying amount of goodwill and/or other long-
lived assets is not recoverable the Company then reduces the carrying amount of
such assets to fair value. During fiscal 1999, the Company wrote off $2,419 of
goodwill associated with certain U.S. branches, as well as the decision to shut
down a U.S. lead smelter. These writeoffs are included in operating expenses.
Estimated Warranty Costs
The Company recognizes the estimated cost of warranty obligations as a reduction
of sales in the period in which the related products are sold. These estimates
are based on historical trends.
Hedging Agreements
The Company enters into certain currency and interest rate hedge agreements to
manage interest costs associated with long-term debt. The differential to be
paid or received on these agreements is accrued as interest rates change and is
recognized monthly over the life of the agreements. See Note 5 for further
discussion.
The Company enters into certain lead hedging agreements to manage the cost of
externally purchased lead. No such agreements were outstanding as of March 31,
2000.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109
"Accounting for Income Taxes", which requires the use of the liability method in
accounting for deferred taxes. If it is more likely than not that some portion,
or all, of a deferred tax asset will not be realized, a valuation allowance is
recognized.
F-10
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Noncurrent Retirement Obligations
Noncurrent retirement obligations consist principally of reserves for pension
obligations, postretirement health care and other retirement benefits.
Earnings Per Share
Basic earnings per share ("EPS") is computed using the weighted average number
of common shares outstanding for the period while diluted EPS is computed
assuming conversion of all dilutive securities such as options. Included below
is a reconciliation of shares for the basic and diluted EPS computations.
1998 1999 2000
------ ------ ------
Basic EPS Shares 20,588 21,245 21,263
Effect of Dilutive Securities 1,054 -- --
------ ------ ------
Diluted EPS Shares 21,642 21,245 21,263
====== ====== ======
There is no difference between basic and diluted EPS regarding the amount of
income (loss) before extraordinary loss used for the computations. The
Convertible Senior Subordinated Notes (see Note 5), which, if converted, would
result in an additional 4,993 common shares, have not been included in the
diluted EPS calculation for all periods presented since the effect would be
antidilutive. The effect of dilutive securities in fiscal 1998 is primarily
comprised of stock options and grants.
Options to purchase 266 and 3,079 shares with exercise prices ranging from
$9.563 to $29.50 were outstanding at March 31, 1999 and 2000, respectively, but
were not included in the computation of diluted EPS because the option's
exercise price was greater than the average market price of the common shares.
These options expire in the years 2000 to 2009. All other options outstanding
at March 31, 1999 and 2000 were not included in the fiscal 1999 and 2000
computation of diluted EPS because of the Company's fiscal 1999 and 2000 loss
position.
Revenue Recognition
The Company records sales upon product shipment.
Advertising
The Company expenses advertising costs as incurred. The Company is party to
certain sponsorship agreements, whereby the related costs are recognized over
the life of the agreement, generally one year.
Comprehensive Income
In fiscal 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 established new rules for the reporting and presentation
of comprehensive income and its components. However, the adoption of this
statement had no impact on the Company's net income (loss) or stockholders'
equity (deficit). SFAS No. 130 requires the change in the minimum pension
liability, foreign currency translation adjustments and foreign currency gains
and losses from certain inter-company transactions meeting the indefinite
reversal criteria to be included in other comprehensive income(loss). Prior
years' financial statements have been reclassified to conform to these
requirements. The minimum pension liability adjustment was net of deferred tax
assets of $1,505, $960 and $156 as of March 31, 1998, 1999, and 2000,
respectively.
F-11
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Risks Associated with International Operations and Currency Risk
The Company's international operations are subject to risks normally associated
with foreign operations, including, but not limited to, the disruption of
markets, changes in export or import laws, restrictions on currency exchanges
and the modification or introduction of other government policies with
potentially adverse effects. The majority of the Company's sales and expenses
are denominated in currencies other than U.S. dollars, and changes in exchange
rates may have a material effect on the Company's reported results of operations
and financial position. In addition, a significant portion of the Company's
indebtedness is denominated in U.S. dollars. For all periods presented,
stockholders' equity was unfavorably impacted by the weakening of major European
currencies, as shown in the accompanying financial statements.
The Company enters into foreign exchange contracts, including forward and
purchased option contracts. The Company enters into forward exchange contracts
to reduce the exposure to foreign currency fluctuations associated with certain
monetary assets and liabilities, as well as certain firm commitments and highly
anticipated cash flows. The Company is also party to purchased option contracts
which, if exercised, involve the sale or purchase of foreign currency at a fixed
exchange rate for a specified period of time. As of March 31, 2000, the net
value of open forward exchange contracts and the related gains and losses were
not material.
Restatement
The Company restated results for fiscal 1999 and fiscal 1998 as a result of the
Company's former management team's improper authorization of the deferral of a
pre-fiscal 1998 charge, related to a transaction with a related party, until
fiscal 1998 and 1999. This resulted in a reduction of the net loss of $838, or
$.03 per diluted share, and $2,927, or $.14 per diluted share, in fiscal 1998
and fiscal 1999, respectively. This impact is reflected in the reported results
herein. There is no impact on fiscal 2000.
The Company changed its method of valuing inventory for U.S. battery inventories
from the last-in, first-out ("LIFO") method to the FIFO method in the fourth
quarter of fiscal 2000. This change did not impact the Company's earnings for
any of the periods presented. The change was made to better match the Company's
current manufacturing costs with revenues given the continuing decline in these
costs, make our methodology more consistent with others in the industry and
allow for the valuing of inventory consistently throughout the Company,
particularly with the Global Business Unit structure realignment, discussed in
Note 2. Generally accepted accounting principles require the Company to restate
for this particular accounting change. As such, retained earnings for the
earliest period presented has been reduced by $17,067 herein.
Certain other prior period amounts have been reclassified to conform to the
fiscal 2000 presentation.
F-12
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Recently Issued Accounting Standards
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities", as
amended by SFAS No. 138 "Accounting for Certain Derivative Instruments and
Certain Hedging Activities", establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that entities recognize
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company is currently
evaluating the impact of the statement and will be required to adopt it in the
first quarter of fiscal 2002.
2. GLOBAL BUSINESS UNIT STRUCTURE REALIGNMENT:
The Company announced in fiscal 2000 a realignment to a customer-focused global
business unit structure, effective April 1, 2000, to allow the Company to more
effectively service all of its customers' needs and requirements. This strategy
is in contrast to the Company's geographic based structure in place through
March 31, 2000.
The Company recorded restructuring charges of $39,336, consisting of $20,000 in
severance benefits and $19,300 for targeted plant and branch closings, primarily
related to this realignment. The charges relate to the Company's closure of the
Reading, Pennsylvania plant and six branches in the U.S. as well as headcount
reductions of 168 employees in the U.S. and Europe. Through March 31, 2000,
$13,282 of charges against the reserve have occurred consisting of $2,610 of
severance benefits paid and $10,672 of asset writedowns. Remaining expenditures
will occur over the next several years as permitted under applicable regulations
and in accordance with existing contracts.
3. ACQUISITIONS AND DIVESTITURES:
On May 9, 2000, the Company entered into an agreement to acquire the global
battery business of Australian-based Pacific Dunlop Limited, including its
subsidiary GNB Technologies, Inc. ("GNB"), for consideration of approximately
$368,000, (including $333,000 in cash and 4,000 Exide common shares) plus
assumed liabilities. GNB is a leading U.S. and Pacific Rim manufacturer of both
automotive and industrial batteries with annual sales of approximately $1
billion. The acquisition, which is expected to close in fiscal 2001, is subject
to due diligence, foreign regulatory review, financing and settlement of certain
non-compete agreements. The Company anticipates accounting for this acquisition
under the purchase method.
On September 27, 1999, the Company entered into an agreement to acquire a
controlling interest in Lion Compact Energy ("LCE"), a privately held company
conducting research in dual-graphite battery technology. This transaction was
accounted for using the purchase method. The Company paid $3,500 in cash upon
closing in December, 1999 and will pay $11,500, plus certain royalty fees, over
the next several years based upon the performance of LCE and its product
development. The $11,500 consideration in the form of notes payable has been
treated as a non-cash investing activity in the consolidated statements of cash
flows. The Company has the option to reconvey its interest in LCE at any time
to the seller during this payment period. All payments made are non-refundable.
In conjunction with the LCE acquisition, the Company recorded a $14,262 write-
off for purchased research and development costs. The purchased in-process
F-13
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
research and development had not yet reached technological feasibility, and the
technology had no alternative future use, as of the date of acquisition.
During the fourth quarter of fiscal 1999, the Company, as part of strategic
review of its operations, identified certain non-core businesses for divestiture
and the Board of Directors authorized and approved a related divestiture plan.
The Company hired an investment-banking firm at that time to assist in marketing
the businesses. Based on the above actions, the Company recorded an impairment
charge of $38,600 in cost of sales and $2,000 in operating expenses in the
fourth quarter of fiscal 1999 relative to the identified businesses. The
Company recorded additional net charges of $21,584 in cost of sales in fiscal
2000 related to these divestitures. Before recognition of the impairment, these
businesses had a net book value of approximately $72,400 and operating losses of
approximately $8,400 during fiscal 1999 and $3,200 in fiscal 2000. The Company
anticipates selling the remaining non-core businesses during fiscal 2001.
The Company sold its battery separator operations in fiscal 2000 for
approximately $47,000, consisting of $26,100 in cash proceeds and the remainder
in future sublease arrangements. Cash proceeds from the sale were used to reduce
debt. As part of the agreement, the Company has entered into a multi-year
agreement to purchase its United States battery separator needs from the buyer.
This agreement includes minimum annual purchase level commitments. The Company
recorded a gain on this sale, net of amounts deferred related to the purchase
agreement, of $9,500 included in net loss on asset sales in the accompanying
consolidated statements of operations.
The Company sold additional non-core businesses in fiscal 2000 with cash
proceeds of approximately $6,700.
Effective September 1, 1997, the Company acquired three related German battery
producers and marketers, DETA Akkumulatorenwerk GmbH, MAREG Accumulatoren GmbH
and FRIWO SILBERKRAFT GmbH (together "DETA") for approximately $34,000 plus
assumed debt of approximately $64,600. This acquisition was accounted for as a
purchase and the results of DETA's operations were included in the Company's
consolidated statements of operations effective September 1, 1997.
In connection with previous European acquisitions, the Company recorded
liabilities of $153,000 related to exit costs, primarily severance benefits to
be paid to certain employees who were identified for termination as a result of
consolidation and identified plant closings. Through March 31, 2000, $145,200 of
charge-offs have occurred consisting of $133,300 of severance benefits paid
(including $32,500, $27,900 and $10,300 in fiscal 1998, 1999 and 2000,
respectively) with the remaining amount associated with plant closing costs.
Remaining expenditures will occur over the next several years as permitted under
applicable regulations.
F-14
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVENTORIES:
March 31,
----------------------------
1999 2000
---------- ----------
Raw materials $ 132,697 $ 111,168
Work-in-process 74,549 64,412
Finished goods 298,158 230,140
---------- ----------
$ 505,404 $ 405,720
========== ==========
In connection with the purchase of lead for anticipated manufacturing
requirements, the Company enters into commodity forward and futures contracts.
These contracts are used as a hedging strategy to help protect against
volatility in lead prices. The Company remains at risk for possible changes in
the market value of the commodity contracts; however, such risk should be
mitigated by price changes in lead. The contracts are accounted for as hedges
and, accordingly, gains or losses are deferred and recognized in inventory upon
execution of the contract. At March 31, 2000, the Company had no outstanding
contracts hedging lead purchases.
5. DEBT:
At March 31, 1999 and 2000, short-term borrowings of $20,881 and $24,666,
respectively, consisted of various operating lines of credit and working capital
facilities maintained by certain of the Company's non-U.S. subsidiaries.
Certain of these borrowings are secured by receivables, inventories and/or
property. These borrowing facilities, which are typically for one-year
renewable terms, generally bear interest at current local market rates plus up
to one percent. As of March 31, 1999 and 2000, the weighted average interest
rate on these borrowings was 12.0% and 16.4%, respectively.
Following is a summary of the Company's long-term debt at March 31, 1999 and
2000:
1999 2000
-------------- -------------
Senior Secured Global Credit Facilities Agreement -
Borrowings primarily at LIBOR plus 2.25% - 3.0%
(at a weighted average rate of 6.87% and 8.16%
at March 31, 1999 and 2000) $ 424,186 $ 336,636
9.125% Senior Notes, (Deutsche mark denominated) due
April 15, 2004 96,373 85,515
10% Senior Notes, due April 15, 2005 300,000 300,000
Convertible Senior Subordinated Notes, due
December 15, 2005 316,377 326,369
Other, including capital lease obligations (see
Note 14), debt discount and other loans at
interest rates generally ranging from 3.7% to
11.5% due in installments through 2015 47,989 45,199
----------- -----------
1,184,925 1,093,719
Less - Current maturities (30,439) (32,047)
----------- -----------
$ 1,154,486 $ 1,061,672
=========== ===========
The Company's $650,000 Senior Secured Global Credit Facilities Agreement has
three borrowing Tranches: a $150,000 six year multi-currency term A loan, a
$250,000 seven and one-quarter year U.S. dollar term B loan, and a $250,000 six
year multi-currency revolving credit line. This facility contains a number of
financial and other covenants customary for such agreements including
restrictions on new indebtedness, liens, leverage rates, acquisitions and
capital expenditures. In fiscal 1999 and fiscal 2000, the Company amended
certain provisions of the existing $650,000 Senior Secured Global Credit
Facilities Agreement. Principal payments on nonrevolving debt will continue
through March 2005. Availability under the Senior Secured Global Credit
Facilities
F-15
EXIDE CORPORATION AND SUBSIDIARIES
NOTED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Agreement. Principal payments on nonrevolving debt will continue through March
2005. Availability under the Senior Secured Global Credit Facilities Agreement,
net of outstanding letters of credit, is currently $205,505. The use of such
availability may be limited by certain covenants in the credit agreement. The
write-off of the remaining deferred financing costs under the former U.S. Credit
Agreement and European Facilities Agreement resulted in an extraordinary loss of
$8,336 (net of income tax benefit of $2,899) in fiscal 1998.
On April 23, 1997, the Company issued 175 million Deutsche mark (U.S. $96,373)
9.125% Senior Notes due on April 15, 2004. The Company used the funds to repay
indebtedness under the then existing U.S. credit agreement and previous European
Facilities Agreement.
In April 1995, the Company issued $300,000 in aggregate principal amount of 10%
Senior Notes. The 10% Senior Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after April 15, 2000, initially at 105%
of the principal amount, plus accrued interest, declining to 100% of the
principal amount, plus accrued interest on or after April 15, 2002.
During fiscal 1999, the Company paid an amendment fee of $6,000 to the
counterparty for $45,055 of interest rate swap agreements related to its 10%
Senior Notes. This fee was recorded as other expense. The Company then
terminated these interest rate swap agreements and made a cash payment of
$4,588, of which $2,478 was recorded as a bond discount and is being amortized
over the remaining life of the 10% Senior Notes.
In December 1995, the Company issued Convertible Senior Subordinated Notes due
December 15, 2005, with a face amount of $397,000 discounted to $287,797. These
notes have a coupon rate of 2.9% with a yield to maturity of 6.75%. The notes
are convertible into the Company's common stock at a conversion rate of 12.5473
shares per $1 principal amount at maturity, subject to adjustments in certain
events.
The Company enters into currency and interest rate hedge agreements to manage
interest costs associated with long-term debt. We have three currency and
interest rate swap agreements which effectively convert $175,000 of borrowings
under the credit agreement and certain inter-company loans into 406,200 French
Francs (U.S. $68,500), 66,800 Euros (U.S. $64,500) and 25,200 British pounds
sterling (U.S. $42,000). We receive LIBOR and pay PIBOR and pounds sterling
LIBOR. Effective March 9, 2000 the Company assigned 382,500 French Francs (U.S.
$64,500) of its existing currency and interest rate swap agreement to a new
counterparty and received a cash payment of Euro 8,525. Simultaneously, the
Company entered into a new 66,800 Euro (U.S. $64,500) one-year currency and
interest rate hedge agreement. The Company receives LIBOR plus 2.25% and pays
Euro LIBOR plus 2.27%. Additionally, effective December 23, 1997, the Company
entered into two three-year interest rate collar agreements that reduce the
impact of changes in interest rates on a portion of the Company's floating rate
debt. These agreements effectively limit the PIBOR base interest rate on 593,050
French francs (U.S. $100,000) of borrowing under the Global Credit Facilities
Agreement to no more than 6.6% and no less than 3.5%. During fiscal 1998, 1999
and 2000, the Company recognized $689, $1,833 and $3,274, respectively, of
reduced interest expense related to these swap and collar agreements.
Counterparties to bond swap transactions and interest rate hedge agreements are
major financial institutions. Management believes the risk of incurring losses
related to credit risk is remote and any losses would be immaterial.
F-16
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Annual principal payments required under long-term debt obligations at March 31,
2000 are as follows:
Fiscal Year Amount
----------- -----------
2001 $ 32,047
2002 31,649
2003 29,782
2004 76,231
2005 286,628
Thereafter 637,382
-----------
$ 1,093,719
===========
6. EMPLOYEE BENEFIT PLANS AND POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE
BENEFITS:
The Company has noncontributory defined benefit pension plans covering
substantially all hourly employees in North America. Plans covering hourly
employees provide pension benefits of stated amounts for each year of credited
service. The Company has numerous defined contribution plans in North America
and Europe with related expense of $5,077, $6,046 and $5,585 in fiscal 1998,
1999, and 2000, respectively.
European subsidiaries of the Company sponsor several defined benefit plans that
cover substantially all employees who are not covered by statutory plans. For
defined benefit plans, charges to expense are based upon costs computed by
independent actuaries. In most cases, the defined benefit plans are not funded
and the benefit formulas are similar to those used by the North American plans.
The Company provides certain health care and life insurance benefits for a
limited number of retired employees. In addition, a limited number of the
Company's active employees may become eligible for those benefits if they reach
normal retirement age while working for the Company. The Company accrues the
estimated cost of providing postretirement benefits during the employees'
applicable years of service.
F-17
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth the plans' funded status and the amounts
recognized in the Company's consolidated financial statements:
Pension Benefits Other Benefits
-------------------------- -------------------------
1999 2000 1999 2000
----------- ---------- ----------- ---------
Change in benefit obligation:
- -----------------------------
Benefit obligation at beginning of year $ 281,038 $ 295,676 $ 18,505 $ 18,572
Service cost 7,428 7,186 195 206
Interest cost 18,149 16,823 1,266 1,085
Actuarial (gain)/loss 4,939 (1,949) 373 (2,993)
Plan participants' contributions 949 1,062 - -
Benefit paid (14,555) (12,048) (1,619) (1,267)
Plan amendments 288 977 - -
Currency translation (1,855) (14,114) (148) 58
Settlements and Other (705) (7,822) - -
--------- --------- -------- --------
Benefit obligation at end of year $ 295,676 $ 285,791 $ 18,572 $ 15,661
========= ========= ======== ========
Change in Plan Assets:
- ----------------------
Fair value of plan assets at beginning of year $ 172,065 $ 187,227 $ - $ -
Actual return on plan assets 20,114 17,820 - -
Employer contributions 12,319 9,532 1,619 1,267
Plan participants' contributions 949 1,062 - -
Benefits paid (14,555) (12,048) (1,619) (1,267)
Currency translation (3,665) (1,193) - -
Settlements and Other - (8,345) - -
--------- --------- -------- --------
Fair value of plan assets at end of year $ 187,227 $ 194,055 $ - $ -
========= ========= ======== ========
Reconciliation of funded status:
- --------------------------------
Funded status $ (108,449) $ (91,736) $(18,572) $(15,661)
Unrecognized net
Transition obligation 269 220 1,022 998
Prior service cost 2,406 2,939 - -
Actuarial loss 9,652 3,337 4,309 1,332
Contributions after measurement date 218 230 - -
--------- --------- -------- --------
Net amount recognized $ (95,904) $ (85,010) $(13,241) $(13,331)
========= ========= ======== ========
Amounts recognized in statement of
- ----------------------------------
financial position:
- -------------------
Prepaid benefit cost $ 22,245 $ 22,592 $ - $ -
(Accrued) benefit cost (123,023) (111,920) (13,241) (13,331)
Intangible asset 1,636 2,069 - -
Accumulated other comprehensive (income) loss 3,238 2,249 - -
--------- --------- -------- --------
Net amount recognized $ (95,904) $ (85,010) $(13,241) $(13,331)
========= ========= ======== ========
Pension Benefits Other Benefits
------------------- ------------------
1999 2000 1999 2000
-------- -------- -------- -------
Weighted-average assumptions as of March 31:
Discount rate 6.0% 6.6% 6.6% 8.0%
Expected return on plan assets 7.5% 7.7% -- --
Rate of compensation increase 4.2% 4.3% -- --
For measurement purposes, an 8.2% and an 8.0% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999 and 2000,
respectively. The rate was assumed to decrease gradually to 5.1% for fiscal 2004
and remain at that level thereafter.
F-18
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pension Benefits Other Benefits
----------------------------------- ------------------------------------
1998 1999 2000 1998 1999 2000
--------- --------- --------- --------- --------- ----------
Components of net periodic
benefit cost:
Service cost $ 6,930 $ 7,428 $ 7,186 $ 186 $ 195 $ 206
Interest cost 15,479 18,149 16,823 1,323 1,266 1,085
Expected return on plan assets (11,313) (14,318) (14,193) -- -- --
Amortization of net-
Transition obligation 32 31 30 70 64 65
Prior service cost 169 267 357 -- -- --
(Gain) / Loss 62 (48) (10) -- -- --
-------- -------- -------- -------- -------- --------
Net periodic benefit cost (a) $ 11,359 $ 11,509 $ 10,193 $ 1,579 $ 1,525 $ 1,356
======== ======== ======== ======== ======= ========
(a) Excludes the impact of curtailments of $(1,303), $(706) and $1,083 in fiscal 1998, 1999 and 2000, respectively.
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $159,259, $153,943, and $38,239, respectively, as of
March 31, 1999 and $149,988, $141,986, and $38,805 respectively as of March 31,
2000.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
One Percentage- One Percentage-
Point Increase Point Decrease
--------------- ---------------
Effect on total of service and interest cost components $ 138 $ (110)
Effect on the postretirement benefit obligation $ 1,369 $ (1,111)
7. PREFERRED SHARE PURCHASE RIGHTS PLAN:
In fiscal 1999, the Company's Board of Directors announced that it adopted a
Preferred Share Purchase Rights Plan and declared a dividend distribution to be
made to stockholders of record on September 29, 1998, of one Preferred Share
Purchase Right (a "Right") on each outstanding share of common stock. Each
Right entitles the registered holder to purchase from the Company one one-
thousandth of a share of Junior Participating Preferred Stock, Series A, par
value $.01 per share, of the Company (the "Preferred Shares") at an exercise
price of $60 per one one-thousandth of a Preferred Share, subject to adjustment.
The Rights are not exercisable, or transferable apart from the common stock,
until the earlier to occur of (i) ten days following a public announcement that
a person or group other than certain exempt persons (an "Acquiring Person"),
together with persons affiliated or associated with such Acquiring Person (other
than those that are exempt persons) acquired, or obtained the right to acquire,
beneficial ownership of 15% (20% as to the state of Wisconsin Investment Board)
or more of the outstanding common stock, or (ii) ten business days following the
commencement or public disclosure of an intention to commence a tender offer or
exchange offer (other than a permitted offer, as defined) by a person other than
an exempt person if, upon consummation of the offer, such person would acquire
beneficial ownership of 15% (20% as to the State of Wisconsin Investment Board)
or more of the outstanding common stock (subject to certain exceptions).
Thereafter, if the Company is not the surviving corporation in a merger or other
business combination, or if common stocks are changed or exchanged, or in a
transaction or transactions wherein 50% or more of its consolidated assets or
earning power are sold, each Right would entitle the holder (other than the
Acquiring Person and certain related persons or transferees) upon exercise to
F-19
EXIDE CORPORATION AND SUBSIDIARIES
NOTED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
receive, in lieu of Preferred Shares, a number of shares of common stock of the
acquiring company or the Company, as the case may be, having a value of two
times the exercise price of the Right. The Rights are redeemable at the
Company's option at any time before public disclosure that an Acquiring Person
has become such, for $.01 per Right, and expire on September 18, 2008. Each
Preferred Share will be entitled to a minimum preferential quarterly dividend
payment equal to the greater of $25 per share or 1,000 times the dividend
declared per common stock. The Preferred Shares have liquidation preference, as
defined. In addition, each Preferred Share will have 1,000 votes per share,
voting together with the common stock.
8. STOCK GRANTS AND OPTIONS:
The Company's shareholders approved the 1999 Stock Incentive Plan effective
August 11, 1999 under which certain employees of the Company are eligible to be
granted a total of 2,300 awards in the form of incentive stock options,
nonqualified stock options or restricted shares of common stock. Substantially
all of the 2,300 stock options were granted in the second quarter of fiscal 2000
at the fair market value on the date of grant. Certain of these options will
vest ratably over four years while the remainder will vest over nine years or
immediately upon the Company reaching certain performance measures.
In November 1998, the Board of Directors approved an option grant of 1,800
shares to the Company's new Chairman and Chief Executive Officer as part of his
employment arrangement. Such options vest at a rate of 600 shares per year on
each anniversary date of his employment.
On May 1, 1997 the Board of Directors adopted the 1997 Stock Option Plan that
authorizes the granting of stock options to key employees of the Company
covering up to 2,000 shares of common stock. No options become vested or
exercisable before May 1, 2007 unless the market price of the common stock
increases to certain levels. If the market price increases to $30.00 per share,
40% of the granted options become vested, if it reaches $50.00, another 40%
become vested and if it achieves $75.00 the remainder will become vested,
provided, that in the case of each such percentage which so vests, the vested
options are then only exercisable as follows; 40% on the date of vesting and 20%
each on the first, second and third anniversaries. The exercise price for each
share is equal to the fair market value of the common stock on the date of the
grant of the option ($16.625). These options will expire on June 1, 2007.
On May 23, 1996, the Board of Directors adopted the 1996 Non-Employee Directors
Stock Plan (the "Directors Stock Plan") whereby Directors of the Company are
granted common stock as part of their compensation. Under this plan,
approximately 18, 10 and 29 shares were granted during fiscal 1998, 1999 and
2000, respectively. The market value of the shares awarded on the date of the
fiscal 1998, 1999 and 2000 grants was $319, $149 and $312, respectively, and was
charged to expense at the grant date.
During fiscal 1995, a total of 40 restricted shares of the Company's common
stock were granted to certain employees. The market value of the shares awarded
on the date of grant ($1,935) was recorded as unearned compensation and shown as
a separate component of stockholders' equity. In fiscal 1996, 20 of these
shares were canceled. Unearned compensation was amortized to expense over
the five year vesting period ending in fiscal 2000 and amounted to $194, $193
and $129 in fiscal 1998, 1999 and 2000, respectively.
F-20
EXIDE CORPORATION AND SUBSIDIARIES
NOTED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In October 1993, the Board of Directors adopted the Long-Term Incentive Plan
("Incentive Stock Plan"), which may grant awards to key employees in the form of
incentive stock options, nonqualified stock options, restricted shares of common
stock or units valued on the basis of long-term performance of the Company
("Performance Units"). Options may be accompanied by stock appreciation rights
("Rights"). All of the awards to date have been nonqualified stock options,
none of which were accompanied by Rights. All awards vest ratably over periods
ranging from four to five years, with the maximum exercise period of the awards
ranging from five years and three months to ten years. The maximum aggregate
number of shares of common stock with respect to options, restricted shares,
Performance Units or Rights granted without accompanying options that may be
granted pursuant to the Incentive Stock Plan is 700 shares.
On April 29, 1993, the Board of Directors adopted an Incentive Compensation
Plan, under which certain members of the Company's management were granted a
total of approximately 812 shares of the Company's common stock. These shares
are fully vested and have certain restrictions related to sale, transferability
and employment. Participants must pay $2.25 per share, the estimated fair value
at the grant date, prior to the transferring of such shares.
Stock grant and option transactions are summarized as follows:
Weighted
Incentive Average Exercise
Compensation Stock Price of
Plan Options Stock Options
------------- -------- ----------------
Shares under option:
Outstanding at March 31, 1997 754 679 $27.39
Granted -- 2,000 $16.63
Exercised (9) --
Forfeited (34) (207) $26.68
---- -----
Outstanding at March 31, 1998 711 2,472 $18.69
---- -----
Granted -- 1,840 $10.13
Exercised (337) --
Forfeited -- (848) $19.64
---- -----
Outstanding at March 31, 1999 374 3,464 $13.91
---- -----
Granted -- 1,987 $11.32
Exercised (23) (1) $16.63
Forfeited -- (416) $14.57
---- -----
Outstanding at March 31, 2000 351 5,034 $12.85
==== =====
Options available for grant at March 31, 2000 -- 548
==== =====
Exercisable at March 31, 1998 -- 439 $19.69
Exercisable at March 31, 1999 -- 664 $18.37
Exercisable at March 31, 2000 -- 1,243 $14.64
The grant-date market value of all outstanding options is equal to their
respective exercise prices. Outstanding stock options have an average remaining
contractual life of 8 years at March 31, 2000 with the exercise prices for these
options ranging from $9.563 to $29.50.
As provided for in SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company utilizes the intrinsic value method of expense recognition under APB
Opinion No. 25. Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation expense for the stock option plans been
determined consistently with the provisions of SFAS No. 123, the Company's net
income (loss) and net income (loss) per share would have been the pro forma
amounts indicated below:
F-21
EXIDE CORPORATION AND SUBSIDIARIES
NOTED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fiscal Year Ended
March 31,
----------------------------------
1998 1999 2000
(Restated) (Restated)
---------- ---------- ----------
Net income (loss):
As reported $ (8,978) $(126,994) $(136,042)
Pro forma $(18,758) $(127,580) $(142,798)
Basic net income (loss) per share:
As reported $ (0.44) $ (5.98) $ (6.40)
Pro forma $ (0.91) $ (6.01) $ (6.72)
Diluted net income (loss) per share:
As reported $ (0.42) $ (5.98) $ (6.40)
Pro forma $ (0.87) $ (6.01) $ (6.72)
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following range of assumptions used
for the option grants which occurred during fiscal 1998, 1999 and 2000:
Fiscal Year Ended
March 31,
-----------------------------------------
1998 1999 2000
-------- ------------- -----------
Volatility 31.0% 32.0% - 32.5% 34.8%
Risk-free interest rate 6.8% 4.8% - 4.9% 6.0% - 6.8%
Expected life in years 10.0 6.0 - 8.0 10.0
Dividend yield 0.4% 0.6% 0.9%
9. INCOME TAXES:
The provision for income taxes includes federal, state and foreign taxes
currently payable and those deferred because of temporary differences between
the financial statement and tax bases of assets and liabilities. The components
of the provision for income taxes for the fiscal years ended March 31, 1998,
1999 and 2000, are as follows:
Restated
---------------------
1998 1999 2000
-------- -------- --------
Current:
Federal $ -- $ -- $ --
State (1,040) 200 130
Foreign 8,000 13,695 (5,560)
-------- -------- --------
6,960 13,895 (5,430)
-------- -------- --------
Deferred:
Federal 1,869 -- (11,031)
State -- -- (1,261)
Foreign 5,181 9,106 28,491
-------- -------- --------
7,050 9,106 16,199
-------- -------- --------
Total Provision $ 14,010 $ 23,001 $ 10,769
======== ======== ========
Major differences between the federal statutory rate and the effective tax rate
F-22
EXIDE CORPORATION AND SUBSIDIARIES
NOTED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
are as follows:
Restated
-------------------
1998 1999 2000
------ ------ ------
Federal statutory rate 35.0% (35.0)% (35.0)%
State taxes, net of federal benefit (2.7) 0.1 0.1
Nondeductible goodwill 19.2 6.2 4.5
Difference in rates on foreign subsidiaries (0.4) 0.2 0.3
Tax losses not benefited -- 52.7 40.6
Purchased research and development -- -- 4.0
Other, net (9.2) (2.4) (5.8)
------ ------ ------
Effective tax rate 41.9% 21.8% 8.7%
====== ====== ======
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of March 31, 1999 and 2000:
1999 2000
--------- ---------
Deferred tax assets:
Operating loss and tax credit carryforwards $ 195,015 $ 213,534
Compensation reserves 31,449 19,497
Environmental reserves 11,165 13,354
Bad debt 9,252 13,376
Self-insurance 14,841 5,604
Warranty 7,675 12,034
Asset and other realization reserves 16,341 18,086
Other 21,272 45,321
Valuation allowance (206,780) (266,304)
--------- ---------
100,230 74,502
--------- ---------
Deferred tax liabilities:
Depreciation/property basis (11,061) (11,171)
Inventory basis difference (6,517) (5,610)
Other (8,330) --
--------- ---------
(25,908) (16,781)
--------- ---------
Net deferred tax assets $ 74,322 $ 57,721
========= =========
As of March 31, 2000, the Company has net operating loss carryforwards for U.S.
income tax purposes of approximately $206,800 which expire in years 2005 through
2020. For financial reporting purposes, a valuation allowance has been
recognized to reduce the deferred tax assets for which it is more likely than
not that the benefits will not be realized.
As of March 31, 2000, certain of the Company's foreign subsidiaries have net
operating loss carryforwards for income tax purposes of approximately $305,200,
of which approximately $59,900 expire in years 2001 through 2010. For financial
reporting purposes, a valuation allowance has been recognized to reduce the
deferred tax assets related to certain net operating loss carryforwards and
certain nondeductible reserves for which it is more likely than not that the
related tax benefits will not be realized.
F-23
EXIDE CORPORATION AND SUBSIDIARIES
NOTED TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's net deferred tax assets include certain amounts of net operating
loss carryforwards, principally in the U.S., which management believes are
realizable through a combination of anticipated tax planning strategies and
forecasted future taxable income. The Company has implemented certain tax
planning strategies in prior years to utilize a portion of such deferred tax
assets. Failure to achieve forecasted future taxable income might affect the
ultimate realization of any remaining recorded net deferred tax assets.
As of March 31, 2000, the Company has not provided for withholding or U.S.
Federal income taxes on undistributed earnings of foreign subsidiaries since
such earnings are expected to be reinvested indefinitely or substantially offset
by available foreign tax credits.
10. RECEIVABLES SALE AGREEMENTS:
In July 1997, certain of the Company's European subsidiaries sold selected
receivables to a wholly owned bankruptcy remote subsidiary of the Company, Exide
Europe Funding Ltd., which in turn established a multi-currency receivable sale
facility (collectively, the "European Agreement") with a financial institution,
whereby the financial institution has committed to purchase, with limited
recourse, all right, title and interest in these receivables up to a maximum net
investment of $175,000. The net proceeds from the initial sale of accounts
receivable under the European Agreement were used to repay borrowings under the
European Facilities Agreement. As of March 31, 1999 and 2000, net uncollected
receivables sold under the European Agreement were $156,611 and $147,628,
respectively. Losses and expenses related to receivables sold under this
agreement for fiscal 1998, fiscal 1999 and fiscal 2000 were $7,550, $8,450 and
$9,381, respectively, and are included in other (income) expense, net in the
consolidated statements of operations.
The Company entered into a Receivables Sale Agreement (the "U.S. Agreement")
with certain banks (the "Purchasers"), and under this agreement, the
Purchasers have committed to purchase, with limited recourse, all right, title
and interest in selected accounts receivable of the U.S. company, up to a
maximum net investment of $75,000. In connection with the U.S. Agreement,
during fiscal 1997 the Company established a wholly owned, bankruptcy remote
subsidiary, Exide U.S. Funding Corporation, to purchase accounts receivable at a
discount from the Company on a continuous basis, subject to certain limitations
as described in the U.S. Agreement. Exide U.S. Funding Corporation
simultaneously sells the accounts receivable at the same discount to the
Purchasers. As of March 31, 1999 and 2000, net uncollected receivables sold
under the U.S. Agreement were $75,000 and $60,500, respectively. Losses and
expenses related to receivables sold under this agreement for fiscal years 1998,
1999 and 2000 were $4,084, $4,065, and $4,577, respectively, and are included in
other (income) expense, net in the consolidated statements of operations.
The above transactions qualify as sales under the provisions of SFAS No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities."
11. RELATED-PARTY TRANSACTIONS:
The Company purchased $5,979, $5,225 and $4,394 of product from Yuasa, Inc.,
("Yuasa"), a 13.5%-owned affiliate, during fiscal 1998, 1999 and 2000,
respectively. The Company also sold $2,601, $2,129 and $2,567 of product to
Yuasa during fiscal 1998, 1999 and 2000, respectively. In addition, the Company
provides certain administrative services and pays certain expenses for
F-24
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Yuasa. Yuasa reimbursed the Company for these costs totaling $1,673, $1,705 and
$1,701 during fiscal 1998, 1999 and 2000, respectively. As of March 31, 1999 and
2000, the Company had a net receivable of $623 and $716, respectively, from
Yuasa.
12. ENVIRONMENTAL MATTERS:
The Company, particularly as a result of its manufacturing and secondary lead
smelting operations, is subject to numerous environmental laws and regulations
and is exposed to liabilities and compliance costs arising from its past and
current handling, releasing, storing and disposing of hazardous substances and
hazardous wastes. The Company's operations are also subject to occupational
safety and health laws and regulations, particularly relating to the monitoring
of employee health. The Company devotes significant resources to attaining and
maintaining compliance with environmental and occupational health and safety
laws and regulations and does not currently believe that environmental, health
or safety compliance issues will have a material adverse effect on the Company's
business or financial condition. The Company believes that it is in substantial
compliance with all material environmental, health and safety requirements.
North America
The Company has been advised by the U.S. Environmental Protection Agency
("EPA") or state agencies that it is a "Potentially Responsible Party" ("PRP")
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") or similar state laws at 75 federally defined Superfund or state
equivalent sites. At 44 of these sites, the Company has either paid or is in
the process of paying its share of liability. In most instances, the Company's
obligations are not expected to be significant because its portion of any
potential liability appears to be minor to insignificant in relation to the
total liability of all PRPs that have been identified and are viable. The
Company's share of the anticipated remediation costs associated with all of
the Superfund sites where it has been named a PRP, based on the Company's
estimated volumetric contribution to each site, is included in the
environmental remediation reserves discussed below.
Because the Company's liability under such statutes may be imposed on a joint
and several basis, the Company's liability may not necessarily be based on
volumetric allocations and could be greater than the Company's estimates.
Management believes, however, that its PRP status at these Superfund sites
will not have a material adverse effect on the Company's business or financial
condition because, based on the Company's experience, it is reasonable to
expect that the liability will be roughly proportionate to its volumetric
contribution of waste to the sites.
The Company currently has greater than 50% liability at only one Superfund
site, discussed below. Other than this site, the Company's allocation exceeds
5% at only six sites at which the Company's share of liability has not been
paid as of March 31, 2000. The current allocation at these five sites averages
approximately 18%.
The Company is the primary PRP at the Brown's Battery Breaking Superfund site
located in Pennsylvania. The site was operated by third-party owners in the
1960's and early 1970's. In 1992, the EPA issued a Record of Decision
identifying several alternate remedies. During fiscal 1997, the Company signed
a consent decree and paid $3,000 of the EPA's past costs and is not
responsible for any other past costs. The Company has established its
F-25
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
reserves based upon its estimates of the remediation cost.
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 reserved 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.
During fiscal 1998, the Company reached an agreement with former owners of the
Company whereby the Company agreed to release and indemnify the former owners
from environmental matters relative to certain sites. In exchange for this
release, the Company received $8,167 through fiscal 2000. The remaining $1,833
is to be received in fiscal 2001.
Europe
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 past and current activities at
various European entities. 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, based upon reports from its
foreign subsidiaries and/or independent qualified opinions, that it is in
substantial compliance with all material environmental, health and safety
requirements in each country.
The Company expects that its European operations will continue to incur
capital and operating expenses in order to maintain compliance with evolving
environmental, health and safety requirements or due to more stringent
enforcement of existing requirements in each country.
While the ultimate outcome of the foregoing North American and European
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
financial condition or results of operations, although quarterly operating
results may be materially affected.
The Company's policy is to accrue for environmental costs when it is probable
that a liability has been incurred and the amount of such liability is
reasonably estimable. While the Company believes its current estimates of future
remediation costs are reasonable, future findings or changes in estimates could
have a material effect on the recorded reserves.
The Company has established reserves for on-site and off-site environmental
remediation costs and believes that such reserves are adequate. As of March 31,
2000, the amount of such reserves on the Company's consolidated balance sheet
was $34,240. Of this amount, $23,375 was included in other noncurrent
liabilities. Because environmental liabilities are not accrued until a liability
is determined to be probable and reasonably estimable, not all potential future
environmental liabilities have been included in the Company's environmental
reserves and, therefore, additional earnings charges are possible.
F-26
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of financial instruments has been determined by the
Company using available market information and appropriate methodologies;
however, considerable judgment is required in interpreting market data to
develop these estimates. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. Certain of these financial instruments are with major
financial institutions and expose the Company to market and credit risks and may
at times be concentrated with certain counterparties or groups of
counterparties. The creditworthiness of counterparties is continually reviewed,
and full performance is anticipated.
The methods and assumptions used to estimate the fair value of each class of
financial instruments are set forth below:
. Cash and cash equivalents, accounts receivable and accounts payable -- The
carrying amounts of these items are a reasonable estimate of their fair
values.
. Investments in affiliates -- The estimated fair value of these investments
could not be obtained without incurring excessive costs as they have no
quoted market price.
. Long-term receivables -- The carrying amounts of these items are a
reasonable estimate of their fair value.
. Short-term borrowings -- Borrowings under the line of credit arrangements
have variable rates that reflect currently available terms and conditions
for similar debt. The carrying amount of this debt is a reasonable estimate
of its fair value.
. Long-term debt -- Borrowings under the Senior Secured Global Credit
Facilities have variable rates that reflect currently available terms and
conditions for similar debt. The carrying amount of this debt is a
reasonable estimate of its fair value.
The 9.125% and 10% Senior Notes and Convertible Senior Subordinated Debentures
are traded occasionally in public markets. The carrying values and estimated
fair values of these obligations are as follows at March 31, 1999 and 2000:
1999 2000
------------------ --------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- --------- --------- ----------
10.00% Senior Notes $300,000 $297,000 $300,000 $285,000
9.125% Senior Notes (Deutsche
mark denominated) 96,373 95,650 85,515 83,829
2.90% Convertible Senior
Subordinated Notes 316,377 218,900 326,369 218,845
. Interest rate protection agreements and bond swap agreements have no carrying
value; however, if the Company were to terminate these agreements at March
31, 1999 and 2000, the Company would have collected $3,851 and $11,748,
respectively, based on quotes from financial institutions.
F-27
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
. Lead forward and futures contracts -- The estimated fair value of the
outstanding instrument at March 31, 1999 is less than the contract value by
$1,584 based on quotes from brokers. At March 31, 2000, the Company had no
outstanding contracts hedging lead purchases.
. Foreign currency contracts -- The fair value is based on quotes obtained from
financial institutions. As of March 31, 1999, the fair value of foreign
currency contracts approximated contract value. As of March 31, 2000, the
estimated fair value of the outstanding contracts was ($1,610).
14. COMMITMENTS AND CONTINGENCIES:
Exide is now or recently has been involved in several lawsuits pending in state
and federal courts in Alabama, California, Mississippi, Pennsylvania, South
Carolina, Tennessee and Texas, some of which were brought as purported class
actions. These actions allege that Exide sold old or used batteries as new
batteries, sold defective and mislabeled batteries and improperly credited
customer accounts. The plaintiffs in these cases are seeking compensatory and
punitive damages and injunctive relief.
In May 2000, Exide and counsel for the plaintiffs agreed to a settlement,
subject to several material contingencies, applicable notice, and court
approval, in the following battery quality cases: Martin v. Exide, filed July
12, 1998 in the United States District Court for the District of South Carolina
(the "Martin case"); Lush et al. v. Exide, filed November 18, 1999 in the
Circuit Court for Claiborne County, Mississippi; Gamma Group, et al. v. Exide,
filed January 29, 1999 in the United States District Court for the Eastern
District of Pennsylvania and Exide v. East Alabama Auto Parts Anniston, Inc.,
filed April 24, 1996 in the Circuit Court of Calhoun County Alabama (the "East
Alabama case"). In May 2000, Exide also reached an agreement in principle on a
settlement of a claim in intervention brought by the Attorney General for the
State of Alabama (the Alabama Attorney General had intervened in the East
Alabama case in November 1999). Exide has reserved approximately $ 13,400 for
the settlement of the private claims and the Alabama Attorney General claim.
Mathis Battery Company, et al. v. Exide, filed September 4, 1998 in the Chancery
Court for Weakley County, Tennessee (the "Mathis case") and Mills v. Exide,
filed December 6, 1999 in the United States District Court for the Central
District of California (the "Mills case") are battery quality claims that are
still pending against Exide. The Mathis case is a putative class action filed
by lawyers who represent the plaintiff in the Martin case and alleges
substantially the same claims alleged in the Martin case. The court has not
certified the Mathis case and the case has been stayed. Exide expects that if
the settlement of the Martin case is approved, the Mathis case will be
dismissed.
The Mills case arises under an unusual provision of California law, which was
recently limited by a decision of the California Supreme Court, and Exide
intends to defend that matter vigorously.
Additionally, the settlements do not resolve two putative class actions, both
styled Dynamic Enterprises, Inc. et al. v. Exide Corp., which were filed in 1998
in the United States District Court for the Eastern District of Texas and are
still pending. In the first case, the plaintiffs seek to represent battery
resellers alleging used-as-new claims. Exide has opposed a motion for class
certification in that case and awaits a ruling. The second case, also a
putative class action, involves allegations that Exide has improperly converted
F-28
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
or withheld customer credit balances. Exide recently began a nationwide
campaign to issue checks for outstanding credit balances and has moved for
summary judgment in that case. Exide has asked the court to rule on the motion
for summary judgment prior to hearing argument on a pending class certification
motion. Exide expects a ruling in the second case after July 13, 2000.
In December 1999, the Mississippi Attorney General issued a subpoena to Exide.
The Attorney General is investigating the sale of alleged defective and used
batteries, alleged mislabeling of batteries, alleged improper crediting of
customer accounts and alleged provision of misleading investor information.
Exide fully and completely responded to the subpoena in January 2000, and there
is no action by the Mississippi Attorney General against Exide to date.
As previously reported, Exide voluntarily brought certain issues to the
attention of the Securities and Exchange Commission (the "SEC"), and has
cooperated with its investigation.
On September 17, 1999, Exide sued Sears, Roebuck and Co. in the Circuit Court of
Cook County, Illinois seeking damages for breach of contract in an amount not
less than $15,000. On November 12, 1999, Sears filed a counterclaim
against Exide and a claim against a former Sears purchasing employee alleging
inducement to breach his fiduciary duty to Sears, common law fraud, aiding and
abetting and conspiracy. On December 17, 1999, Exide responded to Sears'
counterclaim and filed a third-party complaint against former Chief Executive
Officer Arthur Hawkins, former Chief Financial Officer Alan Gauthier, and former
Executive Vice President Douglas Pearson. The third-party defendants have moved
to dismiss Exide's third-party complaint, asserting that the claims can be heard
in other pending litigation involving the parties (discussed below). That motion
is pending before the court.
Exide is currently involved in litigation with certain former members of senior
management relating to their separation agreements. One of these cases, Arthur
M. Hawkins v. Exide, filed July 6, 1999 in the U.S. District Court for the
Eastern District of Michigan, involves a claim by Mr. Hawkins to enforce his
separation agreement with Exide. Exide has filed a counterclaim asserting
fraud, breach of fiduciary duty, misappropriation of corporate assets and civil
conspiracy. Messrs. Gauthier and Pearson have filed actions in the U.S.
District Court for the Eastern District of Pennsylvania alleging breach of
contract; these actions are respectively titled Gauthier v. Exide and Pearson v.
Exide, and were respectively filed on August 17, 1999 and July 9, 1999. Exide
has filed counterclaims against Messrs. Gauthier and Pearson as well, asserting
fraud, breach of fiduciary duty, misappropriation of corporate assets and civil
conspiracy. Pearson v. Exide and Gauthier v. Exide were consolidated for pre-
trial proceedings; discovery in these cases is ongoing and they are currently
scheduled to be called in the August 18, 2000 trial pool.
Exide is now involved in several lawsuits pending in state and federal courts in
South Carolina and Pennsylvania. These actions allege that Exide and its
predecessors allowed hazardous materials used in the battery manufacturing
process to be released from certain of its facilities, allegedly resulting in
personal injury and/or property damage. The following lawsuits of the above
type were filed on August 25, 1999 in the Circuit Court for Greenville County,
South Carolina and are currently pending: Joshua Lollis v. Exide; Buchanan v.
Exide; Agnew v. Exide; Patrick Miller v. Exide; Kelly v. Exide; Amanda Thompson
v. Exide; Jonathan Talley v. Exide; Smith v. Exide; Lakeisha Talley v. Exide;
Brandon Dodd v. Exide; Prince v. Exide; Andriae Dodd v. Exide; Dominic Thompson
v. Exide; Snoddy v. Exide; Antoine Dodd v. Exide; Roshanda Talley v. Exide;
Fielder v. Exide; Rice v. Exide; Logan Lollis v. Exide and Dallis Miller v.
F-29
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Exide. Finally, the following lawsuits of this type are currently pending in
the Court of Common Pleas for Berks County, Pennsylvania: Grillo v. Exide, filed
on May 24, 1995; Blume v. Exide, filed on March 4, 1996; Esterly v. Exide, filed
on May 30, 1995 and Saylor v. Exide, filed on October 18, 1996. Discovery in
these cases is ongoing.
On June 26, 2000, Johnson Controls, Inc. ("JCI") filed a lawsuit in the
United States District Court for the Northern District of Illinois, Eastern
Division, against Exide and three of its former officers. The suit alleges
commercial bribery relating back to JCI's loss of a contract to Exide in 1994.
Allegations of improper payments to a Sears employee were made public over a
year ago as part of the Florida Attorney General Investigation and subsequently
in several civil cases. JCI has stated that its complaint is based on "public
records". Exide believes that JCI's allegations and conclusions are not
supported by publicly available information and that the lawsuit was threatened
and subsequently filed to pressure Exide into commercial concessions and to
potentially interfere with the GNB acquisition. Exide does not believe that the
suit will have any material adverse effect on its financial condition. Exide
will file a civil counter-claim and is considering referring the matter to the
appropriate authorities for possible criminal prosecution.
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, both individually and in the aggregate, will have a material adverse
effect on the Company's financial condition or results of operations, although
quarterly or annual operating results may be materially affected.
Future minimum lease payments under operating and capital leases that have
initial or remaining noncancelable lease terms in excess of one year at March
31, 2000, are:
Fiscal Year Operating Capital
----------- --------- ---------
2001 $ 48,128 $ 2,853
2002 41,618 2,704
2003 33,925 2,487
2004 28,164 2,542
2005 23,141 2,559
Thereafter 28,043 16,343
--------- ---------
Total minimum payments $ 203,019 $ 29,488
=========
Less- Interest on capital leases (4,359)
---------
Total principal payable on capital $ 25,129
leases (included in Note 5) =========
In fiscal 1998 and 1999, the Company entered into sale/leaseback
transactions,where the Company sold certain machinery and equipment with a book
value of $16,400 and $31,600 respectively, for $49,500 and $47,600,
respectively, and leased the same machinery and equipment back over periods
ranging from eight to nine years. The gains of $33,100, and $16,000,
respectively have been deferred
F-30
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and are being recognized ratably over the life of the leases.
Rent expense amounted to $48,973, $57,264 and $54,680 for fiscal years 1998,
1999 and 2000, respectively.
The Company has an 81.5% investment in a European joint venture. The other party
to the transaction has the right to require the Company to purchase its 18.5%
interest in the joint venture for a defined multiple of earnings of the joint
venture.
The Company has various purchase commitments for materials, supplies and
other items incident to the ordinary course of business. See Note 3 for
discussion of the battery separator agreement entered into as part of the
Company's sale of these operations. In the aggregate, remaining commitments are
at prices that approximate current market.
F-31
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of the Company's unaudited quarterly consolidated
results of operations for fiscal years 1999 and 2000:
Fiscal Quarter Ended (Restated)
------------------------------------------------------------------
June 28, September 27, December 27, March 31,
1998 1998 1998 1999
----------- ------------- ------------- ---------------
Net Sales $ 544,532 $ 601,136 $ 678,530 $ 550,080
Gross profit 140,794 161,510 164,646 92,306
Income (loss) before extraordinary loss (5,413) 2,759 (45,223) (78,816)
Net income (loss) (5,714) 2,759 (45,223) (78,816)
Basic earnings per share:
Income (loss) before extraordinary loss (0.26) 0.13 (2.13) (3.70)
Extraordinary loss (0.01) -- -- --
--------- ------------ ------------ -------------
Net income (loss) $ (0.27) $ 0.13 $ (2.13) $ (3.70)
========= ============ ============ =============
Diluted earnings per share:
Income (loss) before extraordinary loss $ (0.26) $ 0.13 $ (2.13) $ (3.70)
Extraordinary loss (0.01) -- -- --
--------- ------------ ------------ -------------
Net income (loss) $ (0.27) $ 0.13 $ (2.13) $ (3.70)
========= ============ ============ =============
Fiscal Quarter Ended
------------------------------------------------------------------
July 4, October 3, January 2, March 31,
1999 1999 2000 2000
----------- ------------- ------------- ---------------
Net Sales $ 518,715 $ 556,434 $ 618,528 $ 500,770
Gross profit 129,169 149,764 172,265 81,294
Net income (loss) (9,302) 4,226 (3,643) (127,323)
Basic earnings per share $ (0.44) $ 0.20 $ (0.17) $ (5.99)
Diluted earnings per share $ (0.44) $ 0.20 $ (0.17) $ (5.99)
16. BUSINESS SEGMENTS:
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which established new standards
regarding the disclosure of operating segments.
The Company operated on a geographic basis through March 31, 2000 with two
geographic-based reportable segments, namely, the manufacture, distribution and
sale of lead acid batteries in North America and in Europe. Sales of lead acid
batteries are made both to the aftermarket and original equipment manufacturers.
Geographic operating segments within Europe have been aggregated for disclosure
purposes in accordance with SFAS No. 131.
Revenues are attributed to geographic areas based on the location of the sale to
the third party. Intersegment sales are not material.
Summarized financial information concerning the Company's reportable segments
for the fiscal years ended March 31 is shown in the following tables:
F-32
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
North
America Intercompany Consolidated
1998 (Restated) Europe Other(a) Eliminations (Restated)
- --------------------------------- ------------ ------------- ------------ -------------- ---------------
Net sales to third parties $ 814,163 $ 1,438,299 $ 30,248 $ (9,584) $ 2,273,126
Interest expense, net 63,891 41,590 6,820 -- 112,301
Depreciation & amortization 42,382 58,429 2,773 -- 103,584
Income tax provision/(benefit) (15,376) 29,221 165 -- 14,010
Extraordinary loss (21,995) (6,518) -- -- (28,513)
Net income (loss) (35,259) 38,588 (12,307) -- (8,978)
EBITDA (b) 83,436 179,812 (2,323) -- 260,925
Capital expenditures 30,495 53,868 2,952 -- 87,315
Total assets $ 634,253 $ 1,619,078 $ 78,218 $ -- $ 2,331,549
North
America Intercompany Consolidated
1999 (Restated) Europe Other(a) Eliminations (Restated)
- --------------------------------- ------------ ------------- ------------ -------------- ---------------
Net sales to third parties $ 838,851 $ 1,513,875 $ 34,211 $ (12,659) $ 2,374,278
Interest expense, net 47,280 56,905 7,494 -- 111,679
Depreciation & amortization 44,378 75,847 2,928 -- 123,153
Income tax provision 200 22,307 494 -- 23,001
Extraordinary loss (301) -- -- -- (301)
Net income (loss) (89,011) 18,789 (56,772) -- (126,994)
EBITDA (b) 9,996 177,506 (45,849) -- 141,653
Capital expenditures 12,213 63,715 283 -- 76,211
Total assets $ 517,023 $ 1,647,748 $ 31,045 $ -- $ 2,195,816
North Intercompany
2000 America Europe Other(a) Eliminations Consolidated
- --------------------------------- ------------ ------------- ------------ -------------- ---------------
Net sales to third parties $ 752,563 $ 1,416,241 $ 36,584 $ (10,941) $ 2,194,447
Interest expense, net 46,410 49,723 7,855 -- 103,988
Depreciation & amortization 23,559 71,442 705 95,706
Income tax provision/(benefit) (12,275) 22,931 113 -- 10,769
Net income (loss) (85,597) (17,993) (32,452) -- (136,042)
EBITDA (b) (51,597) 165,895 (24,194) 90,104
Capital expenditures 10,050 53,903 -- -- 63,953
Total assets $ 463,847 $ 1,429,815 $ 7,799 $ -- $ 1,901,461
(a) Other includes primarily the operations of the Company's starter and
alternator, charger and accessories businesses.
(b) Represents earnings before interest, taxes, depreciation of property, plant
and equipment, goodwill and other amortizations and losses on sales of
receivables. EBITDA should not be considered as an alternative to net income
as an indicator of the Company's operating performance or to cash flows as a
measure of liquidity
F-33
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenues from External Customers
---------------------------------------
1998 1999 2000
---------- ---------- ----------
United States $ 807,472 $ 837,111 $ 729,153
France 261,971 261,762 241,136
Germany 406,693 452,770 417,167
UK 236,140 259,106 239,784
Italy 166,489 173,210 169,627
Spain 187,927 193,974 191,390
Other 206,434 196,345 206,190
---------- ---------- ----------
Total $2,273,126 $2,374,278 $2,194,447
========== ========== ==========
Long-Lived Assets
---------------------------------------
1998 1999 2000
---------- ---------- ----------
United States $ 173,344 $ 131,462 $ 110,740
France 47,375 46,309 39,646
Germany 111,065 87,638 74,226
UK 55,746 56,444 54,936
Italy 26,791 45,096 37,147
Spain 61,282 71,776 75,182
Other 59,510 104,977 51,467
---------- ---------- ----------
Total $ 535,113 $ 543,702 $ 443,344
========== ========== ==========
F-34
SCHEDULE II
EXIDE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in thousands)
Balance at Additions Balance
Beginning Charged to at End of
of Period Expense Charge-offs Other (1) Period
------------- ------------- ------------- ------------ ------------
Year ended March 31, 1998:
Allowance for doubtful accounts $ 38,486 $ 7,060 $ (5,484) $ (2,574) $ 37,488
============= ============= ============= ============ ============
Restructuring charges $ 90,500 $ -- $ (32,900) $ 800 $ 58,400
============= ============= ============= ============ ============
Year ended March 31, 1999:
Allowance for doubtful accounts $ 37,488 $ 23,243 $ (6,270) $ (350) $ 54,111
============= ============= ============= ============ ============
Restructuring charges $ 58,400 $ -- $ (40,300) $ -- $ 18,100
============= ============= ============= ============ ============
Year ended March 31, 2000:
Allowance for doubtful accounts $ 54,111 $ 17,146 $ (8,392) $ 1,312 $ 64,177
============= ============= ============= ============ ============
Restructuring charges $ 18,100 $ 39,336 $ (23,582) $ (3,377) $ 30,477
============= ============= ============= ============ ============
(1) Primarily the impact of currency changes as well as the acquisitions and
divestitures of certain businesses.
F-35