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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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, 2001
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
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EXIDE CORPORATION
(doing business as Exide Technologies)
(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.)
210 Carnegie Center, Suite 500
Princeton, New Jersey 08540
Telephone: (609) 919-4946
(Address, including zip code, and telephone number, including
area code, of Registrant's Principal Executive Offices)
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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.
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_] .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [X] .
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 27, 2001 was approximately $265,962,856. There were
25,450,991 outstanding shares of the Registrant's common stock as of June 27,
2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Annual Meeting of Stockholders
to be held August 10, 2001, are incorporated into Part III of this report.
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EXIDE CORPORATION
TABLE OF CONTENTS
Page
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PART I
ITEM 1 BUSINESS....................................................... 2
ITEM 2 PROPERTIES..................................................... 16
ITEM 3 LEGAL PROCEEDINGS.............................................. 17
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 19
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................... 20
ITEM 6 SELECTED FINANCIAL DATA........................................ 21
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................... 22
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.... 33
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 34
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................... 34
PART III
ITEM 10 DIRECTORS OF THE REGISTRANT.................................... 35
ITEM 11 EXECUTIVE COMPENSATION......................................... 35
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................... 35
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 35
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-
K.............................................................. 36
SIGNATURES.............................................................. 38
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE................. F-1
1
EXIDE CORPORATION
PART I
ITEM 1. BUSINESS
(1) General Discussion of Business
Exide Corporation, doing business as Exide Technologies, ("Exide" or "the
Company") 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 210 Carnegie Center, Suite 500, Princeton, NJ 08540. We
are changing our name to Exide Technologies before August 10, 2001, the date
of our annual shareholders' meeting.
We are the largest producer of lead acid batteries in the world, with
fiscal 2001 net sales of approximately $2.4 billion. Through acquisitions and
internal growth, we hope to become the world leader in electrical energy
storage solutions. We manufacture industrial and automotive batteries in North
America, Europe, the Middle East, India, Australia and New Zealand. Our
industrial batteries consist of motive power batteries, such as those for use
in forklift trucks and other electric vehicles, and network power batteries
used for back-up power applications, such as those used for telecommunications
systems. We market our automotive batteries to a broad range of retailers and
distributors of replacement batteries and automotive original equipment
manufacturers ("OEM").
As a result of acquisitions, including most recently GNB Technologies,
Inc., discussed below, and prior acquisitions in Europe, we have become the
largest battery manufacturer in the world. Our European, North American and
the Pacific Rim operations represented 52%, 45% and 3%, respectively, of our
fiscal 2001 net sales.
Robert A. Lutz, Chairman and Chief Executive Officer, leads our Office of
the Chairman, which includes Craig H. Muhlhauser, our President and Chief
Operating Officer, and Kevin R. Morano, our Executive Vice President and Chief
Financial Officer.
Acquisition of GNB
On September 29, 2000, we acquired GNB Technologies, Inc. and related
entities and assets ("GNB"), a leading U.S. and Pacific Rim manufacturer of
both industrial and automotive batteries, from Pacific Dunlop Limited. GNB has
operations in the U.S., Australia, New Zealand, Canada, Europe, Japan, South
Asia, China, India and the Middle East. GNB produces industrial batteries in
North America, including those used in both motive and network power
applications under various brands such as Absolyte(R), Marathon(R),
Sprinter(R), Champion(R) and Pacific Chloride(R). GNB also produces automotive
batteries under the Champion(R), Stowaway(R) and National(R) brands, among
others including many private label brands, and is a major supplier to
automotive manufacturers in North America and the Pacific Rim.
(2) Financial Information about Segments
For the year ended March 31, 2001 ("fiscal 2001"), we were primarily
engaged in two industry segments, namely, the manufacture, distribution and
sale of lead acid batteries within the Industrial and Transportation business
segments. See Note 16 to the Company's Consolidated Financial Statements
appearing elsewhere herein.
(3) Narrative Description of Business
The Company is the largest producer of lead acid batteries in the world,
based on management's estimate of current market share. The Company's fiscal
2001 net sales were approximately $2.4 billion. Our strategic focus is based
on customer needs on a global basis and we manage the business accordingly. We
have two primary
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segments: the Industrial segment and the Transportation segment. As described
below, our key markets in the Industrial segment are motive power and network
power. Our key markets in the Transportation segment are automotive
aftermarket and automotive original equipment.
Industrial Segment
Sales of industrial batteries represented approximately 37% of our net
sales for fiscal 2001. Industrial batteries include motive power batteries and
network power (standby) batteries. We believe we have the leading position in
both the motive power and network power segments of the industrial battery
market in the world, based on our estimate of current market share.
Technical expertise and assistance and customer service are very important
in the industrial battery market. We have technical service agreements with a
number of our customers. We work closely with our customers as they develop
new products, designing batteries to meet their individual needs. While we
built our industrial battery business primarily by acquiring existing
manufacturers with established brand names, we plan to continue to market our
products under consolidated global brands based on our established reputation
for quality and expertise in particular technologies.
Industrial: Motive Power Market
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. We also manufacture and market a range of 6 and 12 volt monobloc
batteries used on smaller forklifts, access equipment and electrically powered
wheelchairs. Apart from specializing in conventional vented lead acid
technology utilizing leading edge tubular positive-plate or the proven pasted
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. In addition, we
provide maintenance-free sealed batteries incorporating absorbed glass mat
(AGM) technology under the Champion(R) brand name.
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 very narrow aisle (VNA) 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 non-military
submersible vehicles.
Complementary to our motive power battery portfolio is an extensive range
of battery chargers, watering and maintenance equipment and battery transfer
equipment. Combined with our technological and service expertise, we are well
positioned, globally, to offer complete solutions for motive power markets.
The motive power battery market in Europe 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) and BT Rolatruc (Sweden). 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. We sell our motive power
batteries, chargers, accessories and after-sales service
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primarily through our own sales organization in each country in Europe 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 motive
power 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 logistics
service providers in Europe. The increasing domination of this market by
original equipment manufacturers of these trucks, 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 truck
manufacturers have been able to standardize prices at a lower level.
In North America, the motive power business is channeled primarily through
independent lift truck dealers or sold directly to large national accounts.
Our customers include Nacco, Crown, Wal-Mart, Kroger and Ford Motor Company.
The North American product range includes the traditional flat plate
flooded batteries, recently added tubular plate flooded batteries using
technology from our European motive power business, Champion sealed
maintenance-free batteries and chargers. The Champion product is sold at a
significant premium in the market and has a dominant position compared to
competitive sealed products.
Motive power products are sold in North America through a sales force
consisting of a combination of Company-owned sales and service shops and
independent manufacturers' representatives who provide local service on their
own behalf.
Industrial: Network Power Market
Network power (also known as standby or 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, process control, air traffic control, elevators, security/alarm
systems, electrical power plant systems and military equipment.
One of the largest standby segments is telecommunications. Consumers of
telecommunications batteries consist of manufacturers of switches and other
equipment and the system operators. The growth in battery demand for
telecommunications has been especially fueled by the growth in internet
broadband connections and deployment in every country of multiple cellular and
wireless mobile communication systems where each repeater system and base
transceiver 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 telecommunications industry has been
experiencing a slowdown in activity in recent months.
The next largest portion of the standby market is uninterruptable power
supplies (UPS) used in computer installations, such as for banks, airlines and
to back up servers for the internet. UPS battery customers consist of system
manufacturers and end users. Growth in this area has paralleled the growth in
computer systems.
The network power battery market has global product applications and, in
many cases, a global customer base. Customers include all channels in
telecommunication networks. Our major network power battery customers include:
. telecommunications companies, such as AT&T, British Telecom, China
Telecom, China Unicom, Deutsche Telekom, France Telecom, GTE, Nippon
Telephone and Telegraph (NTT), Qwest, Singapore Telecom, Telecom Italia,
Telefonica of Spain and Verizon;
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. manufacturers of telecommunications equipment, such as Alcatel, Ascom,
Ericsson, Lucent, Marconi, Motorola and Nokia;
. manufacturers and end users of UPS primarily for mainframe computer
systems, such as Emerson-Liebert, MGE and Siemens;
. 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, we generally ship
network power batteries directly to system suppliers and UPS manufacturers who
include the standby batteries in their equipment and distribute products to
end users. A small portion of batteries are directly shipped to end users to
replace aged batteries.
Since the acquisition of GNB, we adopted a global product line which is
being marketed under the following five brands associated with product type
and technology:
. Absolyte(R): Large 2-volt sealed cells, incorporating AGM technology,
for long duration (e.g. telecom) and short duration applications.
. Marathon(R): Multi-cell AGM monobloc batteries for long duration
applications
. Sprinter(R): Multi-cell AGM monobloc batteries for short duration
applications
. Sonnenschein(R): Multi-cell monoblocs and 2-volt cells, incorporating
Gel technology, primarily for long duration applications
. Classic(TM): Multi-cell monoblocs and 2-volt cells, using traditional
flooded construction, primarily for large installation and long back up
time
There are two main standby battery technologies: valve-regulated lead acid
(VRLA, or sealed) and vented (flooded). There are also two types of VRLA
technologies--GEL and AGM.
These technologies are described as follows:
Technology Description
VRLA: GEL This technology is utilized in about a third of our sealed
batteries using a gel electrolyte. 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 gel electrolyte
technology was invented by Exide's Sonnenschein subsidiary
and presents the added advantages of high reliability and a
proven operating life of up to 18 years. The gel product
ranges offer a wide array of features such as heat
resistance, deep discharge resistance, long shelf life, and
high cyclic performances. Many customers have informed us
they regard the Sonnenschein brand as one of the most
reliable standby batteries in the market.
VRLA: AGM This technology is used in about two-thirds of our sealed
batteries and has electrolyte immobilized in an absorbent
glass mat separator. More economical than gel, this
technology is particularly well adapted to shorter back-up
time and can feature up to a 20-year design life. Many
customers regard our Absolyte(R) brand as one of the most
reliable standby batteries in the market. The AGM product
ranges cover most of the market requirements. A number of new
product developments are underway including UPS batteries
with high volumetric power density.
Flooded (Vented) This technology is used in traditional products offering high
reliability but requiring regular maintenance. The basic
construction involves positive flat or tubular positive
plates. Transparent containers and easily accessible internal
construction are features of these batteries that allow end
users to check the battery's physical condition and predict
potential failures, thus enhancing perceived reliability.
5
The Company is also one of the world's leading suppliers of military
batteries including submarine batteries. In Europe, we produce submarine
batteries utilizing copper-stretched metal technology (CSM). Our customers
include the navies of Denmark, France, Germany, Italy, Norway, Singapore,
Spain, Sweden, Turkey, and many other countries. We are the sole supplier to
the U.S. Navy for submarine batteries which are produced in the U.S.
Our core business has traditionally been lead acid batteries which are used
in many diverse applications--tanks, armored personnel carriers, material
handling equipment and military control systems on bases as well as aboard
ships. We are also an important provider of non lead acid batteries for high-
technology military and space applications. For example, our lithium primary
batteries are on board every space shuttle flight.
Transportation Segment
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 63% of our net sales for fiscal 2001. 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(R), Champion, Stowaway, SubZero(R),
Trailblazer(R), Willard(R), Tudor(R), DETA(R), Centra(R), Fulmen(R) and
Prestolite(R) and many private label brands for customers. We also produce and
market the Exide Select(R), including the Exide Select Orbital(R) battery, and
NASCAR Select(R) lines of batteries.
In North America, we are the second largest manufacturer of transportation
batteries, based on our estimate of current market share. The market is
divided between sales to original equipment manufacturers and aftermarket
sales.
The North American transportation battery market has experienced
significant consolidation resulting in four principal battery manufacturers.
In recent years, aggressive price competition has been the defining
characteristic of this market. The North American battery aftermarket has a
more concentrated customer base than the European battery market.
In Europe, we are the largest manufacturer of transportation batteries,
based on our estimate of current market share. 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 automotive battery market share in Europe.
Transportation: Original Equipment Market
The original equipment manufacturer market consists of the sale 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 competitive market for passenger cars, light trucks and sports
utility vehicles
. Significant consolidation in the automotive industry (e.g.,
Daimler/Chrysler, Renault/Nissan, Ford/Volvo, GM/Saab/Fiat)
. Globalization of original equipment manufacturer procurement activities,
which pressures suppliers to do likewise and results 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
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Exide has been addressing these factors by taking advantage of our:
. strong market position
. global manufacturing and distribution system
. knowledge of lead acid and advanced battery technologies
. new product development
Our original equipment manufacturer customers in North America include
Daimler/Chrysler, for whom we are the primary battery supplier, as well as
Ford Motor Company, Toyota, Mack Trucks, Kenworth, Peterbilt, John Deere
International, Volvo Cars of NA and Case/New Holland.
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 batteries for
marine and other 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
well as many of the largest battery retailers in the United States, including
Wal-Mart, Sam's Club, Les Schwab Tire, Kmart, and CSK Inc. We are also the
largest supplier of authorized replacement batteries for Daimler/Chrysler,
Mopar, Freightliner and John Deere International.
Our North American aftermarket operations include 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 may also deliver batteries to our
national account customers' stores and collect used and spent batteries for
recycling. Our branch system is supplemented by regional retailers, 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 Champion
Trailblazer(R), and Exide Select Orbital(R) product lines, and have
selectively instituted price increases for some of these premium products.
During fiscal 2000, we introduced our "Fresh Check" seal and plain language
dating on every North American manufactured aftermarket battery.
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Our principal North American automotive battery products include the
following:
Product Description
Exide(R) standard, These are our principal product lines and include a
heavy-duty and comprehensive range of maintenance-free lead acid
premium batteries from our basic low-cost battery with average
Champion(R) standard, power and cold cranking amps and a 50-60 month warranty
advantage and to our premium battery with enhanced power and a 72-
premium month warranty. We sell these batteries under the
Champion(R) and Exide(R) brand name as well as various
private labels.
Champion(R) Our Exide NASCAR Select(R) batteries are officially
Trailblazer(R), Exide licensed by NASCAR. Our Champion Trailblazer(R)
NASCAR Select(R), batteries are primarily targeted at Light Trucks and
officially licensed SUV vehicles, the fastest growing automobile segment.
by NASCAR
ExideSelect Orbital(R) We introduced this innovative spiral wound battery in
North America as the Exide Select Orbital(R). 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 twelve 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. This battery is totally sealed, which
eliminates leaks and spills.
Batteries used for other applications include the Stowaway(R) and
Nautilus(R) batteries, which employ advanced technology to satisfy the power
demand from large engines, sophisticated electronics and extensive on-board
accessories common in today's recreational vehicles. For the marine market, we
produce the Exide Select Orbital(R) Marine, which brings all the advantages of
Exide's patented Orbital technology to the marine market. The Exide Select
Orbital(R) Marine maintains nearly a full charge during the off-season, and
can be quickly recharged. This battery is also totally sealed, making it ideal
for closed environments (such as inside a boat hull). The Exide Select
Orbital(R) Marine starting battery will even deliver full power if
accidentally submerged. The Exide Select Orbital(R) Marine battery is
complemented by the Stowaway Powercycler(R), which was the first sealed, AGM
battery introduced in the marine battery market. The Stowaway Powercycler(R)
is a completely sealed, VRLA battery with AGM technology and prismatic plates
that offers features and benefits similar to the Exide Select Orbital(R). We
also produce the Nautilus(R) Gold Dual Purpose and the Stowaway(R) Dual
Purpose, a combination battery, replacing separate starting and deep cycle
batteries in two-battery marine and recreational vehicle systems, and the
Nautilus(R) Mega Cycle and Stowaway(R) Deep Cycle, a high performance, dual
terminal battery.
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 in North America. We believe Exide's worldwide
operations make us very well positioned to supply mass merchandisers, buying
groups and individual resellers.
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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(TM) 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.
Classic(TM) 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 a 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(TM) 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 a 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(TM) 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(TM) This is the equivalent of the Exide Select Orbital(R) described
above. We market this battery under the Maxxima brand name
throughout Europe.
Markets
Industrial Segment
Network Power
We are the leader in the world network power market which has experienced
substantial growth in the last three years primarily driven by the
communications and data segment, where the increasing use of Internet and
wireless services has created a huge demand for bandwidth and other
infrastructure including back-up batteries. We have a strong position in
Europe and North America and a significant position in the Asia-Pacific
region. In Japan, we have been the only non-Japanese supplier to NTT since
1989 and believe we have provided more large sealed batteries to NTT than any
other supplier. Prices have been relatively stable in this market.
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Motive Power
We are the global leader in the motive power market as well. We have strong
positions in Europe, North America and Australia/New Zealand, where we offer a
comprehensive range of battery products as well as motive power battery
chargers. In Europe, we have a substantial service business. Over the last
year, prices have been relatively stable in this market.
Transportation Segment
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 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 automotive 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 and excess capacity.
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 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. 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.
All of our major factories are approved under ISO 9000, QS 9000 or
equivalent quality standards generally acceptable to large customers. Also, we
have obtained ISO 14001 certification at eight of our manufacturing plants,
including TS16949 certification at three of these plants. We have received
grade-A quality certification from Renault and PSA Group, BMW, VW/Audi and
Fiat and Q1 approval from Ford. In addition, several of our plants are AQAP
approved by the military organizations of different countries. We also hold
individual certifications from 100% of our major industrial battery customers,
such as AT&T, Deutsche Telekom, Emerson, Marconi, Motorola, Nokia, NTT,
Telecom Italia, Telefonica, French Railways (SNCF), as well as from large
systems integrators such as Siemens, Ericsson and Alcatel. All of our motive
power batteries meet the applicable standards in the countries where we sell
these products.
Research and Development
We conduct research and development activities 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.
10
Research and development work, 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.
On May 17, 2001 the Company announced a multi-year development and supply
agreement with Maxwell Technologies, Inc. (Maxwell) to develop and market
advanced, integrated stored energy systems for military, commercial and
certain types of passenger vehicles. This alliance is expected to produce
high-tech battery/ultracapacitor systems that incorporate the Company's Exide
Select Orbital(R) batteries and Maxwell's PowerCache(R) Ultracapacitors, a new
energy storage and power-delivery device. Applications are anticipated to
include cold-starting and 42-volt systems for hybrid internal-
combustion/electric vehicles, commercial medium- and heavy-duty trucks and
military ground, surface and sub-surface vehicles.
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.
We operate five research and development facilities in the United States
and Europe. Scientists and engineers at 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 have been 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 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 2003 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 valuable to our
business. 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
11
customers are also important for the maintenance and growth of our business.
An unaffiliated company has rights to the Exide(R) mark in approximately 37
foreign countries and Exide Electronics Group, Inc., an unaffiliated company,
is licensed to use the Exide(R) name on certain devices.
We have been issued numerous patents worldwide and 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
with an additional four patents pending. 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.
Manufacturing, Raw Materials and Suppliers
Lead is the principal raw material in the manufacture of batteries,
representing approximately one-fifth of the cost of goods produced. We can
obtain substantially all of our North American lead requirements through the
operation of our six 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
Industrial Segment
Exide is the largest among the various competitors in the global market.
UK-based Invensys' Hawker battery group is a strong second followed by C&D
Technologies in the U.S. and Yuasa in Japan. In Europe, other competitors
include Fiamm, Hoppeke and Oerlikon. In the U.S., other competitors are
EnerSys (formerly Yuasa-Exide) and East Penn. In Asia, JSB, Panasonic, Yuasa
and Hitachi are the major competitors. In countries like Brazil, China and
India, local manufacturing is required and Exide is positioning itself to
start or expand manufacturing activity. While competition in the industrial
markets is intense, pricing has been relatively stable because of market
growth, which has been particularly strong in the network power portion.
Quality, reliability and price are important differentiators in the industrial
market along with technical innovation and responsive service. Well-known
brands are also important and Exide's Absolyte, Sonnenschein, Chloride Motive
Power and Deta are among the leading ones in the world.
Transportation Segment
Our North American and European markets are very competitive. The
manufacturers in these markets compete primarily on 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 Johnson
Controls has the largest market position, followed by Exide. Other principal
competitors in this market are Delphi Automotive Systems and East Penn. 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.
Our largest competitors in the North American original equipment market are
Delphi Automotive Systems and Johnson Controls. 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.
12
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, other branded
products and improved product quality and customer service.
Exide has the largest market position in Europe in automotive batteries,
both aftermarket and original equipment. Our closest competitor in the
automotive markets is Varta, followed by Fiamm and Hoppeke.
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. 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
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
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
environmental, health or safety compliance issues will have a material adverse
effect on the Company's long-term business, cash flows, financial condition or
results of operations. The Company believes that it is in substantial
compliance with all material environmental, health and safety requirements.
North America
The Company has been advised by the U.S. Environmental Protection Agency
("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 89 federally defined Superfund or state
equivalent sites (including 16 GNB sites). At 60 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 or
insignificant in relation to the total liability of all PRPs that have been
identified and are financially viable. The Company's share of the anticipated
remediation costs associated with all of the Superfund sites where it has been
named a PRP, based on the Company's estimated volumetric contribution of waste
to each site, is included in the environmental remediation reserves discussed
below.
Because the Company's liability under such statutes may be imposed on a
joint and several basis, the Company's liability may not necessarily be based
on volumetric allocations and could be greater than the Company's estimates.
Management believes, however, that its PRP status at these Superfund sites
will not have a material adverse effect on the Company's business or financial
condition because, based on the Company's experience, it is reasonable to
expect that the liability will be roughly proportionate to its volumetric
contribution of waste to the sites.
The Company currently has greater than 50% liability at five Superfund
sites. Other than these sites, the Company's allocation exceeds 5% at seven
sites for which the Company's share of liability has not been paid as of March
31, 2001. The current allocation at these seven sites averages approximately
22%.
The Company is also involved in the assessment and remediation of various
other properties, including certain Company owned or operated facilities. Such
assessment and remedial work is being conducted pursuant
13
to a number of state and federal environmental laws and with varying degrees
of involvement by state and federal authorities. Where probable and reasonably
estimable, the costs of such projects have been accrued by the Company, as
discussed below. In addition, certain environmental matters concerning the
Company are pending in federal and state courts or with certain environmental
regulatory agencies.
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 its 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. 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 more stringent enforcement of
existing requirements in each country.
While the ultimate outcome of the foregoing environmental matters is
uncertain, after consultation with legal counsel, management does not believe
the resolution of these matters, individually or in the aggregate, will have a
material adverse effect on the Company's long-term business, cash flows,
financial condition or results of operations.
The Company has established reserves for on-site and off-site environmental
remediation costs and believes that such reserves are adequate. As of March
31, 2001 the amount of such reserves on the Company's consolidated balance
sheet was $88.1 million, including $62.0 million related to GNB facilities. Of
this amount, $68.2 million was included in other noncurrent liabilities. The
reserve recorded in the GNB purchase accounting is based on a preliminary
assessment and may change upon determination of existing environmental
contingencies prior to the finalization of the opening balance sheet.
Because environmental liabilities are not accrued until a liability is
determined to be probable and reasonably estimable, not all potential future
environmental liabilities have been included in the Company's environmental
reserves and, therefore, additional earnings charges are possible. Also,
future findings or changes in estimates could have a material effect on the
recorded reserves.
Employees
Total worldwide employment was approximately 20,000 at March 31, 2001.
North America. As of March 31, 2001, we employed approximately 2,100
salaried employees and approximately 6,300 hourly employees in North America.
Approximately 30% of such salaried employees are engaged in sales, service,
marketing and administration and approximately 70% in manufacturing and
engineering. Approximately 31% of our hourly employees are represented by
unions. Relations with the unions are generally good. Contracts covering
approximately 1,400 of our union employees expire in fiscal 2002, and the
remainder thereafter.
Europe. As of March 31, 2001, we employed approximately 4,400 salaried
employees and approximately 6,500 hourly employees in Europe. Approximately
65% of such salaried employees are engaged in sales, service, marketing and
administration and approximately 35% 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 2002.
14
Backlog
Our industrial order backlog at March 31, 2001 was approximately $240
million. We expect to fill virtually all of the March 31, 2001 backlog during
fiscal 2002. Our transportation backlog is not significant.
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
2016.
Approximate
Location Square Footage Use
-------- -------------- ---
North America:
Alpharetta, GA 73,000 (leased) Executive Offices
Baton Rouge, LA 176,000 Secondary Lead Smelting
Bristol, TN 631,000 Battery Manufacturing
Battery Manufacturing
Burlington, IA 190,000 and Distribution Center
Cannon Hollow, MO 137,000 Secondary Lead Smelting
City of Industry, CA 120,000 Battery Manufacturing
City of Industry, CA 159,000 (leased) Distribution Center
Columbus, GA 120,000 Distribution Center
Dunmore, PA 232,000 Battery Manufacturing
Florence, MS 138,000 Battery Manufacturing
Fort Erie, Canada 90,000 Distribution Center
Industrial Battery
Fort Smith, AR 223,000 (leased) Manufacturing
Frisco, TX 132,000 Secondary Lead Smelting
Injection-molded-
Jackson, MS 58,000 Plastics Facility
Industrial Battery
Kanakee, IL 270,000 Manufacturing
Industrial Battery
Kansas City, KS 140,000 Manufacturing
Battery Plastics
Lampeter, PA 82,000 Manufacturing
Lombard, IL 62,000 (leased) Executive Offices
Battery Manufacturing
Manchester, IA 286,000 and Distribution Center
Industrial Battery
Manufacturing,
Distribution and
Maple, Ontario, Canada 169,000 administration
Michigan City, IN 75,000 (leased) Distribution Center
Muncie, IN 174,000 Secondary Lead Smelting
Princeton, NJ 18,000 (leased) Executive Offices
Secondary Lead Smelting
Reading, PA 125,000 and Poly Reprocess
Reading, PA 280,000 Battery Manufacturing
Reading, PA 77,000 Distribution Center
Rollingbrook, IL 55,000 (leased) Distribution Center
Salina, KS 260,000 (leased) Battery Manufacturing
Salina, KS 100,000 (leased) Distribution Center
Shreveport,LA 280,000 Battery Manufacturing
Sumner, WA 50,000 Distribution Center
Vernon, CA 220,000 Secondary Lead Smelting
Injection-molded-
Vicksburg, MS 88,000 Plastics
Europe and Other:
Industrial Battery
Manufacturing/
Sydney, Australia 230,000 Distribution Center
Automotive Battery
Elizabeth, South Australia 145,000 Manufacturing
Industrial Battery
Bolton, England 274,000 Manufacturing
Automotive Battery
Auxerre, France 176,000 Manufacturing
Gennevilliers, France 55,000 (leased) Executive Offices
Industrial Battery
Lille, France 484,000 Manufacturing
Automotive Battery
Nanterre, France 169,000 Manufacturing
Pont Ste Maxence, France 71,000 Secondary Lead Smelting
Manufacturing,
Administrative and
Bad Lauterberg, Germany 459,000 Warehouse
Industrial Battery
Budingen, Germany 278,000 Manufacturing
Industrial Battery
Weiden, Germany 208,000 Manufacturing
Industrial Battery
Casalnuovo, Italy 483,000 Manufacturing
Automotive Battery
Romano Di Lombardia, Italy 266,000 (leased) Manufacturing
Automotive Battery
Lower Hutt, New Zealand 90,000 Manufacturing
Automotive Battery
Poznan, Poland (five) 887,000 Manufacturing
Industrial Battery
Castanheira do Riatejo, Portugal 471,000 Manufacturing
Automotive Battery
Manufacturing and
Azuqueca de Henares, Spain 434,000 Research
Bonmati, Spain 63,000 Secondary Lead Smelting
La Cartuja, Spain 1,670,000 Industrial Battery
Cubas de la Sagra, Spain 1,860,000 Secondary Lead Smelting
Automotive Battery
Malpica, Spain 213,000 Manufacturing
Automotive Battery
Manzanares, Spain 438,000 Manufacturing
San Esteban de Gormaz 63,000 Secondary Lead Smelting
Automotive Battery
Manisa, Turkey 145,000 Manufacturing
Automotive Battery
Cwmbran, Wales 105,000 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
In fiscal year 2001, Exide made substantial progress in resolving the
majority of claims against it relating to the conduct of its former management
team.
In March 2001, the Court in Martin v. Exide, filed July 13, 1998 in the
United States District Court for the District of South Carolina, Columbia
Division, approved the settlement of this case in which plaintiffs alleged
that Exide sold old or used batteries as new batteries, sold defective and
mislabeled batteries and improperly credited customer accounts. As a result of
the Martin settlement, Exide's settlements in the following three related
cases became effective: 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. Pursuant
to these four settlements, Exide paid approximately $7.0 million and agreed to
provide the Martin plaintiffs with 25% discounts on the purchase of new
batteries until April 2004.
Exide also reached, in June 2001, a settlement-in-principle with the
Mississippi Attorney General, resolving the last open enforcement action by a
governmental agency, relating to the conduct of former management.
The sole remaining action with allegations similar to the settled cases
referenced above is Houlihan v. Exide, brought under a unique California
statute, filed December 6, 1999 in the Superior Court for the State of
California, County of Los Angeles. In March 2001, the original plaintiff in
this action, Thomas M. Mills, purported to assign his "claim" to Ms. Houlihan.
Trial is set for August 13, 2001.
The Company reserved $13.4 million for the above matters in fiscal 2000.
On March 23, 2001, Exide also reached a plea agreement with the U.S.
Attorney for the Southern District of Illinois, resolving an investigation of
the conduct of former management. Under the terms of that settlement Exide
will pay a fine of $27.5 million over five years, and agrees to cooperate with
the U.S. Attorney in his prosecution of certain members of the former
management team. The payment terms are dependent upon the Company's compliance
with the plea agreement during the five-year period. The plea agreement has
been lodged with the U.S. District Court for the Southern District of
Illinois, which may accept or reject the plea agreement. Although the court's
decision is not expected until later this year, management does not believe
that the final plea agreement will materially differ from the plea agreement
reached with the U.S. Attorney.
On March 22, 2001, the U.S. Attorney unsealed the indictments of Arthur M.
Hawkins, former Chairman, President & Chief Executive Officer of Exide,
Douglas N. Pearson, the former President, North American Operations of Exide,
and Alan E. Gauthier, the former Chief Financial Officer of Exide, for their
conduct during the time they served as officers of Exide. Exide is cooperating
fully with the U.S. Attorney in the criminal prosecution of these former
officers.
Exide is currently involved in litigation with the former members of its
management referenced above. One of these cases, 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
and causes of action for violation of ERISA and breach of contract. Exide has
filed a counterclaim asserting fraud, breach of fiduciary duty,
misappropriation of corporate assets and civil conspiracy. Mr. Hawkins also
alleges in Hawkins v. Exide, filed April 3, 2000, in the United States
District for the Eastern District of Michigan, cancellation without notice of
240,406 shares of restricted stock. Exide's answer denied the substantive
allegations. The parties agreed to seek consolidation of these two actions. At
the request of Mr. Hawkins, both actions were stayed January 24, 2001. On
May 25, 2001, Exide filed a suit in the Circuit Court of Oakland County, MI,
for a determination that Exide is not obligated to advance attorney's fees and
expenses to Hawkins for claims arising in past and pending civil and criminal
matters. Mr. Hawkins has not yet answered Exide's complaint. In June 2001,
Hawkins filed motions in federal court to lift the stay for the purposes of
seeking his litigation expenses and for partial summary judgment for those
expenses. A July 13, 2001 hearing has been scheduled for his motion to lift
the stay.
17
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 on January 18, 2000. Both cases were stayed at the request
of Messrs. Pearson and Gauthier on October 10, 2000. In April and June 2001,
Exide was ordered to advance reasonable litigation expenses and undetermined
copying costs incurred by Messrs. Gauthier and Pearson in connection with the
grand jury 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 $15.0 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. In April 2001, the parties reached
a settlement-in-principle which will not require any payments to either party.
Exide is now involved in several lawsuits pending in state and federal
courts in South Carolina, Pennsylvania, Indiana, and Tennessee. These actions
allege that Exide and its predecessors allowed hazardous materials used in the
battery manufacturing process to be released from certain of its facilities,
allegedly resulting in personal injury and/or property damage. 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. 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. The following lawsuit of this type is currently
pending in the United States District Court for the Southern District of
Indiana: Strange v. Exide. Finally, the following lawsuit of this type is
pending in the Circuit Court of Shelby County, Tennessee: Cawthon v. Exide,
et al. Discovery in the South Carolina and Pennsylvania cases is ongoing;
discovery has not yet begun in the Indiana and Tennessee cases.
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. JCI alleges that
Exide, through Messrs. Hawkins, Gauthier, Pearson and Calio, paid bribes to a
Sears employee, Gary Marks, to induce him to award Sears' 1994 battery supply
contract to Exide rather than JCI. JCI asserts claims against Exide for
violation of section 2(c) of the Robinson-Patman Act and tortious interference
with a prospective business opportunity. JCI asserts claims against Hawkins,
Gauthier and Pearson for violation of the Racketeer Influenced and Corrupt
Organizations Act and tortious interference with a prospective business
opportunity. On February 2, 2001, the Court granted Exide's motion to dismiss
JCI's Robinson-Patman Act claims; the Court reaffirmed this result on April 2,
2001, after JCI filed its First Amended Complaint. JCI has since filed a
Second Amended Complaint, which introduces new factual and legal theories.
Exide has filed a motion to dismiss four of these new claims. That motion is
currently pending before the Court.
During fiscal 2001, the Company was involved in a dispute with a customer
over a battery supply contract entered into by GNB Technologies in January
2000. An investigation by the Company into the circumstances surrounding the
contract disclosed evidence that caused the Company to repudiate the contract.
The customer subsequently sued the Company over the repudiation. Based on the
Company's projections, performance of the contract through its full term would
have resulted in substantial losses. During the litigation, the Company
supplied product to the customer on an interim basis at increased selling
prices. In March 2001, the Company and the customer reached a settlement of
their respective claims, resulting in the Company paying a net amount of
$9.5 million. The net settlement amount factored in the increased selling
prices received by the Company during the interim period. The contract in
question was terminated and the parties agreed to release all related claims
against each other.
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, either individually or in the aggregate, will have a
material adverse effect on the Company's financial condition, cash flows or
results of operations, although quarterly or annual operating results may be
materially affected.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers of the Registrant
The following sets forth certain biographical data regarding our current
executive officers as of March 31, 2001:
Robert A. Lutz, 69, has served as Chairman and Chief Executive Officer of
Exide since December 1998 and as a member of the Office of the Chairman since
May 2000. Mr. Lutz also served as President of Exide Corporation from December
1998 through May 2000. 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. Mr. Lutz is also a
director of Northrop Grumman, Silicon Graphics and Kepner-Tregoe. Mr. Lutz is
also a co-founder of the Cunningham Motor Company and is assisting in product
development.
Craig H. Muhlhauser, 52, joined Exide Technologies as President & Chief
Operating Officer and a member of the Office of the Chairman in July 2000.
Before joining Exide, Mr. Muhlhauser was Vice President of Ford Motor Company
and President, Visteon Corporation. Prior to joining Ford Motor Company in
July 1997, Mr. Muhlhauser served as Senior Vice President, Sales & Service--
Americas and Vice President--Aftermarket for Pratt & Whitney, a division of
United Technologies from June 1995 to July 1997. Prior to UTC, Mr. Muhlhauser
held senior management positions at Lucas Aerospace, Asea Brown-Boveri and
General Electric.
Kevin R. Morano, 47, 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, Mr. 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.
Jack J. Sosiak, 62, 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, 49, has been Exide's Executive Vice President, General
Counsel and Secretary since September 2000, when he was promoted from Vice
President, General Counsel and Secretary, a position held 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.
19
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 declared for the quarters indicated.
Sales Prices
--------------- Dividends
Fiscal Year Ending March 31 High Low Declared
--------------------------- ------- ------- -----------
(per share)
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
2001:
First Quarter.................................... $12.063 $ 7.750 $0.02
Second Quarter................................... 10.500 6.875 0.02
Third Quarter.................................... 10.188 6.875 0.02
Fourth Quarter................................... 10.906 7.297 0.02
The last reported sale price of the common stock on The New York Stock
Exchange on June 27, 2001 was $10.45 per share. As of June 27, 2001 we had
approximately 25,450,991 shares of our common stock outstanding and there were
615 record holders of common stock.
20
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, 1997,
1998 and 1999 has been restated. See Note 1 to the Consolidated Financial
Statements herein.
Fiscal Year Ended March 31
----------------------------------------------------------
1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ----------
Statement of Operations
Data
Net sales............... $2,333,230 $2,273,126 $2,374,278 $2,194,447 $2,432,102
Gross profit............ 590,976 604,091 559,256 532,492 582,779
Selling, marketing and
advertising expenses... 290,076 311,683 334,638 319,476 340,616
General and
administrative
expenses............... 145,869 135,606 169,744 145,770 157,459
Goodwill amortization... 17,853 16,922 20,016 17,165 14,949
Operating income
(loss)................. 137,178 139,880 34,858 (3,517) (43,411)
Interest expense, net... 118,837 112,301 111,679 103,988 117,652
Income taxes............ 14,197 14,010 23,001 10,769 8,632
Income (loss) before
extraordinary loss..... 15,227 19,535 (126,693) (136,042) (164,585)
Extraordinary loss
(1)(2)(3).............. (2,767) (28,513) (301) -- --
Net income (loss)....... $ 12,460 $ (8,978) $ (126,994) $ (136,042) $ (164,585)
Basic net income (loss)
per share.............. $ 0.61 $ (0.44) $ (5.98) $ (6.40) $ (7.02)
Diluted net income
(loss) per share....... $ 0.59 $ (0.42) $ (5.98) $ (6.40) $ (7.02)
Other Financial Data
EBITDA (4).............. $ 263,009 $ 260,925 $ 141,653 $ 90,104 $ 79,355
Cash provided by (used
in):
Operating activities.. 78,126 167,499 77,219 95,648 90,190
Investing activities.. (61,652) (76,182) (22,356) (12,623) (355,920)
Financing activities.. (17,000) (95,446) (70,238) (73,987) 259,468
Capital expenditures.... 84,200 87,315 76,211 63,953 69,495
Cash dividends per
share.................. $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08
Balance Sheet Data (at
period end)
Working capital......... $ 595,296 $ 518,922 $ 301,663 $ 213,468 $ 183,618
Property, plant and
equipment, net......... 521,836 535,113 543,702 443,344 632,935
Total assets............ 2,436,275 2,331,549 2,195,816 1,901,461 2,298,925
Total debt.............. 1,289,682 1,248,983 1,205,806 1,118,385 1,347,046
Common stockholders'
equity (deficit)....... 350,578 274,954 134,135 (66,376) (256,639)
- --------
(1) 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.
(2) 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.
21
(3) 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.
(4) 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, both as determined in accordance with
generally accepted accounting principles. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Factors Which Affect Our Financial Performance
Competition. The Transportation and Industrial battery markets in North
America and Europe are highly competitive. In recent years, competition has
continued to intensify and we continue to come under increasing pressure for
price reductions. This competition has been exacerbated by excess capacity and
fluctuating lead prices as well as low-priced Asian imports impacting our
European markets.
Exchange Rates. We are exposed to foreign currency risk in most European
countries, principally Germany, France, the United Kingdom, Spain, and Italy.
We are also exposed, although to a lesser extent, to foreign currency risk in
Australia and the Pacific Rim as a result of the GNB acquisition. Movements of
exchange rates against the U.S. dollar can result in variations in the U.S.
dollar value of our non-U.S. sales. In some instances, gains in one currency
may be offset by losses in another. Our results for the periods presented
herein were adversely impacted by the overall weakness in European currencies.
Weather. Unusually cold winters or hot summers accelerate automotive
battery failure and increase demand for automotive replacement batteries.
Interest rates. We are exposed to fluctuations in interest rates on our
variable rate debt.
Lead. Lead is the principal raw material used in the manufacture of
batteries, representing approximately one-fifth of our cost of goods sold. The
market price of lead can fluctuate 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.
Energy Costs. We are exposed to fluctuations in the cost of energy used in
our manufacturing and shipping activities.
Results of Operations
Fiscal Year Ended March 31, 2001 Compared with Fiscal Year Ended March 31,
2000.
The Company reported a net loss of $164.6 million, or $7.02 per diluted
share, for fiscal 2001, compared to a net loss of $136.0 million, or $6.40 per
diluted share, for fiscal 2000. These reported results include certain
nonrecurring or unusual pre-tax charges aggregating $169.0 million in fiscal
2001 and $142.6 million in fiscal 2000.
On September 29, 2000 the Company acquired GNB for total consideration of
$379 million. This acquisition was important to the Company's strategy as it
provided the opportunity for a significant restructuring and integration of
the combined North American Transportation businesses and allowed the Company
to reenter the North American Industrial business as a result of GNB's strong
presence in that market.
Excluding non-recurring or unusual charges, the Company reported net income
of $1.3 million, or $0.06 per diluted share, for the fiscal year ended March
31, 2001, as compared to net income, excluding non-recurring or unusual
charges, of $6.5 million, or $0.31 per diluted share, for the previous fiscal
year.
22
The net charges in fiscal 2001 primarily relate to the Company's
restructuring and integration initiatives program related to the GNB
acquisition and include:
. $40.2 million of costs recorded in cost of sales comprised of:
. $29.0 million related to commitments for future purchases of
materials in excess of current expected requirements
. $7.8 million related to the earnings effect of recording inventory
at market value as part of the acquisition of GNB
. $3.4 million of inventory write-offs associated with the Company's
restructuring and integration initiatives program
. $1.9 million of costs recorded in selling, marketing and advertising for
bad debt write-offs.
. $31.0 million of costs recorded in general and administrative expense
for the fine and associated costs resulting from the plea agreement with
the U.S. Attorney of the Southern District of Illinois related to past
improper business practices of the Company's former management.
. $113.2 million of costs recorded in restructuring and other expense
related to the Company's restructuring and integration initiatives
program. These charges include restructuring charges of $97.4 million,
$6.8 million of professional fees related to the merger and integration
and $9.0 million of other merger and integration costs. The
restructuring charges include:
. $63.1 million related to actions taken in the fourth quarter for:
. the closure of an automotive battery plant in the US
. workforce reductions at two manufacturing facilities in Europe
. the reorganization of the Company's European Transportation
business sales force
. $9.2 million related to actions taken in the third quarter for:
. the closing or sale of 27 of the Company's distribution
facilities
. the consolidation of the Company's European accounting activities
into a shared services operation
. $25.1 million in the second quarter for:
. the closure of the Maple, Ontario automotive manufacturing
operations
. the closure of branches and offices
. severance and other costs for reductions in staff
. $17.3 million of income recorded in other (income) expense, net,
including gains on sales of investments including a gain of $13.0
million related to the sale of the Company's stake in Yuasa, Inc.
The charges in fiscal 2000 consisted of:
. $23.9 million of costs recorded in net sales for non-cash charges
related to warranty reserves
. $14.1 million of costs recorded in cost of sales including:
. non-cash charges of $11.1 million related to asset write-downs
. an increase to the Company's environmental reserves of $3.0 million
. $21.6 million of costs recorded in net loss on asset sales for write-
downs to net realizable value related to the divestiture of non-core
businesses, including the estimated cost of commitments for future
purchases of materials in excess of expected requirements
23
. $13.4 million of costs recorded in general and administrative expense to
cover resolution of "used as new" claims litigation
. $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 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
. $14.3 million for an in-process research and development charge related
to the acquisition of Lion Compact Energy
. other non-cash charges of $16.0 million (with $2.7 million recorded in
operating expenses, $12.6 million in other (income) expense, net and
$0.7 million in interest expense, net) related to asset write-downs and
adjustments of balance sheet reserves
Comparative fiscal 2001 and fiscal 2000 reported results were as follows:
Net Sales. Net sales increased 10.8% or $237.7 million to $2,432.1 million
for fiscal 2001 versus $2,194.4 million last year. Included in current year
net sales is the addition of GNB's operations beginning in the third fiscal
quarter. GNB's net sales in the third and fourth quarters of fiscal 2000 were
$460.1 million. The increase resulted from the inclusion of GNB's operations
in the third and fourth quarters of fiscal 2001, along with increased
Industrial sales, offset by lower Transportation volume levels and lower
average selling prices. Net sales in fiscal 2001 were also negatively impacted
by $177.5 million due to weak European currencies versus the U.S. dollar. Net
sales in fiscal 2000 were reduced by $23.9 million due to non-cash charges for
warranty reserves discussed above.
Industrial battery sales for fiscal 2001 were $909.6 million versus $707.6
million in fiscal 2000. GNB's net sales in its Industrial business were $187.0
million in the third and fourth quarters of fiscal 2000. Currency negatively
impacted Industrial net sales in fiscal 2001 by approximately $95.7 million.
The improvement on a constant currency basis resulted from strong European
demand in our network power markets throughout fiscal 2001, as well as strong
demand in North America in the third and fourth quarters of fiscal 2001,
particularly related to telecommunication applications, as well as generally
strong demand in our Motive Power markets. The telecommunications industry has
been experiencing a slowdown in activity in recent months. Industrial net
sales in fiscal 2000 were reduced by $2.1 million due to non-cash charges for
warranty reserves discussed above.
Net sales in the Transportation segment for fiscal 2001 increased 2.4% to
$1,522.5 million versus $1,486.9 million last year. GNB's net sales in its
Transportation business were $273.1 in the third and fourth quarters of fiscal
2000. The addition of GNB's operations were offset primarily by volume
declines in the aftermarket sector, particularly in North America and lower
average selling prices. Also, currency unfavorably impacted Transportation net
sales in fiscal 2001 by approximately $81.8 million. Net sales in fiscal 2000
were reduced by $21.8 million in the Transportation segment due to non-cash
charges for warranty reserves discussed above.
Gross Profit. Gross profit increased 9.4% to $582.8 million for fiscal 2001
compared to $532.5 million in the prior year. GNB's gross profit was $70.2
million in the third and fourth quarters of fiscal 2000. The weaker Euro
negatively impacted gross profit by approximately $51.3 million. The gross
profit margin decreased to 24.0% for fiscal 2001 from 24.3% for fiscal 2000
due to weaker Transportation gross profit margins offset by strong Industrial
battery operations and cost reduction measures. Gross profit was also
negatively impacted in the current year due to the $7.8 million earnings
effect of recording Industrial inventory at market value for the GNB
acquisition discussed above. As also discussed above, fiscal 2000 gross profit
included $21.6 million for non-core business divestitures, $11.1 million of
asset write-downs and $3.0 million of environmental charges plus $23.9 million
of non-cash charges for warranty reserves.
24
Industrial gross profit was $280.5 million this year versus $210.6 million
last year. GNB's Industrial gross profit was $53.9 million in the third and
fourth quarters of fiscal 2000. Strong Industrial demand in the current year
was offset by $28.8 million in negative currency impact and by the $7.8
million inventory charge described above and $0.5 million of asset write-
downs. Gross margin as a percent of net sales was 30.8% in the current year
versus 29.8% last year. Gross margin in the prior year was reduced by the $2.1
million of warranty non-cash charges and $0.5 million of asset write-downs
previously discussed.
Transportation gross profit was $302.3 million this year versus $321.9
million last year with the negative impact of volume declines, particularly in
the North American aftermarket sector, primarily causing this decrease, along
with a currency impact of $22.5 million. GNB's gross profit was $16.2 million
in the third and fourth quarters of fiscal 2000. Gross margins were 19.9% in
the current year versus 21.7% in the prior year with the decrease primarily
attributable to the inclusion of lower GNB profit margins in the third and
fourth quarters of fiscal 2001. As discussed above, the Transportation
segment's results were impacted in fiscal 2000 by $21.8 million of non-cash
charges for warranty reserves, $21.6 million for the divestiture of certain
non-core businesses, $10.6 million of asset write-downs and $3.0 million of
additional environmental reserves.
Operating Expenses. Operating expenses increased $90.2 million, from $536.0
million in fiscal 2000 to $626.2 million in fiscal 2001. GNB had $58.5 million
of operating expenses in the third and fourth quarters of fiscal 2000. As
discussed above, in fiscal 2001, the Company recorded charges totaling $113.2
million for restructuring and integration initiatives and merger costs, $31.0
million for the fine and associated costs resulting from the plea agreement
related to past improper business practices of the Company's former management
and $1.9 million for bad debt write-offs related to the Company's
restructuring and integration initiatives program. As discussed above, in
fiscal 2000, the Company recorded $39.3 million of restructuring charges,
related primarily to the Company's realignment to a customer-focused global
business unit strategy, $13.4 million to cover resolution of "used as new"
claims litigation, $14.3 million for the write-off of in-process research and
development costs related to the acquisition of a controlling interest in Lion
Compact Energy and $2.7 million of other charges. Weaker European currencies
favorably impacted operating expenses by approximately $41.4 million in fiscal
2001. Fiscal 2001 operating expenses were also favorably impacted by cost-
reduction programs including the initial impact of cost reduction efforts
related to our restructuring and integration initiatives program.
Industrial operating expenses increased $27.4 million, from $167.7 million
in fiscal 2000 to $195.1 million in fiscal 2001. GNB had $32.0 million of
Industrial operating expenses in the third and fourth quarters of fiscal 2000.
The Industrial segment portion of nonrecurring charges recorded in operating
expense in fiscal 2001 and fiscal 2000 was $1.4 million and $0.5 million,
respectively. Weaker European currencies favorably impacted Industrial
operating expenses by approximately $21.4 million in fiscal 2001 as did
general cost-reduction programs.
Transportation operating expenses increased $59.5 million, from $307.9
million in fiscal 2000 to $367.4 million in fiscal 2001. GNB had $26.5 million
of Transportation operating expenses in the third and fourth quarters of
fiscal 2000. The Transportation segment portion of nonrecurring charges in
fiscal 2001 discussed above totaled $98.5 million including $65.6 million for
restructuring and integration initiatives, $31.0 million for the fine and
associated costs resulting from the plea agreement related to past improper
business practices of the Company's former management and $1.9 million for bad
debt write-offs related to the Company's restructuring and integration
initiatives. The Transportation segment portion of nonrecurring charges in
fiscal 2000 discussed above was $27.5 million. Weaker European currencies
favorably impacted Transportation operating expenses in fiscal 2001 by
approximately $15.9 million. Fiscal 2001 Transportation operating expenses
were also impacted by cost-reduction programs, particularly the initial impact
of cost reduction efforts related to our restructuring and GNB integration
initiatives program.
Non-segment operating expenses increased $3.2 million, from $60.5 million
in fiscal 2000 to $63.7 million in fiscal 2001. Non-segment charges in fiscal
2001 totaled $46.2 million for restructuring and integration initiatives and
other nonrecurring charges discussed above. In fiscal 2000, the Company
recorded $41.7 million
25
of nonrecurring charges discussed above. Fiscal 2001 non-segment operating
expenses were favorably impacted by the weak euro and by cost-reduction
programs, particularly the initial impact of cost reduction efforts related to
our restructuring and integration initiatives program, offset slightly by
additional goodwill amortization related to the GNB acquisition.
The operating loss was ($43.4) million versus ($3.5) million last year. The
higher operating loss was due to the items discussed above.
Industrial operating income was $85.4 million, or 9.4% of net sales this
year versus $42.9 million, or 6.1% of net sales last year due to the items
discussed above.
The Transportation operating loss was $65.1 million versus operating income
of $14.0 million last year due to the items discussed above.
Interest Expense, net. Interest expense increased $13.7 million from $104.0
million to $117.7 million as a result of the impact of additional interest
charges related to the GNB acquisition financing offset partially by the
impact of weaker European currencies and the fiscal 2000 nonrecurring charge
of $0.7 million.
Other (Income) Expense, net. Other (income) expense, net was $ (6.7)
million for fiscal 2001 versus $16.0 million in fiscal 2000. The change was
primarily due to the $17.3 million of gains related to investment sales,
including $13.0 million for the Company's sale of its stake in Yuasa, Inc. The
rest of the change was caused by additional losses on receivables sold related
to the GNB acquisition financing in fiscal 2001 and gains on certain land
sales in fiscal 2000 aggregating $4.5 million, offset by fiscal 2000
nonrecurring charges of $12.6 million.
Income Taxes. In fiscal 2001, income tax expense of $8.6 million was
recorded on losses of $154.3 million. In fiscal 2000, income tax expense of
$10.8 million was recorded on losses of $123.5 million. In fiscal 2001 and
fiscal 2000 valuation allowances were recorded on certain deferred tax assets
deemed not to meet the more likely than not realizable assessment of generally
accepted accounting principles. The remaining difference between the federal
statutory rate and the effective rate is primarily due to certain
nondeductible expenses, including goodwill.
Fiscal Year Ended March 31, 2000 Compared with Fiscal Year Ended March 31,
1999
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. These as reported results include certain
unusual or nonrecurring charges aggregating $142.6 million in fiscal 2000 and
$118.4 million in fiscal 1999. The charges in fiscal 2000 are discussed above
in the "Fiscal Year Ended March 31, 2001 Compared with Fiscal Year Ended March
31, 2000" section.
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 net loss, excluding non-recurring or unusual
charges, of $8.5 million, or $.40 per diluted share, for the previous fiscal
year.
The charges in fiscal 1999 consisted of:
. $10.3 million recorded in net sales for certain non-cash charges
. $64.0 million recorded in cost of sales including:
. 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
26
. a $3.7 million charge for the write-off of inventory and equipment
related to an abandoned project
. a $2.1 million charge for the write-off of unsaleable inventory
specified for the Russian market
. $1.2 million of other nonrecurring costs
. $35.9 million of costs recorded in operating expenses including:
. $8.8 million related to specific legal expenses, including
settlement of the Florida Attorney General investigation
. $8.5 million for increased bad debt reserves primarily related to
North American customers who filed for bankruptcy
. $7.1 million related to separation packages of 25 executives and
additional retirement charges
. $4.8 million for uncollectible receivables from sales in Russia
. $2.4 million relating to write-downs associated with exiting non-
core business activities
. $2.4 million for the write-off of goodwill associated with the
closure of a smelter operation and the write-off of impaired
goodwill from certain prior branch acquisitions.
. $1.9 million of other nonrecurring costs
. $8.2 million recorded in other (income) expense, net including:
. $6.0 million for an amendment fee related to interest rate swap
agreements
. $2.2 million of other nonrecurring costs
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. The Company restated retained
earnings for the earliest period presented for this particular accounting
change as required by generally accepted accounting principles.
The fiscal 2000 and fiscal 1999 non-recurring or unusual charges discussed
above were the main factors impacting fiscal 2000 and fiscal 1999 as reported
results.
Comparative fiscal 2000 and fiscal 1999 reported 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 these results are
the $23.9 million of non-cash charges for warranty reserves in fiscal 2000 and
non-cash charges of $10.3 million in fiscal 1999. $126.0 million or 70% of the
fiscal 2000 decrease related to weaker currency rates in Europe. The remaining
decrease related to global automotive aftermarket sales volume reductions
along with automotive pricing pressure in Europe, partially offset by average
selling price increases in the U.S. and strong European Industrial markets,
particularly in the latter part of fiscal 2000.
Industrial sales were $707.6 million in fiscal 2000 versus $730.3 million
in fiscal 1999 with strong European Industrial markets, particularly in the
latter part of fiscal 2000, offset by weaker currency rates in Europe.
Industrial net sales in fiscal 2000 were reduced by $2.1 million due to non-
cash charges for warranty reserves discussed above.
Transportation sales were $1,486.9 million in fiscal 2000 versus $1,644.0
million in fiscal 1999 due to global automotive aftermarket sales volume
reductions, automotive pricing pressure in Europe and weaker currency rates in
Europe partially offset by average selling price increases in the U.S. Net
sales in fiscal 2000 were reduced by $21.8 million in the Transportation
segment due to non-cash charges for warranty reserves discussed above. Net
sales in fiscal 1999 were reduced by $10.3 million in the Transportation
segment due to non-cash charges discussed above.
27
Gross Profit. Gross profit for fiscal 2000 decreased $26.8 million or 4.8%
to $532.5 million. Included in these results are the nonrecurring or unusual
charges of $59.6 million in fiscal 2000 and $74.3 million in fiscal 1999
discussed above. 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 offset by the weak Euro,
the overall volume reductions in the automotive aftermarket business and the
European automotive pricing pressures.
Industrial gross profit was $210.6 million in fiscal 2000 versus $222.5
million in fiscal 1999. Included in these results are the nonrecurring or
unusual charges of $2.6 million in fiscal 2000 discussed above. Strong
European Industrial markets and reduced European manufacturing costs were
offset by weaker currency rates in Europe.
Transportation gross profit was $321.9 million in fiscal 2000 versus $336.7
million in fiscal 1999. Included in these results are the nonrecurring or
unusual charges of $57.0 million in fiscal 2000 and $64.0 million in fiscal
1999 discussed above. Fiscal 2000 results declined due to global automotive
aftermarket sales volume reductions, automotive pricing pressure in Europe and
weaker currency rates in Europe, partially offset by average selling price
increases in the U.S and reduced European manufacturing costs.
Operating Expenses. Operating expenses increased $11.6 million or 2.2% to
$536.0 million. Included in these results are the nonrecurring or unusual
charges of $69.7 million in fiscal 2000 and $35.9 million in fiscal 1999
discussed above. Operating expenses were favorably impacted by European
general and administrative cost reductions and the weak Euro, offset by
increased expenses in North America.
Industrial operating expenses decreased $9.0 million or 5.1% to $167.7
million. Included are nonrecurring charges of $0.5 million in fiscal 2000.
Industrial operating expenses were favorably impacted by European general and
administrative cost reductions and the impact of the weak Euro.
Transportation operating expenses decreased $7.0 million or 2.2% to $307.9
million. Included are the nonrecurring or unusual charges of $27.5 million in
fiscal 2000 and $28.8 million in fiscal 1999 discussed above. Transportation
operating expenses were favorably impacted by European general and
administrative cost reductions and the weak Euro.
Non-segment operating expenses increased $27.7 million, from $32.8 million
in fiscal 1999 to $60.5 million in fiscal 2000. Non-segment nonrecurring
charges in fiscal 2000 and fiscal 1999 discussed above totaled $41.7 million
and $7.1 million, respectively. Fiscal 2000 non-segment operating expenses
were favorably impacted by the weak euro.
Operating Income. The Company's operating loss was ($3.5) million in fiscal
2000 versus operating income of $34.9 million in fiscal 1999. The decrease in
operating income is due to the items discussed above.
Industrial operating income was $42.9 million in fiscal 2000 versus $45.8
million in fiscal 1999. These changes are a result of the matters discussed
above.
Transportation operating income was $14.0 million in fiscal 2000 versus
$21.9 million in fiscal 1999. These changes are a result of the matters
discussed above.
Interest Expense, net. Interest expense, net decreased $7.7 million to
$104.0 million versus $111.7 million in fiscal 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) expense, net was favorably impacted in fiscal 2000 by gains on
certain sales of land of approximately $4.5 million.
28
Income Tax Provision. Income tax expense decreased $12.2 million to $10.8
million. In fiscal 2000 a valuation allowance was recorded on certain deferred
tax assets deemed not to meet the more likely than not realizable assessment
of generally accepted accounting principles. The remaining difference between
the federal statutory rate and the effective rate is primarily due to certain
nondeductible goodwill and differences in rates on foreign subsidiaries.
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
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.
Acquisition of GNB
As discussed in Note 3 to the consolidated financial statements herein, on
September 29, 2000, the Company acquired the global battery business of GNB
for consideration of $379.0 million (including $344.0 million in cash and four
million Exide common shares) plus assumed liabilities. GNB was a leading U.S.
and Pacific Rim manufacturer of both automotive and industrial batteries and
had annual sales of approximately $1.0 billion.
Liquidity and Capital Resources
The Company's liquidity requirements arise primarily from the funding of
seasonal working capital needs, obligations on 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 was generated in
fiscal 2001 and fiscal 2000, from the sale of non-core businesses and assets.
The Company has a U.S. receivables purchase agreement and a European
receivables purchase agreement under which third parties have committed,
subject to certain exceptions, to purchase selected accounts receivable, up to
a maximum commitment of $200.0 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 Senior
Secured Global Credit Facilities Agreement and/or the proceeds from sales of
accounts receivable under our securitization facilities.
As reported earnings before interest, taxes, depreciation and amortization
(EBITDA), excluding losses on sales of receivables, was $79.4 million for this
year versus $90.1 million in the prior year. Excluding the nonrecurring
charges described above, EBITDA was $248.3 million for this year versus $227.5
last year. GNB had EBITDA of $29.3 million in the third and fourth quarters of
fiscal 2000. Cash flows provided by operating activities were $90.2 million
(of which $94.9 million related to net sales of receivables, including the
sale of GNB receivables in connection with the acquisition) in fiscal 2001.
This compares to cash flows provided by operating activities of $95.6 million
(net of $23.4 million related to sales of receivables) in fiscal 2000. Primary
working capital (inventories plus receivables less accounts payable) at the
end of this year was $590.2 million,
29
as compared to $524.9 million for last year. Primary working capital year on
year increased $41.2 million, excluding currency impacts, divestitures and
GNB's acquired operations which had $96.4 million in primary working capital
at the time of acquisition.
Capital expenditures were $69.5 million and $64.0 million in fiscal 2001
and fiscal 2000, respectively. Capital expenditures are estimated to be
approximately $100 million in fiscal 2002.
The Company generated $48.0 million and $80.0 million in cash and assumed
liabilities from the sale of non-core businesses and other assets in fiscal
2001 and fiscal 2000, respectively. The fiscal 2001 sales consisted of the
Company's sale of its 13.5 percent interest in Yuasa Inc. for $29.9 million,
the sale of its Sure Start remanufactured starter and alternator business for
total consideration of $8.0 million, including $3.0 million of cash at closing
and $2.5 million of assumed liabilities, and other asset sales yielding $10.1
million of additional cash proceeds. Proceeds from these sales in fiscal 2001
and fiscal 2000 were primarily used to reduce debt. No significant proceeds
from the sale of non-core assets are expected in fiscal 2002.
The Company has been pursuing its strategy of growing its industrial
business and restructuring its transportation business to improve earnings and
cash flow. In fiscal 2001 and the fourth quarter of fiscal 2000, the Company
implemented certain restructuring actions related to this strategy, including
actions in connection with the GNB acquisition. The Company recorded
restructuring charges aggregating $98.7 million in fiscal 2001, included in
restructuring and other in the accompanying consolidated statement of
operations. The fiscal 2001 restructuring charges are comprised of:
. $64.4 million related to actions taken in the fourth quarter for:
. the closure of an automotive battery plant in the U.S.
. workforce reductions at two manufacturing facilities in Europe
. the reorganization of the Company's European Transportation
business sales force
. $9.2 million related to actions taken in the third quarter for:
. the closing or sale of 27 of the Company's distribution
facilities
. the consolidation of the Company's European accounting activities
into a shared services operation
. $25.1 million in the second quarter for:
. the closure of the Maple, Ontario automotive manufacturing
operations
. the closure of branches and offices
. severance and other costs for reductions in staff
The Company subsequently decided to redevelop its Maple facility for
Industrial battery manufacturing.
The Company also announced the closures of GNB's Dallas, Texas and Dunmore,
Pennsylvania facilities as well as the closure of certain GNB distribution
centers and sales branches. The Company recorded $28.8 million of related
restructuring reserves in the GNB purchase accounting.
In fiscal 2000, the Company announced 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 was in contrast to the Company's geographic based structure in place
through March 31, 2000 (see Note 16). The Company recorded related
restructuring charges of $39.3 million in fiscal 2000, consisting of:
. $20.0 million in severance benefits and
. $19.3 million for targeted plant and branch closings
30
The charges relate to the:
. closure of the Reading, Pennsylvania plant
. closure of six branches in the U.S. and
. headcount reductions of 168 employees in the U.S. and Europe.
Through March 31, 2000, $13.3 million of charges against this reserve have
occurred, including $2.6 million of severance benefits paid and $10.7 million
of asset write-downs.
Summarized restructuring reserve activity for this restructuring program is
as follows:
Severance Closure
Costs Writeoffs Costs Total
--------- --------- ------- ------
Balance at March 31, 2000................. $ 14.0 $ -- $ 8.7 $ 22.7
Fiscal 2001 charges to income............. 29.2 39.5 28.7 97.4
Fiscal 2001 charges to GNB opening balance
sheet.................................... 13.0 -- 15.8 28.8
Payments and charge-offs.................. (16.1) (39.5) (5.6) (61.2)
Currency changes.......................... (1.6) -- (1.0) (2.6)
------ ------ ----- ------
Balance at March 31, 2001................. $ 38.5 $ -- $46.6 $ 85.1
====== ====== ===== ======
Remaining expenditures will occur over the next several years as permitted
under applicable regulations and in accordance with existing contracts.
In connection with previous European acquisitions, the Company recorded
liabilities of $153.0 million 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, $145.2 million, of charge-offs had occurred
consisting of $133.3 million of severance benefits paid with the remaining
amount associated with plant closing costs. Remaining charge-offs of $7.8
million occurred in fiscal 2001.
Total debt at March 31, 2001 was $1,347.0 million, including the $250.0
million of debt from the GNB acquisition, as compared to $1,118.4 million at
March 31, 2000. Our availability under our credit line was $126.0 million at
fiscal year end. The use of such availability may be limited by certain
covenants in the Senior Secured Global Credit Facilities Agreement. Increases
in interest rates on such obligations could adversely affect our results of
operations and financial condition. Weighted average interest rates on the
Company's pre-GNB acquisition Senior Secured Global Credit Facilities
Agreement debt have increased approximately 1.5% due to the negotiated higher
rates in conjunction with the new financing for the GNB acquisition. Interest
rates on the Global Credit Facilities Agreement is based on LIBOR plus 4.5%
for the Term B portion and LIBOR plus 3.75% for the Term A portion and the
revolving credit facility.
The Company was in compliance with its bank covenants at March 31, 2001,
and expects to continue to be in compliance prospectively. However, due to
current general economic conditions, the Company felt it prudent to seek
revisions of some of the terms of its financial covenants over the next six
quarters in its Global Credit Facilities Agreement in order to provide
flexibility in the event of further economic weakness. The Company received
approval for these revisions from its lenders in June 2001.
On June 27, 2001, the Board of Directors approved for submission a proposal
to shareholders, to be voted on at the Company's annual meeting on August 10,
2001, seeking authority for the issuance of up to 20 million common shares.
Such approval is being requested in order to provide the Company the ability
to exchange common stock for additional portions of the Company's 2.9%
Convertible Subordinated Notes and/or certain portions of the Company's 10%
Senior Notes and 9.125% Senior Notes.
During 2001, we had two currency and interest rate swap agreements which
effectively converted $110.5 million of borrowings under the Senior Secured
Global Credit Facilities Agreement and certain
31
intercompany loans into 406.2 million French Francs (U.S. $68.5 million) and
25.2 million British pounds sterling (U.S. $42 million). We received LIBOR and
paid PIBOR and pound sterling LIBOR. The Company terminated these agreements
on December 27, 2000 and received a cash payment of 13.7 million Euros and
3.3 million British pounds sterling, respectively. There was no impact on the
consolidated statements of operations related to these terminations.
Simultaneously, the Company entered into two six month forward contracts to
continue to hedge these transactions.
During the fourth quarter of fiscal 2000 the Company assigned 382.5 million
French Francs (U.S. $64.5 million) of its then existing currency and interest
rate swap agreement to a new counterparty and received a cash payment of 8.5
million Euros. 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 terminated this agreement in the second quarter of fiscal 2001 and
received a cash payment of 6.2 million Euros. There was no impact on the
consolidated statements of operations related to these terminations.
Simultaneously, the Company entered into a new 73.1 million Euro (U.S. $64.5
million) one-year currency and interest rate hedge agreement with this same
counterparty. The Company receives LIBOR plus 2.25% and pays Euro LIBOR plus
2.27%.
On October 18, 2000, we entered into a $60.0 million two year interest rate
swap agreement for which we pay a quarterly fixed rate of 6.55% and receive a
three month LIBOR rate (currently 4.83%). This swap hedges a portion of the
variable interest exposure on our $900 million Global Credit Facilities
Agreement Tranche B Term Loans.
On January 17, 2001, we entered into an interest rate cap agreement, which
reduces the impact of changes in interest rates on a portion of our floating
rate debt. The cap agreement effectively limits the three-month LIBOR based
interest rate on $70 million of our U.S. borrowings to no more than 6.5%
through July 17, 2002.
Our variable rate based debt was approximately $600 million at March 31,
2001, of which approximately $130 million was hedged at March 31, 2001.
We have entered into certain forward contracts and option contracts in
fiscal 2001 to hedge the purchase price of lead on a portion of the Company's
lead usage being sourced through external purchases. Such contracts are
effective through the fourth quarter of fiscal 2002.
As of March 31, 2001, 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.
Our net deferred tax assets, net of certain valuation allowances, include
net operating loss carryforwards which management believes are more likely
than not 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.
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 runs through
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.
32
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.
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.
Energy prices increased in fiscal 2001 and, in fiscal 2002, are expected to be
higher than historically experienced.
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".
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.
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, 2001, the net gain based on the fair value of financial
instruments with exposure to foreign currency risk was about $5 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 $20 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.
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.
33
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 in the process of completing its evaluation of the
impact of this statement. Currently, the Company does not believe that the
impact of adoption will be material to our consolidated financial position.
The Company is adopting this statement in the first quarter of fiscal 2002.
The Securities and Exchange Commission ("SEC") issued Staff Accounting
Bulletin 101 (SAB 101) in fiscal 2001 to provide guidance on revenue
recognition. This bulletin, which was effective for the Company in the fourth
quarter of fiscal 2001, did not have a significant impact on the Company's
results of operations.
The Company will adopt SFAS No. 140 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities: A Replacement of FASB
Statement No. 125" in the beginning of fiscal 2002 for transfers of
receivables after March 31, 2001. The provisions of SFAS No.140 are
substantially the same as SFAS 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". The Company has
concluded that SFAS No. 140 will not have a significant impact on the
Company's results of operations. Additional disclosures are required under
SFAS 140 beginning in fiscal 2001 and are included in the accompanying
financial statements.
In fiscal 2001, the Emerging Issues Task Force issued guidance related to
the classification of shipping and handling activities (EITF 00-10:
Classification of Shipping and Handling). This EITF was effective for the
Company in the fourth quarter of fiscal 2001. The impact of adoption was not
significant.
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.
34
PART III
Item 10. Directors of the Registrant
The information under the heading Election of Directors in the Company's
definitive Proxy Statement for its annual meeting of stockholders to be held
on August 10, 2001, is hereby incorporated by reference.
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 10, 2001, 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 10, 2001, 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 10, 2001, is hereby incorporated by reference.
35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Index to Financial Statements
See Index to Consolidated Financial Statements and Schedule at page F-1.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
(c) Exhibits Required by Item 601 of Regulation S-K
See Index to Exhibits.
(d) Financial Statement Schedules
See Index to Consolidated Financial Statements and Schedule at page F-1.
36
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 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.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Exide Corporation
/s/ Robert A. Lutz
By: _________________________________
Robert A. Lutz Chairman and Chief
Executive Officer
/s/ Kevin R. Morano
By: _________________________________
Kevin R. Morano Executive Vice
President and Chief Financial
Officer
Date: June 29, 2001
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 dates indicated.
/s/ Robert A. Lutz /s/ John A. James
By: _________________________________ By: _________________________________
Robert A. Lutz Chairman and Chief John A. James Director
Executive Officer
/s/ Heinrich Meyr
/s/ Kevin R. Morano By: _________________________________
By: _________________________________ Heinrich Meyr Director
Kevin R. Morano Executive Vice
President and Chief Financial
Officer
/s/ Jody G. Miller
By: _________________________________
Jody G. Miller Director
/s/ Kenneth S. Pawloski
By: _________________________________ /s/ Heinz C. Prechter
Kenneth S. Pawloski Vice President, By: _________________________________
Corporate Controller Heinz C. Prechter Director
/s/ Francois J. Castaing
By: _________________________________
Francois J. Castaing Director
/s/ Rodney L. Chadwick
By: _________________________________
Rodney L. Chadwick Director
38
INDEX TO EXHIBITS
2.1 Coordinating Agreement, dated May 9, 2000, between Exide Corporation
and Pacific Dunlop Holdings (USA) Inc. and Amendments No. 1, 2 and 3
thereto dated June 19, June 28, and September 29, 2000 respectively
(the Coordinating Agreement and Amendment No. 1 and 2 are
incorporated by reference to Exhibit 2.1 to the Company's Quarterly
report on Form 10-Q for the fiscal quarter ended July 2, 2000 (the
"July 2000 10-Q"), Amendment No. 3 is incorporated by reference to
the Company's Current Report on Form 8-K/A filed December 13, 2000
(the "8-K/A"); Stock Purchase Agreement by and between the Company
and Pacific Dunlop Holdings (USA) Inc. dated as of May 9, 2000 (the
"US Stock Purchase Agreement") and Amendments No. 1 and 2 thereto
dated June 19, 2000, and September 29, 2000 respectively (the Stock
Purchase Agreement and Amendment No. 1 are incorporated by reference
to the July 2000 10-Q, Amendment No. 2 is incorporated by reference
to the 8-K/A; Asset Purchase Agreement, dated June 28, 2000, between
Pacific Dunlop Holdings (N.Z.) Limited and Exide New Zealand Limited
(incorporated by reference to the July 2000 10-Q); 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 and Amendment No.1 thereto
dated September 29, 2000 (the Asset Purchase Agreement is
incorporated by reference to the July 2000 10-K and Amendment No. 1
is incorporated by reference to the 8-K/A); 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 (incorporated by reference to the July
2000 10-Q); Stock Purchase Agreement with respect to GNB
Technologies Limited, dated June 28, 2000, between Pacific Dunlop
Holdings (Europe) Ltd and Exide Holding Europe (incorporated by
reference to the July 2000 10-Q); 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 (renamed Exide Holding Asia Pte Limited) (incorporated by
reference to the July 2000 10-Q); Asset Purchase Agreement, dated
June 28, 2000, between Pacific Dunlop Holdings (Singapore) Pte Ltd
and Bluewall Pte Ltd (renamed Exide Singapore Pte Limited)
(incorporated by reference to the July 2000 10-Q); 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 (renamed Exide Holding Asia Pte Limited) and
Amendment No. 1 thereto, dated September 29, 2000 (the Stock
Purchase Agreement is incorporated by reference to the July 2000 10-
Q and Amendment No. 1 is incorporated by reference to the 8-K/A);
Trademark Purchase Agreement, dated June 28, 2000 between PD
Licencing Pty Ltd and Exide Australia Pty Limited (incorporated by
reference to the July 2000 10-Q). 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 Company, incorporated
by reference to Exhibit 4.1 of the Company's Registration Statement
on Form S-3 (No. 333-29991), filed June 25, 1997.
3.2 Amended and Restated Bylaws of the Company, incorporated by
reference to Exhibit 3 of the Company's Quarterly report on Form 10-
Q for the fiscal quarter ended December 31, 2000.
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, and Amendment to the Rights
Agreement, dated as of October 25, 2000 (the Form of Rights
Agreement is incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K filed September 21, 1998, and
the Amendment is incorporated by reference to the Company's Current
Report on Form 8-K filed November 20, 2000).
39
4.1 Amended and Restated Credit and Guarantee Agreement dated as of
September 29, 2000 by and among the Company, Credit Suisse First
Boston, as Sole Book Manager, Joint Lead Arranger and Administrative
Agent, Salomon Smith Barney Inc., as Syndication Agent and Joint
Lead Arranger, and the lenders party thereto, and Amendment thereto,
dated June 20, 2001 (the Amended and Restated Credit Agreement is
incorporated by reference to the Company's Current Report on Form 8-
K filed October 16, 2000 (the "October 2000 8-K")).
4.2 Warrant Agreement dated as of September 29, 2000 by and between the
Company and The Bank of New York, as warrant agent, and form of
Warrant Certificate thereto as Exhibit A, incorporated by reference
to the October 2000 8-K.
4.3 Registration Rights Agreement dated as of September 29, 2000 by and
among the Company and certain lenders under the Credit Agreement,
incorporated by reference to the October 2000 8-K.
4.4 Registration Rights and Standstill Agreement dated as of September
29, 2000 by and between the Company and Pacific Dunlop Holdings(USA)
Inc., incorporated by reference to the October 2000 8-K.
4.5 Registration Rights Agreement among the Registrant, Wilmington
Securities, Inc. and certain other holders of the Registrant's
Common Stock and Amendments No. 1 and No. 2, thereto, dated as of
August 10, and September 29, 2000, respectively (the Registration
Rights Agreement is incorporated by reference to Exhibit 4.14 to the
Company's S-1 Registration Statement, dated August 27, 1993 (the "S-
1 Registration Statement"), Amendments No. 1 and No. 2 are
incorporated by reference to the October 2000 8-K).
4.6 Amended and Restated Sale Agreement dated as of September 29, 2000
by and between the Company and Exide U.S. Funding Corporation,
incorporated by reference to the October 2000 8-K.
4.7 Amended and Restated Receivables Purchase Agreement dated as of
September 29, 2000 by and between Exide U.S. Funding and Three
Rivers Funding Corporation, incorporated by reference to the October
2000 8-K.
4.8 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 Company's Form 8-K dated June 2, 1995.
4.9 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 Company's 1996 Annual Report on Form 10-K.
4.10 Fiscal and Paying Agency Agreement, dated April 23, 1997, by and
among Exide Holding Europe S.A., Exide Corporation, The Bank of New
York and Deutsche Bank Aktiengesellschaft, incorporated by reference
to Exhibit 4.9 to the Company's 1997 Annual Report on Form 10-K.
10.1 Amended and Restated Employment Agreement with Robert A. Lutz.
10.2 Exide Corporation 1993 Stock Incentive Plan, incorporated by
reference to Exhibit 99.1 to the Company's Registration Statement on
Form S-8 (File No. 333-413).
10.3 Exide Corporation 1993 Long Term Incentive Plan, incorporated by
reference to Exhibit 10.25 to the S-1 Registration Statement.
10.4 Exide Corporation 1997 Stock Option Plan, incorporated by reference
to Exhibit 10.20 to the Company's 1998 Annual Report on Form 10-K.
10.5 Exide Corporation 1999 Stock Incentive Plan, as amended,
incorporated by reference to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended October 3, 1999.
40
10.6 Exide Corporation 2000 Broad-Based Stock Incentive Plan,
incorporated by reference to Exhibit 99 of the Company's December
20, 2000 Registration Statement on Form S-8 (file No. 333-52266).
10.7 Exide Corporation Non-Employee Directors Deferred Fee Plan,
incorporated by reference to Exhibit 10.2 of the Company's Report on
Form 10-Q for the fiscal quarter ended December 31, 2000.
10.8 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.
10.9 Form of Non-Qualified Stock Option Agreement.
10.10 Form of Change in Control Agreement.
10.11 Agreement dated September 30, 1994, among Gemala (Isle of Man)
Limited, PT Sapta Panji Manggala, and B.I.G. Batteries Group
Limited. Deed dated September 30, 1994, among Euro Exide Corporation
Limited, Gemala (Isle of Man) Limited and B.I.G. Batteries Group
Limited. Master Agreement dated September 30, 1994 among Euro Exide
Corporation Limited, Gemala (Isle of Man) Limited, B.I.G. Batteries
Group Limited and PT Sapta Panji Manggala, incorporated by reference
to Exhibit 10.24 of the December 1994 Registration Statement.
10.12 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 Company's 1998 Annual Report on
Form 10-K.
21 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Arthur Andersen LLP.
41
EXIDE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
REPORT OF INDEPENDENT ACCOUNTANTS.......................................... F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................... F-3
CONSOLIDATED STATEMENTS OF OPERATIONS...................................... F-4
CONSOLIDATED BALANCE SHEETS................................................ F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT........................... F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS...................................... F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................. F-9
FINANCIAL STATEMENT SUPPORTING SCHEDULE:
II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES........................ F-38
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 ACCOUNTANTS
To the Board of Directors and Stockholders
of Exide Corporation:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Exide Corporation and its subsidiaries at March 31, 2001, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule at
March 31, 2001 and for the year then ended listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements and financial statement schedule
based on our audit. We conducted our audit of these statements in accordance
with auditing standards generally accepted in the United States of America,
which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
June 28, 2001
F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Exide Corporation:
We have audited the accompanying consolidated balance sheet of Exide
Corporation (a Delaware corporation) and subsidiaries as of March 31, 2000,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the fiscal years ended March 31, 1999 and March
31, 2000. 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, 2000 and the results of their operations and
their cash flows for the fiscal years ended March 31, 1999 and 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 for the fiscal year's ended
March 31, 1999 and March 31, 2000 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 (except with respect to the
matter discussed in Note 16, as to
which the date is June 28, 2001)
F-3
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share data)
For the Fiscal Year Ended March
31,
----------------------------------
1999 2000 2001
---------- ---------- ----------
NET SALES.................................. $2,374,278 $2,194,447 $2,432,102
COST OF SALES BEFORE ASSET SALES........... 1,815,022 1,640,371 1,849,323
NET LOSS ON ASSET SALES.................... -- 21,584 --
---------- ---------- ----------
Gross profit........................... 559,256 532,492 582,779
---------- ---------- ----------
OPERATING EXPENSES:
Selling, marketing and advertising....... 334,638 319,476 340,616
General and administrative............... 169,744 145,770 157,459
Restructuring and other.................. -- 39,336 113,166
Purchased research and development....... -- 14,262 --
Goodwill amortization.................... 20,016 17,165 14,949
---------- ---------- ----------
524,398 536,009 626,190
---------- ---------- ----------
Operating income (loss)................ 34,858 (3,517) (43,411)
---------- ---------- ----------
INTEREST EXPENSE, net...................... 111,679 103,988 117,652
OTHER (INCOME) EXPENSE, net................ 28,852 16,043 (6,733)
---------- ---------- ----------
Loss before income taxes, minority
interest and extraordinary loss......... (105,673) (123,548) (154,330)
INCOME TAX PROVISION....................... 23,001 10,769 8,632
---------- ---------- ----------
Loss before minority interest and
extraordinary loss...................... (128,674) (134,317) (162,962)
MINORITY INTEREST.......................... (1,981) 1,725 1,623
---------- ---------- ----------
Loss before extraordinary loss........... (126,693) (136,042) (164,585)
EXTRAORDINARY LOSS RELATED TO EARLY
RETIREMENT OF DEBT........................ (301) -- --
---------- ---------- ----------
Net loss............................... $ (126,994) $ (136,042) $ (164,585)
========== ========== ==========
BASIC EARNINGS PER SHARE:
Loss before extraordinary loss........... $ (5.97) $ (6.40) $ (7.02)
Extraordinary loss....................... (0.01) -- --
---------- ---------- ----------
Net loss............................... $ (5.98) $ (6.40) $ (7.02)
========== ========== ==========
DILUTED EARNINGS PER SHARE:
Loss before extraordinary loss........... $ (5.97) $ (6.40) $ (7.02)
Extraordinary loss....................... (0.01) -- --
---------- ---------- ----------
Net loss............................... $ (5.98) $ (6.40) $ (7.02)
========== ========== ==========
WEIGHTED AVERAGE SHARES:
Basic.................................... 21,245 21,263 23,447
========== ========== ==========
Diluted.................................. 21,245 21,263 23,447
========== ========== ==========
The accompanying notes are an intergral part of these statements.
F-4
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per-share data)
March 31,
---------------------
2000 2001
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 28,110 $ 23,072
Receivables, net of allowance for doubtful accounts of
$64,177 and $33,597, respectively..................... 379,490 429,455
Inventories............................................ 405,720 511,411
Prepaid expenses and other............................. 16,026 19,817
Deferred income taxes.................................. 20,138 28,478
---------- ----------
Total current assets................................. 849,484 1,012,233
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET....................... 443,344 632,935
---------- ----------
OTHER ASSETS:
Goodwill, net.......................................... 501,117 540,395
Investments in affiliates.............................. 20,665 5,782
Deferred financing costs, net.......................... 12,796 26,777
Deferred income taxes.................................. 37,583 40,716
Other.................................................. 36,472 40,087
---------- ----------
608,633 653,757
---------- ----------
Total assets......................................... $1,901,461 $2,298,925
========== ==========
The accompanying notes are an integral part of these statements.
F-5
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(Continued)
(In thousands, except per-share data)
March 31,
----------------------
2000 2001
---------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Short-term borrowings................................ $ 24,666 $ 10,387
Current maturities of long-term debt................. 32,047 28,117
Accounts payable..................................... 260,352 350,712
Accrued interest..................................... 28,882 37,627
Accrued compensation................................. 66,734 77,998
Product warranty reserve............................. 44,750 60,103
Restructuring reserve................................ 16,122 47,785
Other current liabilities............................ 162,463 215,886
---------- ----------
Total current liabilities.......................... 636,016 828,615
---------- ----------
LONG-TERM DEBT......................................... 1,061,672 1,308,542
---------- ----------
NONCURRENT RETIREMENT OBLIGATIONS...................... 128,827 164,447
---------- ----------
OTHER NONCURRENT LIABILITIES........................... 123,329 235,587
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 3, 11 and 13)
MINORITY INTEREST...................................... 17,993 18,373
---------- ----------
STOCKHOLDERS' DEFICIT
Common stock, $.01 par value 60,000 shares autho-
rized;
21,401 and 25,449 shares issued and outstanding..... 214 255
Additional paid-in capital........................... 490,399 531,179
Accumulated deficit.................................. (319,530) (485,986)
Notes receivable --stock award plan.................. (734) (665)
Accumulated other comprehensive loss................. (236,725) (301,422)
---------- ----------
Total stockholders' deficit........................ (66,376) (256,639)
---------- ----------
Total liabilities and stockholders' deficit........ $1,901,461 $2,298,925
========== ==========
The accompanying notes are an integral part of these statements.
F-6
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE FISCAL YEARS ENDED MARCH 31, 1999, 2000 AND 2001
(In thousands, except per-share data)
Accumulated Other
Comprehensive Loss
-----------------------
Minimum
Notes Pension
Additional Receivable- Liability Cumulative
Common Paid-in Stock Award Unearned Accumulated Adjustment, Translation Comprehensive
Stock Capital Plan Compensation Deficit Net of Tax Adjustment Loss
------ ---------- ----------- ------------ ----------- ----------- ----------- -------------
Balance at March 31,
1998.................... $213 $489,851 $(1,609) $(322) $ (53,078) $ (2,767) $(157,334)
---- -------- ------- ----- --------- -------- ---------
Net loss for fiscal
1999................... -- -- -- -- (126,994) -- -- $(126,994)
Minimum pension
liability adjustment,
net of tax............. -- -- -- -- -- 985 -- 985
Translation
adjustment............. -- -- -- -- -- -- (14,415) (14,415)
---------
Comprehensive loss..... $(140,424)
=========
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.................... 213 490,147 (786) (129) (181,779) (1,782) (171,749)
---- -------- ------- ----- --------- -------- ---------
Net loss for fiscal
2000................... -- -- -- -- (136,042) ---- -- $(136,042)
Minimum pension
liability adjustment,
net of tax............. -- -- -- -- -- (311) -- (311)
Translation
adjustment............. -- -- -- -- -- -- (62,883) (62,883)
---------
Comprehensive loss..... $(199,236)
=========
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) (2,093) (234,632)
---- -------- ------- ----- --------- -------- ---------
Net loss for fiscal
2001................... -- -- -- -- (164,585) -- -- $(164,585)
Minimum pension
liability adjustment,
net of tax............. -- -- -- -- -- (34,461) -- (34,461)
Translation
adjustment............. -- -- -- -- -- -- (30,236) (30,236)
---------
Comprehensive loss..... $(229,282)
=========
Common stock issued
under employee stock
purchase plan.......... 1 -- -- -- -- -- --
GNB acquisition stock
issuance............... 40 36,244 -- -- -- -- --
Warrants issued for GNB
financing.............. -- 4,536 -- -- -- -- --
Forfeiture of common
stock grants........... -- -- 69 -- -- -- --
Cash dividends paid
($0.08/share).......... -- -- -- -- (1,871) -- --
---- -------- ------- ----- --------- -------- ---------
Balance at March 31,
2001.................... $255 $531,179 $ (665) $ -- $(485,986) $(36,554) $(264,868)
==== ======== ======= ===== ========= ======== =========
The accompanying notes are an integral part of these statements.
F-7
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Fiscal Year Ended March 31,
-------------------------------------
1999 2000 2001
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................... $ (126,994) $ (136,042) $ (164,585)
Adjustments to reconcile net loss to
net cash provided by operating
activities --
Depreciation and amortization.......... 123,153 95,706 99,595
Extraordinary loss..................... 301 -- --
Net (gain) loss on asset sales......... -- 21,584 (18,500)
Purchased research and development..... -- 14,262 --
Deferred income taxes.................. 9,106 16,199 (11,369)
Amortization of original issue discount
on notes.............................. 9,341 9,992 10,642
Provision for losses on accounts
receivable............................ 23,243 6,859 12,066
Non-cash restructuring and other
expense............................... -- 19,336 42,381
Minority interest...................... (1,981) 1,725 1,623
Amortization of deferred financing
costs................................. 4,737 3,610 5,262
Net change from sales of receivables... 29,263 (23,483) 94,933
Changes in assets and liabilities
excluding effects of acquisitions and
divestitures --
Receivables............................ (26,353) (29,139) 7,331
Inventories............................ 51,307 50,324 (4,680)
Prepaid expenses and other............. (749) 1,466 2,768
Payables............................... (14,871) 27,970 (36,565)
Accrued expenses....................... (34,844) (29,132) 33,958
Noncurrent liabilities................. 18,209 42,033 28,314
Other, net............................. 14,351 2,378 (12,984)
----------- ----------- -----------
Net cash provided by operating
activities........................... 77,219 95,648 90,190
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
GNB Acqusition, net of cash acquired of
$17,098............................... -- -- (331,902)
Other acquisitions of businesses....... (14,825) (2,582) --
Capital expenditures................... (76,211) (63,953) (69,495)
Proceeds from sales of assets.......... 41,707 53,105 45,477
Insurance proceeds from fire damage.... 26,973 807 --
----------- ----------- -----------
Net cash used in investing
activities........................... (22,356) (12,623) (355,920)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term
borrowings............................ 3,439 7,486 (8,503)
Borrowings under Global Credit
Facilities Agreement.................. 606,791 639,089 604,274
Repayments under Global Credit
Facilities Agreement.................. (659,471) (709,673) (569,432)
GNB Acquisition Debt................... -- -- 250,000
Decrease in other debt................. (17,490) (8,448) --
Debt issuance costs.................... (1,800) (732) (15,000)
Dividends paid......................... (1,707) (1,709) (1,871)
----------- ----------- -----------
Net cash (used in) provided by
financing activities................. (70,238) (73,987) 259,468
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS................... 358 (1,524) 1,224
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ (15,017) 7,514 (5,038)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR................................... 35,613 20,596 28,110
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR.. $ 20,596 $ 28,110 $ 23,072
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for--
Interest (net of amount capitalized).. $ 93,995 $ 89,955 $ 93,764
Income taxes (net of refunds)......... $ 10,852 $ 16,180 $ 9,682
The accompanying notes are an integral part of these statements.
F-8
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.
The Company acquired GNB Technologies, Inc. and related entities and assets
(GNB) on September 29, 2000 (see Note 3).
Investments in affiliates of less than a 20% interest are 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 Transportation and
Industrial lead acid batteries in the world. The Company markets
Transportation batteries to a broad range of retailers and distributors of
replacement batteries and original equipment manufacturers ("OEM"), primarily
in the automotive industry. The Company's Industrial batteries consist of
Motive Power batteries, such as those used in forklift trucks and other
electric vehicles, and Network Power 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 which was effective April 1, 2000.
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 end-user, retail and 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 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.
In fiscal 2001, the Company terminated its supplier agreement with two
major U.S. automotive retail customers.
F-9
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During fiscal 1999 and 2001 certain of the Company's Transportation
customers declared bankruptcy. In connection with these bankruptcies, the
Company recorded provisions for losses on accounts receivable of $5,800 and
$2,900 during 1999 and 2001, respectively.
In fiscal 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.
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' deficit. Foreign currency gains and losses from certain
intercompany transactions meeting the permanently advanced criteria of
Statement of Financial Accounting Standards ("SFAS") No. 52 "Foreign Currency
Translation" are also recorded as a component of other comprehensive income.
Transaction gains and losses not meeting this permanently advanced criteria
are included in other (income) expense, net. The Company recorded net
transaction (gains) losses of $8,600, $897 and $(1,009) in fiscal 1999, 2000
and 2001, 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 in fiscal 2000.
Property, Plant and Equipment
Property, plant and equipment at March 31 consists of:
2000 2001
-------- --------
Land.................................................... $ 32,659 $ 47,615
Buildings and improvements.............................. 213,143 260,336
Machinery and equipment................................. 528,242 613,988
Construction in progress................................ 16,747 39,294
-------- --------
790,791 961,233
Less - Accumulated depreciation......................... 347,447 328,298
-------- --------
Property, plant and equipment, net.................... $443,344 $632,935
======== ========
Property, plant and equipment are stated at cost. Depreciation is
calculated by the straight-line method over the estimated useful lives of
depreciable assets. Accelerated methods are used for tax purposes. Useful
lives of depreciable assets, by class, are as follows:
Buildings and improvements................................... 5 to 40 years
Machinery and equipment...................................... 3 to 10 years
F-10
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $967, $159 and $160 of interest costs during fiscal
years 1999, 2000 and 2001, respectively. Depreciation expense was $96,750,
$76,257 and $84,568 for fiscal years 1999, 2000 and 2001, respectively.
Goodwill
Goodwill is currently being amortized over 40 years on a straight-line
basis. Accumulated amortization as of March 31, 2000 and 2001, was $84,849 and
$94,132, 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 based on discounted
net cash flows of the related business.
Deferred Financing Costs
Deferred financing costs are amortized to interest expense over the life of
the related debt.
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 interest rate swap agreements to hedge
exposure to 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 foreign exchange rate agreements to hedge
exposure to the currency fluctuation of certain transactions denominated in a
currency other than the applicable local currency. The differential to be paid
or received on these agreements is offset against the applicable transaction
gain or loss. See Risks Associated with International Operations and Currency
Risk below for further discussion.
The Company enters into certain lead forward purchase and put option
agreements to hedge the cost of externally purchased lead. The differential to
be paid or received on these agreements is included in the cost of lead
inventory. See Note 4 for further discussion.
Counterparties to foreign exchange, commodity and interest rate swap and
option agreements are major financial institutions. Management believes the
risk of incurring losses related to credit risk is remote and any losses would
be immaterial.
See Recently Issued Accounting Standards for discussion of the Company's
adoption in fiscal 2002 of 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".
F-11
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Noncurrent Retirement Obligations
Noncurrent retirement obligations consist principally of reserves for
pension obligations, postretirement health care and other retirement benefits.
See Note 6.
Loss Per Share
Basic loss 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 and warrants.
There is no difference between basic and diluted EPS in the periods presented
since the net loss position in each of those years causes these options and
warrants to be antidilutive.
Options to purchase 5,034 and 5,799 shares with exercise prices ranging
from $9.563 to $29.50 and $7.75 to $25.875 were outstanding at March 31, 2000
and 2001, respectively. These options expire in the years 2001 to 2009 and
2002 to 2010, respectively. The current year options include those granted
under the 2000 Broad-Based Stock Incentive Plan. See Note 8.
The loss per share calculations for fiscal 2001 include the impact of the
4,000 shares issued as part of the GNB acquisition consideration during the
portion of the fiscal year these shares were outstanding.
Noncash Activity in Cash Flow Statement
The Company's stock issuance related to the GNB acquisition (see Note 3) is
considered a noncash investing activity in the accompanying consolidated
statements of cash flows. The Company's warrant issuance (see Note 3) related
to the GNB acquisition is considered a non-cash financing activity in the
accompanying consolidated statements of cash flows.
The minimum pension liability adjustment (see Note 6) in fiscal 1999, 2000,
and 2001 is treated as a non-cash operating activity in the accompanying
consolidated statements of cash flows.
The $11,500 consideration in the form of notes payable in fiscal 2000 for
the Lion Compact Energy ("LCE") acquisition (see Note 3) was treated as a non-
cash investing activity in the consolidated statement of cash flows.
Revenue Recognition
The Company records sales when revenue is earned. Revenue recognition for
sales of batteries is based on when title and risk of loss has passed to the
customer, which typically occurs upon product shipment. The Company recognizes
revenues under service agreements when the related service has been provided.
The Securities and Exchange Commission ("SEC") issued Staff Accounting
Bulletin 101 ("SAB 101") in fiscal 2001 to provide guidance on revenue
recognition. This bulletin, which was effective for the Company in the fourth
quarter of fiscal 2001, did not have a significant impact on the Company's
results of operations.
F-12
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advertising
The Company expenses advertising costs as incurred.
Comprehensive Loss
In fiscal 2000, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income" related to the reporting and presentation of comprehensive
income(loss) and its components. 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
intercompany transactions meeting the indefinite reversal criteria to be
included in other comprehensive loss. Prior years' financial statements were
reclassified to conform to these requirements. The minimum pension liability
adjustment was net of deferred tax assets of $960, $156 and $156 as of March
31, 1999, 2000, and 2001, respectively.
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' deficit was unfavorably impacted by the
weakening of major European currencies, as shown in the accompanying financial
statements.
As discussed above, the Company enters into foreign 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 may also enter into 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, 2001, the notional value of open forward exchange contracts and the
related unrealized gains were $223,383 and $3,300, respectively.
Accounting for Shipping and Handling Costs
The Company records shipping and handling costs incurred in cost of sales
and records shipping and handling costs billed to customers in net sales.
In fiscal 2001, the Emerging Issues Task Force issued guidance related to
the classification of shipping and handling activities (EITF 00-10:
Classification of Shipping and Handling). This EITF was effective for the
Company in the fourth quarter of fiscal 2001. The impact of adoption was not
significant.
F-13
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Restatement
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 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, 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 required the Company to
restate for this particular accounting change. As such, retained earnings for
the earliest period presented was reduced by $17,067 therein.
Reclassification
Certain other prior period amounts have been reclassified to conform to the
fiscal 2001 presentation.
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 in the process of completing its evaluation of the
impact of this statement. Currently, the Company does not believe that the
impact of adoption will be material to our consolidated financial position.
The Company is adopting this statement in the first quarter of fiscal 2002.
See Revenue Recognition above for discussion of the Company's adoption of
SAB101.
See Note 10 for discussion of the Company's adoption of SFAS 140
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities: A Replacement of FASB Statement No. 125"("SFAS
140").
2. GLOBAL BUSINESS UNIT STRUCTURE REALIGNMENT:
The Company realigned its business 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. See Note 16.
3. ACQUISITIONS AND DIVESTITURES:
GNB Acquisition
On September 29, 2000, the Company acquired the global battery business of
Australian-based Pacific Dunlop Limited, including its subsidiary GNB
Technologies, Inc. ("GNB"), a leading U.S. and Pacific Rim manufacturer of
both industrial and automotive batteries, for consideration of $379,000
(including $344,000 in cash and 4,000 of the Company's common shares) plus
assumed liabilities. Pacific Dunlop now holds an approximate 16 percent
interest in the outstanding shares of common stock of the Company.
The Company financed the cash portion of the purchase price, including
associated fees and expenses, through an additional $250,000 term loan under
its existing senior secured Global Credit Facilities Agreement,
F-14
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and $100,000 of securitized GNB accounts receivables. The Company also issued
warrants to acquire 1,286 common shares with an exercise price of $8.99 per
share in conjunction with the term loan financing. These warrants are
immediately exercisable.
The acquisition has been accounted for using the purchase method. GNB's
results of operations are included in the accompanying consolidated statement
of operations since the date of acquistion. GNB's preliminary opening balance
sheet is included in the accompanying consolidated balance sheet as of March
31, 2001. This allocation is preliminary and will likely change upon
resolution of open matters including the completion of appraisals and the
final assessment of certain contingencies, including environmental
contingencies, restructuring reserves and other items.
The following unaudited supplemental information reflects the Company's pro
forma results of operations for the periods shown by combining the historical
results of the Company and GNB and including the impact of goodwill
amortization and the impact of other applicable purchase accounting
adjustments, as well as interest expense on acquisition financing, together
with related income tax effects, assuming the acquisition had occurred at the
beginning of the earliest period presented. The pro forma earnings per share
calculations below also include the impact of the four million shares issued
as part of the acquisition consideration. This pro forma information does not
purport to represent what the Company's results of operations would have
actually been had the acquisition occurred as of an earlier date or project
the results of any future period.
Fiscal 2000 (a) Fiscal 2001 (b)
--------------- ---------------
(unaudited) (unaudited)
--------------- ---------------
Net sales.................................. $3,099,573 $2,921,417
Net loss................................... $ (224,870) $ (180,501)
Loss per share:
Basic.................................... $ (8.90) $ (7.09)
Diluted.................................. $ (8.90) $ (7.09)
- --------
(a) Includes the Company's pre-tax charges for certain items (see Note 16)
aggregating $142,600 in fiscal 2000. Also includes GNB fixed asset write-
downs and restructuring pre-tax charges of $75,542 recorded prior to
September 29, 2000.
(b) Includes the Company's pre-tax charges for certain items (see Note 16)
aggregating $169,000 in fiscal 2001. Also includes pre-acquisition GNB
restructuring and environmental pre-tax charges of $21,700 recorded prior
to September 29, 2000.
Lion Compact Energy Acquisition
On September 27, 1999, the Company entered into an agreement to acquire a
controlling interest in 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, $2,500 in fiscal 2001 and will pay $9,000, plus certain royalty
fees, over the next several years based upon the performance of LCE and its
product development. 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 in fiscal 2000. The
purchased in-process research and development had not yet reached
technological feasibility, and the technology had no alternative future use,
as of the date of acquisition.
The $11,500 consideration in the form of notes payable was treated as a
noncash investing activity in the consolidated statements of cash flows.
F-15
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Divestiture of Non-Core Businesses
During the fourth quarter of fiscal 1999, the Company, as part of a
strategic review of its operations, identified certain non-core businesses for
divestiture, and the Board of Directors approved a related divestiture plan.
The Company recorded an impairment charge of $38,600 in cost of sales and
$2,000 in operating expenses in 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 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 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. In fiscal
2001, the Company recorded a charge of $29,000 to cost of sales related to
these minimum annual purchase commitments in connection with renegotiating
this contract as a result of the GNB acquisition.
The Company sold additional non-core businesses in fiscal 2000 and 2001
with cash proceeds of approximately $6,700 and $9,000, respectively.
Sale of Yuasa Investment
On November 10, 2000 the Company sold its 13.5 percent interest in Yuasa
Inc. for $29,900. The Company reported a pre-tax gain in other income of
$13,000 in fiscal 2001 on the sale of this investment.
4. INVENTORIES:
March 31,
------------------
2000 2001
--------- --------
Raw materials........................................... $ 111,168 $108,582
Work-in-process......................................... 64,412 79,767
Finished goods.......................................... 230,140 323,062
--------- --------
$ 405,720 $511,411
========= ========
In connection with the purchase of lead for anticipated manufacturing
requirements, the Company enters into commodity forward purchase and purchased
put option 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 fair 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 until the related inventory is sold. At March 31,
2001, the notional amount of open commodity forward purchase contracts and
purchased put option contracts was $32,534 and $32,580.
5. DEBT:
At March 31, 2000 and 2001, short-term borrowings of $24,666 and $10,387,
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
F-16
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
market rates plus up to one percent. As of March 31, 2000 and 2001, the
weighted average interest rate on these borrowings was 16.4% and 9.5%,
respectively.
Following is a summary of the Company's long-term debt at March 31, 2000
and 2001:
2000 2001
----------- ----------
Senior Secured Global Credit Facilities Agreement --
Borrowings primarily at LIBOR plus 3.75% to 4.50% and
LIBOR plus 2.25% to 3% at a weighted average rate of
8.16% and 9.61% at March 31, 2000 and 2001,
respectively......................................... $ 336,636 $ 587,432
9.125% Senior Notes, (Deutsche mark denominated) due
April 15, 2004....................................... 85,515 78,589
10% Senior Notes, due April 15, 2005.................. 300,000 300,000
Convertible Senior Subordinated Notes, due December
15, 2005............................................. 326,369 337,011
Other, including capital lease obligations (see Note
13), and other loans at interest rates generally
ranging from 3.7% to 11.5% due in installments
through 2015......................................... 45,199 33,627
----------- ----------
1,093,719 1,336,659
Less--Current maturities.............................. (32,047) (28,117)
----------- ----------
$ 1,061,672 $1,308,542
=========== ==========
The Company's $900,000 (including $250,000 to finance the GNB acquisition)
Senior Secured Global Credit Facilities Agreement has three borrowing
Tranches: a $150,000 six year multi-currency term A loan, a $500,000 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. 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 $126,000 at March 31,
2001. The use of such availability may be limited by certain covenants in the
credit agreement. Weighted average interest rates on the Company's pre-GNB
senior secured Global Credit Facilities Agreement debt have increased
approximately 1.5% due to the GNB acquisition. Interest on the GNB acquisition
debt is based on LIBOR plus 4.5%.
The Company is in compliance with its March 31, 2001 bank covenants and
expects to continue to be in compliance prospectively. However, due to current
general economic conditions, the Company felt it prudent to seek revisions of
some of the terms of its financial covenants over the next six quarters in its
Global Credit Facilities Agreement in order to provide flexibility in the
event of further economic weakness. The Company received approval for these
revisions from its lenders in June 2001.
In fiscal 1999 and fiscal 2000, the Company amended certain provisions of
the then existing $650,000 Senior Secured Global Credit Facilities Agreement.
On April 23, 1997, the Company issued 175,000 Deutsche mark (U.S. $96,373)
9.125% Senior Notes due on April 15, 2004.
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
F-17
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
.0125473 shares per $1 principal amount at maturity, subject to adjustments in
certain events.
On June 27, 2001, the Board of Directors approved for submission a proposal
to shareholders, to be voted on at the Company's annual meeting on August 10,
2001, seeking authority for the issuance of up to 20,000 common shares. Such
approval is being requested in order to provide the Company the ability to
exchange common stock for additional portions of the Company's 2.9%
Convertible Subordinated Notes and/or certain portions of the Company's 10%
Senior Notes and 9.125% Senior Notes.
During 2001, the Company had two currency and interest rate swap agreements
which effectively converted $110,500 of borrowings under the senior secured
Global Credit Facilities Agreement and certain intercompany loans into 406,200
French Francs (U.S. $68,500) and 25,200 British pounds sterling (U.S.
$42,000). We received LIBOR and paid PIBOR and pound sterling LIBOR,
respectively. The Company terminated these agreements on December 27, 2000 and
received a cash payment of 13,700 Euros and 3,300 British pounds sterling,
respectively. There was no impact on the consolidated statements of operations
related to these terminations. Simultaneously, the Company entered into two
six month forward contract to continue to hedge these transactions.
During the fourth quarter of fiscal 2000, the Company assigned 382,500
French Francs (U.S. $64,500) of its then existing currency and interest rate
swap agreement to a new counterparty and received a cash payment of 8,500
Euros. Simultaneously, the Company entered into a new 66,800 Euro (U.S.
$64,500) one-year currency and interest rate hedge agreement. The Company
terminated this agreement in the second quarter of fiscal 2001 and received a
cash payment of 6,200 Euros. Simultaneously, the Company entered into a new
73,100 Euro (U.S. $64,500) one-year currency and interest rate hedge agreement
with this same counterparty. The Company receives LIBOR plus 2.25% and pays
Euro LIBOR plus 2.27%.
The Company entered into a $60,000 two year interest rate swap agreement on
October 18, 2000 for which we pay a quarterly fixed rate of 6.55% and receive
a three month LIBOR rate (currently 4.83%). This swap hedges a portion of the
variable interest exposure on our $900,000 Global Credit Facilities Agreement
Tranche B Term Loans.
On January 17, 2001 we entered into an interest rate cap agreement, which
reduces the impact of changes in interest rates on a portion of our floating
rate debt. The cap agreement effectively limits the three-month LIBOR based
interest rate on $70,000 of our U.S. borrowings to no more than 6.5% through
July 17, 2002.
The Company's variable rate based debt was approximately $600,000 at March
31, 2001, of which approximately $130,000 was hedged at March 31, 2001.
Annual principal payments required under long-term debt obligations at
March 31, 2001 are as follows:
Fiscal Year Amount
----------- -----------
2002........................................................... $ 28,117
2003........................................................... 25,001
2004........................................................... 149,001
2005........................................................... 482,610
2006........................................................... 645,366
Thereafter..................................................... 6,564
-----------
$ 1,336,659
===========
F-18
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $6,046, $5,585 and $3,325 in fiscal 1999,
2000 and 2001, 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-19
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 at March 31,
2000 and 2001:
Pension Benefits Other Benefits
------------------- ------------------
2000 2001 2000 2001
-------- --------- -------- --------
Change in benefit obligation:
Benefit obligation at beginning of
year.............................. $295,676 $ 285,791 $ 18,572 $ 15,661
Transfers in from GNB acquisition.. -- 136,024 -- 14,042
Service cost....................... 7,186 9,314 206 256
Interest cost...................... 16,823 22,575 1,085 1,905
Actuarial (gain)/loss.............. (1,949) 16,043 (2,993) 3,087
Plan participants' contributions... 1,062 1,174 -- --
Benefit paid....................... (12,048) (15,963) (1,267) (2,153)
Plan amendments.................... 977 (2,607) -- --
Currency translation............... (14,114) (20,961) 58 (232)
Settlements and Other.............. (7,822) (914) -- --
-------- --------- -------- --------
Benefit obligation at end of
year............................. $285,791 $ 430,476 $ 15,661 $ 32,566
======== ========= ======== ========
Change in plan assets:
Fair value of plan assets at
beginning of year................. $187,227 $ 194,055 $ -- $ --
Transfers in from GNB acquisition.. -- 143,043 -- --
Actual return on plan assets....... 17,820 (20,904) -- --
Employer contributions............. 9,532 3,218 1,267 2,153
Plan participants' contributions... 1,062 1,174 -- --
Benefits paid...................... (12,048) (15,963) (1,267) (2,153)
Currency translation............... (1,193) (12,024) -- --
Settlements and other.............. (8,345) 4,610 -- --
-------- --------- -------- --------
Fair value of plan assets at end
of year.......................... $194,055 $ 297,209 $ -- $ --
======== ========= ======== ========
Reconciliation of funded status:
Funded status...................... $(91,736) $(133,267) $(15,661) $(32,566)
Unrecognized net transition
obligation........................ 220 94 998 857
Prior service cost................. 2,939 2,375 -- --
Actuarial loss..................... 3,337 31,708 1,332 4,197
Contributions after measurement
date.............................. 230 3 -- --
-------- --------- -------- --------
Net amount recognized............. $(85,010) $ (99,087) $(13,331) $(27,512)
======== ========= ======== ========
Amounts recognized in statement of
financial position:
Prepaid benefit cost............... $ 22,592 $ 31,547 $ -- $ --
Accrued benefit cost............... (111,920) (169,103) (13,331) (27,512)
Intangible asset................... 2,069 1,759 -- --
Accumulated other comprehensive
loss.............................. 2,249 36,710 -- --
-------- --------- -------- --------
Net amount recognized............. $(85,010) $ (99,087) $(13,331) $(27,512)
======== ========= ======== ========
Pension Benefits Other Benefits
------------------- ------------------
2000 2001 2000 2001
-------- --------- -------- --------
Weighted-average assumptions as of
March 31:
Discount rate...................... 6.6% 6.7% 8.0% 7.5%
Expected return on plan assets..... 7.7% 8.5% -- --
Rate of compensation increase...... 4.3% 4.4% -- --
F-20
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For measurement purposes, an 8.0% and an 7.0% annual rate of increase in
the per capita cost of covered health care benefits was assumed for 2000 and
2001, respectively. The rate was assumed to decrease gradually to 5.0% for
fiscal 2004 and remain at that level thereafter.
The following table sets forth the plans' expense recognized in the
Company's consolidated financial statements:
Pension Benefits Other Benefits
------------------------- --------------------
1999 2000 2001 1999 2000 2001
------- ------- ------- ------ ------ ------
Components of net periodic
benefit cost:
Service cost................ $ 7,428 $ 7,186 $ 9,314 $ 195 $ 206 $ 256
Interest cost............... 18,149 16,823 22,575 1,266 1,085 1,905
Expected return on plan
assets..................... (14,318) (14,193) (21,271) -- -- --
Amortization of net-
Transition obligation..... 31 30 28 64 65 64
Prior service cost........ 267 357 256 -- -- --
(Gain) / Loss............. (48) (10) 190 -- -- 125
------- ------- ------- ------ ------ ------
Net periodic benefit cost
(a)........................ $11,509 $10,193 $11,092 $1,525 $1,356 $2,350
======= ======= ======= ====== ====== ======
- --------
(a) Excludes the impact of curtailments of $(706), $1,083 and $(986) in fiscal
1999, 2000 and 2001, 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 $149,988, $141,986 and $38,805,
respectively, as of March 31, 2000 and $319,929, $314,287 and $186,883,
respectively as of March 31, 2001.
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 One
Percentage- Percentage-
Point Point
Increase Decrease
----------- -----------
Effect on total of service and interest cost
components....................................... $ 201 $ (167)
Effect on the postretirement benefit obligation... $1,898 $(1,640)
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 20% 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 20% or more of the outstanding
F-21
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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:
On August 10, 2000, the Board of Directors adopted the 2000 Broad Based
Stock Incentive Plan (the "2000 Plan"). The plan states that all employees of
the Company are eligible for awards under the plan except those employees
subject to Section 16 of the Exchange Act including Officers as defined in
Rule 16a-1(f) under the exchange act and Directors as defined in Section 3
(a)(7) of the Exchange Act. The award type most frequently used is the non-
qualified stock option with an exercise price fixed at 100% of the fair market
value of a share of the Company's common stock on the date of grant. Non-
qualified options generally become exercisable in cumulative installments of
25% one year after the date of grant and annually thereafter, and must be
exercised no later than ten years from the date of grant. Initially, 2,000
awards may be granted under the 2000 Plan. On the first anniversary of the
effective date of the 2000 Plan and each nine anniversaries thereafter, the
total amount of awards may increase by an amount equal to one percent of the
number of shares of Common Stock outstanding on that day. At March 31, 2001,
1,069 shares remain available for grant under this plan.
The Company's shareholders approved the 1999 Stock Incentive Plan effective
August 11, 1999 under which executives and key 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.
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 addition to the stock options reported in the stock
option summary table, 28 shares of common stock were granted during fiscal
2001 as part of the Board of Director's compensation package. At March 31,
2001, 530 shares remain available for grant under this plan.
During the 2001 fiscal year, the Board of Directors approved option grants
to four new members of the Company's executive team as part of each
executive's employment. 640 options were authorized and granted by the Board
of Director's to the executives. These options expire ten years from the date
of grant, have exercise prices based on the fair market value of the Company's
common stock on the date of grant, and vest at a rate of 25% per year on each
anniversary date of their employment.
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
("1997 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
F-22
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. No further awards will be granted under the 1997 Plan.
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 10 and 29 shares were granted during fiscal 1999 and 2000,
respectively. The market value of the shares awarded on the date of the fiscal
1999 and 2000 grants was $149 and $312, respectively, and was charged to
expense at the grant date.
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 could have been granted pursuant to the
Incentive Stock Plan is 700 shares. No further awards will be granted under
this plan.
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 795 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. As of March 31, 2001 there were 29 restricted shares that remain
vested and unpurchased by the awardees.
F-23
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock grant and option transactions are summarized as follows:
Weighted
Average Exercise
Stock Price of
Options Stock Options
------- ----------------
Shares under option:
Outstanding at March 31, 1998............... 2,472 $18.69
Granted.................................... 1,840 $10.13
Exercised.................................. -- --
Forfeited.................................. (848) $19.64
------ ------
Outstanding at March 31, 1999............... 3,464 $13.91
------ ------
Granted.................................... 1,987 $11.32
Exercised.................................. (1) $16.63
Forfeited.................................. (416) $14.57
------ ------
Outstanding at March 31, 2000............... 5,034 $12.85
------ ------
Granted.................................... 1,870 $ 8.82
Exercised.................................. -- --
Forfeited.................................. (1,105) $13.45
------ ------
Outstanding at March 31, 2001............... 5,799 $10.99
------ ------
Options available for grant at March 31,
2001....................................... 1,599
------
Exercisable at March 31, 1999.............. 664 $18.37
Exercisable at March 31, 2000.............. 1,243 $14.64
Exercisable at March 31, 2001.............. 2,036 $12.02
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 8.2 years at March 31, 2001 with the exercise prices for
these options ranging from $7.75 to $25.875.
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 loss and net loss per share would have been the pro forma amounts indicated
below:
Fiscal Year Ended March 31,
-------------------------------
1999 2000 2001
--------- --------- ---------
Net loss:
As reported............................ $(126,994) $(136,042) $(164,585)
Pro forma.............................. $(127,580) $(142,798) $(172,962)
Basic net loss per share:
As reported............................ $ (5.98) $ (6.40) $ (7.02)
Pro forma.............................. $ (6.01) $ (6.72) $ (7.38)
Diluted net loss per share:
As reported............................ $ (5.98) $ (6.40) $ (7.02)
Pro forma.............................. $ (6.01) $ (6.72) $ (7.38)
F-24
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 1999, 2000
and 2001:
Fiscal Year Ended March 31,
----------------------------------------
1999 2000 2001
-------------- ------------ ------------
Volatility...................... 32.0% -- 32.5% 34.8% 56.1%
Risk-free interest rate......... 4.8% -- 4.9% 6.0% -- 6.8% 4.6% -- 6.7%
Expected life in years.......... 6.0 -- 8.0 10.0 5.0
Dividend yield.................. 0.6% 0.9% 1.0%
Volatility for the fiscal 2001 calculation was estimated using the
Company's historical stock price data. Volatility for the fiscal 2000 and
fiscal 1999 calculations were estimated using certain of the Company's peer
group's historical stock price data.
9. INCOME TAXES:
The provision for income taxes includes federal, state and foreign taxes
currently payable and those deferred because of net operating losses and
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, 1999, 2000 and 2001, are as follows:
1999 2000 2001
------- -------- --------
Current:
Federal............................... $ -- $ -- $ --
State ................................ 200 130 --
Foreign............................... 13,695 (5,560) 20,001
------- -------- --------
13,895 (5,430) 20,001
------- -------- --------
Deferred:
Federal............................... -- (11,031) (2,424)
State................................. -- (1,261) --
Foreign............................... 9,106 28,491 (8,945)
------- -------- --------
9,106 16,199 (11,369)
------- -------- --------
Total provision......................... $23,001 $ 10,769 $ 8,632
======= ======== ========
Major differences between the federal statutory rate and the effective tax
rate are as follows:
1999 2000 2001
------- -------- --------
Federal statutory rate.................. (35.0)% (35.0)% (35.0)%
State taxes, net of federal benefit .... 0.1 0.1 0.0
Nondeductible goodwill.................. 6.2 4.5 3.2
Difference in rates on foreign
subsidiaries........................... 0.2 0.3 0.2
Tax losses not benefited................ 52.7 40.6 27.2
U.S. Attorney fine...................... -- -- 6.1
Purchased research and development...... -- 4.0 --
Other, net.............................. (2.4) (5.8) 3.9
------- -------- --------
Effective tax rate...................... 21.8% 8.7% 5.6%
======= ======== ========
F-25
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of March 31, 2000 and 2001:
2000 2001
--------- ---------
Deferred tax assets:
Operating loss and tax credit carryforwards....... $ 213,534 $ 233,446
Compensation reserves............................. 19,497 41,062
Environmental reserves............................ 13,354 32,463
Bad debt.......................................... 13,376 13,720
Self-insurance.................................... 5,604 2,175
Warranty.......................................... 12,034 14,793
Asset and other realization reserves.............. 18,086 17,723
Other............................................. 34,150 75,833
Valuation allowance............................... (266,304) (362,021)
--------- ---------
63,331 69,194
--------- ---------
Deferred tax liabilities:
Inventory basis difference........................ (5,610) --
--------- ---------
(5,610) --
--------- ---------
Net deferred tax assets............................. $ 57,721 $ 69,194
========= =========
As of March 31, 2001, the Company has net operating loss carryforwards for
U.S. income tax purposes of approximately $294,600 which expire in years 2005
through 2021. As of March 31, 2001, certain of the Company's foreign
subsidiaries have net operating loss carryforwards for income tax purposes of
approximately $271,900, of which approximately $53,700 expire in years 2002
through 2011. 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 deductible temporary differences for which it
is more likely than not that the related tax benefits will not be realized.
The Company's net deferred tax assets include certain amounts of net
operating loss carryforwards as well as certain tax deductible temporary
differences which management believes are realizable through a combination of
forecasted future taxable income and anticipated tax planning strategies. 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, 2001, 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
F-26
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the financial institution committed to purchase on a continuous basis, with
limited recourse, all right, title and interest in these receivables up to a
maximum net investment of $175,000. As of March 31, 2000 and 2001, net
uncollected receivables sold under the European Agreement were $147,628 and
$148,717, respectively. The Company continues to service these receivables
under the terms of the European Agreement.
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. The Company continues to service these receivables under the terms
of the U.S. Agreement.
In conjunction with the GNB acquisition, the Company amended the terms of
the U.S. Agreement to increase the maximum net investment to $200,000. The
Company securitized $125,000 (including $100,000 as part of the GNB
acquisition financing; see Note 3) of additional receivables as part of the
U.S. Agreement.
As of March 31, 2000 and 2001, net uncollected receivables sold under the
U.S. Agreement were $60,500 and $140,717, respectively.
Losses and expenses related to receivables sold under these agreements for
fiscal years 1999, 2000 and 2001 were $12,515, $13,958 and $16,438,
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."
The Company will adopt SFAS No. 140 in the beginning of fiscal 2002 for
transfers of receivables after March 31, 2001. The provisions of SFAS No.140
are substantially the same as SFAS 125. The Company has concluded that SFAS
No. 140 will not have a significant impact on the Company's results of
operations.
11. 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 long-term business, cash flows, financial condition or
results of operations. The Company believes that it is in substantial
compliance with all material environmental, health and safety requirements.
North America
The Company has been advised by the U.S. Environmental Protection Agency
("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 89 federally defined Superfund or state
F-27
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
equivalent sites (including 16 GNB sites). At 60 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 or
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 of waste to each
site, is included in the environmental remediation reserves discussed below.
Because the Company's liability under such statutes may be imposed on a
joint and several basis, the Company's liability may not necessarily be based
on volumetric allocations and could be greater than the Company's estimates.
Management believes, however, that its PRP status at these Superfund sites
will not have a material adverse effect on the Company's business or financial
condition because, based on the Company's experience, it is reasonable to
expect that the liability will be roughly proportionate to its volumetric
contribution of waste to the sites.
The Company currently has greater than 50% liability at five Superfund
sites. Other than these sites, the Company's allocation exceeds 5% at seven
sites for which the Company's share of liability has not been paid as of March
31, 2001. The current allocation at these seven sites averages approximately
22%.
The Company is also involved in the assessment and remediation of various
other properties, including certain Company owned or operated facilities. Such
assessment and remedial work is being conducted pursuant to a number of state
and federal environmental laws and with varying degrees of involvement by
state and federal authorities. Where probable and reasonably estimable, the
costs of such projects have been accrued by the Company, as discussed below.
In addition, certain environmental matters concerning the Company are pending
in federal and state courts or with certain environmental regulatory agencies.
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 its 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. 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 more stringent enforcement of
existing requirements in each country.
While the ultimate outcome of the foregoing environmental matters is
uncertain, after consultation with legal counsel, management does not believe
the resolution of these matters, individually or in the aggregate, will have a
material adverse effect on the Company's long-term business, cash flows,
financial condition or results of operations.
The Company has established reserves for on-site and off-site environmental
remediation costs and believes that such reserves are adequate. As of March
31, 2001 the amount of such reserves on the Company's consolidated balance
sheet was $88,100, including $62,000 related to GNB facilities. Of this
amount, $68,200 was included in other noncurrent liabilities. The reserve
recorded in the GNB purchase accounting is based on a preliminary assessment
and may change upon determination of existing environmental contingencies
prior to the finalization of the opening balance sheet.
F-28
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Because environmental liabilities are not accrued until a liability is
determined to be probable and reasonably estimable, not all potential future
environmental liabilities have been included in the Company's environmental
reserves and, therefore, additional earnings charges are possible. Also,
future findings or changes in estimate could have a material effect on the
recorded reserves.
12. 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.
. 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 Notes
are traded occasionally in public markets.
The carrying values and estimated fair values of these obligations are as
follows at March 31, 2000 and 2001:
2000 2001
----------------- -----------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- --------
10.00% Senior Notes................... $300,000 $285,000 $300,000 $228,000
Senior Notes (Deutsche mark
9.125% denominated)................... 85,515 83,829 78,589 61,299
Convertible Senior Subordinated
2.90% Notes.......................... 326,369 218,845 337,011 170,710
. Interest rate swap and option agreements have no carrying value;
however, if the Company were to terminate these agreements at March 31,
2000 and 2001, the Company would have collected $11,748 and paid $292,
respectively, based on quotes from financial institutions.
. Lead forward, option and futures contracts -- The estimated fair value
of outstanding lead contracts was ($25) at March 31, 2001 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, 2000, the fair value of
foreign currency contracts was approximately ($1,610). As of March 31,
2001, the fair value of these contracts was approximately $3,300.
F-29
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. COMMITMENTS AND CONTINGENCIES:
In fiscal 2001, Exide made substantial progress in resolving the vast
majority of claims relating to the conduct of its former management team.
In March, 2001, Exide settled a number of matters pending in state and
federal courts that alleged that Exide sold old or used batteries as new
batteries, sold defective and mislabeled batteries and improperly credited
customer accounts. The cases included: Martin v. Exide, filed July 13, 1998 in
the United States District Court for the District of South Carolina, Columbia
Division, settled March 1, 2001 and the following actions, all of which were
settled March 29, 2001: 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. Pursuant
to these four settlements, the Company paid approximately $7,000 and agreed to
provide the Martin plaintiffs with 25% discounts on the purchase of new
batteries until April 2004.
Exide also reached, in June 2001, a settlement-in-principle with the
Mississippi Attorney General, resolving the last open enforcement action by a
governmental agency, relating to the conduct of former management.
The sole remaining action with allegations similar to the settled cases
referenced above is Houlihan v. Exide, brought under a unique California
statute, filed December 6, 1999 in the Superior Court for the State of
California, County of Los Angeles. In March 2001, the original plaintiff in
this action, Thomas M. Mills, purported to assign his "claim" to Ms. Houlihan.
Trial is set for August 13, 2001.
The Company reserved $13,400 for the above matters in fiscal 2000.
On March 23, 2001, Exide also reached a plea agreement with the U.S.
Attorney for the Southern District of Illinois, resolving an investigation of
the conduct of former management. Under the terms of that settlement Exide
will pay a fine of $27,500 over five years, and agrees to cooperate with the
U.S. Attorney in his prosecution of certain members of the former management
team. The payment terms are dependent upon the Company's compliance with the
plea agreement during the five-year period. The plea agreement has been lodged
with the U.S. District Court for the Southern District of Illinois, which may
accept or reject the plea agreement. Although the court's decision is not
expected until later this year, management does not believe that the final
plea agreement will materially differ from the plea agreement reached with the
U.S. Attorney.
On March 22, 2001, the U.S. Attorney unsealed the indictments of Arthur M.
Hawkins, former Chairman, President & Chief Executive Officer of Exide,
Douglas N. Pearson, the former President, North American Operations of Exide,
and Alan E. Gauthier, the former Chief Financial Officer of Exide, for their
conduct during the time they served as officers of Exide. Exide is cooperating
fully with the U.S. Attorney in the criminal prosecution of these former
officers.
Exide is currently involved in litigation with the former members of its
management referenced above. One of these cases, 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
and causes of action for violation of ERISA and breach of contract. Exide has
filed a counterclaim asserting fraud, breach of fiduciary duty,
misappropriation of corporate assets and civil conspiracy. Mr. Hawkins also
alleges in Hawkins v. Exide, filed April 3, 2000, in the United States
District for the Eastern District of Michigan, cancellation without notice of
240.406 shares of restricted stock. Exide's answer denied the substantive
allegations. The parties agreed to seek consolidation of these two actions. At
the request of Mr. Hawkins, both actions were stayed January 24, 2001. On May
25, 2001, Exide filed a suit in the Circuit Court of Oakland County, MI, for a
determination that Exide is not obligated to advance attorney's fees and
expenses to Hawkins for claims arising in past and pending civil and criminal
matters. Mr. Hawkins has not yet answered Exide's complaint.
F-30
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 on January 18, 2000. Both cases were stayed at the request
of Messrs. Pearson and Gauthier on October 10, 2000. In April and June 2001,
Exide was ordered to advance reasonable litigation expenses and undetermined
copying costs incurred by Messrs. Gauthier and Person in connection with the
grand jury 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. In April 2001, the parties reached a settlement-in-
principle which will not require any payments to either party.
Exide is now involved in several lawsuits pending in state and federal
courts in South Carolina, Pennsylvania, Indiana, and Tennessee. These actions
allege that Exide and its predecessors allowed hazardous materials used in the
battery manufacturing process to be released from certain of its facilities,
allegedly resulting in personal injury and/or property damage. 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. 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. The following lawsuit of this type is currently pending in
the United States District Court for the Southern District of Indiana: Strange
v. Exide. Finally, the following lawsuit of this type is pending in the
Circuit Court of Shelby County, Tennessee: Cawthon v. Exide, et al. Discovery
in the South Carolina and Pennsylvania cases is ongoing; discovery has not yet
begun in the Indiana and Tennessee cases.
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. JCI alleges that
Exide, through Messrs. Hawkins, Gauthier, Pearson and Calio, paid bribes to a
Sears employee, Gary Marks, to induce him to award Sears' 1994 battery supply
contract to Exide rather than JCI. JCI asserts claims against Exide for
violation of section 2(c) of the Robinson-Patman Act and tortious interference
with a prospective business opportunity. JCI asserts claims against Hawkins,
Gauthier and Pearson for violation of the Racketeer Influenced and Corrupt
Organizations Act and tortious interference with a prospective business
opportunity. On February 2, 2001, the Court granted Exide's motion to dismiss
JCI's Robinson-Patman Act claims; the Court reaffirmed this result on April 2,
2001, after JCI filed its First Amended Complaint. JCI has since filed a
Second Amended Complaint, which introduces new factual and legal theories.
Exide has filed a motion to dismiss four of these new claims. That motion is
currently pending before the Court.
During fiscal 2001, the Company was involved in a dispute with a customer
over a battery supply contract entered into by GNB Technologies in January
2000. An investigation by the Company into the circumstances surrounding the
contract disclosed evidence that caused the Company to repudiate the contract.
The customer subsequently sued the Company over the repudiation. Based on the
Company's projections, performance of the contract through its full term would
have resulted in substantial losses. During the litigation, the Company
F-31
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
supplied product to the customer on an interim basis at increased selling
prices. In March 2001, the Company and the customer reached a settlement of
their respective claims, resulting in the Company paying a net amount of
$9,500. The net settlement amount factored in the increased selling prices
received by the Company during the interim period. The contract in question
was terminated and the parties agreed to release all related claims against
each other.
The Company is involved in various other claims and litigation incidental
to the conduct of its business. Based on consultation with legal counsel,
management does not believe that any such claims or litigation to which the
Company is a party, either individually or in the aggregate, will have a
material adverse effect on the Company's financial condition, cash flows or
results of operations, although quarterly or annual operating results may be
materially affected.
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, 2001, are:
Fiscal Year Operating Capital
----------- --------- -------
2002..................................................... $ 54,297 $ 5,199
2003..................................................... 46,761 3,220
2004..................................................... 37,147 3,251
2005..................................................... 29,672 3,261
2006..................................................... 21,258 3,145
Thereafter............................................... 31,079 12,025
-------- -------
Total minimum payments................................... $220,214 $30,101
======== =======
Less--Interest on capital leases......................... 6,088
-------
Total principal payable on capital leases (included in
Note 5)................................................. $24,013
=======
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 and are being recognized ratably over the life
of the leases.
Rent expense amounted to $57,264, $54,680 and $68,364 for fiscal years
1999, 2000 and 2001, 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.
14. RESTRUCTURING AND OTHER:
The Company has been pursuing its strategy of growing its industrial
business and restructuring its transportation business to improve earnings and
cash flow. In fiscal 2001 and the fourth quarter of fiscal 2000, the Company
implemented certain restructuring actions related to this strategy, including
actions in connection
F-32
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
with the GNB acquisition. The Company recorded restructuring charges
aggregating $97,400 in fiscal 2001, included in restructuring and other in the
accompanying consolidated statement of operations. The Company also recorded
$6,800 of professional fees related to the GNB acquisition and integration and
$9,000 of other merger and integration costs.
The fiscal 2001 restructuring charges are comprised of:
. $63,100 related to actions taken in the fourth quarter for:
. the closure of an automotive battery plant in the U.S.
. workforce reductions at two manufacturing facilities in Europe
. the reorganization of the Company's European Transportation business
sales force
. $9,200 related to actions taken in the third quarter for:
. the closing or sale of 27 of the Company's distribution facilities
. the consolidation of the Company's European accounting activities
into a shared services operation
. $25,100 in the second quarter for:
. the closure of the Maple, Ontario automotive manufacturing operations
. the closure of branches and offices
. severance and other costs for reductions in staff.
The Company subsequently decided to redevelop its Maple facility for
Industrial battery manufacturing.
The Company also announced the closures of GNB's Dallas, Texas and Dunmore,
Pennsylvania facilities as well as the closure of certain GNB distribution
centers and sales branches. The Company recorded $28,800 of related
restructuring reserves in the GNB purchase accounting.
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 was in contrast to the Company's geographic based structure in place
through March 31, 2000 (see Note 16).
The Company recorded related restructuring charges of $39,336 in fiscal
2000, consisting of:
. $20,000 in severance benefits and
. $19,336 for targeted plant and branch closings.
The charges relate to the:
. closure of the Reading, Pennsylvania plant
. closure of six branches in the U.S. and
. headcount reductions of 168 employees in the U.S. and Europe.
Through March 31, 2000, $13,282 of charges against this reserve have
occurred, including $2,610 of severance benefits paid and $10,672 of asset
write-downs.
F-33
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summarized restructuring reserve activity for this restructuring program is
as follows:
Severance Closure
Costs Writeoffs Costs Total
--------- --------- ------- --------
Balance at March 31, 2000............ $ 14,013 $ -- $ 8,664 $ 22,677
Fiscal 2001 charges to income........ 29,200 39,509 28,691 97,400
Fiscal 2001 charges to GNB opening
balance sheet....................... 13,000 -- 15,849 28,849
Payments and charge-offs............. (19,100) (39,509) (7,600) (66,209)
Currency changes..................... (1,560) -- (1,040) (2,600)
-------- -------- ------- --------
Balance at March 31, 2001............ $ 35,553 $ -- $44,564 $ 80,117
======== ======== ======= ========
The current portion of this reserve is $47,785 at March 31, 2001. Remaining
expenditures will occur over the next several years as permitted under
applicable regulations and in accordance with existing contracts.
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 had occurred consisting of
$133,300 of severance benefits paid with the remaining amount associated with
plant closing costs. Remaining charge-offs of $7,800 occurred in fiscal 2001.
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of the Company's unaudited quarterly
consolidated results of operations for fiscal years 2000 and 2001:
Fiscal Quarter Ended
------------------------------------------
October
July 2, 1, 2000 December 31, March 31,
2000 (a) 2000 (a) 2001 (a)
-------- -------- ------------ ---------
Net Sales......................... $465,800 $494,174 $764,385 $ 707,743
Gross profit...................... 123,438 135,403 182,296 141,642
Net income (loss)................. (9,355) (14,534) 3,968 (144,664)
Basic earnings (loss) per share... $ (0.44) $ (0.68) $ 0.16 $ (5.67)
Diluted earnings (loss) per
share............................ $ (0.44) $ (0.68) $ 0.15 $ (5.67)
Fiscal Quarter Ended
------------------------------------------
July 4, October January 2, March 31,
1999 3, 1999 2000 (b) 2000 (b)
-------- -------- ------------ ---------
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 (loss) per share... $ (0.44) $ 0.20 $ (0.17) $ (5.99)
Diluted earnings (loss) per
share............................ $ (0.44) $ 0.20 $ (0.17) $ (5.99)
- --------
(a) Includes the Company's pre-tax charges for certain items (see Note 16)
aggregating $169,000 in fiscal 2001 with $30,000, $3,981 and $135,000
recorded in the second quarter, third quarter and fourth quarter,
respectively, of fiscal 2001.
(b) Includes the Company's pre-tax charges for certain items (see Note 16)
aggregating $142,600 in fiscal 2000 with $17,475 and $125,125 recorded in
the third quarter and fourth quarter, respectively, of fiscal 2000.
F-34
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. BUSINESS SEGMENTS:
As discussed in Note 2, the Company realigned 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 replaced the Company's geographic based structure in place through
March 31, 2000.
The Company now operates its battery business within the Industrial and
Transportation segments. Industrial applications include Network Power
batteries for telecommunications systems, fuel cell load leveling, electric
utilities, railroads, photovoltaic and other critical uninterruptible power
supply markets as well as Motive Power batteries for a broad range of
equipment uses including lift trucks, mining and other commercial vehicles.
Transportation uses include automotive, heavy duty, agricultural, marine and
other batteries, as well as new technologies being developed for hybrid
vehicles and new 42-volt automobile applications.
Intersegment sales are not material. The prior year segment data below has
been restated to reflect the current year presentation. Certain asset
information required to be disclosed is not reflected below as it is not
allocated by segment nor utilized by management in the Company's operations.
Selected financial information concerning the Company's reportable segments
are as follows:
Fiscal 2001
-------------------------------------------------
Industrial Transportation Other (a) Consolidated
---------- -------------- --------- ------------
Net sales................... $ 909,571 $ 1,522,531 $ -- $ 2,432,102
Gross profit................ $ 280,482 $ 302,297 $ -- $ 582,779
Operating income(loss)...... $ 85,378 $ (65,072) $ (63,717) $ (43,411)
Depreciation and
amortization............... $ 29,822 $ 53,078 $ 16,695 $ 99,595
Fiscal 2000
-------------------------------------------------
Industrial Transportation Other (a) Consolidated
---------- -------------- --------- ------------
Net sales................... $ 707,589 $ 1,486,858 $ -- $ 2,194,447
Gross profit................ $ 210,583 $ 321,909 $ -- $ 532,492
Operating income (loss)..... $ 42,923 $ 14,037 $ (60,477) $ (3,517)
Depreciation and
amortization............... $ 27,723 $ 51,732 $ 16,251 $ 95,706
Fiscal 1999
-------------------------------------------------
Industrial Transportation Other (a) Consolidated
---------- -------------- --------- ------------
Net sales................... $ 730,267 $ 1,644,011 $ -- $ 2,374,278
Gross profit................ $ 222,516 $ 336,741 $ -- $ 559,257
Operating income (loss)..... $ 45,809 $ 21,858 $ (32,808) $ 34,859
Depreciation and
amortization............... $ 30,102 $ 71,626 $ 21,425 $ 123,153
(a) Includes certain corporate expenses as well as goodwill amortization.
The following additional notes relate to the above segment table:
Fiscal 2001
. Fiscal 2001 Industrial gross profit includes a $7,800 charge related to
the earnings effect of recording inventory at market value as part of
the acquisition of GNB (see Note 3).
. Fiscal 2001 Transportation gross profit includes $32,400 of charges
including $29,000 related to commitments for future purchases of
materials in excess of current expected requirements (see Note 3) and
$3,400 of inventory write-offs associated with the Company's
restructuring and integration initiatives program.
F-35
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
. Fiscal 2001 Industrial operating income includes $1,491 of restructuring
charges (see Note 14) and the $7,800 charge to gross profit described
above.
. Fiscal 2001 Transportation operating income includes the $32,400 of
charges to gross profit described above plus $65,600 for restructuring
and integration initiatives (see Note 14), $31,000 for the fine and
associated costs resulting from the plea agreement related to past
improper business practices of the Company's former management (see Note
13) and $1,900 for bad debt write-offs related to the Company's
restructuring and integration initiatives.
. Fiscal 2001 non-segment operating loss includes $46,200 for
restructuring and integration initiatives(see Note 14).
Fiscal 2000
. Fiscal 2000 Industrial net sales includes $2,100 for non-cash warranty
charges.
. Fiscal 2000 Transportation net sales includes $21,800 for non-cash
warranty charges.
. Fiscal 2000 Industrial gross profit includes $2,600 of charges including
$2,100 of non-cash warranty charges to net sales described above and
$500 of asset write-downs.
. Fiscal 2000 Transportation gross profit includes $57,000 of charges
consisting of $21,800 of non-cash warranty charges to net sales
described above, $21,600 for the divestiture of certain non-core
businesses (see Note 3), $10,600 of asset write-downs and $3,000 of
additional non-cash environmental reserves.
. Fiscal 2000 Industrial operating income includes the $2,600 of charges
to gross profit described above plus $500 of other non-cash charges.
. Fiscal 2000 Transportation operating income includes the $57,000 of
charges to gross profit described above and $27,500 of operating
expenses including restructuring charges.
. Fiscal 2000 non-segment operating loss includes $41,700 of nonrecurring
charges including a $14,262 charge for the write-off of in process
research and development costs related to the acquisition of a
controlling interest in Lion Compact Energy (see Note 3) and other
charges for restructuring and integration initiatives (see Note 14).
Fiscal 1999
. Fiscal 1999 Transportation net sales includes $10,300 for certain non-
cash charges.
. Fiscal 1999 Transportation gross profit includes $64,100 of charges to
cost of sales including:
. a $44,300 charge related to write-downs associated with exiting non-
core business activities and the closure of certain facilities
. $6,600 loss on lead hedging contracts in North America
. $6,100 charge for an adverse appellate court ruling in a patent
infringement lawsuit
. $3,700 charge for the write-off of inventory and equipment related
to an abandoned project
. $2,100 charge for the write-off of unsaleable inventory specified
for the Russian market and
. $1,300 of other nonrecurring costs.
F-36
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
. Fiscal 1999 Transportation operating income includes the $64,100 of
charges to cost of sales described above plus $28,800 of operating
expenses including:
. $8,800 related to specific legal expenses, including settlement of
the Florida Attorney General investigation
. $8,500 for increased bad debt reserves primarily related to North
American customers who filed for bankruptcy
. $4,800 for uncollectible receivables from sales in Russia
. $2,400 relating to write-downs associated with exiting non-core
business activities
. $2,400 for the write-off of goodwill associated with the closure of
a smelter operation and the write-off of impaired goodwill from
certain prior branch acquisitions and
. $1,900 of other nonrecurring costs.
. Fiscal 1999 non-segment operating loss includes $7,100 related to
separation packages of 25 executives and additional retirement charges.
Geographic information is as follows:
Revenues from External Customers
--------------------------------
1999 2000 2001
---------- ---------- ----------
United States............................. $ 837,111 $ 729,153 $1,038,364
France.................................... 261,762 241,136 225,066
Germany................................... 452,770 417,167 371,542
UK........................................ 259,106 239,784 221,713
Italy..................................... 173,210 169,627 151,843
Spain..................................... 193,974 191,390 175,194
Other..................................... 196,345 206,190 248,380
---------- ---------- ----------
Total..................................... $2,374,278 $2,194,447 $2,432,102
========== ========== ==========
Long-Lived Assets
--------------------------------
1999 2000 2001
---------- ---------- ----------
United States............................. $ 131,462 $ 110,740 $ 374,467
France.................................... 46,309 39,646 36,693
Germany................................... 87,638 74,226 69,581
UK........................................ 56,444 54,936 35,338
Italy..................................... 45,096 37,147 33,690
Spain..................................... 71,776 75,182 70,773
Other..................................... 104,977 51,467 12,393
---------- ---------- ----------
Total..................................... $ 543,702 $ 443,344 $ 632,935
========== ========== ==========
F-37
SCHEDULE II
EXIDE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(Amounts in thousands)
Balance
Balance at Additions at end
Beginning Charged to of
of period Expense Charge-offs Other (1) period
---------- ---------- ----------- --------- -------
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
======= ======= ======= ====== =======
Year ended March 31,
2001:
Allowance for doubtful
accounts.............. $64,177 12,066 (37,062) (5,584) $33,597
======= ======= ======= ====== =======
Restructuring charges.. $30,477 126,249 (2) (73,009) (2,600) $80,117
======= ======= ======= ====== =======
(1) Primarily the impact of currency changes as well as the acquisitions
and divestitures of certain businesses.
(2) Includes $28,849 of charges recorded in GNB's opening balance sheet.
F-38