<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the fiscal quarter ended October 1, 1995
Commission File Number 1 - 11263
EXIDE CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-0552730
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 N. Woodward Ave., Bloomfield Hills, Michigan 48304
- --------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
(810) 258-0080
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
As of November 13, 1995, 20,578,290 shares of common stock were outstanding.
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
- --------------------------------
Item 1. Financial Statements (unaudited except for March 31, 1995
Consolidated Balance Sheet).
-- Condensed Consolidated Balance Sheets --
October 1, 1995 and March 31, 1995.
-- Condensed Consolidated Statements of Operations --
for the three and six months ended October 1, 1995 and
for the three and six months ended October 2, 1994.
-- Consolidated Statements of Cash Flows --
for the six months ended October 1, 1995 and
for the six months ended October 2, 1994.
-- Notes to Condensed Consolidated Financial Statements --
October 1, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
- ----------------------------
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Selected Financial Data
6 (a). Exhibits filed with this report.
Exhibit 27 - Financial Data Schedules
SIGNATURE
- ---------
1
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per-share data)
<TABLE>
<CAPTION>
October 1, March 31,
1995 1995
(Unaudited)
----------- -----------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 51,597 $ 63,361
Receivables, net of allowance for doubtful
accounts of $47,008 and $23,274 643,698 317,466
Inventories 597,954 476,481
Prepaid expenses and other 81,006 34,707
Deferred income taxes 32,710 19,388
------------ ------------
Total current assets 1,406,965 911,403
------------ ------------
PROPERTY, PLANT AND EQUIPMENT 771,099 555,925
Less - Accumulated depreciation (174,711) (132,049)
------------ ------------
Total property, plant and equipment, net 596,388 423,876
------------ ------------
OTHER ASSETS:
Goodwill 546,651 185,111
Investments in affiliates 31,296 36,095
Deferred financing costs 28,552 21,590
Deferred income taxes 69,326 33,024
Other 33,419 26,490
------------ ------------
709,244 302,310
------------ ------------
Total assets $ 2,712,597 $ 1,637,589
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 130,241 $ 75,010
Current maturities of long-term debt 42,009 51,731
Accounts payable, trade and other 285,661 191,534
Accrued expenses 329,197 197,253
------------ ------------
Total current liabilities 787,108 515,528
------------ ------------
LONG-TERM DEBT 1,165,438 518,394
------------ ------------
OTHER NONCURRENT LIABILITIES 279,667 162,891
------------ ------------
DEFERRED INCOME TAXES 683 --
------------ ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 46,278 27,546
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 30,000,000 shares authorized;
20,578,290 shares issued and outstanding 206 200
Additional paid-in capital 474,358 443,446
Retained earnings (deficit) (31,027) (25,837)
Notes receivable--stock award plan (1,757) (1,774)
Unearned compensation (1,612) (1,806)
Minimum pension liability adjustment (5,527) (5,527)
Cumulative translation adjustment (1,218) 4,528
------------ ------------
Total stockholders' equity 433,423 413,230
------------ ------------
Total liabilities and stockholders' equity $ 2,712,597 $ 1,637,589
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
2
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in thousands, except share and per-share data)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
------------------------------- --------------------------------
October 1, October 2, October 1, October 2,
1995 1994 1995 1994
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 628,907 $ 233,142 $ 1,061,227 $ 398,209
COST OF SALES 483,349 177,135 826,575 301,585
----------- ------------ ------------ ----------
Gross profit 145,558 56,007 234,652 96,624
----------- ------------ ------------ -----------
OPERATING EXPENSES:
Selling, marketing and advertising 68,505 22,414 120,438 43,328
General and administrative 37,284 7,230 69,757 18,378
----------- ------------ ------------ -----------
105,789 29,644 190,195 61,706
----------- ------------ ------------ -----------
Operating profit 39,769 26,363 44,457 34,918
----------- ------------ ------------ -----------
OTHER (INCOME) EXPENSE:
Interest 30,191 9,512 55,316 17,243
Other, net (8,304) 227 (6,051) 545
21,887 9,739 49,265 17,788
----------- ------------ ------------ -----------
Income (loss) before income taxes, minority
interest and extraordinary loss 17,882 16,624 (4,808) 17,130
PROVISION FOR INCOME TAXES 7,541 6,586 (4) 7,133
----------- ------------ ------------ -----------
Income (loss) before minority interest and
extraordinary loss 10,341 10,038 (4,804) 9,997
----------- ------------ ------------ -----------
MINORITY INTEREST 55 -- (412) --
Income (loss) before extraordinary loss 10,286 10,038 (4,392) 9,997
EXTRAORDINARY LOSS RELATED TO EARLY
RETIREMENT OF DEBT, net of income tax benefit
of $2,320 -- (3,597) -- (3,597)
----------- ------------ ------------ -----------
Net income (loss) $ 10,286 $ 6,441 $ (4,392) $ 6,400
----------- ------------ ------------ -----------
NET INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary loss $ 0.51 $ 0.68 $ (0.22) $ 0.68
Extraordinary loss -- (0.24) -- (0.24)
----------- ------------ ------------ -----------
Net income (loss) $ 0.51 $ 0.44 $ (0.22) $ 0.44
=========== ============ ============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 20,203,821 14,763,819 20,076,972 14,760,883
=========== ============ ============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
( Amounts in thousands )
<TABLE>
<CAPTION>
For the six months ended
---------------------------------
October 1, October 2,
1995 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income (loss) $ (4,392) $ 6,400
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities -
Depreciation and amortization 52,172 17,262
Extraordinary loss -- 3,597
Deferred income taxes (6,845) --
Interest expense on zero-coupon convertible notes 4,925 4,397
Provision for losses on accounts receivable 2,522 689
Minority interest in subsidiary income (loss) (412) --
Changes in assets and liabilities excluding
effects of acquisitions -
Receivables (76,445) (47,683)
Inventories 46,936 (41,133)
Prepaid expenses and other (10,875) (4,698)
Payables and accrued expenses (42,765) 26,700
Other, net (8,007) (7,121)
------------ ------------
Net cash used in operating activities (43,186) (41,590)
------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisitions of net assets of certain businesses (378,139) (1,637)
Investment in Evanite -- (33,721)
Capital expenditures (51,607) (30,308)
Proceeds from sale of property, plant and equipment 1,261 14
------------ ------------
Net cash used in investing activities (428,485) (65,652)
------------ ------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Increase in short-term borrowings 49,017 --
Borrowings under U.S. Credit Agreements 176,000 227,000
Repayment of U.S. Credit Agreement borrowings (2,750) (105,000)
Repayment of European term loan (2,381) --
Decrease in European Facilities Agreement (14,675) --
Dividends paid (1,853) (592)
Issuance of 10% senior notes, net of debt issuance costs 292,585 --
Payoff of British unsecured loan notes (35,282) --
Payment to acquire additional ownership of subsidiary (4,945) --
Increase in other debt 7,643 2,054
Deferred financing costs (2,683) (15,656)
------------ ------------
Net cash provided by financing activities 460,676 107,806
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (769) 2,030
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,764) 2,594
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 63,361 33,707
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 51,597 $ 36,301
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest (net of amount capitalized) $ 33,444 $ 11,952
Income taxes $ 5,667 $ 2,001
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 1, 1995
(Amounts in thousands, except share and per-share data)
(Unaudited)
(1) BASIS OF PRESENTATION
- ---------------------------
The consolidated financial statements include the accounts of Exide Corporation
(the "Company") and all of its majority-owned subsidiaries, except certain
foreign companies that are not material. The accompanying financial statements
are presented in accordance with the requirements of Form 10-Q and consequently
do not include all of the disclosures normally required by generally accepted
accounting principles or those normally made in the Company's annual Form 10-K
filing. Accordingly, the reader of this Form 10-Q may wish to refer to the
Company's Form 10-K for the year ended March 31, 1995 for further information.
The financial information has been prepared in accordance with the Company's
customary accounting practices and has not been audited (except for Balance
Sheet information presented at March 31, 1995). In the opinion of management,
the accompanying condensed consolidated financial information reflects all
adjustments necessary to present fairly the results of operations and financial
position for the periods presented.
(2) ACQUISITIONS
- ------------------
On May 3, 1994, the Company acquired General Electric Credit Corporation's
secured debt position in Evanite Fiber Corporation ("Evanite"), a debtor-in-
possession, for approximately $33,700. Evanite is a manufacturer and the
Company's primary supplier of battery separators. On February 21, 1995, Exide
acquired all of the assets and assumed certain liabilities of Evanite in
exchange for its secured debt position. The purchase price was allocated
primarily to receivables, inventories and fixed assets and resulted in no
goodwill.
5
<PAGE>
In October 1994, the Company acquired approximately 89.4% of the outstanding
capital stock and approximately 25% of the convertible debentures of Sociedad
Espanola del Acumulador Tudor, S.A. ("Tudor") for 1,145 pesetas per share or
approximately $229,000. In December, one of the shareholders of Tudor stock sold
its remaining 5% ownership in Tudor to Tudor at the tender offer price in
accordance with the terms of the purchase agreement. After completion of this
sale and subsequent open market purchases of Tudor stock, the Company's
effective ownership in Tudor is approximately 95.8%. In addition, the Company
has provided a letter of credit which guarantees payment of the convertible
bonds held by that same shareholder. Tudor, which is based in Spain, is the
third largest battery manufacturer/distributor in Europe with sales of
approximately $500,000 annually. Tudor manufactures both automotive and
industrial batteries and markets its products in Western Europe, most notably in
Spain, Portugal, Germany, Finland, Norway and Sweden.
This acquisition was accounted for as a purchase and the results of operations
of Tudor are included in the Company's consolidated statement of operations
effective October 3, 1994. The cost of the acquisition has been preliminarily
allocated on the basis of the estimated fair market value of the assets acquired
and the liabilities assumed. Included in the liabilities are reserves
established, in accordance with the FASB's Emerging Issues Task Force (EITF)
Issue No. 87-11, for the expected twelve month operating losses attributed to
certain manufacturing and distribution plants acquired that have been identified
for closure and sale. The total reserve established at the date of acquisition
for these plants was approximately $15,000, all of which has been incurred since
the acquisition. In addition, the Company recorded a liability of $39,000,
including $12,000 recorded in fiscal 1996, related to severance benefits to be
paid to certain employees who will be terminated as a result of the
restructuring and plant closings. To date only minor amounts have been paid,
because at certain locations, government approval was required before notice
could be given to employees. The majority of these benefits are expected to be
paid before the end of the fiscal year. Estimated goodwill is being amortized
over 40 years.
In May of 1995, the Company acquired 99.7% of the outstanding stock of Compagnie
Europeene d' Accumulateurs S.A. ("CEAc") for approximately $425,000 in cash
($553,500 less assumed debt of $131,900 plus interest from March 31, 1995 of
$3,400). Subsequent open market purchases of CEAc stock have increased the
ownership to 100%. Exide financed the acquisition with the April 1995 issuance
of $300,000 of 10% Senior Notes repayable in April 2005 and the proceeds from
the Company's December 1994 stock offering which raised $247,500 through the
issuance of 5,175,000 additional shares of common stock. In connection with the
CEAc acquisition, the Company paid $4,568 of additional interest to amend the
terms of its 10-3/4% Senior Note indentures and its 12-1/4% Senior Subordinated
Deferred Coupon Indentures. Such costs have been deferred and are being
amortized over the remaining lives of such debt. CEAc, which is headquartered in
France, is a leader in the European battery market with annual sales of
approximately $800,000, primarily in France, Italy and Germany.
6
<PAGE>
This acquisition was accounted for as a purchase and the results of operations
of CEAc are included in the Company's consolidated statement of operations
effective June 1, 1995. The cost of the acquisition has been preliminarily
allocated on the basis of the estimated fair market value of the assets acquired
and the liabilities assumed. Estimated goodwill is being amortized over 40
years.
The preliminary allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Cash $ 47,374
Accounts receivable, net 249,039
Inventories 159,336
Prepaid expenses and other 45,874
Property, plant and equipment, net 177,694
Other noncurrent assets 19,339
Accounts payable and accrued expenses (261,120)
Long-term debt (including current maturities
and short-term borrowings) (209,518)
Other noncurrent liabilities (99,651)
Minority interest (25,362)
-------------
103,005
Cash consideration 433,480
-------------
Preliminary estimate of goodwill $ 330,475
-------------
</TABLE>
Included in accrued expenses and other noncurrent liabilities is $50,000 related
to severance benefits to be paid to certain employees who will be terminated as
a result of the restructuring and plant closings. To date $3,794 has been paid.
Remaining expenditures are expected to occur over the next several years as the
Company complies with EEC and other applicable government regulations.
On August 31, 1995, the Company acquired Schuylkill Holdings, Inc. ("SHI")
through a merger and purchased all of SHI's stock options and subordinated notes
from various holders and the secured debt of SHI's operating subsidiary,
Schuylkill Metals Corporation, the owner of two lead smelters which the Company
intends to continue to operate, from Heller Financial, Inc. The Company paid
$2,000 in cash for SHI's stock, options and notes; for the secured debt, it
issued 593,210 shares of its common stock, paid $3,700 in cash and issued a
contingent note the value of which will be based on market lead prices. The
Company and Heller also entered into an agreement to share certain tax
liabilities of SHI and the Company agreed to provide Heller certain registration
rights as to such common stock. The cash portion of the consideration paid by
the Company was borrowed under its Credit Agreement. A preliminary allocation of
the purchase price was made primarily to Accounts Receivable, Inventories and
Fixed Assets and has resulted in Goodwill of approximately $12,000. Goodwill is
being amortized over 40 years.
7
<PAGE>
The following unaudited pro forma consolidated information for the six months
ended October 1, 1995 and October 2, 1994 illustrates the estimated effect of
the CEAc, Tudor, Schuylkill and Evanite acquisitions and the related financings
thereof, as if all the transactions were consummated as of the beginning of each
period presented.
<TABLE>
<CAPTION>
For the
six months ended
October 1, October 2,
1995 1994
----------- -----------
<S> <C> <C>
Net sales $ 1,193,251 $ 1,028,931
Operating income 43,161 63,956
Income (loss) before extraordinary loss (11,577) 2,397
Pro forma earnings per common share:
Income (loss) before extraordinary loss $ (0.56) $ 0.12
</TABLE>
The above unaudited pro forma financial information may not be indicative of the
results that would actually have been obtained if the transactions had been
effected on the dates indicated or that may be obtained in the future.
(3) INVENTORIES
- ----------------
The components of inventories as of October 1, 1995 and March 31, 1995, are as
follows:
<TABLE>
<CAPTION>
October 1, 1995 March 31, 1995
--------------- --------------
<S> <C> <C>
Raw materials $ 145,649 $ 98,872
Work-in-process 65,512 43,840
Finished goods 386,793 333,769
--------------- --------------
$ 597,954 $ 476,481
=============== ==============
</TABLE>
The Company uses the last-in, first-out (LIFO) cost method for both tax and
financial reporting purposes for valuing approximately 40% of its inventories.
The remaining inventories are valued on the first-in, first-out (FIFO) cost
method. If all inventories had been determined using the FIFO method, such
inventories would have been $580,887 at October 1, 1995 and $459,414 at
March 31, 1995.
(4) SHORT-TERM BORROWINGS
- --------------------------
At October 1, 1995 and March 31, 1995, short-term borrowings consisted of
various operating lines of credit and working capital facilities maintained by
the Company's foreign subsidiaries totaling $130,241 and $75,010, respectively.
Certain of these borrowings are secured by receivables, inventories and
property. These facilities, which are typically for one year renewable terms,
generally bear interest at current market rates plus up to 1%. As of October 1,
1995 and March 31, 1995, the weighted average interest rate on these borrowings
was 9.4% and 8.9%, respectively.
8
<PAGE>
(5) LONG-TERM DEBT
- -------------------
Following is a summary of the Company's long-term debt at October 1, 1995 and
March 31, 1995:
<TABLE>
<CAPTION>
October 1, March 31,
1995 1995
---------- ------------
<S> <C> <C>
U.S. Credit Agreement borrowings
primarily at LIBOR plus 2.5% at
October 1, 1995 (8.7%) and LIBOR
plus 2.5% at March 31, 1995 (8.8%) $ 367,750 $ 194,500
10% Senior Notes, due April 15, 2005 300,000 --
10-3/4% Senior Notes, due
December 15, 2002 150,000 150,000
12-1/4% Senior Subordinated Deferred
Coupon Debentures, due
December 15, 2004 84,697 79,772
European Facilities Agreement borrowings
at PIBOR or LIBOR plus 1% (8.2%) 152,666 --
European Term Loans due March 31, 2006 at
a weighted average interest rate of 6.1% at
October 1, 1995 and 6.8% at March 31, 1995. 61,310 63,286
Spanish Convertible Debentures at
average one year MIBOR revisable
every six months (10.6% at October 1, 1995
and 9.6% at March 31, 1995) 24,312 23,699
Guaranteed Unsecured Loan Notes
at LIBOR less 5/8% (6.1%) at March
31, 1995 (redeemed in April 1995) -- 35,868
Other, primarily capital lease
obligations at interest rates ranging
from 6.8% to 11.0% due in
installments through 2015, and other
debt 66,712 23,000
---------- ------------
1,207,447 570,125
Less - Current maturities 42,009 51,731
---------- ------------
$1,165,438 $ 518,394
========== ============
</TABLE>
9
<PAGE>
In connection with the acquisition of CEAc (see Note 2), the Company refinanced
most of CEAc's debt, which was principally due to its former parent, with
proceeds from a new European Facilities Agreement. The Facilities Agreement has
a multicurrency Revolving Credit Facility with a maximum commitment
approximating $86,000 and a multicurrency Term Loan Facility with a principal
amount approximating $77,000. Borrowings under the Revolving Credit Facility are
repayable on March 31, 2000 and borrowings under the Term Loan Facility are
repayable in graduating semiannual installments from December 31, 1995
(approximately $5,000) through December 31, 1999. Borrowings under these
facilities, which are unsecured, bear interest at market rates plus 1%. As of
October 1, 1995, CEAc had outstanding borrowings under its Revolving Credit
Facility and its Term Loan Facility of $78,240 and $74,426, respectively.
In addition, certain of CEAc's subsidiaries have revolving loans or term loans
with financial institutions in their respective countries.
See Note 6 of the Notes to Consolidated Financial Statements included in the
Company's March 31, 1995 Form 10-K for further information regarding the
Company's long-term debt.
(6) INCENTIVE COMPENSATION PLAN
- --------------------------------
In May 1995, certain members of the Company's management and Board of Directors
were granted options to purchase 127,000 shares of the Company's common stock at
or above the market price of the stock on the grant date. Vesting for 102,000
options occurs at the rate of 20% per year. The remaining 25,000 options vest in
six months. No compensation expense has been recognized as the market price of
the stock was the same as (or greater than) the exercise price on the date of
grant.
(7) 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, processing, recycling, storing and disposing of hazardous
substances and hazardous wastes. The Company's operations are also subject to
occupational safety and health laws and regulations, particularly relating to
the monitoring of employee health in North America and, to a lesser extent, in
Europe. Except as disclosed in Note 13 of Notes to Consolidated Financial
Statements included in the Company's March 31, 1995 Form 10-K, the Company
believes that it is in substantial compliance with all material environmental,
health and safety requirements.
10
<PAGE>
North America
- -------------
The Company has been advised by the EPA that it is a "Potentially Responsible
Party" ("PRP") under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") or similar state laws at 49 federally defined Superfund
or state equivalent sites. At 19 of these sites, the Company has either paid or
is in the process of paying its share of liability. In most instances, the
Company's obligations are not expected to be significant because its portion of
any potential liability appears to be minor to insignificant in relation to the
total liability of all PRPs that have been identified and which are viable. The
Company's share of the anticipated remediation costs associated with all of the
Superfund sites where it has been named a PRP, which share is based on the
Company's estimated volumetric contribution to each site, is included in the
environmental remediation reserves discussed below. Because the Company's
liability under such statutes may, as a technical matter, be imposed on a joint
and several basis, the Company's liability may not necessarily be based on
volumetric contributions and could be greater than the Company's estimates.
Management believes, however, that its PRP status at these Superfund sites will
not have a material adverse effect on the Company's business or financial
condition because, based on the Company's experience, it is reasonable to expect
that liability will be roughly proportionate to its volumetric contribution of
waste to the sites.
While the ultimate outcome of the various environmental matters is uncertain,
after consultation with legal counsel, management does not believe the
resolution of these matters will have a material adverse effect on the Company's
business, financial condition or results of operations. The Company's policy is
to accrue for environmental costs when it is probable that a liability has been
incurred and the amount of such liability is reasonably estimable.
The Company has established reserves for on-site and off-site environmental
remediation costs and believes that such reserves are adequate. As of October 1,
1995, the amount of such reserves on the Company's balance sheet was $27,657.
Of this total amount, $22,387 was included in "Other Noncurrent Liabilities."
These reserves consist of amounts accrued for active Company facilities, closed
facilities, and 11 of the Superfund sites. They also include a general allowance
for other Superfund sites where the Company's exposure is estimated to be less
than $100 per site. 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.
11
<PAGE>
Europe
- ------
The Company is subject to numerous environmental, health and safety requirements
and is exposed to differing degrees of liabilities and compliance costs arising
from its past and current manufacturing and recycling activities in various
European countries. The laws and regulations applicable to such activities
differ from country to country and also substantially differ from United States
laws and regulations. Except as disclosed in Note 13 of Notes to Consolidated
Financial Statements included in the Company's March 31, 1995 Form 10-K or
herein, the Company believes, based upon reports from its foreign subsidiaries
and/or independent qualified opinions, that it is in substantial compliance with
all material environmental, health and safety requirements in each country.
The Company completed its acquisition of CEAc in May 1995. The Company is aware
that the lead-acid battery manufacturing facilities in Auxere and Nimes, France
do not currently meet air emission standards established by the French Ministry
of Environment. The local enforcement authority is aware of the situation in
Nimes, and has granted the Company an additional two year period within which to
achieve compliance with those standards. A similar effort is underway at the
Auxere facility, also in coordination with the local enforcement authorities.
Management believes that the cost of achieving compliance with the air limits at
both these facilities is not material.
In addition, the lead-acid battery manufacturing facilities in Vierzon, France
and Weiden, Germany are not in compliance with certain limits contained in these
facilities' wastewater discharge permits. The German authorities are aware of
the situation with respect to the Weiden facility; negotiations to resolve this
matter are continuing. Facility management at the Vierzon plant have contacted
the local enforcement authority. A plan to bring that facility into compliance
is being prepared for submission to the authorities. The cost of any upgrades
required to achieve compliance at these facilities is not expected to be
material.
CEAc's German subsidiary, Sonnenschein, GmbH, has signed a consent order with
the administrative enforcement authorities to complete remediation of a river
which flows along the lead-acid battery manufacturing facility in Budingen,
Germany. That cleanup is proceeding and CEAc has established a reserve to cover
the cost of completing the project.
The Company's Polish subsidiary, Centra, S.A., is a former state-owned entity.
Under the sales agreement with the Polish State Treasury, the Company is
obligated to spend $1.0 million in capital improvements in environmental
controls at the Centra facilities. The funds needed to cover this commitment are
included in CEAc's capital budget. Management believes that these funds will be
needed to ensure compliance with anticipated new air regulations in Poland.
12
<PAGE>
The lead-acid battery manufacturing facility in Lille, France has been placed on
a list, prepared by the French Minister of Environment, of sites believed to be
contaminated. In sharp contrast to U.S. law, placement on this list does not in
and of itself obligate the Company to take any actions at the Lille site,
although it does increase the likelihood of enforcement actions by the local
authorities. After consultation with legal counsel, management does not believe
that any efforts required as a result of this facility's placement on the
Minister's list will have a material adverse effect on the Company's business,
financial condition or results of operations.
The Company expects that its European operations will continue to incur capital
and operating expenses in order to maintain compliance with evolving
environmental, health and safety requirements or more stringent enforcement of
existing requirements in each country.
As a result of the Company's plan to consolidate its European manufacturing
operations, it is probable that certain environmental costs will be incurred. A
preliminary estimate of the probable liability has been included in the Tudor
and CEAc purchase price allocations.
(8) COMMITMENTS AND CONTINGENCIES
- ----------------------------------
The Company is currently a defendant in a claim brought by one of the Company's
competitors alleging patent infringement. The claim went to trial and the jury
ruled that one of the subject patents was valid and infringed. A separate trial
was held for the award of damages, and, in April 1995, the plaintiff was awarded
damages and interest (through June 1995) of approximately $5,300. The Company's
outside counsel believes the verdict of the jury trial was incorrect and has
advised that there is a high likelihood that the Company will prevail on appeal.
Therefore, management does not believe the ultimate resolution of this matter
will have a material adverse effect on the Company's financial condition or
results of operations.
A patent infringement suit was filed in the U.S. District Court in Oregon
against the Company in January 1995 by Tekmax, Inc. The suit alleges
infringement of the Tekmax patents dealing with a device to insert battery
plates into battery separators and processes for doing so. The complaint alleges
damages in excess of the jurisdictional requirement of $50 (although plaintiff
requested $6,000 before the suit was filed). Exide has denied infringement and
asserted that such patents are invalid. Discovery has just begun and will
continue for the foreseeable future. An intelligent assessment of this matter
cannot now be made.
13
<PAGE>
The Company is currently involved in three related lawsuits pending in state and
federal court in Alabama. The actions concern allegations that the Company sold
used batteries as new. Two of the actions are in state court. An action by a
purported nationwide class of more than 1,000 consumers of Exide batteries is
entitled Eddie Walton Davis, et al. v. Exide Corporation, et al. An action by a
purported nationwide class of more than 1,000 resellers of Exide batteries is
entitled Charlie Matthews v. Exide Corporation, et al. Neither class has been
certified. Both state court actions seek unspecified compensatory and punitive
damages and injunctive relief. The federal court action is a wrongful
termination suit by a former branch manager of Exide Corporation. All three
actions are in preliminary stages of pretrial discovery. The Company disputes
all allegations and intends to vigorously defend itself.
On October 2, 1995, the Company was served with a complaint filed in Texas state
court. The case seeks unspecified compensatory and punitive damages against 50
defendants, who are alleged to have illegally disposed of lead-bearing wastes at
a smelter in Mexico. The Company intends to file an answer denying all claims
and has joined other defendants in removing the case to federal court. This
action has not even reached the preliminary motions stage. The Company disputes
the allegations against it and intends to vigorously defend itself.
In addition, the Company is involved in various claims and litigation incidental
to the conduct of its business which are not considered material to the
Company's financial condition or results of operations.
14
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
Results of Operations
Six months ended October 1, 1995 compared with the six months ended
October 2, 1994
Net Sales increased $663.0 million, or 166.5%, to $1,061.2 million in the first
six months of fiscal 1996 compared with the first six months of fiscal 1995. The
sales increase was principally attributable to the acquisition of Compagnie
Europeene d' Accumulateurs S.A. ("CEAc") in May 1995 and Sociedad Espanola del
Acumulador Tudor, S.A. ("Tudor") in October 1994 with net sales of $287.6
million and $271.8 million, respectively, including their industrial battery
sales, which were $258.1 million for the six months ended October 1, 1995. Sales
in the first six months of fiscal 1996 were also favorably impacted by shipments
to Sears Roebuck & Co., which was a significant new customer added late in the
second quarter of fiscal 1995, growth of the Company's business in the United
Kingdom ("UK") (net sales increased $24.6 million), and the inclusion of Evanite
Fiber Corporation ("Evanite") with net sales of $25.0 million, a February 1995
acquisition.
Gross profit increased $138.0 million, while gross profit margin fell by 2
percentage points in the first six months of fiscal 1996 versus the first six
months of fiscal 1995. The increase in gross profit was principally the result
of the inclusion of CEAc's and Tudor's gross profit of $70.5 million and $69.1
million, respectively, the growth of the Company's business in the UK (gross
profit increased $2.2 million) and the greater seasonality of the European
subsidiaries. The profit margin decline was attributable to higher lead costs
experienced in the first six months of fiscal 1996 versus 1995 as well as the
mix of product sales which include a higher European content as a result of
acquisitions. The Company's European subsidiaries typically experience lower
margins in the first two quarters due to seasonality.
Selling, general and administrative expenses increased $128.5 million in the
first six months of fiscal 1996, or 208.2%, compared to same period in the
previous year. This is principally attributable to the inclusion of CEAc and
Tudor of $58.4 million and $62.7 million, respectively, and the growth in the UK
business of $6.9 million.
Operating income increased $9.5 million, or 27.3%, primarily as a result of the
matters discussed above.
15
<PAGE>
Interest expense increased $38.1 million in the first six months of fiscal 1996
compared to the first six months of fiscal 1995, principally as a result of the
inclusion of CEAc and Tudor of $5.0 million and $8.0 million, respectively, the
interest cost attributable to the financing of the Company's European
acquisitions and the carrying costs associated with the higher working capital
levels related to the growth of the U.S. and UK businesses and higher inventory
levels.
For the six months ended October 1, 1995, Other Income, net is primarily
comprised of net currency transaction gains ($7.9 million), loss on the sales of
receivables ($.9 million) and losses from European subsidiaries accounted for on
the equity method ($.7 million).
Net income decreased $10.8 million, primarily as a result of the matters
discussed above.
Sales and operating income in North America were $465.8 million and $29.4
million, respectively, for the six months ended October 1, 1995 and $383.7
million and $34.1 million, respectively, for the six months ended October 2,
1994. The decrease in North American operating income was primarily attributable
to higher transportation costs, unfavorable customer mix, unfavorable overhead
absorption, higher lead costs and prior year nonrecurring reimbursement of
engineering services. Sales and operating income in Europe were $595.4 million
and $15.1 million, respectively, for the six months ended October 1, 1995 and
$14.5 million and $.8 million for the six months ended October 2, 1994.
16
<PAGE>
Liquidity and Capital Resources
The Company's liquidity requirements arise primarily from the funding of its
seasonal working capital needs, obligations on its indebtedness and capital
expenditures. In addition, the Company has paid quarterly cash dividends of
$0.02 per share on its common stock since its initial public offering. The
Company meets these liquidity requirements, both in the U.S. and Europe, through
cash flow generated from operating activities and with borrowed funds and the
proceeds of sales of accounts receivable. Seasonal demands of the battery
industry requires the Company to build inventory in advance of the typically
stronger selling periods during the fall and winter, since the sales of
automotive batteries are highly dependant on weather. The Company's sales have
become more seasonal since its European acquisitions. 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) to defer purchasing decisions until the end of the
calendar year. The Company's highest cash demands from operations occur during
the months of June through October. Funds used in continuing operations totalled
$1.2 million in the second quarter of fiscal 1996 and $43.2 million for the
first half of the year. Cash was used primarily for increased working capital
needs and to make semi-annual interest payments on the outstanding Senior Notes.
The Company is party to a receivables purchase agreement under the terms of
which the purchaser has committed (subject to certain exceptions) to purchase
selected accounts receivable of the Company, up to a maximum commitment of $40
million.
Obligations under the U.S. Credit Agreement and under the European Credit
Facilities bear interest at fluctuating rates. The Company has three interest
rate collar agreements and an interest rate swap agreement which reduce the
impact of changes in interest rates on a portion of the Company's floating rate
debt. The collar agreements effectively limit the LIBOR base interest rate on
$100 million of borrowings under the Credit Agreement to no more than 8% through
December 30, 1997 and on $50 million to no more than 8% through July 17, 1998.
If interest rates fall below certain levels, Exide is required to make payments
to the counterparties under the agreement. The Company also has a $50 million
interest rate swap agreement which effectively fixes LIBOR interest rates at
6.2% through May 16, 1997.
The Company's capital expenditures were $51.6 million in the first six months of
fiscal 1996. Of the total spending, $31.2 million was spent in Europe primarily
on expansion and cost reduction projects. Capital expenditures in the U.S. were
principally attributable to the expansion of the facility in Bristol, Tennessee,
other plant expansions and cost reduction programs.
17
<PAGE>
In April 1995, the Company issued 10% Senior Notes due in 2005. The Company
realized net proceeds of $292.6 million on the debt offering which were used to
finance the CEAc acquisition.
In May 1995, the Company completed the CEAc acquisition for $425.0 million. See
Note 2 of Notes to the Company's Consolidated Financial Statements appearing
elsewhere herein. The acquisition price of $425.0 million was financed with the
proceeds from the Senior Notes and by Revolver Loan borrowings on the U.S.
Credit Agreement. The availability on the U.S. Credit Agreement was generated by
the December 1994 stock offering as the proceeds from the December 1994 common
stock offering ($247.5 million) were utilized to temporarily reduce the
Company's Revolving Loans under the U.S. Credit Agreement.
The Company's European operations are being financed through both local
borrowings at Tudor and Euro-Exide and a 785 million french franc CEAc credit
facility. It is the Company's intent to refinance substantially all of the
European debt with a Pan-European, multicurrency, multi-borrower credit
facility. This facility, in conjunction with the cash flows generated from
operations, will provide the Company sufficient flexibility to finance the
ongoing short-term needs for severance and other restructuring costs associated
with plant closures and consolidation.
At October 1, 1995, the Company had $11.5 million available under its U.S.
Credit Agreement. As of that date, the Company was utilizing $48.0 million under
this agreement to provide letters of credit support for Tudor debt. This
requirement will be eliminated when the new debt facility in Europe is funded
thereby making available an additional $48.0 million of borrowing capacity in
the U.S. Availability from borrowing facilities at the Company's European and
Canadian operations totalled $67.6 million at October 1, 1995.
The Company believes it will have sufficient funds available for its ongoing
operating needs including any environmental requirements. The Company's Credit
Agreement, Senior Notes and Deferred Coupon Debentures contain various business
and financial covenants. At October 1, 1995, the Company was in compliance with
the terms of those agreements.
In fiscal 1996, as a result of the CEAc acquisition, almost two-thirds of the
Company's consolidated sales and operations will be outside the U.S. Therefore,
the Company's future consolidated operating results and financial condition may
be influenced by exchange rate fluctuations.
18
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EXIDE CORPORATION
Date: November 15, 1995 By: /s/ Alan E. Gauthier
------------------------------------
Alan E. Gauthier
Executive Vice President,
Chief Financial Officer
(Authorized Signatory)
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