<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 --
July 2, 1995 and March 31, 1995.
- Condensed Consolidated Statements of Operations --
for the three months ended July 2, 1995 and for the
three months ended July 3, 1994.
- Consolidated Statements of Cash Flows --
for the three months ended July 2, 1995 and for the
three months ended July 3, 1994.
- Notes to Condensed Consolidated Financial Statements --
July 2, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
SIGNATURE
- ---------
1
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per-share data)
<TABLE>
<CAPTION>
July 2, March 31,
1995 1995
(Unaudited)
----------- ---------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 52,886 $ 63,361
Receivables, net of allowance for doubtful
accounts of $47,785 and $23,274 581,269 317,466
Inventories 646,677 476,481
Prepaid expenses and other 69,943 34,707
Deferred income taxes 33,333 19,388
------------- -------------
Total current assets 1,384,108 911,403
------------- -------------
PROPERTY, PLANT AND EQUIPMENT 741,848 555,925
Less- Accumulated depreciation (153,893) (132,049)
------------- -------------
Total property, plant and equipment, net 587,955 423,876
------------- -------------
OTHER ASSETS:
Goodwill 499,988 185,111
Investments in affiliates 33,310 36,095
Deferred financing costs 27,629 21,590
Deferred income taxes 39,678 33,024
Other 31,074 26,490
------------- -------------
631,679 302,310
------------- -------------
Total assets $ 2,603,742 $ 1,637,589
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 111,904 $ 75,010
Current maturities of long-term debt 30,524 51,731
Accounts payable, trade and other 305,366 191,534
Accrued expenses 339,853 197,253
------------- -------------
Total current liabilities 787,647 515,528
------------- -------------
LONG-TERM DEBT 1,134,034 518,394
------------- -------------
OTHER NONCURRENT LIABILITIES 226,426 162,891
------------- -------------
DEFERRED INCOME TAXES 2,615 --
------------- -------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 49,993 27,546
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 30,000,000 shares authorized;
19,991,810 shares issued and outstanding 200 200
Additional paid-in capital 443,446 443,446
Retained earnings (deficit) (40,913) (25,837)
Notes receivable--stock award plan (1,774) (1,774)
Unearned compensation (1,709) (1,806)
Minimum pension liability adjustment (5,527) (5,527)
Cumulative translation adjustment 9,304 4,528
------------- -------------
Total stockholders' equity 403,027 413,230
------------- -------------
Total liabilities and stockholders' equity $ 2,603,742 $ 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
-----------------------------
July 2, July 3,
1995 1994
------------ -------------
<S> <C> <C>
NET SALES $ 432,320 $ 165,067
COST OF SALES 343,226 124,450
---------- ----------
Gross profit 89,094 40,617
---------- ----------
OPERATING EXPENSES:
Selling, marketing and advertising 51,933 20,914
General and administrative 32,473 11,148
---------- ----------
84,406 32,062
---------- ----------
Operating profit 4,688 8,555
---------- ----------
OTHER (INCOME) EXPENSE:
Interest 25,125 7,731
Other, net 2,253 318
---------- ----------
27,378 8,049
---------- ----------
Income (loss) before income
taxes and minority interest (22,690) 506
PROVISION FOR INCOME TAXES (7,545) 547
---------- ----------
Income (loss) before minority
interest (15,145) (41)
MINORITY INTEREST (467) --
---------- ----------
Net income (loss) $ (14,678) $ (41)
========== ==========
NET INCOME (LOSS) PER COMMON SHARE $ (0.74) $ --
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 19,953,517 14,758,335
========== ==========
</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 three months ended
------------------------------
July 2, July 3,
1995 1994
------------- -------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ (14,678) $ (41)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities -
Depreciation and amortization 22,635 8,639
Deferred income taxes (423) --
Interest expense on zero-coupon convertible notes 2,436 2,187
Provision for losses on accounts receivable 899 303
Minority interest in subsidiary income (loss) (467) --
Changes in assets and liabilities excluding
effects of acquisitions -
Receivables (7,498) 7,658
Inventories (1,300) (36,602)
Prepaid expenses and other 524 93
Payables and accrued expenses (41,355) (4,404)
Other, net (2,724) (2,059)
----------- -----------
Net cash used in operating activities (41,951) (24,226)
----------- -----------
CASH FLOWS (USED IN) INVESTING ACTIVITIES:
Acquisitions of net assets of certain businesses (381,226) (517)
Investment in Evanite -- (33,721)
Capital expenditures (19,590) (17,585)
Proceeds from sale of property, plant and equipment 432 4
----------- -----------
Net cash used in investing activities (400,384) (51,819)
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Increase in short-term borrowings 25,766 --
Borrowings under U.S. Credit Agreements 159,000 75,000
Repayment of U.S. Credit Agreement borrowings (2,750) --
Repayment of European term loan (1,905) --
Dividends paid (399) (295)
Issuance of 10% senior notes 300,000 --
Payoff of British unsecured loan notes (35,282) --
Payment to acquire additional ownership of subsidiary (3,565) --
Increase in other debt 289 1,593
Deferred financing costs (9,418) --
----------- -----------
Net cash provided by financing activities 431,737 76,298
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 123 1,152
NET INCREASE IN CASH AND CASH EQUIVALENTS (10,475) 1,405
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 63,361 33,707
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 52,886 $ 35,112
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest (net of amount capitalized) $ 16,874 $ 8,947
Income taxes $ 2,227 $ 1,415
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 2, 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.
Prior year financial statements have been reclassified to conform to the current
year presentation.
(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 95.7%. 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 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 of which $9,434 has been incurred since
the acquisition. In addition, the Company recorded a liability of $27,000
related to severence 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 will 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). 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.
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.
6
<PAGE>
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 159,870
Other noncurrent assets 12,339
Accounts payable and accrued expense (291,473)
Long-term debt (including current maturities
and short-term borrowings) (176,341)
Other noncurrent liabilities (64,651)
Minority interest (25,362)
----------
116,005
Cash consideration 433,079
----------
Preliminary estimate of goodwill $ 317,074
==========
</TABLE>
Included in accounts payable and accrued expenses is $35,000 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 $1,190 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.
The following unaudited pro forma consolidated information for the three months
ended July 2, 1995 and July 3, 1994, illustrates the estimated effect of the
CEAc, Tudor 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
three months ended
July 2, July 3,
1995 1994
-------------- ----------------
<S> <C> <C>
Net sales $ 555,351 $471,762
Operating income 2,299 18,573
Net income (loss) (22,372) (9,521)
Pro forma earnings per common share:
Net income (loss) $ (1.12) $ (0.48)
</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.
7
<PAGE>
(3) INVENTORIES
- ----------------
The components of inventories as of July 2, 1995 and March 31, 1995, are as
follows:
<TABLE>
<CAPTION>
July 2, 1995 March 31, 1995
------------ --------------
<S> <C> <C>
Raw materials $ 131,115 $ 98,872
Work-in-process 69,902 43,840
Finished goods 445,660 333,769
------------- -------------
$ 646,677 $ 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 $629,610 at July 2, 1995 and $459,414 at March 31,
1995.
(4) SHORT-TERM BORROWINGS
- --------------------------
At July 2, 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 $111,904 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 July 2,
1995 and March 31, 1995, the weighted average interest rate on these borrowings
was 8.9%. At July 2 ,1995 and March 31, 1995, $12,456 of short-term borrowings
have been classified as other long-term debt since the Company has the ability
and intent to refinance such amounts during fiscal 1996.
8
<PAGE>
(5) LONG-TERM DEBT
Following is a summary of the Company's long-term debt at July 2, 1995 and
March 31, 1995:
<TABLE>
<CAPTION>
July 2, March 31,
1995 1995
----------- -----------
<S> <C> <C>
U.S. Credit Agreement borrowings
primarily at LIBOR plus 2.5% at
July 2, 1995 (8.6%) and LIBOR plus
2.5% at March 31, 1995 (8.8%) $ 350,750 $ 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 82,208 79,772
European Facilities Agreement borrowings
at PIBOR or LIBOR plus 1% (8.2%) 154,275 --
European Term Loans at rates
ranging from 3.5% to 11.9% due
March 31, 2006. 79,033 63,286
Spanish Convertible Debentures at
average one year MIBOR revisable
every six months (10.6% at July 2, 1995
and 9.6% at March 31, 1995) 24,858 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 2005, and other
debt 23,434 23,000
----------- -----------
1,164,558 570,125
Less - Current maturities 30,524 51,731
----------- -----------
$ 1,134,034 $ 518,394
=========== ===========
</TABLE>
9
<PAGE>
In connection with the financing of the CEAc acquisition (see Note 2), the
Company issued $300,000 of unsecured Senior Notes in April 1995. The Senior
Notes bear interest semiannually at the rate of 10% and are repayable on April
15, 2005.
In connection with the acquisition of CEAc, 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
July 2, 1995, CEAc had outstanding borrowings under its Revolving Credit
Facility and its Term Loan Facility of $78,957 and $75,318, 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 46 federally defined Superfund
or state equivalent sites. At 16 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.
See Note 13 of Notes to Consolidated Financial Statements included in the
Company's March 31, 1995 Form 10-K for further information regarding
environmental, health and safety matters.
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 cost and believes that such reserves are adequate. As of July 2,
1995, the amount of such reserves of the Company's balance sheet was $22,037. Of
this total amount, $17,965 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. Investigation of the situation at the
Auxere facility is continuing. 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. Investigation of the situation at the Vierzon facility is
continuing. The cost of any upgrades required to achieve compliance at these
facilities are not expected to cause the Company to incur material costs.
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 of stages of pretrial discovery. The Company disputes
all allegations 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
Three Months Ended July 2, 1995 Compared with Three Months Ended July 3, 1994
Net sales increased $267.3 million, or 162%, to $432.3 million in the first
three months of fiscal 1996 compared with the first three 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
$74.0 million and $133.0 million, respectively, including their industrial
battery sales, which were $100.5 million for the three months ended July 2,
1995. Sales in the first three 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 $13.9
million), and the inclusion of Evanite Fiber Corporation ("Evanite") with net
sales of $12.7 million, a February 1995 acquisition.
Gross profit increased $48.5 million, while gross profit margin fell by 4
percentage points in the first three months of fiscal 1996 versus the first
three 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 $18.9 million and
$33.6 million, respectively, the growth of the Company's business in the UK
(gross profit increased $1.2 million) and seasonality. The profit margin decline
was attributable to higher lead costs experienced in the first three months of
fiscal 1996 versus 1995 as well as the mix of product sales, including the
European businesses where margins are higher in the later quarters of the fiscal
year.
Selling, general and administrative expenses increased $52.3 million in the
first three months of fiscal 1996, or 163.3%, compared to same period in the
previous year. This is attributable to inclusion of CEAC and Tudor of $15.6
million and $30.5 million, respectively, and the growth in the UK business of
$3.6 million.
Operating income decreased $3.9 million, or 45.2%, primarily as a result of
the matters discussed above.
Interest expense increased $17.4 million in the first three months of fiscal
1996 compared to the first three months of fiscal 1995, principally as a result
of the inclusion of CEAC and Tudor of $1.2 million and $3.3 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.
Net income decreased $14.6 million, primarily as a result of the matters
discussed above.
Sales and operating income (loss) in North America were $206.2 million and
$(2.8) million, respectively, for the three months ended July 2, 1995 and
$159.8 million and $9.7 million, respectively, for the three months ended July
3, 1994. Sales and operating income (loss) in Europe were $226.1 million and
$7.5 million, respectively, for the three months ended July 2, 1995 and $5.3
million and $(0.2) million for the three months ended July 3, 1994.
<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. The Company's highest cash
demands from operations occur during the months of June through October. Funds
used in continuing operations totalled $42.0 million in the first quarter of
fiscal 1996. Cash was used primarily for increased working capital needs and to
make a semi-annual interest payment on the 10.75% 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
$150 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 $19.6 million in the first quarter of
fiscal 1996. Of the total spending in the quarter, $11.4 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.
In April 1995, the Company issued 10% Senior Notes due in 2005. The Company
realized net proceeds of $293.3 million on the debt offering which were used to
finance the CEAc acquisition.
16
<PAGE>
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.
In connection with the CEAc acquisition, the Company entered into a European
Facilities Agreement. This agreement contains a multicurrency Revolving Credit
Facility and a multicurrency Term Loan Facility which will be used to finance
the operations of CEAc and its subsidiaries. See Note 5 of Notes to the
Company's Consolidated Financial Statements appearing elsewhere herein.
At July 2, 1995, the Company had $7.4 million available under its U.S. Credit
Agreement, with $62.0 million available on a pro forma basis after the Tudor
refinancing as of August 14, 1995, based on a facility size of $444 million.
Availability from other sources, such as Tudor bank facilities and other
subsidiaries, was $92.6 million at July 2, 1995, and $64.3 million on August 14,
1995, including CEAc.
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 July 2, 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.
The Company's European operations are being financed through capital
contributions associated with the initial acquisitions, local borrowings and
operating cash flows. The implementation of the Company's European integration
strategy is expected to produce significant manufacturing and other cost savings
and lower working capital requirements. As a result, the Company expects future
operating cash flows in Europe to exceed its short-term cash needs for severance
and other costs associated with plant closures.
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<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: September 26, 1995 By: /s/ Alan E. Gauthier
---------------------------- ----------------------------
Alan E. Gauthier
Executive Vice President,
Chief Financial Officer
(Authorized Signatory)
