<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 June 30, 1996
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 August 12, 1996, 20,896,893 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, 1996
Consolidated Balance Sheet).
- Condensed Consolidated Balance Sheets --
June 30, 1996 and March 31, 1996.
- Condensed Consolidated Statements of Operations --
for the three months ended June 30, 1996 and for the
three months ended July 2, 1995.
- Consolidated Statements of Cash Flows --
for the three months ended June 30, 1996 and for the
three months ended July 2, 1995.
- Notes to Condensed Consolidated Financial Statements --
June 30, 1996.
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
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EXIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per-share data)
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------------ -------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 34,090 $ 47,259
Receivables, net of allowance for doubtful
accounts of $45,493 and $45,350 597,352 600,329
Inventories 589,491 595,161
Prepaid expenses and other 28,937 28,612
Deferred income taxes 19,894 20,672
------------ -------------
Total current assets 1,269,764 1,292,033
------------ -------------
PROPERTY, PLANT AND EQUIPMENT 796,619 798,767
Less-Accumulated depreciation (238,202) (220,045)
------------ -------------
Total property, plant and equipment, net 558,417 578,722
------------ -------------
OTHER ASSETS:
Goodwill, net 672,204 673,045
Investments in affiliates 24,380 24,446
Deferred financing costs, net 32,055 33,412
Deferred income taxes 66,192 66,747
Other 42,985 43,024
------------ -------------
837,816 840,674
------------ -------------
Total assets $ 2,665,997 $ 2,711,429
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 15,782 $ 8,310
Current maturities of long-term debt 43,506 30,477
Accounts payable, trade and other 244,606 279,225
Accrued expenses 354,600 369,598
------------ -------------
Total current liabilities 658,494 687,610
------------ -------------
LONG-TERM DEBT 1,312,147 1,301,238
------------ -------------
OTHER NONCURRENT LIABILITIES 247,224 254,531
------------ -------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 20,577 28,650
------------ -------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 30,000,000 shares authorized;
20,896,182 and 20,893,693 shares issued and outstanding 209 209
Additional paid-in capital 490,978 490,919
Accumulated deficit (47,658) (36,121)
Notes receivable-stock award plan (1,696) (1,696)
Unearned compensation (661) (710)
Minimum pension liability adjustment (5,956) (5,956)
Cumulative translation adjustment (7,661) (7,245)
------------ -------------
Total stockholders' equity 427,555 439,400
------------ -------------
Total liabilities and stockholders' equity $ 2,665,997 $ 2,711,429
============ =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
2
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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
--------------------------------
June 30, July 2,
1996 1995
--------------- ---------------
<S> <C> <C>
NET SALES $ 556,020 $ 432,320
COST OF SALES 426,871 343,226
--------------- ---------------
Gross profit 129,149 89,094
--------------- ---------------
OPERATING EXPENSES:
Selling, marketing and advertising 75,847 51,933
General and administrative 39,589 32,473
--------------- ---------------
115,436 84,406
--------------- ---------------
Operating income 13,713 4,688
--------------- ---------------
OTHER (INCOME) EXPENSE:
Interest, net 30,756 25,125
Other, net (360) 2,253
--------------- ---------------
30,396 27,378
--------------- ---------------
Income (loss) before income taxes and minority
interest (16,683) (22,690)
INCOME TAX BENEFIT (5,005) (7,545)
--------------- ---------------
Income (loss) before minority interest (11,678) (15,145)
MINORITY INTEREST (559) (467)
--------------- ---------------
Net income (loss) $ (11,119) $ (14,678)
=============== ===============
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE: $ (0.53) $ (0.74)
=============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 20,824,419 19,953,517
=============== ===============
</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
------------------------------------
June 30, July 2,
1996 1995
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (11,119) $ (14,678)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities -
Depreciation and amortization 30,851 22,635
Deferred income taxes (2,607) (423)
Original issue discount on notes 4,643 2,436
Provision for losses on accounts receivable 1,800 899
Minority interest (559) (467)
Changes in assets and liabilities excluding
effects of acquisitions -
Receivables (12,676) (7,498)
Inventories (3,536) (1,300)
Prepaid expenses and other (602) 524
Payables and accrued expenses (41,030) (41,355)
Other, net (12,552) (2,724)
---------------- ----------------
Net cash used in operating activities (47,387) (41,951)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of stock or net assets of certain businesses (3,562) (384,791)
Capital expenditures (16,229) (19,590)
Proceeds from sale of assets 16,313 432
---------------- ----------------
Net cash used in investing activities (3,478) (403,949)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 7,632 25,766
Repayment of U.S. Credit Agreement borrowings - - (2,750)
Borrowings under U.S. Credit Agreement 38,000 159,000
Repayment of European term loans (3,976) (1,905)
Borrowings under European Facilities Agreement 2,856 - -
Issuance of 10% Senior Notes - - 300,000
Repayment of Guaranteed Unsecured Loan Notes - - (35,282)
Dividends paid (418) (399)
Increase (decrease) in other debt (4,934) 290
Debt issuance costs (468) (9,418)
---------------- ----------------
Net cash provided by financing activities 38,692 435,302
---------------- ----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (996) 123
---------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (13,169) (10,475)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 47,259 63,361
---------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 34,090 $ 52,886
================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest (net of amount capitalized) $ 37,917 $ 16,874
Income taxes $ 1,887 $ 2,227
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(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. 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, 1996 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, 1996). 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.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
(2) ACQUISITIONS
- ----------------
In May 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%. The cost of the acquisition has been allocated on the basis
of the estimated fair value of the assets acquired and the liabilities assumed.
Included in the liabilities is $79,000 related to severance benefits to be paid
to certain employees who have been or will be terminated as a result of the
Company's European consolidation and targeted plant closings. Through June 30,
1996, $12,000 of severance benefits have been paid. Remaining expenditures are
expected to occur over the next several years as the Company is required to
comply with the European Union and other applicable regulations. In accordance
with Emerging Issues Task Force Issue No. 87-11 ("EITF 87-11"), reserves of
$12,000 were established for the expected 12-month operating losses attributable
to certain manufacturing and distribution facilities acquired that have been
identified for closure and sale. As of June 30, 1996, all of such reserves have
been utilized.
5
<PAGE>
This acquisition was accounted for as a purchase and the results of CEAc's
operations are included in the Company's consolidated statement of operations
effective June 1, 1995. CEAc, which is headquartered in France, is one of the
largest SLI battery producers and the largest industrial battery manufacturer in
Europe, with operations primarily in France, Italy and Germany.
In January 1996, the Company acquired the remaining 25% minority interest in a
subsidiary of CEAc, in exchange for 350,000 shares of the Company's common
stock valued at $17,238.
In April 1996, the Company acquired 14.4% of the remaining 15.6% minority
interest in a subsidiary of Tudor for $3,562.
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. The Company acquired the secured debt of SHI's
operating subsidiary, Schuylkill Metals Corporation, the owner of two lead
smelters 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 valued at $31,000, paid $3,700 in cash and issued a contingent
note, the value of which will be based on market lead prices. Under the terms of
the purchase agreement, the Company is required to make additional payments to
Heller in fiscal 2000 if lead prices for the four-and- one-half year period
subsequent to the acquisition date reach defined levels. Based on the Company's
current projection of lead prices for such period, in the fourth quarter of
fiscal 1996, the Company increased goodwill by $10,000. The purchase price was
allocated primarily to receivables, inventories and fixed assets and resulted in
$22,000 of goodwill.
The following summarized unaudited pro forma consolidated results of operations
for the quarter ended July 2, 1995, illustrate the estimated effects of the
acquisitions, as if the transactions were consummated as of the beginning of the
period presented.
Net sales $ 561,493
===========
Loss before extraordinary item $ (22,807)
===========
Net loss $ (22,807)
===========
Pro forma earnings per common
and common equivalent share:
Loss before extraordinary item $ (1.09)
===========
Net loss $ (1.09)
===========
6
<PAGE>
Pro forma adjustments include only the effects of events directly attributable
to a transaction that are factually supportable and expected to have a
continuing impact. Pro forma adjustments reflecting anticipated "efficiencies"
in operations resulting from a transaction are not permitted and, therefore, are
not reflected herein. The above unaudited pro forma financial information is not
necessarily indicative of the results that would actually have been obtained if
the transaction had been effected on the date indicated or that may be obtained
in the future.
(3) INVENTORIES
- ---------------
Inventories as of June 30, 1996 and March 31, 1996, are as follows:
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
---------------- ----------------
<S> <C> <C>
Raw materials $ 125,537 $ 138,809
Work-in-process 75,932 94,340
Finished goods 388,022 362,012
---------------- ----------------
$ 589,491 $ 595,161
================ ================
</TABLE>
At June 30, 1996 and March 31,1996, inventories valued by the LIFO method were
approximately 30% and 29% of consolidated inventories, respectively. If all
inventories had been determined using the first-in, first-out method, such
inventories would have been $572,424 and $578,094 at June 30, 1996 and March 31,
1996, respectively. The carrying amount of inventories on a LIFO basis exceeds
replacement cost. LIFO inventories reflect the fair value of inventories as of
August 31, 1989, when all of the outstanding common shares of the Company were
acquired in a leverage buyout, as inventories subsequently produced cost less to
manufacture. The Company believes that no write-down of the carrying amount of
inventories to replacement cost is necessary, as no loss will be realized upon
their final sale.
(4) SALE OF ASSETS
- ------------------
On June 28, 1996, the Company sold certain assets related to its battery
separator division of Evanite Fiber Corporation for $13 million in cash.
7
<PAGE>
(5) SHORT-TERM BORROWINGS
- -------------------------
At June 30, 1996 and March 31, 1996, short-term borrowings consisted of various
operating lines of credit and working capital facilities maintained by certain
of the Company's foreign subsidiaries. These borrowings are secured by
receivables, inventories or property. These facilities, which are typically for
one year renewable terms, generally bear interest at the current market rates
plus up to 1%. As of June 30, 1996 and March 31, 1996, the weighted average
interest rate on these borrowings was 9.9% and 10.9%, respectively.
(6) LONG-TERM DEBT
- ------------------
<TABLE>
<CAPTION>
Following is a summary of the Company's long-term debt at June 30, 1996 and
March 31, 1996: June 30, March 31,
1996 1996
------------ ------------
<S> <C> <C>
U.S. Credit Agreement borrowings primarily at
LIBOR plus 2.5% at June 30, 1996 (7.9%) $ 38,000 $ --
10% Senior Notes, due April 15, 2005 300,000 300,000
10.75% Senior Notes, due December 15, 2002 150,000 150,000
12.25% Senior Subordinated Deferred Coupon
Debentures, due December 15, 2004 92,526 89,856
2.90% Senior Subordinated Convertible Notes
due December 15, 2005 292,097 290,124
European Facilities Agreement, borrowings
primarily at LIBOR plus 1.5% (ranging from 4.9%
to 9.2% at June 30, 1996 and ranging from 5.6%
to 10.9% at March 31, 1996) 427,145 436,940
European Term Loans at 7.6% at June 30, 1996
and at rates ranging from 7.6% to 10.1% at
March 31, 1996 8,045 12,021
Other, primarily capital lease obligations at
interest rates ranging from 3.7% to 11.2% due in
installments through 2006, and other debt 47,840 52,774
------------ ------------
1,355,653 1,331,715
Less - Current maturities 43,506 30,477
------------ ------------
$ 1,312,147 $ 1,301,238
============ ============
</TABLE>
8
<PAGE>
In December 1995, the Company issued 2.90% Convertible Senior Subordinated Notes
due December 15, 2005, with a face amount of $397,900 discounted to $287,797,
after the underwriters' exercise of their overallotment option. These notes have
a coupon rate of 2.90% with a yield to maturity of 6.75%. The notes are
convertible into the Company's common stock at a conversion rate of 12.5473
shares per $1,000 principal amount at maturity, subject to adjustments in
certain events. The Company used the funds to repay indebtedness under the U.S.
Credit Agreement.
On November 30, 1995, the Company entered into a Pan-European, multicurrency,
multiborrower credit facility ("European Facilities Agreement"). The facility
contains a Tranche A term loan in the amount of 236,000 French francs (U.S.
$45,808), a Tranche B term loan in the amount of 930,000 French francs (U.S.
$180,513), and a revolving facility of 1,403,000 French francs (U.S. $272,322).
The Tranche A term loan matures on November 30, 2000 and the Tranche B term loan
matures on November 30, 2002. Both term loans require semiannual principal
payments throughout their terms. The revolving facility expires on September 30,
2002. Substantially all of the Company's European bank debt, including
indebtedness under the former European Facilities Agreement that was utilized to
finance a portion of the CEAc acquisition, was refinanced with this European
Facilities Agreement.
Borrowings under the European Facilities Agreement bear interest at local market
rates (comparable to LIBOR) plus a margin of 1.5% per annum, reducing in 0.25%
increments beginning after one year to 1.0% so long as the European borrowing
group, as defined, meets and maintains certain interest coverage and leverage
tests.
Borrowings under the European Facilities Agreement are supported by guarantees
of most of the Company's European subsidiaries and secured by pledges of the
stock of the Company's Euro Exide, CEAc and Tudor subsidiaries. The European
Facilities Agreement contains a number of financial and other covenants
customary for such agreements including restrictions on new indebtedness, liens,
minimum net worth, leverage rates, acquisitions, and capital expenditures.
In April 1995, the Company issued $300,000 in aggregate principal amount of 10%
Senior Notes, the net proceeds of which were used, along with borrowings under
the U.S. Credit Agreement, to finance the CEAc acquisition. 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.
See Note 6 of the Notes to Consolidated Financial Statements included in the
Company's March 31, 1996 Form 10-K for further information regarding the
Company's long-term debt.
9
<PAGE>
(7) 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, 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, 1996 Form 10-K or herein, 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") that it is a "Potentially Responsible Party" ("PRP") under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
or similar state laws at 53 federally defined Superfund or state equivalent
sites. At 23 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 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 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, cash flows, 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. While the Company believes its current estimates of future
remediation costs are reasonable, future findings or changes in estimates could
have a material effect on the recorded reserves.
10
<PAGE>
The Company has established reserves for on-site and off-site environmental
remediation costs and believes that such reserves are adequate. As of June 30,
1996, the amount of such reserves on the Company's balance sheet was $28,946.
Of this total amount, $22,758 was included in "Other Noncurrent Liabilities."
Because environmental liabilities are not accrued until the 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.
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
U.S. laws and regulations.
Certain facilities in France, Germany and Spain are not in compliance with
certain limits contained in air and wastewater treatment discharge permits. In
every case, the Company is working cooperatively with appropriate authorities to
come into compliance. It is possible that the Company could be subject to fines
or penalties with regard to these violations, although management believes any
such fines/penalties will not be material. The cost to upgrade the facilities to
attain compliance is not expected to be material. The subject violations are not
expected to interfere with continued operations in the subject facilities.
The Company expects that its European operations will continue to incur capital
and operating expenses in order to maintain compliance with the evolving
environmental, health and safety requirements or more stringent enforcement of
existing requirements in each country.
As a result of the Company's plans to consolidate its European manufacturing
operations, it is probable that certain environmental costs will be incurred. An
estimate of the probable liability has been included in the Tudor and CEAc
purchase price allocations.
11
<PAGE>
(8) COMMITMENTS AND CONTINGENCIES
- ---------------------------------
In August 1996, a Portland, Oregon jury found that the Company infringed a
patent relating to a device for inserting battery plates into battery
separators, and awarded damages of $5,000. The jury found that the Company's
alleged infringement was not intentional nor deliberate, and the court has yet
to decide if the patent is enforceable. The Company's counsel believes the
verdict is clearly erroneous, and that there are several valid grounds for post-
verdict motions for judgment in favor of the Company as a matter of law and, if
necessary, for appeal. Counsel also believes that the patent at issue is not
infringed, is invalid and unenforceable and the Company's prospects for
ultimately prevailing are quite good. The Company plans to vigorously pursue all
available options to correct this situation.
The Company is now or recently has been involved in several related lawsuits
pending in state and federal courts in Alabama, North Carolina and South
Carolina. These actions are related because each contains allegations that the
Company sold used batteries as new. One of these actions which was certified as
a class action by the trial court was subsequently decertified by action of the
Appellate Court. The remaining actions seek unspecified compensatory and
punitive damages and injunctive relief. A wrongful termination suit filed by a
former branch manager of the Company claims that he was terminated for refusing
to sell used batteries as new. The Company is seeking summary dismissal of this
action. The Company disputes the material allegations of these matters and
intends to vigorously defend itself.
The Company is involved in various other claims and litigation incidental to
conduct of its business. Based on consultation with legal counsel, management
does not believe that any claims or litigation to which it is a party will have
a material adverse effect on the Company's financial condition or results of
operations.
The Company has various purchase commitments for materials, supplies and items
of permanent investment incident to the ordinary conduct of business. In the
aggregate, such commitments are not at prices in excess of current market.
(9) SUBSEQUENT EVENT
- --------------------
In July 1996, the Company acquired the majority of the stock of Metalurgica De
Cubas S.L., a secondary lead smelter located near Madrid, Spain, for
approximately $7,500.
12
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
General
The Company through its European acquisitions is exposed to foreign currency
risk in most Western European countries, principally France, Spain, Germany,
Italy and the U.K. The Company does not have material operations in countries
where economies can be classified as hyper-inflationary. Movements of exchange
rates vis-a-vis the U.S. dollar can result in both unrealized and realized
exchange gains or losses. In some circumstances, gains in one currency may be
offset by losses in another as all currencies may not move in unison vis-a-vis
the U.S. dollar. Because it is not possible to forecast future movements in
foreign exchange rates it is the policy of the Company to reduce foreign
currency risk by balancing net foreign currency positions where possible.
Results of Operations
Three months ended June 30, 1996 compared with the three months ended
July 2, 1995.
Net sales increased $123.7 million, or 28.6%, to $556.0 million in the first
three months of fiscal 1997 compared with fiscal 1996. The increase was
principally attributable to the inclusion of CEAc for the entire three months of
fiscal 1997, as compared to only one month in fiscal 1996. Industrial battery
sales (included above) for the three months ended June 30, 1996 were $171.6
million versus $100.5 million for the three months ended July 2, 1995. This
increase is also primarily attributed to the inclusion of CEAc for the entire
three months of fiscal 1997. See Note 2 to the Company's condensed consolidated
financial statements appearing elsewhere herein.
Gross profit increased $40.1 million and gross profit margin increased by 2.6
percentage points in the first three months of fiscal 1997 versus the first
three months of fiscal 1996. The increases in gross profit and gross profit
margin were principally the result of the inclusion of CEAc for the entire three
months of fiscal 1997, cost reductions generated by the European manufacturing
rationalization/consolidation process, the incremental U.S. lead integration
benefit associated with the August 1995 acquisition of Schuylkill Metals, and
North American and European selling price increases, offset by higher lead costs
incurred in Europe.
Selling, general and administrative expenses increased $31.0 million, or 36.8%
in the three months ended June 30, 1996 versus the comparable period in fiscal
1996, primarily due to the inclusion of CEAc for the entire three months of
fiscal 1997.
13
<PAGE>
Operating income increased $9.0 million, or 192.5%, primarily as a result of the
matters discussed above.
Interest expense increased $5.6 million, or 22.4%, primarily as result of the
interest cost attributable to the financing of the CEAc acquisition and the
incremental expense related to the inclusion of CEAc for the entire three months
of fiscal 1997, offset by lower borrowing levels in Europe associated with
reduced working capital levels related to the rationalization/consolidation
process.
Other expense, net improved from an expense of $2.3 million to income of $0.4
million. This $2.7 million improvement principally relates to a currency gain in
fiscal 1997 (versus a currency loss in fiscal 1996), a gain on the sale of
certain assets related to the Company's battery separator product line, the
absence of a loss associated with certain European subsidiaries which were
formerly accounted for under the equity method (which are now fully
consolidated), offset by a higher loss on the sales of receivables.
Net income increased $3.6 million, primarily as a result of the matters
discussed above.
14
<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 cash dividends of $0.02 per
share on the common stock in each completed quarter following its public
offering.
Historically, the Company has met these liquidity requirements through cash flow
generated from operating activities and with borrowed funds and the proceeds of
sales of accounts receivable. The Company is party to a receivables purchase
agreement under which the other party has committed (subject to certain
exceptions) to purchase selected accounts receivable of the Company, up to a
maximum commitment of $75.0 million. Due to the seasonal demands of the
battery industry, the Company builds inventory in advance of the typically
stronger selling periods during the fall and winter. The Company's greatest cash
demands from operations occur during the months of July through November.
Funds used in operations were $(47.4) million and $(42.0) million for the three
months ended June 30, 1996 and July 2, 1995, respectively. Because of the
seasonality of the Company's business, more funds are typically generated in its
third and fourth fiscal quarters. In the next several years, the Company will
continue to complete the closure of various European plants which will
necessitate cash payments for severance, etc. While the Company believes that a
large portion of its cash requirements for its European plant consolidation
activities will be generated from operations, it has substantial liquidity and
capital resources through its European Facilities Agreement and also has
substantial borrowing availability under its U.S. Credit Agreement.
The Company's capital expenditures were $16.2 million and $19.6 million in the
three months ended June 30, 1996 and July 2, 1995, respectively. The U.S. Credit
Agreement and the European Facilities Agreement restrict the amount of capital
expenditures which may be made by the Company and its subsidiaries. However, the
Company believes that it has sufficient resources for its capital expenditure
programs from operating cash flows and borrowing availability under its existing
credit agreements.
In May 1995, the Company completed the CEAc acquisition for $425.0 million in
cash ($553.5 million less assumed debt plus interest from March 31, 1995). The
Company financed the CEAc acquisition through the borrowings under the U.S.
Credit Agreement and with the proceeds of a $300 million offering of 10% Senior
Notes, and refinanced approximately $150 million of indebtedness of CEAc
pursuant to a facilities agreement (the "former European Facilities Agreement").
15
<PAGE>
In December 1995, the Company issued 2.90% Convertible Senior Subordinated
Notes due December 15, 2005, with a face amount of $397.9 million discounted to
$287.8 million, after the underwriters' exercise of their overallotment option.
These notes have a coupon rate of 2.90% with a yield to maturity of 6.75%. The
notes are convertible into the Company's common stock at a conversion rate of
12.5473 shares per $1,000 principal amount at maturity, subject to adjustments
in certain events. The Company used the funds to repay indebtedness under the
U.S. Credit Agreement.
Also, on November 30, 1995, the Company entered into a Pan-European,
multicurrency, multiborrower credit facility ("European Facilities Agreement").
The facility contains a Tranche A term loan in the amount of 236 million French
francs (U.S. $45,808), a Tranche B term loan in the amount of 930 million French
francs (U.S. $180,513) , and a revolving facility of 1,403 million French francs
(U.S. $272,322). The Tranche A term loan matures on November 30, 2000 and the
Tranche B term loan matures on November 30, 2002. Both term loans require
semiannual principal payments throughout their terms. The revolving facility
expires on September 30, 2002. Substantially all of the Company's European bank
debt, including indebtedness under the former European Facilities Agreement that
was utilized to finance a portion of the CEAc acquisition, was refinanced with
this European Facilities Agreement.
As of June 30, 1996, the Company had utilized $50.2 million of its U.S. Credit
Agreement (including $12.2 million for letters of credit), and $436.2 million
was outstanding under the European Facilities Agreement, including letters of
credit. Obligations under the U.S. Credit Agreement and the European Facilities
Agreement bear interest at fluctuating rates. Increases in interest rates on
such obligations could adversely affect the Company's results of operations and
financial condition. The Company has two 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 $100.0 million of borrowings
under the U.S. Credit and European Facilities Agreements to no more than 8%
through December 30, 1997. If interest rates fall below certain levels, the
Company is required to make payments to the counterparties under the agreements.
The Company also has an interest rate swap agreement which effectively fixes
LIBOR interest rates on $50 million at 6.2% through May 16,1997. See Note 6 to
the Company's consolidated financial statements appearing elsewhere herein.
As of June 30, 1996, the Company had $96.1 million available under its U.S.
Credit Agreement. Effective May, 1996 the maximum capacity was reduced to $165
million subject to certain limitations based on eligible receivables and
inventory. As of June 30, 1996, the Company's European and Canadian operations
had borrowing availability of approximately $65.4 million. See Note 6 to the
Company's consolidated financial statements appearing elsewhere herein.
16
<PAGE>
The Company believes it has adequate reserves for offsite and onsite
environmental remediation costs.
As of June 30, 1996, the Company has significant NOL carryforwards in Europe and
in the United States which are available, subject to certain restrictions, to
offset future U.S. and European taxable income.
17
<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: August 14, 1996 By:/s/Alan E. Gauthier
--------------------- ------------------------
Alan E. Gauthier
Executive Vice President,
Chief Financial Officer
(Authorized Signatory)
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