<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 December 31, 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 February 13, 1996, 20,913,355 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 --
December 31, 1995 and March 31, 1995.
- Condensed Consolidated Statements of Operations --
for the three and nine months ended December 31, 1995
and for the three and nine months ended January 1, 1995.
- Consolidated Statements of Cash Flows --
for the nine months ended December 31, 1995 and
for the nine months ended January 1, 1995.
- Notes to Condensed Consolidated Financial Statements --
December 31, 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>
December 31, March 31,
1995 1995
(Unaudited)
-------------- ------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 54,776 $ 63,361
Receivables, net of allowance for doubtful
accounts of $48,753 and $23,274 663,360 317,466
Inventories 583,356 476,481
Prepaid expenses and other 74,418 34,707
Deferred income taxes 33,032 19,388
-------------- ------------
Total current assets 1,408,942 911,403
-------------- ------------
PROPERTY, PLANT AND EQUIPMENT 775,270 555,925
Less-Accumulated depreciation (178,919) (132,049)
-------------- ------------
Total property, plant and equipment, net 596,351 423,876
-------------- ------------
OTHER ASSETS:
Goodwill 551,828 185,111
Investments in affiliates 29,800 36,095
Deferred financing costs 31,466 21,590
Deferred income taxes 68,615 33,024
Other 31,885 26,490
-------------- ------------
713,594 302,310
-------------- ------------
Total assets $ 2,718,887 $ 1,637,589
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 25,062 $ 75,010
Current maturities of long-term debt 31,738 51,731
Accounts payable, trade and other 293,534 191,534
Accrued expenses 288,393 197,253
-------------- ------------
Total current liabilities 638,727 515,528
-------------- ------------
LONG-TERM DEBT 1,309,897 518,394
-------------- ------------
OTHER NONCURRENT LIABILITIES 282,506 162,891
-------------- ------------
DEFERRED INCOME TAXES 816 --
-------------- ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 44,371 27,546
-------------- ------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 30,000,000 shares authorized;
20,579,144 shares issued and outstanding 206 200
Additional paid-in capital 474,398 443,446
Retained earnings (deficit) (18,442) (25,837)
Notes receivable--stock award plan (1,757) (1,774)
Unearned compensation (1,516) (1,806)
Minimum pension liability adjustment (5,527) (5,527)
Cumulative translation adjustment (4,792) 4,528
-------------- ------------
Total stockholders' equity 442,570 413,230
-------------- ------------
Total liabilities and stockholders' equity $ 2,718,887 $ 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 nine months ended
-------------------------- ------------------------------
December 31, January 1, December 31, January 1,
1995 1995 1995 1995
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 719,929 $ 436,796 $ 1,781,156 $ 835,005
COST OF SALES 535,559 338,266 1,362,134 639,851
------------ ------------ ------------ ------------
Gross profit 184,370 98,530 419,022 195,154
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, marketing and advertising 77,465 38,319 197,903 81,647
General and administrative 38,439 23,851 108,196 42,229
------------ ------------ ------------ ------------
115,904 62,170 306,099 123,876
------------ ------------ ------------ ------------
Operating profit 68,466 36,360 112,923 71,278
------------ ------------ ------------ ------------
OTHER (INCOME) EXPENSE:
Interest 34,463 17,048 89,779 34,291
Other, net (1,736) 230 (7,787) 775
------------ ------------ ------------ ------------
32,727 17,278 81,992 35,066
------------ ------------ ------------ ------------
Income before income taxes, minority
interest and extraordinary loss 35,739 19,082 30,931 36,212
PROVISION FOR INCOME TAXES 13,827 7,749 13,823 14,882
------------ ------------ ------------ ------------
Income before minority interest and
extraordinary loss 21,912 11,333 17,108 21,330
MINORITY INTEREST (671) 880 (1,083) 880
------------ ------------ ------------ ------------
Income before extraordinary loss 22,583 10,453 18,191 20,450
EXTRAORDINARY LOSS RELATED TO EARLY
RETIREMENT OF DEBT, net of income tax benefit
of $5,964 and $2,320, respectively (9,588) -- (9,588) (3,597)
------------ ------------ ------------ ------------
Net income $ 12,995 $ 10,453 $ 8,603 $ 16,853
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Income before extraordinary loss $ 1.10 $ 0.69 $ 0.90 $ 1.37
Extraordinary loss (0.47) 0.00 (0.47) (0.24)
-------------- ------------ ------------ ------------
Net income $ 0.63 $ 0.69 $ 0.43 $ 1.13
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 20,581,684 15,227,406 20,243,809 14,916,391
============ ============ ============ ============
</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 nine months ended
-------------------------------
December 31, January 1,
1995 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income $ 8,603 $ 16,853
Adjustments to reconcile net income to net
cash provided by (used in) operating activities -
Depreciation and amortization 81,040 34,171
Extraordinary loss 9,588 3,597
Interest expense on zero-coupon convertible notes 7,442 6,636
Provision for losses on accounts receivable 4,937 1,450
Minority interest in subsidiary income (loss) (1,083) 880
Changes in assets and liabilities excluding
effects of acquisitions -
Receivables (97,396) (72,907)
Inventories 62,318 (78,778)
Prepaid expenses and other (17,959) (16,845)
Payables and accrued expenses (84,340) 56,442
Other, net (4,271) (82)
-------------- --------------
Net cash used in operating activities (31,121) (48,583)
-------------- --------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisitions of net assets of certain businesses (382,984) (219,090)
Investment in Evanite -- (33,827)
Capital expenditures (74,883) (48,246)
Proceeds from sale of property, plant and equipment 4,036 1,271
-------------- --------------
Net cash used in investing activities (453,831) (299,892)
-------------- --------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings (57,017) 11,791
Borrowings under U.S. Credit Agreements 39,000 292,000
Repayment of U.S. Credit Agreement borrowings (194,500) (105,000)
Increase in European term loans -- 896
Repayment of European term loans (48,337) (851)
Decrease in European Facilities Agreement (167,551) --
Borrowings under Pan-European revolver, net of debt issuance
costs 231,688 --
Borrowings under Pan-European term loans, net of debt
issuance costs 197,717 --
Equity from public offering -- 225,000
Public offering fees -- (9,660)
Payment by subsidiary to acquire treasury stock -- (12,297)
Dividends paid (2,951) (886)
Issuance of 10% senior notes, net of debt issuance costs 292,242 --
Issuance of senior subordinated discount convertible notes,
net of debt issuance costs 243,528 --
Payoff of British unsecured loan notes (35,282) --
Payment to acquire additional ownership of subsidiary (4,945) --
Increase (decrease) in other debt (13,168) 8,215
Deferred financing costs (3,466) (17,364)
-------------- --------------
Net cash provided by financing activities 476,958 391,844
-------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (591) 1,451
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,585) 44,820
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 63,361 33,707
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 54,776 $ 78,527
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest (net of amount capitalized) $ 80,904 $ 31,234
Income taxes $ 6,873 $ 3,689
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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 1994, 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%. 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 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 facilities acquired that have been identified for
closure and sale. Approximately $19,000 of reserves were established for these
facilities, all of which has been incurred. 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. At certain locations, government
approval is required before notice can be given to employees. 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>
<CAPTION>
<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 (260,311)
Long-term debt (including current maturities
and short-term borrowings) (209,518)
Other noncurrent liabilities (99,651)
Minority interest (25,362)
-------------
103,814
Cash consideration 437,684
-------------
Preliminary estimate of goodwill $ 333,870
=============
</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 $7,897 has been paid.
Remaining expenditures are expected to occur over the next several years as the
Company complies with European Union ("EU") and other applicable regulations. In
accordance with EITF No. 87-11, reserves of $12,000 have been established for
the expected twelve month operating losses attributable to certain manufacturing
and distribution facilities acquired that have been identified for closure and
sale. As of December 31, 1995, $7.1 million has been incurred and charged
against such reserves.
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 financial information for the
nine months ended December 31, 1995 and January 1, 1995 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
nine months ended
December 31, January 1,
1995 1995
------------- ------------
<S> <C> <C>
Net sales $ 1,913,180 $ 1,726,073
Operating income 111,627 124,324
Income (loss) before extraordinary item 11,981 18,620
Pro forma earnings per common share:
Income (loss) before extraordinary item $ 0.58 $ 0.91
</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 December 31, 1995 and March 31, 1995, are
as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1995
------------- -----------
<S> <C> <C>
Raw materials $ 141,901 $ 98,872
Work-in-process 82,366 43,840
Finished goods 359,089 333,769
------------- ----------
$ 583,356 $ 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 $566,289 at December 31, 1995 and $459,414 at
March 31, 1995.
(4) SHORT-TERM BORROWINGS
- --------------------------
At December 31, 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 $25,062 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
December 31, 1995 and March 31, 1995, the weighted average interest rate on
these borrowings was 10.7% and 8.9%, respectively.
8
<PAGE>
(5) LONG-TERM DEBT
Following is a summary of the Company's long-term debt at December 31, 1995 and
March 31, 1995:
December 31, March 31,
1995 1995
---------- ----------
Pan-European Revolving Credit $ 231,717 $ --
U.S. Credit Agreement borrowings
primarily at LIBOR plus 2.5% at
December 31, 1995 (8.25%) and
March 31, 1995 (8.8%) 39,000 194,500
10% Senior Notes, due April 15, 2005 300,000 --
2.90% Senior Subordinated Convertible
Notes due December 15, 2005 250,577 --
Pan-European Term Loans 198,008 --
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 87,214 79,772
Spanish Convertible Debentures at
average one year MIBOR revisable every
six months (9.25% at December 31, 1995
and 9.6% at March 31, 1995) 24,658 23,699
European Term Loans due March 31, 2006
at a weighted average interest rate of 6.8%
at December 31, 1995 and March 31, 1995 14,949 63,286
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 1.7% to 12.8% due in
installments through 2008, and other
debt 45,512 23,000
---------- ----------
1,341,635 570,125
Less - Current maturities 31,738 51,731
---------- ----------
$ 1,309,897 $ 518,394
========== ==========
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 had
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 these facilities which were
unsecured, bore interest at market rates plus 1%.
On November 30, 1995, the Company entered into a Pan-European, multicurrency,
multiborrower credit facility. The facility contains a Tranche A term loan in
the amount of 236 million french francs, a Tranche B term loan in the amount of
930 million french francs, and a revolving facility of 1,403 million french
francs. 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 semi-annual
principal payments throughout their terms. The revolving facility expires on
September 30, 2002. Substantially all of the Company's European bank debt,
including the Facilities Agreement described above, was refinanced with this
Pan-European credit facility. Borrowings under this facility bear interest at
local market rates (comparable to LIBOR)) plus 1.5%. As of December 31, 1995,
the weighted average borrowing rates for revolving loans and term loans
approximated 8.6% and 7.4%, respectively. Borrowings are secured by the stock of
the Company's European subsidiaries.
In December 1995, the Company issued 2.90% Convertible Senior Subordinated Notes
due December 15, 2005, with a face amount of $346,000 discounted to $250,258
(before related issuance expenses of appoximately $7,500). These Notes have a
coupon rate of 2.90% with a yield to maturity of 6.75%. In January 1996, the
over-allotment option on the Notes was exercised. This provided the Company with
additional proceeds of $36,600 (face amount of $51,900). The proceeds from these
Notes were used to permanently repay the outstanding Term A and Term B loans and
repay outstanding revolving borrowings under the U.S. Credit Agreement. The
Notes are convertible into the Company's common stock at a conversion rate of
12.5473 shares per Note.
In December 1995, the Company incurred an extraordinary loss of $9,588 (net of
$5,964 income tax benefit) related to the writeoff of unamortized deferred
financing costs associated with the early extinguishment of the European
Facilities Agreement, Tudor bank financing and the term and revolving loan
borrowings pursuant to the U.S. Credit Agreement.
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.
10
<PAGE>
(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 vested
over 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.
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 54 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 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.
11
<PAGE>
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 December
31, 1995, the amount of such reserves on the Company's balance sheet was
$28,117. Of this total amount, $22,838 was included in "Other Noncurrent
Liabilities." These reserves consist of amounts accrued for active Company
facilities, closed facilities, and 14 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.
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
Auxerre 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.
12
<PAGE>
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 estimated 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. Management believes that these funds will be
needed to ensure compliance with anticipated new air regulations in Poland.
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.
13
<PAGE>
(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.
This case was argued before the U.S. Court of Appeals for the Federal Circuit on
February 1, 1996. A decision is not expected before June or July, 1996.
Management continues to believe that the ultimate resolution of this matter will
not 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, and seeks 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 in this matter has progressed to an
advanced stage but this matter has not yet been scheduled for trial. The court
has recently ordered arguments on the Tekmax' motion for summary judgment and
the Company's four motions for summary judgment to be held on February 16, 1996.
A conclusive assessment of the outcome of this matter cannot now be made.
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. Eddie Walton
Davis, et al. v. Exide Corporation, et al. is an action by a class of Alabama
consumers of Exide batteries. The class was certified on January 11, 1996. The
Company is challenging that certification in the Alabama Supreme Court. Pretrial
discovery is scheduled for the first half of 1996. A trial is tentatively
scheduled for July or August, 1996. 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. That class has not 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 the Company. Pretrial discovery is not scheduled until Spring
1996. A trial is tentatively scheduled in July 1996. The Company disputes all
allegations and intends to vigorously defend itself.
14
<PAGE>
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, including the Company, who are alleged to have illegally disposed of
lead-bearing wastes at a smelter in Mexico. The Company filed a general denial
with the Texas state court; after the matter was removed to federal court the
Company filed a more detailed answer denying the allegations made against it.
Now the case has been remanded to the Texas state court, which is expected to
set preliminary motions for hearing in the near future. The Company expects that
discovery will commence shortly and continues to dispute the allegations against
it and is prepared to vigorously defend against these allegations.
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.
(9) SUBSEQUENT EVENT
- --------------------
In January 1996, the Company acquired the remaining 25% minority interest in
Accumulatorenfabrik Sonnenschein GmbH, a subsidiary of CEAc, in exchange for
350,000 shares of Exide common stock.
15
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------
Results of Operations
Three months ended December 31, 1995 compared with the three months ended
January 1, 1995.
Net sales increased $283.1 million, or 64.8% to $719.9 million in the third
quarter of fiscal 1996 compared with the third quarter of fiscal 1995. The
sales increase was principally attributable to the acquisitions of Compagnie
Europeene d'Accumulateurs S.A. ("CEAc") and Evanite Fiber Corporation (Evanite)
in 1996, which increased quarter on quarter net sales by $261.9 million and
$11.1 million, respectively. Industrial battery sales for the fiscal quarters
ended December 31, 1995 and January 1, 1995 were $193.6 and $67.6 million,
respectively.
Gross profit increased $85.8 million while the gross profit margin improved 3.05
percentage points in the third quarter of fiscal 1996 versus the third quarter
of fiscal 1995. The increases in gross profit and gross profit margin were
principally the net result of the inclusion of CEAc and Evanite ($73.8 million
and $3.0 million, respectively), improved margins experienced by Tudor primarily
arising from price increases and manufacturing cost reductions in Europe, lower
gross profit in the United Kingdom, where the Company experienced problems in
expanding the Cwmbran manufacturing facility and in the United States, where the
Company's gross profit decreased quarter on quarter due primarily to lower
automotive unit shipments.
Selling, general and administrative expenses increased $53.7 million in the
third quarter of fiscal 1996, or 86.4% compared to same period in the previous
year. This increase is principally attributable to the inclusion of CEAc and
Evanite ($45.1 million and $1.5 million, respectively) and higher expenses
experienced by Tudor due to the timing of certain selling expenses.
Operating income increased $32.1 million, or 88.3%, primarily as a result of the
matters discussed above.
Interest expense increased $17.4 million in the third quarter of fiscal 1996
compared to the third quarter of fiscal 1995, principally as a result of the
inclusion of CEAc ($5.2 million), and the interest cost attributable to the
financing of CEAc.
For the quarter ended December 31, 1995, Other income, net is primarily
comprised of net currency transaction gains ($1.6 million).
Income before extraordinary loss increased by $12.1 million or 116% in the
fiscal quarter ended December 31, 1995 as compared to the fiscal quarter ended
January 1, 1995. In December 1995, an extraordinary loss of $9.6 million was
incurred related to the writeoff of unamortized deferred financing costs
associated with the early extinguishment of debt. See Note 5 of Notes to the
Company's condensed Consolidated Financial Statements appearing elsewhere
herein.
Net income increased $2.5 million, primarily as a result of the matters
discussed above.
Nine months ended December 31, 1995 compared with the nine months ended
January 1, 1995.
Net Sales increased $946.2 million, or 113.3%, to $1,781.2 million in the first
nine months of fiscal 1996 compared with the first nine months of fiscal 1995.
The sales increase was principally attributable to the inclusion of Compagnie
Europeene d' Accumulateurs S.A. ("CEAc") since June 1995 ($548.7 million) and
the incremental effect related to the inclusion of Sociedad Espanola del
Acumulador Tudor, S.A. ("Tudor") for the entire nine month period in fiscal 1996
(three months in fiscal 1995) of $286.6 million. Sales in the first nine 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 $21.3 million), and the inclusion of Evanite Fiber Corporation
("Evanite") with net sales of $34.0 million, a February 1995 acquisition.
Industrial battery sales for the nine month periods ended December 31, 1995 and
January 1, 1995 were $449.2 million and $67.6 million, respectively.
Gross profit increased $223.9 million while the gross profit margin remained
constant in the first nine months of fiscal 1996 versus the first nine months of
fiscal 1995. The increase in gross profit was principally the result of the
inclusion of CEAc ($144.3 million) and the incremental effect related to the
inclusion of Tudor for the nine month period in fiscal 1996 (three months in
fiscal 1995) of $78.0 million.
Selling, general and administrative expenses increased $182.2 million in the
first nine months of fiscal 1996, or 255.7%, compared to same period in the
previous year. This increase is principally attributable to the inclusion of
CEAc ($99.8 million for the 7 month post acquisition period), the incremental
expenses related to the inclusion of Tudor for the entire nine month period in
fiscal 1996 (three months in fiscal 1995) of $73.3 million, expenses related to
the growth in the UK business of $6.7 million, and the inclusion of Evanite
($4.2 million).
Operating income increased $41.6 million, or 58.4%, primarily as a result of the
matters discussed above.
16
<PAGE>
Interest expense increased $55.5 million in the first nine months of fiscal 1996
compared to the first nine months of fiscal 1995, principally as a result of the
inclusion of CEAc ($10.3 million), the incremental expense related to the
inclusion of Tudor for the entire nine month period in fiscal 1996 ($9.2
million) 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.
For the nine months ended December 31, 1995, Other Income, net is primarily
comprised of net currency transaction gains ($9.5 million) and the loss on the
sales of receivables ($1.4 million).
Income before extraordinary loss was $2.3 million lower in the nine months ended
December 31, 1995 than the nine months ended January 1, 1995. In December 1995,
an extraordinary loss of $9.6 million was the writeoff of unamortized deferred
financing costs associated with the early extinguishment of debt. See Note 5 of
Notes to the Company's Condensed Consolidated Financial Statements appearing
elsewhere herein.
Net income decreased $8.2 million, primarily as a result of the matters
discussed above.
17
<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 provided by operating activities
totalled $12.1 million in the third quarter of fiscal 1996 while funds used in
operating activities totalled $31.1 million for the first nine months 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. This agreement represents a source
of funding to the Company at high grade commercial paper rates. In December
1995, the Company amended the agreement thereby raising the purchasers maximum
commitment from $40 million to $75 million.
Obligations under the U.S. Credit Agreement and under the Pan-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 Agreements 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 $74.9 million in the first nine months
of fiscal 1996. Of the total spending, $48.1 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.
18
<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 Condensed Consolidated Financial Statements
appearing elsewhere herein. The acquisition price of $425.0 million was financed
with the proceeds from the 10% Senior Notes and by Revolving Loans under 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.
As discussed in Note 5 of Notes to the Company's Condensed Consolidated
Financial Statements appearing elsewhere herein, on November 30, 1995, the
Company entered into a Pan-European, multicurrency, multiborrower credit
facility. This new facility, in conjunction with the cash flows generated from
operations and the small amount of remaining local borrowings, 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 as well as the long term needs of the European operations.
Additionally, as a result of the December 1995 issuance of the 2.9% Convertible
Senior Subordinated Notes due in 2005, the Company has substantially reduced its
scheduled principal loan payments in the U.S. until the year 2002.
On December 31, 1995, the Company had $128.2 million available under its U.S.
credit facility. As stated above, the Company received $36.6 million in the net
proceeds from the exercise of the over-allotment of the 2.9% Notes on January
10, 1996. These proceeds were used to repay revolving borrowings and therefore
increased availability above that stated for December 31, 1995. Availability
from borrowing facilities and cash balances at the Company's European and
Canadian operations totalled $72.7 million.
The Company believes it will have sufficient funds available for its ongoing
operating needs including any environmental requirements. The Company's Credit
Agreements, Senior Notes and Deferred Coupon Debentures contain various business
and financial covenants. At December 31, 1995, the Company was in compliance
with the terms of those agreements.
As a result of the CEAc acquisition, almost two-thirds of the Company's
consolidated sales and operations are outside the U.S. Therefore, the Company's
future consolidated operating results and financial condition may be influenced
by exchange rate fluctuations.
19
<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: February 14, 1996 By: /S/ Alan E. Gauthier
----------------- ------------------------
Alan E. Gauthier
Executive Vice President,
Chief Financial Officer
(Authorized Signatory)
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