<PAGE>
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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 28, 1997
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)
(248) 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 10, 1998, 21,325,637 SHARES OF COMMON STOCK WERE OUTSTANDING.
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<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
- -------------------------------
Item 1. Financial Statements (unaudited except for March 31, 1997
Consolidated Balance Sheet).
-- Condensed Consolidated Balance Sheets - -
December 28, 1997 and March 31, 1997.
-- Consolidated Statements of Operations - -
for the three and nine months ended December 28, 1997
and for the three and nine months ended December 29,
1996.
-- Consolidated Statements of Cash Flows - -
for the nine months ended December 28, 1997 and
December 29,1996.
-- Notes to Condensed Consolidated Financial Statements - -
December 28, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
- ---------------------------
Item 4. None
Item 6. Selected Financial Data
6 (a). Exhibits filed with this report.
Exhibit 27 - Financial Data Schedule
SIGNATURE
- ---------
1
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per-share data)
<TABLE>
<CAPTION>
December 28, March 31,
1997 1997
(Unaudited)
------------ --------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 41,046 $ 42,706
Receivables, net of allowance for doubtful
accounts of $36,006 and $38,486 538,819 569,683
Inventories 555,593 533,514
Prepaid expenses and other 23,877 21,889
Deferred income taxes 24,381 23,667
-------------- --------------
Total current assets 1,183,716 1,191,459
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT 869,661 797,772
Less - Accumulated depreciation (300,621) (275,936)
-------------- --------------
Total property, plant and equipment, net 569,040 521,836
-------------- --------------
OTHER ASSETS:
Goodwill, net 598,472 596,254
Investments in affiliates 24,606 24,016
Deferred financing costs, net 24,134 26,770
Deferred income taxes 37,732 40,306
Other 42,198 37,854
-------------- --------------
727,142 725,200
-------------- --------------
Total assets $ 2,479,898 $ 2,438,495
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 31,197 $ 16,123
Current maturities of long-term debt 23,803 37,488
Accounts payable, trade 239,073 236,889
Accrued expenses 316,528 270,519
-------------- --------------
Total current liabilities 610,601 561,019
-------------- --------------
LONG-TERM DEBT 1,223,140 1,236,071
-------------- --------------
OTHER NONCURRENT LIABILITIES 281,036 250,547
-------------- --------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 20,151 19,448
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value 60,000,000 shares authorized;
21,325,124 and 21,336,757 shares issued and outstanding 213 213
Additional paid-in capital 489,773 489,427
Accumulated deficit (16,177) (21,569)
Notes receivable - stock award plan (1,609) (1,696)
Unearned compensation (371) (516)
Minimum pension liability adjustment (4,993) (4,993)
Cumulative translation adjustment (121,866) (89,456)
-------------- --------------
Total stockholders' equity 344,970 371,410
-------------- --------------
Total liabilities and stockholders' equity $ 2,479,898 $ 2,438,495
============== ==============
</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 28, December 29, December 28, December 29,
1997 1996 1997 1996
-------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 691,715 $ 677,544 $ 1,734,469 $ 1,820,967
COST OF SALES 502,000 498,370 1,272,100 1,355,276
-------------- --------------- ---------------- ---------------
Gross profit 189,715 179,174 462,369 465,691
-------------- --------------- ---------------- ---------------
OPERATING EXPENSES:
Selling, marketing and advertising 79,519 74,052 218,238 212,932
General and administrative 35,352 34,656 98,385 107,592
Goodwill amortization 3,977 4,469 12,378 13,807
-------------- --------------- ---------------- ---------------
118,848 113,177 329,001 334,331
-------------- --------------- ---------------- ---------------
Operating income 70,867 65,997 133,368 131,360
INTEREST EXPENSE 28,918 30,794 86,016 92,251
OTHER (INCOME) EXPENSE, net (1,210) (10,678) 2,467 (10,085)
-------------- --------------- ---------------- ---------------
Income before income taxes, minority
interest and extraordinary loss 43,159 45,881 44,885 49,194
INCOME TAX PROVISION 19,714 19,650 21,240 23,259
-------------- --------------- ---------------- ---------------
Income before minority interest and
extraordinary loss 23,445 26,231 23,645 25,935
MINORITY INTEREST 395 26 (114) (842)
-------------- --------------- ---------------- ---------------
Income before extraordinary loss 23,050 26,205 23,759 26,777
EXTRAORDINARY LOSS RELATED TO EARLY RETIREMENT
OF DEBT, net of income tax benefit of $2,899
for the three months and $3,667 for the nine
months ended December 28, 1997 (8,336) -- (17,094) --
-------------- --------------- ---------------- ---------------
Net income $ 14,714 $ 26,205 $ 6,665 $ 26,777
============== =============== ================ ===============
BASIC EARNINGS PER SHARE:
Income before extraordinary loss $ 1.12 $ 1.30 $ 1.15 $ 1.33
Extraordinary loss (0.41) -- (0.83) --
-------------- --------------- ---------------- ---------------
Net income $ 0.71 $ 1.30 $ 0.32 $ 1.33
============== =============== ================ ===============
DILUTED EARNINGS PER SHARE:
Income before extraordinary loss $ 1.05 $ 1.26 $ 1.10 $ 1.29
Extraordinary loss (0.38) -- (0.79) --
-------------- --------------- ---------------- ---------------
Net income $ 0.67 $ 1.26 $ 0.31 $ 1.29
============== =============== ================ ===============
WEIGHTED AVERAGE SHARES:
Basic 20,593,115 20,126,784 20,585,076 20,123,883
============== =============== ================ ===============
Diluted 21,891,000 20,834,003 21,606,169 20,829,845
============== =============== ================ ===============
</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 28, December 29,
1997 1996
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,665 $ 26,777
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 84,278 89,629
Extraordinary loss 17,094 --
Gain on sale of business -- (8,624)
Deferred income taxes 11,288 15,250
Original issue discount on notes 7,754 14,347
Provision for losses on accounts receivable 430 842
Minority interest (114) (842)
Changes in assets and liabilities excluding
effects of acquisitions -
Receivables 33,588 (103,370)
Inventories 911 50,212
Prepaid expenses and other (4,363) 4,785
Payables and accrued expenses (2,012) (79,321)
Other, net (25,413) 6,717
----------------- ----------------
Net cash provided by operating activities 130,106 16,402
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of certain businesses (38,282) (12,391)
Capital expenditures (63,581) (66,956)
Proceeds from sale of assets 54,726 37,734
----------------- ----------------
Net cash used in investing activities (47,137) (41,613)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 15,946 9,045
Borrowings under Global Credit Facilities Agreement 342,409 --
Borrowings under U.S. Credit Agreement -- 10,000
Repayment of U.S. Credit Agreement (17,000) --
Borrowings under European Facilities Agreement -- 17,713
Repayment of European Facilities Agreement (338,761) --
Repayment of European term loans -- (4,280)
Repayment of Acquired Debt (64,644) --
Issuance of 9.125% Senior Notes 102,130 --
Retirement of 12.25% Senior Subordinated Notes (104,096) --
Decrease in other debt (946) (10,310)
Dividends paid (1,273) (1,253)
Debt issuance costs (16,844) (1,311)
----------------- ----------------
Net cash provided by (used in) financing activities (83,079) 19,604
----------------- ----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (1,550) (1,731)
----------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,660) (7,338)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 42,706 47,259
----------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 41,046 $ 39,921
================= ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for -
Interest (net of amount capitalized) $ 85,973 $ 82,873
Income taxes $ 4,810 $ 12,957
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 28, 1997
(Amounts in thousands, except share and per-share data)
(Unaudited)
(1) BASIS OF PRESENTATION, ETC.
- --------------------------------
The condensed 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, 1997 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, 1997). 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.
The Company, in management of its exposure to fluctuations in foreign currency
exchange rates, has entered into foreign exchange contracts during the year,
including forward and purchased option contracts. These agreements generally
involve the exchange of one currency for a second currency at some future date.
The Company enters into forward exchange contracts to reduce the exposure to
foreign currency fluctuations associated with certain monetary assets and
liabilities, as well as certain firm commitments and highly anticipated cash
flows. The Company is also party to purchased option contracts which, if
exercised, involve the sale or purchase of foreign currency at a fixed exchange
rate for a specified period of time. As of December 28, 1997 the net value of
open forward exchange and purchased option contracts and the related gains and
losses associated with contracts were not material.
In the second quarter of 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company will be required to adopt these new standards
in fiscal 1999 and restate prior periods presented. The Company has not
determined the effect of adopting these new pronouncements on the consolidated
financial statements.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
5
<PAGE>
During 1997, the FASB issued Statement of Financial Accounting Standards No.
128, "Earnings per Share," which specifies the computation, presentation and
disclosure requirements for earnings per share ("EPS") for public companies. The
Company adopted this statement in the third quarter of fiscal 1998 and earlier
periods presented have been restated. Included below is a reconciliation of
shares for the basic and diluted EPS computations.
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------------------- -------------------------------------
December 28, December 29, December 28, December 29,
1997 1996 1997 1996
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Basic EPS Shares 20,593,115 20,126,784 20,585,076 20,123,883
Effect of Dilutive Securities 1,297,885 707,219 1,021,093 705,961
Diluted EPS Shares 21,891,000 20,834,003 21,606,169 20,829,845
</TABLE>
There is no difference in Income before extraordinary loss between the basic and
diluted calculations.
Options to purchase 526,000 shares ranging from $25-7/8 to $50 were outstanding
during the third quarter of fiscal 1998 but were not included in the computation
of diluted EPS because the option's exercise price was greater than the average
market price of the common shares. These options expire in the years 2000 to
2006.
Convertible securities, which if converted would result in an additional
4,992,571 shares, have not been included in the diluted EPS calculation since
the effect would be antidilutive.
(2) ACQUISITIONS AND DIVESTITURES
- ----------------------------------
On December 23, 1997, the Company entered into a Sale / Leaseback transaction,
where the Company sold certain machinery and equipment with a book value of
$16,400 for $49,500 and leased the same machinery and equipment back over eight
years. The gain on this will be recognized over the duration of the lease.
In July 1997, the Company acquired three related German producers and marketers
of starter, lighting and ignition ("SLI") batteries and Industrial batteries,
DETA Akkumulatorenwerk GmbH, MAREG Accumulatoren GmbH, and FRIWO SILBERKRAFT
GmbH (together "DETA") for approximately $34,000 plus assumed debt of
approximately $64,600. This acquisition was accounted for as a purchase. The
cost of the acquisition has been allocated on the basis of the estimated fair
value of the assets acquired and the liabilities assumed. This acquisition
resulted in goodwill of approximately $22,100.
6
<PAGE>
In July 1996, the Company acquired the majority of the stock of Metalurgica De
Cubas S.L. ("Cubas"), a secondary lead smelter located near Madrid, Spain, for
approximately $7,500. In November 1996, the remaining stock was purchased for
approximately $3,200. The acquisition was accounted for as a purchase and the
results of Cubas' operations are included in the Company's consolidated
statement of operations effective July 1, 1996. The cost of the acquisition has
been allocated on the basis of the estimated fair value of the assets acquired
and the liabilities assumed. This acquisition resulted in goodwill of
approximately $7,300.
In June 1996, the Company sold certain assets related to its battery separator
division of Evanite Fiber Corporation ("Evanite") for $13,000 in cash. In
December 1996, the Company sold substantially all of the remaining net assets of
Evanite for approximately $23,000 (subject to final adjustments). The gain on
these transactions of approximately $8,300 was included in Other expense
(income), principally in the fiscal quarter ending December 29, 1996.
In April 1996, the Company acquired 14.4% of the remaining 15.6% minority
interest in a subsidiary of Sociedad Espanola del Acumulador Tudor, S.A.
("Tudor") for $3,562.
(3) INVENTORIES
- ----------------
<TABLE>
<CAPTION>
December 28, March 31,
1997 1997
------------------- -------------------
<S> <C> <C>
Raw materials $ 125,749 $ 117,038
Work-in-process 73,439 70,805
Finished goods 356,405 345,671
------------------- -------------------
$ 555,593 $ 533,514
=================== ===================
</TABLE>
At December 28, 1997 and March 31, 1997, inventories valued by the LIFO method
were approximately 27% and 33% of consolidated inventories, respectively. If all
inventories had been determined using the first-in, first-out method, such
inventories would have been $538,526 and $516,447 at December 28, 1997 and March
31, 1997, 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 leveraged 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) RECEIVABLES SALE AGREEMENT
- -------------------------------
In June 1997, certain of the Company's European subsidiaries established a
multi-currency receivables sale facility with a financial institution to sell
selected trade accounts of the Company, up to a maximum of $175,000. The net
proceeds from the sale of accounts receivable (approximately $158,000 at
December 28, 1997) were used to repay a portion of borrowings under the European
Facilities Agreement.
7
<PAGE>
(5) SHORT-TERM BORROWINGS
- --------------------------
At December 28, 1997 and March 31, 1997, 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 December 28, 1997 and March 31, 1997, the weighted average
interest rate on these borrowings was 9.9% and 12.0%, respectively.
(6) LONG-TERM DEBT
- -------------------
Following is a summary of the Company's long-term debt at December 28, 1997 and
March 31, 1997:
<TABLE>
<CAPTION>
December 28, March 31,
1997 1997
------------------ -----------------
<S> <C> <C>
Senior Secured Global Credit Facilities
Agreement, borrowings primarily at LIBOR plus
2.0% - 2.25% (at a weighted average 7.49% at
December 28, 1997) $ 342,409 $ --
U.S. Credit Agreement borrowings primarily at
LIBOR plus 2.5% at March 31, 1997 (8.2%) -- 17,000
9.125% Senior Notes (Deutsche mark
denominated), due April 15, 2004 98,652 --
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 1,881 101,187
Convertible Senior Subordinated Notes,
due December 15, 2005 304,735 298,295
European Facilities Agreement, borrowings
primarily at LIBOR plus 2.0% (ranging from 4.8%
to 10.0% at March 31, 1997) -- 356,865
Other, primarily capital lease obligations at
interest rates ranging from 3.5% to 8.5%
due in installments through 2015 49,266 50,212
------------------ -------------------
1,246,943 1,273,559
Less - Current maturities 23,803 37,488
------------------ -------------------
$ 1,223,140 $ 1,236,071
================== ===================
</TABLE>
8
<PAGE>
On December 23, 1997, the Company replaced the existing U.S. and European Credit
Agreements with a $650,000 Global Credit Facilities Agreement. This facility has
three borrowing Tranches: a $150,000 six year multi-currency term A loan, a
$250,000 seven and one-quarter year U.S. dollar term B loan, and a $250,000 six
year multi-currency revolving credit line. The new facility contains a number of
financial and other covenants customary for such agreements including
restrictions on new indebtedness, liens, leverage rates, acquisitions and
capital expenditures. The write-off of the remaining deferred financing costs
related to the debt retired resulted in an extraordinary loss of $8,336 (net of
income tax benefit $2,899).
On July 10, 1997, the European Facilities Agreement was amended to reduce the
maximum commitment to 1,718 million French francs (U.S. $290,000) from the
original 2,569 French francs (U.S. $434,000). The write-off of the related
unamortized deferred financing costs associated with this early retirement of
debt resulted in an extraordinary loss of $1,364 (net of income tax benefit of
$768).
In June 1997, the Company entered into a series of bond swap agreements for
$13,150 (principal amount) of its 10% Senior Notes. Under the agreements, the
Company pays LIBOR plus 1.75% to a counterparty and receives from the
counterparty the fixed coupon rate payments made by the Company. At the end of
the agreements, the counterparty is guaranteed repayment of its open market
purchase price of the Notes which exceeded face value by $653. This debt
modification was accounted for as an extinguishment of debt, and the related
write-off of unamortized deferred financing costs along with the premium paid by
the counterparty resulted in an extraordinary loss of $902. No income tax
benefit on the extraordinary loss was recognized.
On May 7, 1997, the Company redeemed $108,119 (face value) of its outstanding
12.25% Zero-Coupon Bonds for $104,095. The Company financed the tender offer
through borrowings under the U.S. Credit Agreement, $50,000 of which was from
the Tranche D variable rate term loan and the balance from the revolver. This
redemption resulted in an extraordinary loss of $6,492 related to the write-off
of unamortized deferred financing costs and the premium paid associated with the
early extinguishment of substantially all of the 12.25% Senior Subordinated
Deferred Coupon Debentures. No income tax benefit on the extraordinary loss was
recognized.
On April 23, 1997, the Company issued 175 million Deutsche mark (U.S. $102,130)
9.125% Senior Notes due on April 15, 2004. The Company used the funds to repay
indebtedness under the European Facilities Agreement.
At December 28, 1997, the Company was in compliance with all covenants related
to its existing debt.
See Note 5 of the Notes to Consolidated Financial Statements included in the
Company's March 31, 1997 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, 1997 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 56 federally defined Superfund or state equivalent sites. At 33 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 are viable. The Company's share of the
anticipated remediation costs associated with all of the Superfund sites where
it has been named a PRP, based on the Company's estimated volumetric
contribution 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 affect on the Company's
business or financial condition because, based on the Company's experience, it
is reasonable to expect that the liability will be roughly proportionate to its
volumetric contribution of waste to the sites.
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.
During the third and fourth quarters of fiscal 1997, the Company finalized the
settlement of environmental impairment claims with several insurance carriers in
an amount aggregating $17,309. This settlement, which was reflected in cost of
sales, offset certain legal costs that the Company incurred in fiscal 1997, as
well as the elimination of $7,000 of legal fees deferred in fiscal 1996.
10
<PAGE>
The Company has reserves for on-site and off-site environmental remediation
costs and believes that such reserves are adequate. As of December 28, 1997, the
amount of such reserves on the Company's balance sheet was $32,164. Of this
amount, $30,672 was included in Other Noncurrent Liabilities. Because
environmental liabilities are not recorded 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
future adjustments to the reserves 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 violations are not
expected to interfere with continued operations at the subject facilities.
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.
(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. Later, the Court, acting on the
jury's verdict, entered a judgment against the Company for $5,456. On April 28,
1997, the Court denied the Company's post-trial motions relating to the
judgment. On May 16, 1997, the Company filed its Notice of Appeal. On May 21,
1997, plaintiffs filed a cross appeal. The Company is vigorously prosecuting the
appeal. Management and its independent patent counsel remain confident that the
jury verdict and the court's judgment relating to the patent asserted at trial
will be reversed and that the cross appeal is without merit and, therefore,
shall be rejected. The Company anticipates receiving a decision on the appeal
during fiscal 1999.
11
<PAGE>
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 contain allegations that the Company sold old or used
batteries as new batteries. One action that had been certified as a class action
by the trial court was decertified by the Alabama Supreme Court and was
subsequently dismissed. In another action, the judge directed a verdict in favor
of the Company following presentation of the plaintiff's evidence. That case is
now on appeal. On August 11, 1997, the Company's motion for summary judgment was
granted in another one of these cases. In December, 1997 a claimant in one of
the remaining actions, who initially sought substantial compensatory and
punitive damages, voluntarily dismissed its claim and acknowledged that it owed
the Company more than $30. The remaining actions seek compensatory and punitive
damages and, in one case, injunctive relief. The Company disputes the material
legal claims in these matters and will vigorously defend itself.
The Company is involved in various other claims and litigation incidental to the
conduct of its business. Based on consultation with legal counsel, management
does not believe that any claims or litigation to which the Company 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 other
items incident to the ordinary course of business. In the aggregate, such
commitments are not at prices significantly in excess of current market.
(9) SUBSEQUENT EVENTS
- ----------------------
On January 21, 1998, the Company redeemed the $150,000 10.75% Senior Notes. The
Company financed the redemption through borrowings under the Global Credit
Facilities Agreement, $75,000 of which was from the remainder of the Tranche B
variable rate term loan and the balance was financed with borrowings from the
revolver. Additionally, the Company terminated $18,000 of the 10.75% bond swap
agreements. The write-off of the remaining deferred financing costs associated
with the 10.75% Senior Notes will result in an extraordinary loss of $10,598.
On February 2, 1998 A.P.S., Inc. ("APS"), a large customer, filed Chapter 11
under the U.S. Bankruptcy Code. The Company has $7,300 accounts receivable from
APS. APS plans to restructure its operations and develop a plan of
reorganization to reduce its debt burden.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
General
The Company through its European operations 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 December 28, 1997 compared with the three months ended
December 29,1996.
Net sales increased $14.2 million, or 2.1%, to $691.7 million in the third
quarter of fiscal 1998 compared with the third quarter of fiscal 1997. The
increase was principally attributable to higher automotive and industrial
battery volume and the inclusion of DETA ($55.5 million) in fiscal 1998 offset
by the impact of changes in foreign exchange rates ($57.4 million) and the
fiscal 1997 divestiture of Evanite ($7.7 million). Industrial battery sales
(included above) for the quarter ended December 28,1997 were $199.1 million
versus $181.2 million for the quarter ended December 29,1996.
Gross profit increased $10.5 million and gross profit margin increased by 1.0
percentage point in the third quarter of fiscal 1998 versus the third quarter of
fiscal 1997. The increase in gross profit was primarily attributable to the
inclusion of DETA in fiscal 1998 ($16.0 million), higher margin on the NASCAR
Select line, manufacturing cost reductions related to the European
rationalization / consolidation process offset by the impact of changes in
foreign exchange rates ($17.5 million) and the absence of Evanite ($1.1
million).
Operating expenses increased $5.7 million, or 5.0% in the third quarter ended
December 28,1997 versus the comparable period in fiscal 1997, due to the
inclusion of DETA in fiscal 1998 ($12.9 million) and to advertising expenses
incurred for the roll out of the NASCAR Select line, partially offset by the
impact of changes in foreign exchange rates ($10.0 million).
Operating income increased $4.9 million, or 7.4%, primarily as a result of the
matters discussed above.
Interest expense decreased $1.9 million, or 6.1%, primarily due to the effect
of changes in foreign exchange rates, partially offset by the inclusion of DETA.
13
<PAGE>
Other (income) expense, net was $1.2 million income for the fiscal quarter ended
December 28, 1997 versus $10.7 million income for the comparable period in
fiscal 1997. This $9.5 million change principally relates to the absence of the
fiscal 1997 gain on the sale of Evanite ($8.6 million), an unfavorable change in
net currency transactions ($2.5 million), additional losses on sale of accounts
receivable in Europe and associated fees ($2.3 million) offset by gains on sales
of fixed assets ($2.7 million) in fiscal 1998.
Net income decreased primarily as a result of the matters discussed above, and
the recognition of an $8.3 million extraordinary loss (net of income tax benefit
of $2.9 million) related to the early retirement of debt (see Note 6 to the
Company's Condensed Consolidated Financial Statements appearing elsewhere
herein).
Nine months ended December 28, 1997 compared with the nine months ended December
29, 1996.
Net sales decreased $86.5 million, or 4.8 %, to $1,734.5 million in the first
nine months of fiscal 1998 compared with the first nine months of fiscal 1997.
The decrease was principally attributable to the impact of changes in foreign
exchange rates ($151.0 million) and the fiscal 1997 divestiture of Evanite
($27.3 million) offset by higher automotive and industrial volume, the inclusion
of DETA ($77.5 million), and product mix. Industrial battery sales (included
above) for the nine months ended December 28, 1997 were $502.4 million versus
$501.2 million for the first nine months of fiscal 1997.
Gross profit decreased $3.3 million and gross profit margin increased by 1.1
percentage points in the first nine months of fiscal 1998 versus the first nine
months of fiscal 1997. The decrease in gross profit and the change in gross
profit margin were principally attributable to the effect of changes in foreign
exchange rates ($46.9 million) and the absence of Evanite ($5.7 million), offset
by the inclusion of DETA ($22.7 million with a gross profit margin of 29.2%),
improved product mix (including the new NASCAR Select line), and manufacturing
cost reductions related to the European rationalization / consolidation process.
Operating expenses decreased $5.3 million, or 1.6%, in the first nine months of
fiscal 1998 versus the comparable period in fiscal 1997, primarily due to the
impact of changes in foreign exchange rates ($32.3 million), the addition of
DETA ($16.8 million) and higher advertising expenses incurred for the roll out
of the NASCAR Select line offset by the absence of Evanite ($3.7 million) and
savings from headcount reductions associated with the European rationalization /
consolidation strategy.
Operating income increased $2.0 million, or 1.5%, primarily as a result of the
matters discussed above.
Interest expense decreased $6.2 million, or 6.8 %, primarily due to the effect
of changes in foreign exchange rates, partially offset by the inclusion of DETA.
Other (income) expense, net was $2.5 million expense for the first nine months
of fiscal 1998 versus $10.1 million income for the comparable period in fiscal
1997. The $12.6 million change principally relates to the absence of the fiscal
1997 gain on the sale of Evanite ($9.4 million), an unfavorable change in net
currency transactions ($1.1 million), losses on the sale of accounts receivable
in Europe and associated fees ($4.7 million), offset by gains on sales of fixed
assets ($1.6 million) in fiscal 1998.
14
<PAGE>
Net income decreased $20.1 million, primarily as a result of the matters
discussed above, and the recognition of a $17.1 million extraordinary loss (net
of income tax benefit of $3.7 million) related to the early retirement of debt
(see Note 6 to the Company's Condensed Consolidated Financial Statements
appearing elsewhere herein).
The Year 2000 issue results from the fact that some computer systems and
applications utilizing two-digit date fields to designate years may not
correctly interpret the year 2000. As a result, some date-sensitive systems may
recognize the year 2000 as 1900, or not at all, which may cause systems to
process financial and operational information incorrectly. The Company has
assessed the impact of the Year 2000 issue, including cost estimates to complete
required changes. Plans to address the Year 2000 issue have been developed and
are being implemented. Currently, the Company does not expect that the costs to
be incurred will be material to results of operations or financial condition,
and expects all systems and applications to be modified in advance of the year
2000.
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 $.02 per share
on the common stock in each completed quarter following its initial public
offering. Historically, the Company has met these liquidity requirements through
cash flows generated from operating activities and with borrowed funds and the
proceeds of sales of accounts receivable. During fiscal 1998 and beyond the
Company also expects to meet its liquidity requirements in the same manner. 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
June through October.
Funds provided by operations were $130.1 million and $16.4 million for the nine
months ended December 28, 1997 and December 29, 1996, respectively. For the nine
months ended December 28, 1997, $158.4 million was provided by sales of European
accounts receivable. See Note 4 to the Company's Condensed Consolidated
Financial Statements appearing elsewhere herein. 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 sufficient liquidity and capital resources
through its Global Credit Facilities Agreement and European and U.S. Receivables
Purchase Agreements.
The Company's capital expenditures were $63.6 million and $67.0 million in the
nine months ended December 28, 1997 and December 29, 1996, respectively. The
Global Credit Facilities Agreement restricts the amount of capital expenditures
which may be made by the Company and its subsidiaries. The Company believes that
it has sufficient resources for its capital expenditure programs from operating
cash flows and borrowing availability under its existing credit facilities.
15
<PAGE>
The Company is party to a U.S. 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.
Effective July 10, 1997 the Company entered into a European receivables purchase
agreement under which a financial institution has committed (subject to certain
exceptions) to purchase selected accounts receivable of Exide's subsidiaries in
France, Germany, Italy, Spain and the U.K., up to a maximum commitment of $175.0
million.
On April 23, 1997, the Company issued 175 million Deutsche mark (U.S. $102.1
million) 9.125% Senior Notes due on April 15, 2004. The Company used the funds
to repay indebtedness under the European Facilities Agreement.
On May 7, 1997, the Company redeemed $108.1 million (face value) of its
outstanding 12.25% Zero-Coupon Bonds for $104.1 million. The Company financed
the tender offer through borrowings under the U.S. Credit Agreement, $50 million
of which was from the Tranche D variable rate term loan and the balance was
financed with borrowings from the revolver, both of which have been subsequently
refinanced.
On July 10, 1997 the Company received proceeds of $112.5 million pursuant to its
initial sale of receivables under the European Receivables Purchase Agreement.
The Company used the funds to repay indebtedness under the European Facilities
Agreement.
On July 30, 1997, the Company acquired DETA for 61.4 million Deutsche mark (U.S.
$34.0 million), in addition to assuming debt of 117 million Deutsche mark (U.S.
$64.6 million). The majority of such consideration was financed through the
European Facilities Agreement. See Notes 2 and 6 of the Company's Condensed
Consolidated Financial Statements appearing elsewhere herein.
On December 23, 1997, the Company replaced the U.S. and European Credit
Agreements with one Global Credit Facilities Agreement. This new facility now
provides the Company with multi-currency multi-borrower capability, additional
liquidity, lower borrowing costs and streamlines the global bank borrowing and
reporting requirements. The Company can borrow British Pound sterling, French
francs, German Deutsche marks, Spanish pesetas and U.S. dollars under the new
facility. The $650 million Global Credit Facilities Agreement has three
borrowing Tranches: $150 million six year multi-currency term A loan, $250
million seven and one-quarter year U.S. dollar term B loan, and a $250 million
six year multi-currency revolving credit line.
On December 23, 1997, the Company repaid all of the outstanding debt under the
U.S. and European Credit Agreements and borrowed under the Global Credit
Facilities Agreement $373.1 million U.S. dollar equivalent including letters of
credit which was outstanding as of December 28, 1997. Obligations under the
Global Credit Facilities Agreement bear interest at fluctuating rates. The
Company entered into two three year currency swaps which converted the $175
million U.S. dollar based Tranche B into a French franc 788.8 million ($133
million equivalent) based borrowing and a British Pound sterling 25.2 million
($42 million equivalent) based borrowing. In addition, the Company entered into
a three year interest rate collar agreement, which reduced the impact of changes
in interest rates on a portion of the Company's floating rate debt. The collar
agreement effectively limits the PIBOR base interest rate on French franc 593.1
million ($100 million equivalent) of borrowings under the Global Credit
Facilities Agreement to no more than 7.5% and no less than 3.5% through December
23, 2000. The currency swaps and the interest rate collar mature on December 23,
2000.
16
<PAGE>
Additionally, the Company entered into a series of bond swap agreements which
effectively converted $51.1 million (principal amount) of the 10% and 10.75%
Senior Notes into a variable LIBOR interest rate through April 15, 2000 and
December 15, 1999, respectively. The Company has the right to cancel the $51.1
million bond swap agreements at any time before maturity. See Note 6 to the
Company's Condensed Consolidated Financial Statements appearing elsewhere
herein.
On January 21, 1998, the Company redeemed the $150 million 10.75% Senior Notes.
The Company financed the redemption through borrowings under the Global Credit
Facilities Agreement, $75 million of which was from the remainder of the Tranche
B variable rate term loan and the balance was financed with borrowings from the
revolver. Additionally, the Company terminated $18.0 million of the 10.75% bond
swap agreements. The write-off of the remaining deferred financing costs
associated with the 10.75% Senior Notes will result in an extraordinary loss of
$10.6 million.
As of December 28, 1997, the Company had $277 million available under its Global
Credit Facilities Agreement.
As of December 28, 1997, 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: February 10, 1998 By: /s/ Alan E. Gauthier
------------------------- --------------------
Alan E. Gauthier
Executive Vice President,
Chief Financial Officer
(Authorized Signatory)
18
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