<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal quarter ended July 4, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
645 Penn Street, Reading, Pennsylvania 19601
- --------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(610) 378-0500
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ________
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
As of August 13, 1999, 21,373,388 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, 1999
Consolidated Balance Sheet).
-- Condensed Consolidated Balance Sheets - -
July 4, 1999 and March 31, 1999.
-- Consolidated Statements of Operations - - for the three
months ended July 4, 1999 and June 28, 1998.
-- Consolidated Statements of Cash Flows - -
for the three months ended July 4, 1999 and June 28, 1998.
-- Notes to Condensed Consolidated Financial Statements - -
July 4, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8K.
Exhibit 27 - Financial Data Schedule
SIGNATURE
- ---------
1
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
EXIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share data)
<TABLE>
<CAPTION>
July 4, March 31,
1999 1999
(Unaudited)
------------ -----------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 16,602 $ 20,596
Receivables, net of allowance for doubtful
accounts of $54,773 and $54,111, respectively 409,303 388,665
Inventories 517,850 522,471
Prepaid expenses and other 20,948 20,541
Deferred income taxes 13,227 13,303
------------ ----------
Total current assets 977,930 965,576
------------ ----------
PROPERTY, PLANT AND EQUIPMENT 804,079 809,461
Less - Accumulated depreciation (327,352) (310,801)
------------ ----------
Total property, plant and equipment, net 476,727 498,660
------------ ----------
OTHER ASSETS:
Goodwill, net 543,685 566,173
Investments in affiliates 21,980 23,072
Deferred financing costs, net 16,117 16,967
Deferred income taxes 67,638 61,019
Other 37,799 36,374
------------ ----------
687,219 703,605
------------ ----------
Total assets $ 2,141,876 $2,167,841
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 32,803 $ 20,881
Current maturities of long-term debt 26,817 30,439
Accounts payable, trade 233,091 250,625
Accrued expenses 238,702 224,859
------------ ----------
Total current liabilities 531,413 526,804
------------ ----------
LONG-TERM DEBT 1,217,066 1,154,486
------------ ----------
OTHER NONCURRENT LIABILITIES 257,771 317,703
------------ ----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 17,302 17,646
------------ ----------
STOCKHOLDERS' EQUITY
Junior participating preferred stock, Series A, $.01
par value 30,000 shares authorized -- --
Common stock, $.01 par value 60,000,000 shares
authorized; 21,454,589 and 21,359,495 shares issued and outstanding 213 213
Additional paid-in capital 490,185 490,147
Accumulated deficit (174,441) (164,712)
Notes receivable - stock award plan (786) (786)
Unearned compensation (81) (129)
Accumulated other comprehensive loss (196,766) (173,531)
------------ ----------
Total stockholders' equity 118,324 151,202
------------ ----------
Total liabilities and stockholders' equity $ 2,141,876 $2,167,841
============ ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except share and per-share data)
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------------------
July 4, June 28,
1999 1998
---------------- -----------------
<S> <C> <C>
NET SALES $ 518,715 $ 544,532
COST OF SALES 389,546 404,378
---------------- -----------------
Gross Profit 129,169 140,154
---------------- -----------------
OPERATING EXPENSES
Selling, marketing and advertising 78,102 78,531
General and administrative 31,517 36,981
Goodwill amortization 4,257 4,176
---------------- -----------------
113,876 119,688
Operating income 15,293 20,466
---------------- -----------------
INTEREST EXPENSE, net 26,699 26,543
OTHER EXPENSE, net 1,310 2,414
---------------- -----------------
Loss before income taxes, minority
interest and extraordinary loss (12,716) (8,491)
INCOME TAX BENEFIT (3,664) (2,338)
---------------- -----------------
Loss before minority interest and
extraordinary loss (9,052) (6,153)
MINORITY INTEREST 250 (100)
---------------- -----------------
Loss before extraordinary loss (9,302) (6,053)
EXTRAORDINARY LOSS RELATED TO EARLY
RETIREMENT OF DEBT, net of income taxes of $0 -- (301)
---------------- -----------------
Net loss $ (9,302) $ (6,354)
================ =================
BASIC EARNINGS PER SHARE:
Loss before extraordinary loss $ (0.44) $ (0.29)
Extraordinary loss -- (0.01)
---------------- -----------------
Net loss $ (0.44) $ (0.30)
================ =================
DILUTED EARNINGS PER SHARE:
Loss before extraordinary loss $ (0.44) $ (0.29)
Extraordinary loss -- (0.01)
---------------- -----------------
Net loss $ (0.44) $ (0.30)
================ =================
WEIGHTED AVERAGE SHARES:
Basic 21,271,303 21,152,596
================ =================
Diluted 21,271,303 21,152,596
================ =================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------------
July 4, June 28,
1999 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (9,302) $ (6,354)
Adjustments to reconcile net loss to net
cash used in operating activities -
Depreciation and amortization 27,315 30,756
Extraordinary loss - 301
Deferred income taxes (6,729) (4,811)
Original issue discount on notes 2,526 2,212
Provision for losses on accounts receivable 1,728 2,294
Minority interest 250 (100)
Net proceeds from sale of receivables (36,267) (15,451)
Changes in assets and liabilities excluding
effects of acquisitions -
Receivables 427 (15,125)
Inventories (7,941) (17,765)
Prepaid expenses and other (1,841) (650)
Payables and accrued expenses (47,421) (14,692)
Other, net (6,512) 488
----------------- -----------------
Net cash used in operating activities (83,767) (38,897)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of certain businesses - (2,133)
Capital expenditures (12,731) (24,979)
Equipment purchases held for sale - (783)
Proceeds from sale of assets 7,248 1,885
Insurance proceeds from fire damage - 5,154
Costs incurred this period related to fire damage - (707)
----------------- -----------------
Net cash used in investing activities (5,483) (21,563)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 12,297 8,164
Borrowings under Global Credit Facilities Agreement 200,194 201,556
Repayments under Global Credit Facilities Agreement (121,743) (149,721)
Decrease in other debt (4,444) (6,087)
Debt issuance costs - (527)
Dividends paid (427) (426)
----------------- -----------------
Net cash provided by financing activities 85,877 52,959
----------------- -----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (621) 321
----------------- -----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,994) (7,180)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,596 35,613
----------------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,602 $ 28,433
================= =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for -
Interest (net of amount capitalized) $ 37,515 $ 38,360
Income taxes $ 615 $ 463
</TABLE>
The accompanying notes are an integral part of these statements.
4
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EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 4, 1999
(In thousands, except share and per-share data)
(Unaudited)
(1) BASIS OF PRESENTATION
- --------------------------
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, 1999 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, 1999). 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.
There is no difference between the weighted average basic and diluted shares in
each period presented because the effects of outstanding stock options, grants
and convertible securities are antidilutive.
Options to purchase 1,620,220 shares at prices ranging from $16.625 to $29.50
were outstanding during the first quarter of fiscal 2000 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 2007.
Total comprehensive loss and its components are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------
July 4, June 28,
1999 1998
---------- ---------
<S> <C> <C>
Net loss $ (9,302) $ (6,354)
Change in cumulative translation adjustment (23,235) (1,949)
---------- ---------
Total comprehensive loss $ (32,537) $ (8,303)
========== =========
</TABLE>
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that entities recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company is evaluating the impact of the
statement and will be required to adopt it in the first quarter of fiscal 2002.
Certain prior period amounts have been reclassified to conform with current
period presentation.
5
<PAGE>
(2) INVENTORIES
- ----------------
<TABLE>
<CAPTION>
July 4, March 31,
1999 1999
----------- -----------
<S> <C> <C>
Raw materials $ 119,045 $ 132,697
Work-in-process 72,067 74,549
Finished goods 326,738 315,225
----------- -----------
$ 517,850 $ 522,471
=========== ===========
</TABLE>
At July 4, 1999 and March 31, 1999, inventories valued by the LIFO method were
approximately 27% and 30% of consolidated inventories, respectively. If all
inventories had been determined using the first-in, first-out method, such
inventories would have been $500,783 and $505,404 at July 4, 1999 and March 31,
1999, respectively.
(3) LONG-TERM DEBT
- -------------------
On May 11, 1998, the Company entered into a bond swap agreement for $4,430
(principal amount) of its 10% Senior Notes. Under the agreement, the Company
paid LIBOR plus 1.75% to a counterparty and received from the counterparty the
fixed coupon rate payments made by the Company. At the end of the agreement,
the counterparty is guaranteed repayment of its open market purchase price of
the Notes which exceeded face value by $233. 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 $301. No income tax benefit
on the extraordinary loss was recognized. During fiscal 1999 the Company
terminated this agreement.
As of July 4, 1999, the net fair value of the foreign currency and interest rate
protection agreements was $10,826. These agreements effectively converted
$175,000 debt into 788,756 French francs (U.S. $133,000) and 25,225.2 Pounds
sterling (U.S. $42,000) under the Senior Secured Global Credit Facilities
Agreement.
(4) 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, releasing, 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. The Company devotes significant resources to attaining and
maintaining compliance with environmental and occupational health and safety
laws and regulations and does not currently believe that environmental, health
or safety compliance issues will have a material adverse effect on the Company's
business or financial condition. Except as disclosed herein, the Company
believes that it is in substantial compliance with all material environmental,
health and safety requirements.
6
<PAGE>
North America
The Company has been advised by the U.S. Environmental Protection Agency ("EPA")
or state agencies that it is a "Potentially Responsible Party" ("PRP") under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
or similar state laws at 75 federally defined Superfund or state equivalent
sites. At 42 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 be imposed on a joint
and several basis, the Company's liability may not necessarily be based on
volumetric allocations and could be greater than the Company's estimates.
Management believes, however, that its PRP status at these Superfund sites will
not have a material adverse effect on the Company's business or financial
condition because, based on the Company's experience, it is reasonable to expect
that the liability will be roughly proportionate to its volumetric contribution
of waste to the sites.
Europe
The Company is subject to numerous environmental, health and safety requirements
and is exposed to differing degrees of liabilities, compliance costs, and
cleanup requirements arising from its past and current 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. 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 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.
While the ultimate outcome of the foregoing environmental matters is uncertain,
after consultation with legal counsel, management does not believe the
resolution of these matters, individually or in the aggregate, will have a
material adverse effect on the Company's long-term 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.
7
<PAGE>
The Company has established reserves for on-site and off-site environmental
remediation costs and believes that such reserves are adequate. As of July 4,
1999, the amount of such reserves on the Company's consolidated balance sheet
was $40,423. Of this amount, $29,075 was included in other noncurrent
liabilities. 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.
(5) COMMITMENTS AND CONTINGENCIES
- ----------------------------------
There have been no significant changes from the March 31, 1999 audited
consolidated financial statements.
(6) SEGMENT REPORTING
- ----------------------
The Company operates on a geographic basis and has two geographic-based
reportable segments, namely, the manufacture, distribution and sale of lead acid
batteries in North America and in Europe. Sales of lead acid batteries are made
both to the aftermarket and original equipment manufacturers. Intersegment sales
are not material. Selected financial information concerning the Company's
reportable segments are as follows:
For the three months
ended July 4, 1999:
- -------------------
<TABLE>
<CAPTION>
North Intercompany
America Europe Other (a) Eliminations Consolidated
------- ------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales to third parties $192,879 $314,529 $ 12,029 $ (722) $518,715
Net income (loss) (168) (7,955) (1,886) 707 (9,302)
For the three months
ended June 28, 1998:
- --------------------
Net sales to third parties $190,104 $341,843 $ 12,666 $ (81) $544,532
Net income (loss) (4,832) 543 (2,787) 722 (6,354)
</TABLE>
(a) Other includes primarily the operations of the Company's starter and
alternater, charger and accessories businesses.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Factors Which Affect Our Financial Performance:
Lead. Lead is the principal raw material used in the manufacture of batteries,
representing approximately one-third of our cost of goods sold. The market
price of lead fluctuates significantly. Generally, when lead prices decrease,
many of our customers seek disproportionate price reductions from us, and when
lead prices increase, customers tend to be more accepting of price increases.
Competition. The automotive battery market in North America and the automotive
and industrial battery markets in Europe are highly competitive. In recent
years, competition has increased and we have come under increasing pressure for
price reductions. Price competition in Europe has been particularly intense.
This price competition has been exacerbated by an environment of low-priced
Asian imports, excess capacity and declining lead prices.
Exchange Rates. We are exposed to foreign currency risk in most European
countries, principally Germany, France, United Kingdom, Spain, and Italy.
Movements of exchange rates against the U.S. dollar can result in variations in
the U.S. dollar value of our non-US sales. In some instances gains in one
currency may be offset by losses in another.
During the first quarter of fiscal 2000, $23.2 million of the decrease in
stockholders' equity was due to foreign currency translation adjustments
associated with the weakening of most European currencies relative to the U.S.
dollar.
Weather. Unusually cold winters or hot summers accelerate battery failure and
increase demand for automotive replacement batteries.
RESULTS OF OPERATIONS
- ---------------------
Three months ended July 4, 1999 compared with the three months ended June 28,
- -----------------------------------------------------------------------------
1998.
- -----
Net sales decreased 4.7% ($25.8 million) to $518.7 million in the first quarter
of fiscal 2000 from $544.5 million in the first quarter of fiscal 1999.
Approximately $15.6 million of the decrease resulted from the strengthening of
the U.S. dollar versus European currencies. Also contributing was pricing
pressure in Europe, fewer sales into Russia and reduced demand for European
submarine batteries. In addition, fiscal year 1999 first quarter included
significant low margin sales to Sears. Industrial battery sales (included in
net sales) for the first quarter of fiscal 2000 were $171.5 million versus
$181.9 million in the first quarter of fiscal 1999.
Gross profit decreased $11.0 million in the first quarter of fiscal 2000
compared to the same period in the prior year. Weakening European currencies
versus the U.S. dollar currency accounted for $4.3 million of this decrease.
The gross profit margin decreased from 25.7% in the first quarter of fiscal 1999
to 24.9% in the first quarter of fiscal 2000. The decrease in gross profit
related to weaker European automotive pricing, reduced demand for higher margin
submarine batteries, lower sales into Russia and a shift towards a more demand
driven manufacturing/production schedule which adversely impacted overhead
absorption. Offsetting the above
9
<PAGE>
was significant improvement in North America due to the elimination of certain
low margin business (primarily Sears) and higher margins associated with better
product mix and customer mix.
Selling, general and administrative expenses decreased $5.8 million from $119.7
million in the first quarter of fiscal 1999 to $113.9 million in the first
quarter of fiscal 2000. Weaker European currencies accounted for approximately
$3.9 million of this decrease. In addition, the first quarter of 1999 included
higher provisions of $0.9 million primarily for accounts receivable losses and
the write-off of expenses associated with a potential acquisition.
Operating income decreased $5.2 million as a result of the matters discussed
above.
Interest expense increased $0.2 million from $26.5 million to $26.7 million as a
result of a higher level of borrowings in the first quarter of fiscal 2000
offset by weaker European currencies and overall lower borrowing rates.
Other expense, net was $1.3 million in the first quarter of fiscal 2000 versus
$2.4 million in the first quarter of fiscal 1999. The decrease of $1.1 million
primarily reflects a gain on sale of assets of $1.0 million included in fiscal
2000 results.
The net loss increased primarily as a result of the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's liquidity requirements arise primarily from the funding of
seasonal working capital needs, obligations on its indebtedness and capital
expenditures. Historically, the Company has met these liquidity requirements
through operating cash flows, with borrowed funds and the proceeds of sales of
accounts receivable. The Company is party to a U.S. receivables purchase
agreement and a European receivables purchase agreement under which the other
parties have committed (subject to certain exceptions) to purchase selected
accounts receivable of the Company, up to a maximum commitment of $75.0 million
and $175.0 million, respectively. The Company's greatest cash demands from
operations occur during the months of June through October. During fiscal 2000
and beyond, the Company also expects to meet its liquidity requirements in the
same manner.
Cash used in operating activities was $83.8 million and $38.9 million in the
first quarters of fiscal 2000 and 1999, respectively. The increase in cash used
relates primarily to cash payments made in the first quarter of fiscal 2000
related to one-time charges recorded in fiscal 1999 and lower receivables sales.
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 complete the closure of various European plants which will
necessitate cash payments for severance and other closure costs. While the
Company believes that a large portion of its cash requirements for its European
consolidation activities will be generated from operations, it has substantial
liquidity and capital resources through its Senior Secured Global Credit
Facilities Agreement, as discussed below.
The Company's capital expenditures were $12.7 million and $25.0 million in the
first quarters of fiscal 2000 and 1999, respectively. The Senior Secured Global
Credit Facilities Agreement restricts the amount of capital expenditures which
may be made by the Company and its subsidiaries. However, the Company believes
that it has sufficient resources for its capital expenditure programs from
operating cash flows and borrowing availability under its existing Senior
Secured Global Credit Facilities.
As of July 4, 1999, the Company had $504.2 million outstanding on its Senior
Secured Global Credit Facilities Agreement, including letters of credit.
Obligations under the Senior Secured Global Credit Facilities Agreement bear
interest at fluctuating rates. Increases in
10
<PAGE>
interest rates on such obligations could adversely affect the Company's results
of operations and financial condition. The Senior Secured Global Credit
Facilities Agreement is secured by guarantees of the European subsidiaries and
certain fixed assets, inventory and receivables. The Company has an interest
rate collar agreement which reduces 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 593.1 million French francs (U.S. $100
million) of borrowings to no more than 6.6% and no less than 3.5% through
December 23, 2000. The Company has two currency and interest rate swap
agreements which effectively convert $175 million of borrowings under the Senior
Secured Global Credit Facilities Agreement into 778.8 million French francs
(U.S. $133 million) and 25.2 million British pound sterling (U.S. $42 million).
The Company receives LIBOR and pays PIBOR and pound sterling LIBOR.
As of July 4, 1999, the Company had $76.8 million available under its Senior
Secured Global Credit Facilities Agreement after consideration of $23.1 million
of outstanding letters of credit.
As of July 4, 1999, the Company has significant net operating loss carryforwards
in Europe and in the United States which are available, subject to certain
restrictions, to offset future U.S. and European taxable income.
YEAR 2000 ISSUE
- ---------------
We rely on information technology systems (hardware, operating systems, software
applications) to support many key operations of our business, including sales
order processing, production scheduling, purchasing, distribution, financial
accounting, and others. We have conducted initial assessments of all systems and
have determined that many were not Year 2000 compliant. We believe all of these
systems must be made compliant to ensure no material business interruption. To
date, the majority of our information technology systems have been made
compliant. Additionally, our Year 2000 plans include the assessment and related
remediation of any non-information technology systems that may incorporate
embedded computer chip technology. Some of our manufacturing equipment contains
such technology.
We have identified the systems/equipment that need remediation, as well as the
actions, resources needed, and the time frames to perform the remediation.
Compliance assessments are ongoing and we make modifications to individual
project plans as needed. We are monitoring our overall remediation status on a
regular basis, including periodic reporting to our audit committee of the Board
of Directors.
We have made significant progress in our Year 2000 remediation efforts. Costs
for North American Year 2000 remediation are estimated at approximately $1.2
million, of which $1.0 million has been expended to date.
We expect to achieve Year 2000 compliance in Europe for information technology
and non-information technology systems by October 31, 1999. The estimated costs
for our European Year 2000 remediation efforts is approximately $3.5 million of
which $1.6 million has been expended to date.
In addition to our own Year 2000 compliance, we believe that our business could
potentially be adversely impacted if our key suppliers do not achieve timely and
successful Year 2000
11
<PAGE>
compliance with their systems and equipment. We have been in contact with our
key business partners regarding their Year 2000 readiness. Our vertically
integrated structure, particularly in North America and to a lesser extent in
Europe, might mitigate the adverse impact of third parties' Year 2000 issues on
us.
We are implementing our Year 2000 program in the following seven phases, some of
which have been completed, while others are being conducted concurrently:
Inventory. This phase involved the identification and validation of an
inventory of all systems that could be affected by the Year 2000 issue. The
inventory phase has been completed.
Assessment. This phase involved the initial testing and code scanning to
determine whether remediation is needed and to develop a remediation plan, if
applicable. The assessment of business information systems for both North
America and Europe was completed by April 1998. The assessment of
infrastructure items and embedded systems was substantially completed by June
1998 for North America and by December 1998 for Europe.
Remediation. This phase involves the design and execution of a remediation
plan. We have substantially completed the remediation of our critical systems
and are on track to meet our remediation targets.
System Test. This phase involves the testing of remediation items to ensure that
they function normally after being returned to their original operating
environment. It is closely related to the remediation phase and follows
essentially the same schedule.
Implementation. This phase involves the return of items to normal operation
after satisfactory performance in system testing. It follows essentially the
same schedule as remediation and system testing.
Readiness Testing. This phase involves the planning for and testing of
integrated systems in a Year 2000-ready environment, including ongoing auditing
and follow-up. This phase commenced in the second quarter of 1999 and is
expected to be completed in the fourth quarter of 1999.
Contingency Planning. This phase involves the development and execution of
plans that narrow the focus on specific areas of significant concern and
concentrate resources to address them. We currently believe that the most
reasonably likely worst case scenario is that there will be some localized
disruptions of systems that will affect individual business processes,
facilities or suppliers for a short time rather than systemic or long-term
problems affecting our business operation as a whole. Our contingency planning
will continue to review systems and other aspects of our business throughout the
remainder of the year. Because there is uncertainty as to which activities may
be affected and the exact nature of the problems that may arise, our contingency
planning will focus on minimizing the scope and duration of any disruptions by
having sufficient personnel and other resources in place to permit a flexible,
real-time response to specific problems as they may arise at individual
locations around the world. Specific contingency plans and resources for
permitting the necessary flexibility of response have been identified and are
being put into place.
The cost of our Year 2000 program is being expensed as incurred with the
exception of capitalizable replacement hardware. Total Year 2000 remediation
spending is estimated at
12
<PAGE>
approximately $4.7 million (of which $2.6 million has been incurred as of July
4, 1999) and is not expected to be material to our operations, liquidity or
capital resources.
We do not currently anticipate that we will experience a significant disruption
of our business as a result of the Year 2000 issue. However, there is still
uncertainty about the broader scope of the Year 2000 issue as it may affect
Exide and third parties, including our customers, that are critical to our
operations. For example, lack of readiness by electrical and water utilities,
financial institutions, governmental agencies or other providers of general
infrastructure could, in some geographic areas, pose significant impediments to
our ability to carry on our normal operations in the area or areas so affected.
In the event that we are unable to complete our remedial actions as described
above and are unable to implement adequate contingency plans in the event that
problems are encountered, there could be a material adverse effect on our
business.
Conversion to the Euro Currency
On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and a common currency,
the Euro. We conduct significant business in these member countries. The
transition period for the introduction of the Euro is between January 1, 1999
and June 30, 2002. We are addressing the issues involved with the introduction
of the Euro. The more important issues facing us include:
. Converting information technology systems,
. Reassessing currency risk,
. Negotiating and amending contracts, and
. Processing tax and accounting records.
Based upon progress to date, we believe that use of the Euro has not and will
not have a significant impact on the manner in which we conduct our business
affairs and process our business and accounting records. Accordingly, conversion
to the Euro has not and is not expected to have a material effect on our
financial condition or results of operations.
13
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE
SAFE HARBOR PROVISION OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information, this report may be deemed to contain
"forward-looking" statements. The Company desires to avail itself of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") and is including this cautionary statement for the express purpose of
availing itself of the protection afforded by the Act.
Examples of forward-looking statements include, but are not limited to (a)
projections of revenues, cost of raw materials, income or loss, earnings or loss
per share, capital expenditures, growth prospects, dividends, the effect of
currency translations, capital structure and other financial items, (b)
statements of plans of and objectives of the Company or its management or Board
of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulating
authorities, (c) statements of future economic performance and (d) statements of
assumptions, such as the prevailing weather conditions in the Company's market
areas, underlying other statements and statements about the Company or its
business.
The Company's core business, the design, manufacture and sale of lead acid
batteries, and the Company's structure involves risk and uncertainty. Important
factors that could affect the Company's results include, but are not limited to
(i) unseasonable weather (warm winters and cool summers) which adversely affects
demand for automotive and some industrial batteries, (ii) the Company's
substantial debt and debt service requirements which restrict the Company's
operational and financial flexibility, as well as imposing significant interest
and financing costs, (iii) the Company is subject to a number of litigation
proceedings, the results of which could have a material adverse effect on the
Company and its business, (iv) the Company's assets include the tax benefits of
net operating loss carry forwards, realization of which are dependent upon
future taxable income, (v) lead, which experiences significant fluctuations in
market price and which, as a hazardous material, may give rise to costly
environmental and safety claims, can affect the Company's results because it is
a major constituent in most of the Company's products, (vi) the battery markets
in North America and Europe are very competitive and, as a result, it is often
difficult to maintain margins, (vii) the Company's consolidation and
rationalization of recently acquired European entities requires substantial
management time and financial and other resources and is not without risk, and
(viii) foreign operations involve risks such as disruption of markets, changes
in import and export laws, currency restrictions and currency exchange rate
fluctuations. Therefore, the Company cautions each reader of this report to
carefully consider those factors here-in-above set forth, because such factors
have, in some instances, affected and in the future could affect, the ability of
the Company to achieve its projected results and may cause actual results to
differ materially from those expressed herein.
14
<PAGE>
PART II. OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings
In December 1997, the Attorney General of the State of Florida initiated an
investigation into certain alleged business practices of Exide, including
falsifying bids to the State of Florida, selling defective batteries, selling
used batteries as new, mislabeling batteries with regard to warranty coverage,
cold cranking amps, intended use and point of manufacture; and also considered
related allegations concerning improperly transferring credits among customer
accounts, procuring falsified test data, making payments to employees of certain
customers to obtain business, securities fraud, and anti-trust violations. This
investigation was resolved by a settlement agreement with the Attorney General
dated May 24, 1999, which released Exide from all liabilities and claims which
have been or could be asserted against Exide in any civil or administrative
action arising out of, related to or connected with, directly or indirectly, the
following investigated matters: falsifying bids to the State of Florida; selling
defective batteries; selling used batteries as new; mislabeling batteries with
regard to warranty coverage, cold cranking amps, intended use and point of
manufacture; and improperly transferring credits among customer accounts.
When our current management learned of the Florida Attorney General's
investigation, we elected to fully cooperate with the Attorney General. That
cooperation led to the settlement agreement. It was expressly understood and
agreed that the settlement agreement was not to be construed as an admission of
liability or any acknowledgment of the claims asserted against Exide.
Under the settlement agreement, we agreed to pay the State of Florida $2.75
million in installments, with $1.25 million to be directed to a Florida
University of the Attorney General's choosing. In addition, we have agreed to
make restitution at an estimated cost of $500,000 and to take certain further
actions, including ceasing the alleged practices, instituting certain battery
labeling practices and instituting a corporate ethics program. The settlement
applies to all batteries sold up to and including June 23, 1999.
While we believe the settlement marks the end of the Florida investigation, the
settlement does not preclude the Florida Attorney General from bringing further
claims with respect to the matters not covered by the settlement. We have also
brought certain issues raised by the Florida Attorney General's inquiry to the
attention of the Securities and Exchange Commission and are voluntarily
responding to the Commissions follow-up inquiries. We cannot assure you that
federal or state agencies or private claimants will not investigate or bring
charges with respect to these or other matters or that, if they do, such claims
would not have a material adverse effect on the Company.
Exide is now or recently has been involved in several lawsuits pending in state
and federal courts in Alabama, North Carolina, Pennsylvania, South Carolina,
Tennessee and Texas, some of which were brought as purported class actions.
These actions allege that Exide sold old or used batteries as new batteries,
sold defective and mislabeled batteries and improperly credited customer
accounts and seek compensatory and punitive damages and, in one case, injunctive
relief. The following lawsuits of this type are currently pending: Mathews v.
Exide Corporation, et al., CV-95-91-TH, Circuit Court for Montgomery County,
Alabama, Exide Corporation v. East Alabama Auto Parts, CV-96-348, Circuit Court
for Calhoun County, Alabama, The Battery Shop, et al. v. Exide Corporation, et
al., CV 9606976, Circuit Court for Jefferson County, Alabama, Dynamic
Enterprises v. Exide Corporation, No. 5:98CV119, United States District Court
for the
15
<PAGE>
Eastern District of Texas, Dynamic Enterprises v. Exide Corporation, No.
5:98CV120, United States District Court for the Eastern District of Texas,
Martin v. Exide Corporation, No. 3:98-2035-10, United States District Court for
the District of South Carolina, Mathis Battery Company, et al. v. Exide
Corporation, et al., No. 15735, Chancercy Court for Weakley County, Tennessee
and Gamma Group, et al. v. Exide Corporation, No. 99-2942, United States
District Court for the Eastern District of Pennsylvania. We cannot assure you
that we will be successful in the defense of these claims or that additional
claims will not be brought.
On May 3, 1999, we went to trial in the case of Exide Corporation v. East
Alabama Auto Parts Anniston, Inc. The case involved our breach of contract claim
against East Alabama to collect an outstanding receivable of $13,000 and their
breach of contract and fraud counterclaims, alleging that Exide sold them
defective batteries. The jury returned a verdict for Exide on its breach of
contract claim, for Exide on the East Alabama's breach of contract counterclaim
and for East Alabama on its fraud counterclaim. The jury awarded zero
compensatory damages and $1.5 million punitive damages. The judge declared a
mistrial due to the inconsistency between the compensatory damages verdict and
the punitive damages awarded. The trial judge has not yet reset this matter for
trial.
On June 14, 1999, we went to trial in the case of The Battery Shop, et al. v.
Exide Corporation, et al. The case involved allegations that Exide sold old,
used or defective batteries as new batteries. The jury returned a verdict
rejecting the plaintiffs' claims against Exide. Post-verdict motions are
pending.
We recently entered into an agreement to settle a class action lawsuit pending
against the Company and three of its former senior officers who were also
directors that alleges violations of the anti-fraud provisions of Section 10(b)
of the Securities Exchange Act and Rule 10b-5 promulgated thereunder. The
complaint alleges that the market price of the Company's stock was artificially
inflated as a result of alleged misstatements and omissions regarding the
quality, adequacy and honesty of the Company's manufacturing processes, the
Company's revenues, cost of goods sold, warranty expenses, net income,
inventory, accounts receivable and warranty liability. Specifically, the
complaint alleges that senior executives of the Company instructed employees to
inflate publicly reported financial results and sold old or used batteries as
new batteries, sold defective and mislabeled batteries and improperly credited
customer accounts. We have entered into a settlement agreement with the
plaintiffs in this lawsuit, providing for a payment by the Company's insurers of
$10.25 million in satisfaction of all claims. The court has preliminarily
approved the settlement, certified a class of all persons who purchased the
Company's common stock from June 27, 1995 through July 29, 1998 and ordered that
notice be sent to the class. A final hearing will be held on September 2, 1999
and, if the settlement is approved, will result in the claims asserted in this
action, as well as any other claims relating to the Company's common stock, SEC
filings or the conduct of the Company's business during the class period, being
released and dismissed with prejudice.
Our current senior management and Board of Directors have retained outside
counsel to investigate and will continue to investigate the allegations involved
in the foregoing matters. The Company has no tolerance for the practices alleged
and senior management has taken and will take action to prevent such practices
in the future.
16
<PAGE>
We are currently involved in litigation with certain former members of senior
management over their separation agreements. This case, Arthur M. Hawkins v.
Exide Corporation, 99-73346, U.S. District Court for the Eastern District of
Michigan, involves claim by Mr. Hawkins to enforce his separation agreement with
Exide and a counterclaim by Exide seeking a declaration that the separation
agreement is void and a return of all consideration paid thereunder. Exide has
also joined Messrs. Pearson and Gauthier as additional counterclaim defendants
and is seeking similar relief against such parties.
We are also involved in various other claims and litigation incidental to the
conduct of our business. For a discussion of environmental issues relating to
our business, see Note 4 to our Condensed Consolidated Financial Statements.
Item 2. Changes in Securities and Use of Proceeds. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to Vote of Security Holders. None.
Item 5. Other Information
Stockholder proposals to be presented at the fiscal year 2000 annual meeting of
stockholders must be received by the Company on or before March 15, 2000, for
inclusion in the proxy statement relating to that meeting. Proposals should be
sent to the attention of the Secretary of the Company.
The Company's by-laws provide that a stockholder wishing to present a nomination
for election of a director or to bring any other matter before an annual meeting
of stockholders must give written notice to the Company's Secretary not later
than 45 days prior to the first anniversary of the mailing of the previous
year's annual meeting materials and that such notice must meet certain other
requirements. As a result, stockholders who intend to present a proposal at the
fiscal year 2000 annual meeting without inclusion of such proposal in the
Company's proxy materials are required to provide notice of such proposal no
later than June 1, 2000. The Company's proxy related to the fiscal year 2000
annual meeting will give discretionary voting authority to the proxy holders to
vote with respect to any such proposal that is received by the Company after
such date. Any stockholder interested in making such a nomination or proposal
should request a copy of the provisions of the By-Laws from the Secretary of the
Company.
17
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EXIDE CORPORATION
Date: August 18, 1999 By: /s/ James M. Diasio
--------------- ----------------------------
James M. Diasio
Executive Vice President and
Chief Financial Officer
18
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