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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 2, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11263
EXIDE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 23-0552730
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(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
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(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
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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 14, 2000, 21,411,370 shares of common stock were outstanding.
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EXIDE CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
-- Condensed Consolidated Balance Sheets - - July 2,
2000 and March 31, 2000.
-- Consolidated Statements of Operations - - for the
three months ended July 2, 2000 and July 4, 1999.
-- Consolidated Statements of Cash Flows - - for the
three months ended July 2, 2000 and July 4, 1999.
-- Notes to Condensed Consolidated Financial
Statements - - July 2, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risks.
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 a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
1
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EXIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per-share data)
<TABLE>
<CAPTION>
July 2, March 31,
2000 2000
------------------ ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,529 $ 28,110
Receivables, net of allowance for doubtful
accounts of $62,102 and $64,177, respectively 355,504 379,490
Inventories 402,700 405,720
Prepaid expenses and other 17,796 16,026
Deferred income taxes 20,083 20,138
------------------ ------------------
Total current assets 812,612 849,484
------------------ ------------------
PROPERTY, PLANT AND EQUIPMENT 780,840 790,791
Less - Accumulated depreciation (351,880) (347,447)
------------------ ------------------
Property, plant and equipment, net 428,960 443,344
------------------ ------------------
OTHER ASSETS:
Goodwill, net 496,941 501,117
Investments in affiliates 25,037 20,665
Deferred financing costs, net 11,903 12,796
Deferred income taxes 38,372 37,583
Other 36,893 36,472
------------------ ------------------
609,146 608,633
------------------ ------------------
Total assets $ 1,850,718 $ 1,901,461
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 24,764 $ 24,666
Current maturities of long-term debt 32,111 32,047
Accounts payable 241,168 260,352
Accrued expenses 273,401 318,951
------------------ ------------------
Total current liabilities 571,444 636,016
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LONG-TERM DEBT 1,085,617 1,061,672
NONCURRENT RETIREMENT OBLIGATIONS 128,851 128,827
OTHER NONCURRENT LIABILITIES 121,137 123,329
MINORITY INTEREST 18,338 17,993
------------------ ------------------
Total liabilities 1,925,387 1,967,837
------------------ ------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value 60,000 shares authorized;
21,455, and 21,401 shares issued and outstanding 215 214
Additional paid-in capital 490,424 490,399
Accumulated deficit (329,303) (319,530)
Notes receivable - stock award plan (734) (734)
Accumulated other comprehensive loss (235,271) (236,725)
------------------ ------------------
Total stockholders' equity (deficit) (74,669) (66,376)
------------------ ------------------
Total liabilities and stockholders'
equity (deficit) $ 1,850,718 $ 1,901,461
================== ==================
The accompanying notes are an integral part of these statements.
2
</TABLE>
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share data)
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------------------------------
July 2, July 4,
2000 1999
-------------------- --------------------
<S> <C> <C>
NET SALES $ 465,800 $ 518,715
COST OF SALES 342,362 389,546
-------------------- --------------------
Gross profit 123,438 129,169
-------------------- --------------------
OPERATING EXPENSES:
Selling, marketing and advertising 75,840 78,102
General and administrative 29,198 31,517
Goodwill amortization 3,555 4,257
-------------------- --------------------
108,593 113,876
-------------------- --------------------
Operating income 14,845 15,293
-------------------- --------------------
INTEREST EXPENSE, net 24,687 26,699
OTHER EXPENSE, net 2,363 1,310
-------------------- --------------------
Loss before income taxes
and minority interest (12,205) (12,716)
INCOME TAX BENEFIT (3,198) (3,664)
-------------------- --------------------
Loss before minority interest (9,007) (9,052)
MINORITY INTEREST 348 250
-------------------- --------------------
Net loss $ (9,355) $ (9,302)
==================== ====================
EARNINGS PER SHARE:
Basic $ (0.44) $ (0.44)
==================== ====================
Diluted $ (0.44) $ (0.44)
==================== ====================
WEIGHTED AVERAGE SHARES:
Basic 21,400 21,271
==================== ====================
Diluted 21,400 21,271
==================== ====================
</TABLE>
The accompanying notes are an integral part of these statements.
3
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EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------------------------
July 2, July 4,
2000 1999
------------------ ----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,355) $ (9,302)
Adjustments to reconcile net loss to net
cash used in operating activities -
Depreciation and amortization 22,331 27,315
Deferred income taxes (824) (6,729)
Amortization of original issue discount on notes 2,727 2,526
Provision for losses on accounts receivable 1,611 1,728
Minority interest 348 250
Net proceeds from (payments on) sale of receivables (5,535) (36,267)
Changes in assets and liabilities excluding
effects of divestitures -
Receivables 16,861 427
Inventories (14,943) (7,941)
Prepaid expenses and other (2,091) (1,841)
Payables and accrued expenses (44,036) (47,421)
Other, net (4,937) (6,512)
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Net cash used in operating activities (37,843) (83,767)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,748) (12,731)
Proceeds from sale of assets 2,973 7,248
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Net cash used in investing activities (4,775) (5,483)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 3,461 12,297
Borrowings under Global Credit Facilities Agreement 149,118 200,194
Repayments under Global Credit Facilities Agreement (121,278) (121,743)
Decrease in other debt - (4,444)
Dividends paid (428) (427)
------------------ ------------------
Net cash provided by financing activities 30,873 85,877
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EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 164 (621)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (11,581) (3,994)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 28,110 20,596
------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,529 $ 16,602
================== ==================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for -
Interest $ 35,685 $ 37,515
Income taxes (net of refunds) $ 978 $ 615
The accompanying notes are an integral part of these statements.
</TABLE>
4
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EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 2, 2000
(In thousands, except per-share data)
(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, 2000 for further information.
The financial information has been prepared in accordance with the Company's
customary accounting practices and has not been audited. In the opinion of
management, the accompanying condensed consolidated financial information
includes all adjustments of a normal recurring nature 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.
Total comprehensive loss and its components are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------------
July 2, July 4,
2000 1999
------------ ------------
<S> <C> <C> <C>
Net loss ($9,355) ($9,302)
Change in cumulative translation adjustment 1,454 (23,235)
------------ ------------
Total comprehensive loss ($7,901) ($32,537)
=========== ===========
</TABLE>
Certain prior period amounts have been reclassified to conform with current
period presentation.
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities", as
amended by SFAS No. 138 "Accounting for Certain Derivative Instruments and
Certain Hedging Activities", 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 currently
evaluating the impact of the statement and will be required to adopt it in the
first quarter of fiscal 2002.
The Securities and Exchange Commission ("SEC") has issued Staff Accounting
Bulletin 101 (SAB101) which sets forth the SEC's guidelines on revenue
recognition. This bulletin is effective for the Company no later than the fourth
quarter of fiscal 2001. The Company is currently evaluating the impact of SAB101
on its financial statements.
5
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(2) INVENTORIES
Inventories, valued by the first-in, first-out ("FIFO") method, comprise:
<TABLE>
<CAPTION>
July 2, March 31,
2000 2000
------------ ------------
<S> <C> <C>
Raw materials $94,133 $111,168
Work-in-process 89,764 64,412
Finished goods 218,803 230,140
------------ ------------
$402,700 $405,720
=========== ===========
</TABLE>
(3) 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
long-term business, cash flows, financial condition or results of operations.
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") 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 44 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.
6
<PAGE>
The Company currently has greater than 50% liability at only one Superfund
site. Other than this site, the Company's allocation exceeds 5% at only six
sites at which the Company's share of liability has not been paid as of
July 2, 2000. The current allocation at these five sites averages
approximately 18%.
The Company is also involved in the assessment and remediation of various
other properties, including certain Company owned or operated facilities.
Such assessment and remedial work is being conducted pursuant to a number
of state and federal environmental laws and with varying degrees of
involvement by state and federal authorities. Where probable and reasonably
estimable, the costs of such projects have been accrued by the Company, as
discussed below. In addition, certain environmental matters concerning the
Company are pending in federal and state courts or with certain
environmental regulatory agencies.
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 has established reserves for on-site and off-site environmental
remediation costs and believes that such reserves are adequate. As of July 2,
2000 the amount of such reserves on the Company's consolidated balance sheet was
$32,265. Of this amount, $23,362 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.
(4) COMMITMENTS AND CONTINGENCIES
There have been no significant changes from the March 31, 2000 audited
consolidated financial statements. See "Part II. Other Information, Item 1.
Legal Proceedings" for further discussion.
7
<PAGE>
(5) GLOBAL BUSINESS UNIT STRUCTURE REALIGNMENT
The Company announced in fiscal 2000 a realignment to a customer-focused global
business unit structure, effective April 1, 2000, to allow the Company to more
effectively service all of its customers' needs and requirements. This strategy
is in contrast to the Company's geographic based structure in place through
March 31, 2000.
The Company recorded restructuring charges of $39,336 in the fourth quarter of
fiscal 2000, consisting of $20,000 in severance benefits and $19,336 for
targeted plant and branch closings, primarily related to this realignment. The
charges related to the Company's planned closures of manufacturing operations
and other facilities, including the Reading, Pennsylvania plant and six branches
in the U.S., as well as the ongoing consolidation of European operations, and
includes headcount reductions of 168 employees in the U.S. and Europe. Through
July 2, 2000, $18,482 of charges against the reserve have occurred consisting of
$7,810 of severance benefits paid, including $5,200 in the first quarter of
fiscal 2001, and $10,672 of asset writedowns. Remaining expenditures will occur
over the next several years as permitted under applicable regulations and in
accordance with existing contracts.
The Company now operates its battery business within the Industrial and
Transportation segments. The Industrial segment includes the design, production
and sale of standby batteries used for back-up power applications, such as those
for telecommunications systems, traction batteries, such as those for use in
forklift trucks and other electric vehicles, and military batteries. The
Transportation segment includes the design, production and sale of batteries for
cars, trucks, off-road vehicles, agricultural and construction vehicles, boats
and other similar applications in the original equipment and aftermarket
sectors. Intersegment sales are not material. The prior year segment data below
has been restated to reflect the current year presentation.
Selected financial information concerning the Company's reportable segments are
as follows:
<TABLE>
<CAPTION>
For the Three Months Ended July 2, 2000
----------------------------------------------------------------------
Industrial Transportation Other (a) Consolidated
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 165,090 $ 297,850 $ 2,860 $ 465,800
Gross profit 51,365 72,028 45 123,438
Operating income 12,703 7,778 (5,636) 14,845
For the Three Months Ended July 4, 1999
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Industrial Transportation Other (a) Consolidated
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 171,485 $ 332,197 $ 15,033 $ 518,715
Gross profit 48,880 78,349 1,940 129,169
Operating income 6,922 12,300 (3,929) 15,293
</TABLE>
(a) Includes certain non-core businesses currently being divested as well as
goodwill amortization.
8
<PAGE>
(6) OTHER
On May 9, 2000, the Company entered into an agreement to acquire the global
battery business of Australian-based Pacific Dunlop Limited, including its
subsidiary GNB Technologies, Inc. ("GNB"), for consideration of approximately
$368,000 (including $333,000 in cash and 4,000 Exide common shares) plus assumed
liabilities. GNB is a leading U.S. and Pacific Rim manufacturer of both
industrial and automotive batteries with annual sales of approximately $1
billion. The acquisition, which is expected to close by the end of September
2000, is subject to financing and early termination of a non-compete agreement.
The financing, currently being arranged, is expected to be sourced through an
extension of the Company's existing credit facilities and the securitization of
certain receivables. The Company will account for this acquisition under the
purchase method.
9
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Factors Which Affect Our Financial Performance:
Competition. The Transportation battery market in North America, as well as the
Transportation and Industrial battery markets in Europe, are highly competitive.
In recent years, competition has continued to intensify and we continue to come
under increasing pressure for price reductions. This competition has been
exacerbated by excess capacity and declining lead prices as well as low-priced
Asian imports impacting our European markets.
Exchange Rates. We are exposed to foreign currency risk in most European
countries, principally Germany, France, the 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. Our results for the periods
presented were adversely impacted by the overall weakness in European
currencies.
Weather. Unusually cold winters or hot summers accelerate battery failure and
increase demand for automotive replacement batteries.
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.
Results of Operations
Three months ended July 2, 2000 compared with the three months ended July 4,
1999.
Net sales decreased 10.2% ($52.9 million) to $465.8 million in the first quarter
of fiscal 2001 from $518.7 million in the first quarter of fiscal 2000.
Approximately $37.0 million, or 7.1%, of the decrease resulted from
strengthening of the U.S. dollar versus European currencies.
Industrial battery sales for the first quarter of fiscal 2001 were $165.1
million versus $171.5 million in the first quarter of fiscal 2000. Currency
impacted Industrial net sales by approximately $20.7 million. The improvement on
a constant currency basis resulted from strong European Industrial demand in our
standby markets, particularly related to telecommunication applications, as well
as demand in our motive power markets, including forklift and other material
handling equipment applications.
Net sales in the Transportation segment decreased 10.4% to $297.9 million versus
$332.2 million last year, primarily due to volume declines in the North American
aftermarket sector. Sales volume was down approximately 7% in North America
versus last year. Also, currency unfavorably impacted Transportation net sales
by approximately $15.7 million.
Net sales also decreased due to the Company's sale of certain non-core
businesses in fiscal 2000 and the first quarter of fiscal 2001, as reflected in
the $12.2 million decline in net sales in the Other segment.
10
<PAGE>
Gross profit decreased $5.7 million in the first quarter of fiscal 2001 compared
to the same period in the prior year. Weak European currencies versus the U.S.
dollar impacted gross profit by approximately $10.6 million. The gross profit
margin increased to 26.5% in the first quarter of fiscal 2001 from 24.9% in the
first quarter of fiscal 2000 due to the Company's strong Industrial battery
operations.
Industrial battery gross profit was $51.4 million this year versus $48.9 million
last year. Currency negatively impacted current year gross profit by $6.5
million. Gross margin as a percent of net sales was 31.1% in the current year
versus 28.5% last year, primarily due to strong Industrial demand as well as
certain manufacturing efficiencies and lower procurement costs.
Transportation battery gross profit was $72.0 million this year versus $78.3
million last year with the impact of North American aftermarket volume declines
contributing to this decrease along with a currency impact of $4.2 million.
Gross margins were 24.2% in the current year versus 23.6% in the prior year due
to the impact of certain manufacturing efficiencies and lower procurement costs
offset by less favorable mix.
Gross profit also decreased $1.9 million in the current year first quarter due
to the divestiture activity previously discussed.
Selling, general and administrative expenses decreased $5.3 million from $113.9
million in the first quarter of fiscal 2000 to $108.6 million in the first
quarter of fiscal 2001. Weaker European currencies favorably impacted these
expenses by approximately $9.2 million. Selling, general and administrative
expenses were 23.3% of net sales this year versus 21.9% last year with the
increase primarily related to higher marketing expenses.
Operating income was $14.8 million versus $15.3 million last year. Industrial
operating income was $12.7 million, or 7.7% of net sales, this year versus $6.9
million, or 4.0% of net sales, last year. Transportation operating income was
$7.8 million, or 2.6% of net sales, this year versus $12.3 million, or 3.7% of
net sales, last year. These changes are a result of the matters discussed above.
Interest expense decreased $2.0 million from $26.7 million to $24.7 million as a
result of a lower level of borrowings in the first quarter of fiscal 2001 along
with weaker European currencies.
Other expense, net was $2.4 million in the first quarter of fiscal 2001 versus
$1.3 million in the first quarter of fiscal 2000. The increase reflects a gain
on sale of assets of $1.0 million included in fiscal 2000 results.
The net loss of ($9.4) million versus a net loss of ($9.3) million resulted from
the items discussed above.
Pending Acquisition of GNB
As discussed in Note 6, on May 9, 2000, the Company entered into an agreement to
acquire the global battery business of GNB for consideration of approximately
$368 million (including $333 million in cash and 4 million Exide common shares)
plus assumed liabilities. GNB is a leading U.S. and Pacific Rim manufacturer of
both industrial and automotive batteries with annual sales of approximately $1.0
billion. The acquisition, which is expected to close by the end of September
2000, is subject to financing and early termination of a non-compete agreement.
The financing, currently being arranged, is expected to be sourced
11
<PAGE>
through an extension of the Company's existing credit facilities and the
securitization of certain receivables.
Liquidity and Capital Resources
The Company's liquidity requirements arise primarily from the funding of
seasonal working capital needs, obligations on indebtedness and capital
expenditures. Historically, we have met these liquidity requirements through
operating cash flows, borrowed funds and the proceeds of sales of accounts
receivable and sale leaseback transactions. Additional cash was generated in
fiscal 2000 and in the current year, and will be generated during the remainder
of fiscal 2001, from the sale of non-core businesses. The Company has 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, up to a maximum commitment of $75.0
million and $175.0 million, respectively.
Because of the seasonality of our business, more cash is typically generated in
our third and fourth fiscal quarters than the first and second quarters. Our
greatest cash demands from operations occur during the months of June through
October. We believe we will be able to meet our requirements for liquidity with
cash generated from operations, reduced working capital requirements, borrowings
under the revolving credit portion of our credit agreement, the proceeds from
sales of accounts receivable under our securitization facilities and/or sales of
non-core businesses and assets.
Earnings before interest, taxes, depreciation and amortization (EBITDA),
excluding discounts on receivables sold, was $36.6 million for the first quarter
this year ($39.9 million on a constant currency basis) versus $42.7 million in
the prior year. Cash flow used in operating activities was $37.8 million
(including $5.5 million related to sales of receivables), versus $83.8 million
(including $36.3 million related to sales of receivables) in the first quarter
of 2000. Primary working capital year on year is down approximately $99 million,
excluding currency impacts and divestitures, principally due to inventory
reductions of approximately $61 million.
Our capital expenditures were $7.7 million in this year's first quarter compared
to $12.7 million in the first quarter of fiscal 2000. Capital expenditures are
estimated to be approximately $50.0 million in fiscal 2001.
The Company generated more than $80.0 million in cash and assumed liabilities
from the sale of non-core businesses and other assets in fiscal 2000. Proceeds
from these sales have been primarily used to reduce debt. Businesses planned to
be sold in fiscal 2001 are expected to generate cash of approximately $100
million. The Company sold its Sure Start remanufactured starter and alternator
business during the first quarter of this year for total consideration of $8
million, including $3 million of cash at closing and $2.5 million of assumed
liabilities.
In the fourth quarter of fiscal 2000 we recorded $39.3 million of restructuring
charges, related primarily to the Company's realignment to a customer-focused
global business unit strategy. The restructuring consists of $20.0 million of
severance charges and $19.3 million in asset write-downs and closure costs
related to planned closures of manufacturing operations and other facilities,
including the Reading, Pennsylvania battery plant, certain
12
<PAGE>
U.S. branch locations and the Company's ongoing consolidation of European
operations, and includes headcount reductions of 168 employees.
The expected cash portion of the charge, largely related to severance, will be
paid out primarily in fiscal 2001. These cash outlays will be offset by
prospective operating cost savings. Cash payments for severance in the first
quarter of fiscal 2001 were approximately $5.2 million. Through July 2, 2000,
$18.5 million of charges against the reserve have occurred consisting of $7.8
million of severance benefits paid and $10.7 million of asset writedowns.
Remaining expenditures will occur over the next several years as permitted under
applicable regulations and in accordance with existing contracts.
Additional restructuring charges may be recorded over the next several years as
additional plant closures and consolidation of administrative functions are
identified as part of the Company's program to improve our cost structure.
Debt levels decreased year on year by $135 million from $1.277 billion to $1.142
billion reflecting the benefits of asset sales and reduced working capital. As
of July 2, 2000, we had $175 million available under our credit agreement. The
use of such availability may be limited by certain covenants in the credit
agreement. Increases in interest rates on such obligations could adversely
affect our results of operations and financial condition.
We have an interest rate collar agreement which reduces the impact of changes in
interest rates on a portion of our floating rate debt. The collar agreement
effectively limits the PIBOR (Paris Interbank Offered Rate) 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.
We have three currency and interest rate swap agreements which effectively
convert $175 million of borrowings under the credit agreement and certain
intercompany loans into 406.2 million French Francs (U.S. $68.5 million), 66.8
million Euros (U.S. $64.5 million) and 25.2 million British pounds sterling
(U.S. $42 million). We receive LIBOR and pay PIBOR and pounds sterling LIBOR.
During the fourth quarter of fiscal 2000 the Company assigned 382.5 million
French Francs (U.S. $64.5 million) of its existing currency and interest rate
swap agreement to a new counterparty and received a cash payment of Euro 8.5
million. Simultaneously, the Company entered into a new 66.8 million Euro (U.S.
$64.5 million) one-year currency and interest rate hedge agreement. The Company
receives LIBOR plus 2.25% and pays Euro LIBOR plus 2.27%.
The Company entered into certain forward contracts and option contracts in June
2000 to hedge the purchase price of lead on a portion of the Company's lead
usage being sourced through external purchases. Such contracts are effective
from the second quarter through the fourth quarter of fiscal 2001.
As of July 2, 2000, we have 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 certain European countries' taxable
income.
Our net deferred tax assets include certain amounts of net operating loss
carryforwards, principally in the U.S., which management believes are realizable
through a combination of anticipated tax planning strategies and forecasted
future taxable income. Failure to achieve
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forecasted future taxable income might affect the ultimate realization of any
remaining recorded net deferred tax assets.
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 have addressed the issues involved with the introduction
of the Euro and continue to address related issues with its ongoing
implementation. The more important issues facing us include:
o converting information technology systems,
o reassessing currency risk,
o negotiating and amending contracts, and
o 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.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risks.
There were no significant changes to the quantitative and qualitative market
risks in the first quarter. See our Form 10-K for the fiscal year ended March
31, 2000 for this information.
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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 involve 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 our European entities requires substantial management time
and financial and other resources and is not without risk, (viii) foreign
operations involve risks such as disruption of markets, changes in import and
export laws, currency restrictions and currency exchange rate fluctuations, and
(ix) the Company's integration of GNB requires substantial management time and
is not without risk. Therefore, the Company cautions each reader of this report
to carefully consider those factors set forth above, 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Exide is now or recently has been involved in several lawsuits pending in state
and federal courts in Alabama, California, Mississippi, 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. The plaintiffs in these cases are seeking compensatory and
punitive damages and injunctive relief.
In May 2000, Exide and counsel for the plaintiffs agreed to a settlement,
subject to several material contingencies, applicable notice, and court
approval, in the following battery quality cases: Martin v. Exide, filed July
12, 1998 in the United States District Court for the District of South Carolina
(the "Martin case"); Lush et al. v. Exide, filed November 18, 1999 in the
Circuit Court for Claiborne County, Mississippi; Gamma Group, et al. v. Exide,
filed January 29, 1999 in the United States District Court for the Eastern
District of Pennsylvania and Exide v. East Alabama Auto Parts Anniston, Inc.,
filed April 24, 1996 in the Circuit Court of Calhoun County Alabama (the "East
Alabama case"). In May 2000, Exide also reached an agreement in principle on a
settlement of a claim in intervention brought by the Attorney General for the
State of Alabama (the Alabama Attorney General had intervened in the East
Alabama case in November 1999). Exide reserved approximately $13.4 million for
the settlement of the private claims and the Alabama Attorney General claims in
the fourth quarter of fiscal 2000.
Mathis Battery Company, et al. v. Exide, filed September 4, 1998 in the Chancery
Court for Weakley County, Tennessee (the "Mathis case") and Mills v. Exide,
filed December 6, 1999 in the Superior Court for the State of California in the
County of Los Angeles (the "Mills case") are battery quality claims that are
still pending against Exide. The Mathis case is a putative class action filed by
lawyers who represent the plaintiff in the Martin case and alleges substantially
the same claims alleged in the Martin case. The case has been stayed. Exide
expects that if the settlement of the Martin case is approved, the Mathis case
will be dismissed.
The Mills case arises under an unusual provision of California law, which was
recently limited by a decision of the California Supreme Court, and Exide
intends to defend that matter vigorously.
In December 1999, the Mississippi Attorney General issued a subpoena to Exide.
The Attorney General was investigating the sale of alleged defective and used
batteries, alleged mislabeling of batteries, alleged improper crediting of
customer accounts and alleged provision of misleading investor information.
Exide fully and completely responded to the subpoena in January 2000, and there
is no action by the Mississippi Attorney General against Exide to date.
As previously reported, Exide voluntarily brought certain issues to the
attention of the Securities and Exchange Commission (the "SEC"), and has
cooperated with its investigation.
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On September 17, 1999, Exide sued Sears, Roebuck and Co. in the Circuit Court of
Cook County, Illinois seeking damages for breach of contract in an amount not
less than $15 million. On November 12, 1999, Sears filed a counterclaim against
Exide and a claim against a former Sears purchasing employee alleging inducement
to breach his fiduciary duty to Sears, common law fraud, aiding and abetting and
conspiracy. On December 17, 1999, Exide responded to Sears' counterclaim and
filed a third-party complaint against former Chief Executive Officer Arthur
Hawkins, former Chief Financial Officer Alan Gauthier, and former Executive Vice
President Douglas Pearson. The third-party defendants have moved to dismiss
Exide's third-party complaint, asserting that the claims can be heard in other
pending litigation involving the parties (discussed below). That motion is
pending before the court.
Exide is currently involved in litigation with certain former members of senior
management relating to their separation agreements. One of these cases, Arthur
M. Hawkins v. Exide, filed July 6, 1999 in the U.S. District Court for the
Eastern District of Michigan, involves a claim by Mr. Hawkins to enforce his
separation agreement with Exide. Exide has filed a counterclaim asserting fraud,
breach of fiduciary duty, misappropriation of corporate assets and civil
conspiracy. Messrs. Gauthier and Pearson have filed actions in the U.S. District
Court for the Eastern District of Pennsylvania alleging breach of contract;
these actions are respectively titled Gauthier v. Exide and Pearson v. Exide,
and were respectively filed on August 17, 1999 and July 9, 1999. Exide has filed
counterclaims against Messrs. Gauthier and Pearson as well, asserting fraud,
breach of fiduciary duty, misappropriation of corporate assets and civil
conspiracy. Pearson v. Exide and Gauthier v. Exide were consolidated for
pre-trial proceedings; discovery in these cases is ongoing and they are
currently scheduled to be called in the October 18, 2000 trial pool.
Exide is now involved in several lawsuits pending in state and federal courts in
South Carolina and Pennsylvania. These actions allege that Exide and its
predecessors allowed hazardous materials used in the battery manufacturing
process to be released from certain of its facilities, allegedly resulting in
personal injury and/or property damage. The following lawsuits of the above type
were filed on August 25, 1999 in the Circuit Court for Greenville County, South
Carolina and are currently pending: Joshua Lollis v. Exide; Buchanan v. Exide;
Agnew v. Exide; Patrick Miller v. Exide; Kelly v. Exide; Amanda Thompson v.
Exide; Jonathan Talley v. Exide; Smith v. Exide; Lakeisha Talley v. Exide;
Brandon Dodd v. Exide; Prince v. Exide; Andriae Dodd v. Exide; Dominic Thompson
v. Exide; Snoddy v. Exide; Antoine Dodd v. Exide; Roshanda Talley v. Exide;
Fielder v. Exide; Rice v. Exide; Logan Lollis v. Exide and Dallis Miller v.
Exide. Finally, the following lawsuits of this type are currently pending in the
Court of Common Pleas for Berks County, Pennsylvania: Grillo v. Exide, filed on
May 24, 1995; Blume v. Exide, filed on March 4, 1996; Esterly v. Exide, filed on
May 30, 1995 and Saylor v. Exide, filed on October 18, 1996. Discovery in these
cases is ongoing.
On June 26, 2000, Johnson Controls, Inc. ("JCI") filed a lawsuit in the United
States District Court for the Northern District of Illinois, Eastern Division,
against Exide and three of its former officers. The suit asserts claims against
Exide for tortuous interference with a prospective business opportunity and
violations of the Robinson-Patman Act. The suit alleges commercial bribery
relating back to JCI's loss of a contract to Exide in 1994. Allegations of an
alleged improper payment to a Sears employee were made public over a year ago as
part of the Florida Attorney General Investigation. Exide believes that JCI's
allegations are not supportable and that the lawsuit is only being used to
pressure
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Exide into commercial concessions and to potentially interfere with the GNB
acquisition. Exide does not believe that the suit will have any material adverse
effect on its financial condition.
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 such claims or litigation to which the Company is a
party, both individually and in the aggregate, will have a material adverse
effect on the Company's financial condition or results of operations, although
quarterly or annual operating results may be materially affected.
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. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 2.1
Coordinating Agreement, dated May 9, 2000, between Exide Corporation and
Pacific Dunlop Holdings (USA) Inc. and Amendments No. 1 and 2 thereto dated
June 19 and June 28, 2000 respectively; Stock Purchase Agreement With
Respect To Pacific Dunlop GNB Corporation, dated May 9, 2000, between Exide
Corporation and Pacific Dunlop Holdings (USA) Inc. and Amendment thereto
dated June 28, 2000; Asset Purchase Agreement, dated June 28, 2000, between
Pacific Dunlop Holdings (N.Z.) Limited and Exide New Zealand Limited; Asset
Purchase Agreement, dated June 28, 2000, between GNB Battery Technologies
Limited, Australian Battery Company (Aust.) Pty Ltd, Pacific Dunlop Limited
and Exide Australia Pty Limited; Stock Purchase Agreement with respect to
GNB Technologies NV, dated June 28, 2000, between P.D. International Pty
Limited and Pacific Dunlop Holdings (Europe) Ltd and Exide Holding Europe;
Stock Purchase Agreement with respect to GNB Technologies Limited, dated
June 28, 2000, between Pacific Dunlop Holdings (Europe) Ltd and Exide
Holding Europe; Stock Purchase Agreement with respect to GNB Technologies
(China) Limited, dated June 28, 2000, between Pacific Dunlop Holdings (Hong
Kong) Limited and Traeson Pte Ltd (to be renamed Exide Holding Asia Pte
Limited); Asset Purchase Agreement, dated June 28, 2000, between Pacific
Dunlop Holdings (Singapore) Pte Ltd and Bluewall Pte Ltd (to be renamed
Exide Singapore Pte Limited); Stock Purchase Agreement with respect to GNB
Technologies (India) Private Limited, dated June 28, 2000, between Pacific
Dunlop Holdings (Singapore) Pte Ltd and Traeson Pte Ltd (to be renamed
Exide Holding Asia Pte Limited); Trademark Purchase Agreement, dated
June 28, 2000
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between PD Licencing Pty Ltd and Exide Australia Pty Limited. The
registrant will furnish supplementally to the commission on request copies
of any schedule to the foregoing which has been omitted.
Exhibit 27 Financial Data Schedule
(b) On July 10, 2000, the Company filed a report on Form 8-K reporting under
Item 4 a change in Registrant's certifying accountant.
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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 15, 2000 By: /s/ Kevin R. Morano
------------------------ -------------------
Kevin R. Morano
Executive Vice President
and Chief Financial Officer
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