<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 October 1, 2000
[ ] 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 practicable date:
As of November 10, 2000, 25,420,480 shares of common stock were
outstanding.
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
---------------------------------
Item 1. Financial Statements (unaudited)
-- Condensed Consolidated Balance Sheets - -
October 1, 2000 and March 31, 2000.
-- Consolidated Statements of Operations - - for the three
and six month periods ended October 1, 2000 and
October 3, 1999.
-- Consolidated Statements of Cash Flows - -
for the six months ended October 1, 2000 and
October 3, 1999.
-- Notes to Condensed Consolidated Financial Statements - -
October 1, 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 Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
---------
2
<PAGE>
Part I. FINANCIAL INFORMATION
EXIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(In thousands, except per-share data)
<TABLE>
<CAPTION>
October 1, March 31,
2000 2000
----------------- -----------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 58,615 $ 28,110
Receivables, net of allowance for doubtful
accounts of $48,372 and $64,177, respectively 452,371 379,490
Inventories 505,931 405,720
Prepaid expenses and other 25,847 16,026
Deferred income taxes 31,281 20,138
----------------- -----------------
Total current assets 1,074,045 849,484
----------------- -----------------
PROPERTY, PLANT AND EQUIPMENT 1,017,291 790,791
Less - Accumulated depreciation (323,155) (347,447)
----------------- -----------------
Property, plant and equipment, net 694,136 443,344
----------------- -----------------
OTHER ASSETS:
Goodwill, net 513,869 501,117
Investments in affiliates 29,827 20,665
Deferred financing costs, net 26,666 12,796
Deferred income taxes 37,781 37,583
Other 35,437 36,472
----------------- -----------------
643,580 608,633
----------------- -----------------
Total assets $ 2,411,761 $ 1,901,461
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 24,948 $ 24,666
Current maturities of long-term debt 32,213 32,047
Accounts payable 334,877 260,352
Accrued expenses 424,949 318,951
----------------- -----------------
Total current liabilities 816,987 636,016
----------------- -----------------
LONG-TERM DEBT 1,325,715 1,061,672
NONCURRENT RETIREMENT OBLIGATIONS 129,430 128,827
OTHER NONCURRENT LIABILITIES 192,778 123,329
MINORITY INTEREST 17,518 17,993
----------------- -----------------
Total liabilities 2,482,428 1,967,837
----------------- -----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value 60,000 shares authorized;
25,417 and 21,401 shares issued and outstanding 263 214
Additional paid-in capital 530,333 490,399
Accumulated deficit (344,263) (319,530)
Notes receivable - stock award plan (708) (734)
Accumulated other comprehensive loss (256,292) (236,725)
----------------- -----------------
Total stockholders' equity (deficit) (70,667) (66,376)
----------------- -----------------
Total liabilities and stockholders' equity (deficit) $ 2,411,761 $ 1,901,461
================= =================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In thousands, except per-share data)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
----------------------------------- ----------------------------------
October 1, October 3, October 1, October 3,
2000 1999 2000 1999
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 494,174 $ 556,434 $ 959,974 $ 1,075,149
COST OF SALES 358,771 406,670 701,133 796,216
--------------- --------------- -------------- ---------------
Gross profit 135,403 149,764 258,841 278,933
--------------- --------------- -------------- ---------------
OPERATING EXPENSES:
Selling, marketing and advertising 71,290 76,627 147,130 154,729
General and administrative 24,238 33,367 53,436 64,884
Restructuring and other 30,000 -- 30,000 --
Goodwill amortization 3,535 4,268 7,090 8,525
--------------- --------------- -------------- ---------------
129,063 114,262 237,656 228,138
--------------- --------------- -------------- ---------------
Operating income 6,340 35,502 21,185 50,795
--------------- --------------- -------------- ---------------
INTEREST EXPENSE, net 25,870 25,279 50,557 51,978
OTHER EXPENSE, net 1,468 1,439 3,831 2,749
--------------- --------------- -------------- ---------------
Income (loss) before income taxes
and minority interest (20,998) 8,784 (33,203) (3,932)
INCOME TAX EXPENSE (BENEFIT) (6,811) 4,207 (10,009) 543
--------------- --------------- -------------- ---------------
Income (loss) before minority interest (14,187) 4,577 (23,194) (4,475)
MINORITY INTEREST 347 351 695 601
--------------- --------------- -------------- ---------------
Net income (loss) $ (14,534) $ 4,226 $ (23,889) $ (5,076)
=============== =============== ============== ===============
EARNINGS (LOSS) PER SHARE:
Basic $ (0.68) $ 0.20 $ (1.12) $ (0.24)
=============== =============== ============== ===============
Diluted $ (0.68) $ 0.20 $ (1.12) $ (0.24)
=============== =============== ============== ===============
WEIGHTED AVERAGE SHARES:
Basic 21,408 21,064 21,404 21,066
=============== =============== ============== ===============
Diluted 21,408 21,359 21,404 21,066
=============== =============== ============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
----------------------------------
October 1, October 3,
2000 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (23,889) $ (5,076)
Adjustments to reconcile net loss to net
cash used in operating activities -
Depreciation and goodwill amortization 40,530 50,428
Amortization of deferred financing costs 1,757 1,750
Deferred income taxes (10,218) (5,501)
Amortization of original issue discount on notes 5,468 5,000
Provision for losses on accounts receivable 2,741 3,579
Provision for restructuring and other 30,000 -
Minority interest 696 601
Net proceeds from (payments on) sale of receivables 122,371 (18,850)
Changes in assets and liabilities excluding
effects of acquisitions and divestitures -
Receivables (28,299) (52,589)
Inventories 892 10,066
Prepaid expenses and other 3,609 1,803
Payables (19,677) (17,935)
Accrued expenses (24,803) (33,151)
Other, net (16,271) (12,228)
--------------- ---------------
Net cash provided by (used in) operating activities 84,907 (72,103)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
GNB acquisition, net of cash acquired of $ 17,098 (320,902) -
Capital expenditures (19,845) (29,385)
Proceeds from sale of assets 6,353 11,883
Insurance proceeds from fire damage - 807
--------------- ---------------
Net cash used in investing activities (334,394) (16,695)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowings 5,049 15,145
Borrowings under Global Credit Facilities Agreement 310,875 365,662
Repayments under Global Credit Facilities Agreement (271,920) (278,487)
GNB acquisition debt 250,000 -
Decrease in other debt - (4,618)
Debt issuance costs (12,000) (679)
Dividends paid (855) (854)
--------------- ---------------
Net cash provided by financing activities 281,149 96,169
--------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (1,157) 114
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 30,505 7,485
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 28,110 20,596
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 58,615 $ 28,081
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for -
Interest $ 47,965 $ 46,579
Income taxes (net of refunds) $ 3,972 $ 3,056
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
EXIDE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 1, 2000
(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, 2000 for further information. The financial information contained herein is
unaudited.
The financial information has been prepared in accordance with the Company's
customary accounting practices. 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.
The Company acquired GNB Technologies, Inc. (GNB) on September 29, 2000 (see
Note 6). The Company's stock issuance related to the GNB acquisition is
reflected as a non cash investing activity in the accompanying consolidated
statements of cash flows. The Company's warrant issuance related to the GNB
acquisition is reflected as a non cash financing activity in the accompanying
consolidated statements of cash flows.
There is no difference between the weighted average basic and diluted shares in
each period presented, except for the three months ended October 3,1999, because
the effects of outstanding stock options, grants and convertible securities are
antidilutive. The diluted earnings per share for the second quarter of fiscal
2000 included the impact of 295,008 dilutive securities, primarily stock
options.
Total comprehensive income (loss) and its components are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
---------------------------------- ----------------------------------
October 1, October 3, October 1, October 3,
2000 1999 2000 1999
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net income (loss) $ (14,534) $ 4,226 $ (23,889) $ (5,076)
Change in cumulative
translation adjustment (21,021) 18,296 (19,567) (4,940)
--------------- -------------- -------------- ---------------
Total comprehensive
income (loss) $ (35,555) $ 22,522 $ (43,456) $ (10,016)
=============== ============== ============== ===============
</TABLE>
6
<PAGE>
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 provides guidance 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.
(2) INVENTORIES
----------------
Inventories, valued by the first-in, first-out ("FIFO") method, comprise:
<TABLE>
<CAPTION>
October 1, March 31,
2000 2000
---------------- ---------------
<S> <C> <C>
Raw materials $ 122,792 $ 111,168
Work-in-process 106,411 64,412
Finished goods 276,728 230,140
---------------- ---------------
$ 505,931 $ 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 88 federally defined Superfund or state
equivalent sites (including
7
<PAGE>
16 GNB sites). At 56 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 PRP's 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.
The Company currently has greater than 50% liability at four Superfund sites.
Other than these sites, the Company's allocation exceeds 5% at only seven
sites for which the Company's share of liability has not been paid as of
October 1, 2000. The current allocation at these seven sites averages
approximately 22%.
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
8
<PAGE>
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 October
1, 2000 the amount of such reserves on the Company's consolidated balance sheet
was $93,300, including $62,000 related to GNB facilities. Of this amount,
$72,600 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
----------------------------------
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 November 2000, Exide finalized 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). The Attorney General's claim was dismissed
pursuant to that settlement on November 2, 2000. 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.
9
<PAGE>
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 were dismissed without
prejudice by the Court on October 16, 2000.
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. These two cases were stayed at the request of Messrs.
Pearson and Gauthier on October 10, 2000. They cited the investigation by the
U.S. Attorney for the Southern District of Illinois as a basis for the stay.
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. JCI alleges that Exide, through
Arthur Hawkins, Alan Gauthier, Douglas Pearson and Joseph Calio, paid bribes to
a Sears employee, Gary Marks, to induce him to award Sears' 1994 battery supply
contract to Exide rather than JCI. JCI asserts claims against Exide for
violation of section 2(c) of the Robinson-Patman Act and tortious interference
with a prospective business opportunity. JCI asserts claims against Hawkins,
Gauthier and Pearson for violation of the Racketeer Influenced and Corrupt
Organizations
10
<PAGE>
Act and tortious interference with a prospective business opportunity. Exide has
filed a motion to dismiss the two claims against it for failure to state a claim
upon which relief can be granted. This motion is fully briefed and awaiting a
ruling by Judge Shadur. Several of the individual defendants have also filed
motions to dismiss for lack of personal jurisdiction and/or failure to state a
claim. Mr. Pearson also filed a motion to stay the proceedings due to a criminal
grand jury investigation into the alleged bribes. In late October, the Court
agreed to temporarily stay discovery in this action, and ordered the parties to
brief the issue of whether the court should stay the entire proceeding pending
the outcome of the grand jury investigation. That briefing is continuing.
On September 13 and October 14, 2000, Exide received subpoenas from the United
States Attorney for the Southern District of Illinois. The subpoenas seek
documents relating primarily to Exide's past business relationship with Sears,
Roebuck and Co. Exide is cooperating fully with this investigation, and is
currently conducting discussions with the government in an effort to bring this
matter to resolution.
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.
(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 now operates its battery business within the Industrial and
Transportation segments. Industrial applications include network power batteries
for telecommunications systems, fuel cell load leveling, electric utilities,
railroads, photovoltaic and other critical uninterruptible power supply markets
as well as motive power batteries for a broad range of equipment uses including
lift trucks, mining and other commercial vehicles. Transportation uses include
automotive, heavy duty, agricultural, marine and other batteries, as well as new
technologies being developed for hybrid vehicles and new 42-volt automobile
applications.
Intersegment sales are not material. The prior year segment data below has been
restated to reflect the current year presentation.
11
<PAGE>
Selected financial information concerning the Company's reportable segments are
as follows:
<TABLE>
<CAPTION>
For the Three Months Ended October 1, 2000
-------------------------------------------------------------------------
Industrial Transportation Other (a) Consolidated
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 166,522 $ 327,652 $ -- $ 494,174
Gross profit 50,735 84,668 -- 135,403
Operating income 14,774 (4,361) (b) (4,073) 6,340
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended October 3, 1999
-------------------------------------------------------------------------
Industrial Transportation Other (a) Consolidated
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 165,907 $ 390,527 $ -- $ 556,434
Gross profit 49,962 99,802 -- 149,764
Operating income 8,766 32,641 (5,905) 35,502
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended October 1, 2000
-------------------------------------------------------------------------
Industrial Transportation Other (a) Consolidated
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 331,612 $ 628,362 $ -- $ 959,974
Gross profit 102,100 156,741 -- 258,841
Operating income 27,477 3,462 (b) (9,754) 21,185
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended October 3, 1999
-------------------------------------------------------------------------
Industrial Transportation Other (a) Consolidated
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 337,392 $ 737,757 $ -- $ 1,075,149
Gross profit 98,842 180,091 -- 278,933
Operating income 15,688 46,881 (11,774) 50,795
</TABLE>
(a) Includes certain corporate expenses as well as goodwill amortization.
(b) Includes $30,000 of restructuring and other nonrecurring charges (see
Note 7).
12
<PAGE>
(6) GNB ACQUISITION
-------------------
On September 29, 2000, the Company acquired 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 four million of the Company's common shares)
plus assumed liabilities. GNB is a leading U.S. and Pacific Rim manufacturer of
both industrial and automotive batteries. Pacific Dunlop now holds an
approximate 16 percent interest in the outstanding shares of common stock of the
Company.
The Company financed the cash portion of the purchase price, including
associated fees and expenses, through an additional $250,000 term loan under its
existing senior secured credit facility, and a $100,000 securitization of GNB
accounts receivables. The Company also issued warrants for 1,286,000 shares with
an exercise price of $8.99 per share in conjunction with such financing.
The acquisition has been accounted for using the purchase method. No results of
operations for GNB are included in the accompanying consolidated income
statements since the acquisition was consummated on the last business day of the
Company's second quarter. GNB's preliminary opening balance sheet is reflected
in the accompanying condensed consolidated balance sheet as of October 1, 2000.
This allocation is preliminary and will likely change upon resolution of open
matters including the completion of appraisals, the final assessment of certain
contingencies, the final identification and notification of additional
restructuring activities (see Note 7), the impact of any deferred taxes and the
determination of purchase price adjustments in accordance with the purchase
agreement, if any.
The following unaudited supplemental information reflects the Company's pro
forma results of operations for the periods shown by combining the historical
results of the Company and GNB and including the impact of goodwill amortization
and the impact of other applicable purchase accounting adjustments, as well as
interest expense on acquisition financing, together with related income tax
effects, assuming the acquisition had occurred at the beginning of the earliest
period presented. The pro forma earnings per share calculations below also
include the impact of the four million shares issued as part of the acquisition
consideration. This pro forma information does not purport to represent what the
Company's results of operations would have actually been had the acquisition
occurred as of an earlier date or project the results of any future period.
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
---------------------------- ------------------------------
October 1 October 3, October 1, October 3,
2000 (a) 1999 (b) 2000 (c) 1999 (d)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 746,880 $ 791,892 $1,445,089 $1,521,569
Net income (loss) $ (15,578) $ (12,608) $ (40,051) $ (82,734)
Earnings per share:
Basic $ (0.61) $ (0.50) $ (1.58) $ (3.30)
Diluted $ (0.61) $ (0.50) $ (1.58) $ (3.30)
</TABLE>
(a) Includes the Company's restructuring and other charges (see Note 7) of
$18,300, net of tax or $.72 per share.
(b) Includes GNB restructuring charges of $13,175, or $.53 per share.
(c) Includes the Company's restructuring and other charges (see Note 7) of
$18,300, net of tax or $.72 per share and GNB restructuring and environmental
charges of $13,237, net of tax or $.52 per share (total of $31,537, net of tax
or $1.24 per share).
(d) Includes GNB fixed asset write-downs and restructuring charges of $75,542,
or $3.01 per share.
13
<PAGE>
(7) RESTRUCTURING
------------------
The Company has been pursuing its strategy of growing its industrial business
and restructuring its transportation business to improve earnings and cashflow.
As part of that strategy, the Company, on September 29, 2000, announced the
first stage of its restructuring plans following the GNB acquisition. The
initial plan includes the closure of GNB's Dallas facility, closure of certain
GNB and Exide distribution centers and branches and reductions in sales,
marketing and support staff.
The Company also announced, on August 28, 2000, actions to improve the
profitability of its automotive operations, including the closing of automotive
manufacturing operations in Maple, Ontario; merging its Canadian and U.S. sales
organizations; closing 11 North American distribution facilities and the
reduction of its motorsports sponsorships.
As a result of the above actions, in the second quarter of fiscal 2001 the
Company recorded pre-tax charges totaling $30,000 ($18,300 net of tax or $.86
per share) consisting of $25,100 of restructuring costs and $4,900 of merger
integration and other nonrecurring costs. The restructuring charges included
$13,400 for the closure of the Maple, Ontario automotive manufacturing
operations, $4,000 for the closure of branches and offices, $7,300 for severance
and other costs for reductions in staff and $400 of other restructuring costs.
Of the total $30,000 charge, $12,300 is cash related and is expected to be spent
over the next four quarters.
The Company also recorded $12,000 of restructuring reserves in GNB's preliminary
opening balance sheet related to the above actions, which are expected to be
spent over the next four quarters.
Additional restructuring charges will be recorded in the future as additional
plant closures and consolidation of administrative functions are identified as
part of the Company's program to improve our cost structure and to continue to
integrate GNB's operations.
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 the realignment to a
customer-focused global business unit structure discussed in Note 5. 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
October 1, 2000, $22,835 of charges against the reserve have occurred consisting
of $12,163 of severance and other cash payments (including $9,553 in the first
six months of fiscal 2001) and $10,672 of asset write-downs. Remaining
expenditures will occur over the next several years as permitted under
applicable regulations and in accordance with existing contracts.
(8) SALE OF YUASA INVESTMENT
-----------------------------
On November 10, 2000 the Company sold its 13.5 percent interest in Yuasa Inc.
for $29.9 million. The company expects to report a pre-tax gain of
approximately $13.0 million on the sale of this investment in its third fiscal
quarter.
14
<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 fluctuating lead prices as well as low-priced
Asian imports impacting our European markets. Prospectively, competition in the
Industrial battery market in North America and competition in the Pacific Rim
will factor into our financial performance, given our acquisition of GNB.
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 October 1, 2000 compared with the three months ended October
-------------------------------------------------------------------------------
3, 1999.
--------
Net sales decreased 11.2% ($62.2 million) to $494.2 million in the second
quarter of fiscal 2001 from $556.4 million in the second quarter of fiscal 2000.
The majority of the decrease (approximately $50.1 million) resulted from the
strengthening of the U.S. dollar versus European currencies.
Industrial battery sales for the second quarter of fiscal 2001 were $166.5
million versus $165.9 million in the second quarter of fiscal 2000. Currency
negatively impacted Industrial net sales by approximately $26.8 million. The
improvement on a constant currency basis resulted from strong European
Industrial demand in our network power 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 16.1% to $327.7 million versus
$390.5 million last year, primarily due to volume declines in the North American
aftermarket sector.
15
<PAGE>
Sales volume was down approximately 12.4% in North America versus last year.
Also, currency unfavorably impacted Transportation net sales by approximately
$23.3 million.
Net sales in the Transportation segment also decreased by $14.0 million due to
the Company's divestiture of certain non-core businesses in fiscal 2000 and the
first quarter of fiscal 2001.
Gross profit decreased 9.7% ($14.6 million) to $135.4 million in the second
quarter of fiscal 2001 compared to $150.0 million in the second quarter in the
prior year. Weak European currencies versus the U.S. dollar impacted gross
profit by approximately $14.6 million. The gross profit margin increased to
27.4% in the second quarter of fiscal 2001 from 26.9% in the second quarter of
fiscal 2000 due to the Company's strong Industrial battery operations and cost
reduction measures.
Industrial battery gross profit was $50.7 million this year versus $50.0 million
last year. Strong Industrial demand offset $8.2 million in negative currency
impact. Gross margin as a percent of net sales was 30.5% in the current year
versus 30.1% last year.
Transportation battery gross profit was $84.7 million this year versus $99.8
million last year with the impact of North American aftermarket volume declines
contributing to this decrease along with a currency impact of $6.4 million.
Gross margins were 25.8% in the current year versus 25.6% in the prior year.
Gross profit also decreased in the Transportation segment by $1.5 million in the
current year due to the divestiture activity previously discussed.
Selling, general and administrative expenses increased $14.8 million from
$114.3 million in the second quarter of fiscal 2000 to $129.1 million in the
second quarter of fiscal 2001. A charge of $30.0 million was recorded in the
current year for restructuring and other related activities, including actions
related to the acquisition of GNB Technologies. The charges consisted of $25.1
million of restructuring costs and $4.9 million of merger integration and other
nonrecurring costs. The restructuring charges included $13.4 million for the
closure of the Maple, Ontario automotive manufacturing operations, $4.0 million
for the closure of branches and offices, $7.3 million for severance and other
costs for reductions in staff and $0.4 million of other restructuring costs.
Excluding these charges, selling, general and administrative expenses decreased
$15.2 million. Weaker European currencies favorably impacted these expenses by
approximately $12.0 million. Cost-reduction programs contributed to the rest of
the decrease.
Operating income was $6.3 million versus $35.5 million last year. Excluding the
impact of the $30.0 million charge, operating income increased by $0.8 million
despite the negative impact of currency translation of approximately $2.6
million. Industrial operating income was $14.8 million, or 8.9% of net sales,
this year versus $8.8 million, or 5.3% of net sales, last year. Transportation
operating income, excluding the $30.0 million charge, was $25.6 million, or 7.8%
of net sales, this year versus $32.6 million, or 8.4% of net sales, last year.
These changes are a result of the matters discussed above.
Interest expense increased $0.6 million from $25.3 million to $25.9 million as a
result of higher interest rates in the second quarter of fiscal 2001 offset by
the impact of weaker European currencies.
Other expense, net was $1.5 million in the second quarter of fiscal 2001 versus
$1.4 million in the second quarter of fiscal 2000.
16
<PAGE>
The effective tax rate was 32.4% in the second quarter of fiscal 2001 compared
to 47.9% in the second quarter of fiscal 2000. The difference between the
federal statutory rate and the effective rate is primarily due to certain
nondeductible goodwill and differences in rates on foreign subsidiaries.
The net loss of ($14.5) million versus net income of $4.2 million resulted from
the items discussed above.
Six months ended October 1, 2000 compared with the six months ended October 3,
------------------------------------------------------------------------------
1999.
-----
Net sales decreased 10.7% ($115.1 million) to $960.0 million for the first six
months of fiscal 2001 from $1,075.1 for the same period last year.
Approximately 8.1% of the decrease resulted from the strengthening of the U.S.
dollar versus European currencies.
Industrial battery sales for the first six months of fiscal 2001 were $331.6
million versus $337.4 million in the first six months of fiscal 2000. Currency
negatively impacted Industrial net sales by approximately $47.5 million. The
improvement on a constant currency basis resulted from strong European
Industrial demand in our network power 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 for the first six months of fiscal 2001
decreased 14.9% to $628.4 million versus $737.8 million last year, primarily due
to volume declines in the North American aftermarket sector. Sales volume was
down approximately 9.8% in North America versus last year. Also, currency
unfavorably impacted Transportation net sales by approximately $39.5 million.
Net sales in the Transportation segment also decreased by $26.4 million in the
first six months of fiscal 2001 due to the Company's sale of certain non-core
businesses in fiscal 2000 and the first quarter of fiscal 2001.
Gross profit decreased 7.2% ($20.1 million) to $258.8 million for the first six
months of fiscal 2001 compared to $278.9 million in the same period in the prior
year. Weakening European currencies versus the U.S. dollar caused a $25.2
million decrease. The gross profit margin increased from 25.9% for the first
half of fiscal 2000 to 27.0% for the same period for fiscal 2001 due to the
Company's strong Industrial battery operations and cost reduction measures.
Industrial battery gross profit was $102.1 million this year versus $98.8
million last year. Currency negatively impacted current year gross profit by
$14.5 million. Gross margin as a percent of net sales was 30.8% in the current
year versus 29.3% last year, primarily due to strong Industrial demand.
Transportation battery gross profit was $156.7 million this year versus $180.1
million last year with the impact of North American aftermarket volume declines
contributing to this decrease along with a currency impact of $10.7 million.
Gross margins were 24.9% in the current year versus 24.4% in the prior year.
Gross profit also decreased in the Transportation segment by $3.0 million in the
current year due to the divestiture activity previously discussed.
17
<PAGE>
Operating expenses increased $9.6 million from $228.1 million for the first six
months of fiscal 2000 to $237.7 million for the first six months of fiscal 2001.
A charge of $30.0 million was recorded in the second quarter of the current year
for restructuring and other related activities as discussed above. Excluding
this charge, selling, general and administrative expenses decreased $20.4
million. Weaker European currencies favorably impacted these expenses by
approximately $21.3 million. Higher marketing expenses in the first quarter of
fiscal 2001 were offset by cost-reduction programs in the second quarter of
fiscal 2001.
Operating income was $21.2 million versus $50.8 million last year. Excluding the
impact of the $30.0 million charge, operating income increased by $0.4 million
despite the negative impact of currency translation of approximately $3.9
million. Industrial operating income was $27.5 million, or 8.3% of net sales,
this year versus $15.7 million, or 4.6% of net sales, last year. Transportation
operating income, excluding the $30.0 million charge, was $33.5 million, or 5.3%
of net sales, this year versus $46.9 million, or 6.4% of net sales, last year.
These changes are a result of the matters discussed above.
Interest expense decreased $1.4 million from $52.0 million to $50.6 million as a
result of the impact of weaker European currencies offset by higher interest
rates in the second quarter of fiscal 2001.
Other expense, net was $3.8 million for the first half of fiscal 2001 versus
$2.7 million in the first half of fiscal 2000. The increase is a result of
higher gains on sales of assets in fiscal 2000.
The effective tax rate was 30.1% in the first half of fiscal 2001. In fiscal
2000, income tax expense of $0.5 million was recorded on a loss of $3.9 million.
The difference between the federal statutory rate and the effective rate is
primarily due to certain nondeductible goodwill and differences in rates on
foreign subsidiaries.
The net loss increased to ($23.9) million in the current year versus ($5.1)
million last year as a result of the items discussed above.
ACQUISITION OF GNB
As discussed in Note 6, on September 29, 2000, the Company acquired the global
battery business of GNB for consideration of approximately $368 million
(including $333 million in cash and four million of the Company's common shares)
plus assumed liabilities. GNB is a leading U.S. and Pacific Rim manufacturer of
both industrial and automotive batteries.
The Company financed the cash portion of the purchase price, including
associated fees and expenses, through an additional $250 million term loan under
its existing senior secured credit facility, and a $100 million securitization
of GNB accounts receivables. The Company also issued warrants for 1,286,000
shares with an exercise price of $8.99 per share in conjunction with such
financing.
18
<PAGE>
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 $200.0
million (including GNB receivables) 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 $63.6 million for the first six
months this year ($73.0 million on a constant currency basis) versus $103.1
million in the prior year. Excluding the $30.0 million charge for restructuring
and other activities, EBITDA, on a constant currency basis, was $103.0 for the
first six months of this year. Cash flows provided by operating activities was
$84.9 million (of which $122.4 million related to net sales of receivables
including the sale of GNB receivables in connection with the acquisition) in the
first six months of fiscal 2001. This compares to cash flows used in operating
activities of $72.1 million (including $18.9 million related to sales of
receivables) in the first six months of fiscal 2000. Primary working capital at
the end of the second quarter this year, excluding GNB, was $524.1 million, as
compared to $717.6 million for the same period last year. Primary working
capital year on year is down approximately $97.0 million, excluding currency
impacts, divestitures and GNB, principally due to inventory reductions. The
acquisition of GNB added approximately $100 million in primary working capital.
Our capital expenditures were $19.8 million and $29.4 million in the six months
ended October 1, 2000 and October 3, 1999, respectively. Capital expenditures
are estimated to be approximately $60.0 million in the second half of fiscal
2001, including expenditures at GNB facilities.
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 $8.0
million, including $3.0 million of cash at closing and $2.5 million of assumed
liabilities. Asset sales in the second quarter yielded $3.4 million of
additional cash proceeds.
19
<PAGE>
On November 10, 2000 the Company sold its 13.5 percent interest in Yuasa Inc.
for $29.9 million. The company expects to report a pre-tax gain of
approximately $13.0 million on the sale of this investment in its third fiscal
quarter. Proceeds from the sale will be used to reduce debt.
The Company has been pursuing its strategy of growing its industrial business
and restructuring its transportation business to improve earnings and cashflow.
As part of that strategy, the Company, on September 29, 2000, announced the
first stage of its restructuring plans following the GNB acquisition. The
initial plan included the closure of GNB's Dallas facility, closure of certain
GNB and Exide distribution centers and branches and reductions in sales,
marketing and support staff.
The Company also announced, on August 28, 2000, actions to improve the
profitability of its automotive operations, including the closing of automotive
manufacturing operations in Maple, Ontario; merging its Canadian and U.S. sales
organizations; closing 11 North American distribution facilities and the
restructuring of its motorsports sponsorships.
As a result of the above actions, in the second quarter of fiscal 2001 we
recorded pre-tax charges totaling $30.0 million ($18.3 million net of tax). The
charges consisted of $25.1 million of restructuring costs and $4.9 million of
merger integration and other nonrecurring costs. Of the total $30.0 million
charge, $12.3 million will be spent in cash over the next four quarters. These
cash outlays will be offset by prospective operating cost savings.
The Company also recorded $12.0 million of restructuring reserves in GNB's
preliminary opening balance sheet related to the above actions which are
expected to be spent over the next four quarters.
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. This restructuring consisted 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 U.S. branch locations
and the Company's ongoing consolidation of European operations, and included
headcount reductions of 168 employees.
The expected cash portion of the fourth quarter fiscal 2000 charge, largely
related to severance, is primarily being paid out in fiscal 2001. These cash
outlays will be offset by prospective operating cost savings. Cash payments for
severance in the first six months of fiscal 2001 were approximately $9.6
million. Through October 1, 2000, $22.8 million of charges against the reserve
have occurred consisting of $12.1 million of severance and other cash payments
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 will be recorded in the future as additional
plant closures and consolidation of administrative functions are identified as
part of the Company's program to improve our cost structure and to continue to
integrate GNB's operations.
Total debt at the end of the second quarter was $1,382.9 million, including the
$250 million of new debt from the GNB acquisition, as compared to $1,308.8
million at this same time
20
<PAGE>
last year. Absent the acquisition, debt is down $175.9 million year over year.
Our availability under our credit line was approximately $140 million at quarter
end. 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. Weighted
average interest rates on the Company's pre-GNB senior secured credit facility
debt have increased approximately 1.5% due to the GNB acquisition. Interest on
the GNB acquisition debt is based on LIBOR plus 4.5%.
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 pound 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 8.5 million
Euros. 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
terminated this agreement in the second quarter of fiscal 2001 and received a
cash payment of 6.2 million Euros. Simultaneously, the Company entered into a
new 73.1 million Euro (U.S. $64.5 million) one-year currency and interest rate
hedge agreement with this same counterparty. The Company receives LIBOR plus
2.25% and pays Euro LIBOR plus 2.27%.
We entered into a $60.0 million two year interest rate swap agreement on October
18,2000 for which we will pay a quarterly fixed rate of 6.55% and receive a
three month LIBOR rate (currently 6.76%). This swap hedges a portion of the
variable interest exposure on our $900 million Credit Facility Tranche B Term
Loans.
We have entered into certain forward contracts and option contracts in fiscal
2001 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
through the fourth quarter of fiscal 2002.
As of October 1, 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 deferred tax assets, net of certain valuation allowances, include net
operating loss carryforwards which management believes are more likely than not
realizable through a combination of anticipated tax planning strategies and
forecasted future taxable income. Failure to achieve forecasted future taxable
income might affect the ultimate realization of any remaining recorded net
deferred tax assets.
21
<PAGE>
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 runs through 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:
. 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.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risks.
There were no significant changes to the quantitative and qualitative market
risks as of October 1, 2000. See our Form 10-K for the fiscal year ended March
31, 2000 for this information.
22
<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 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
certain 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 November 2000, Exide finalized 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). The Attorney General's claim was dismissed
pursuant to that settlement on November 2, 2000. 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.
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 were dismissed without
prejudice by the Court on October 16, 2000.
Exide is currently involved in litigation with certain former members of senior
management relating to their separation agreements. One of these cases, Arthur
M.
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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. These two cases were stayed at the request of Messrs. Pearson
and Gauthier on October 10, 2000. They cited the investigation by the U.S.
Attorney for the Southern District of Illinois as a basis for the stay.
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. JCI alleges that Exide, through
Arthur Hawkins, Alan Gauthier, Douglas Pearson and Joseph Calio, paid bribes to
a Sears employee, Gary Marks, to induce him to award Sears' 1994 battery supply
contract to Exide rather than JCI. JCI asserts claims against Exide for
violation of section 2(c) of the Robinson-Patman Act and tortious interference
with a prospective business opportunity. JCI asserts claims against Hawkins,
Gauthier and Pearson for violation of the Racketeer Influenced and Corrupt
Organizations Act and tortious interference with a prospective business
opportunity. Exide has filed a motion to dismiss the two claims against it for
failure to state a claim upon which relief can be granted. This motion is fully
briefed and awaiting a ruling by Judge Shadur. Several of the individual
defendants have also filed motions to dismiss for lack of personal jurisdiction
and/or failure to state a claim. Mr. Pearson also filed a motion to stay the
proceedings due to a criminal grand jury investigation into the alleged bribes.
In late October, the Court agreed to temporarily stay discovery in this action,
and ordered the parties to brief the issue of whether the court should stay the
entire proceeding pending the outcome of the grand jury investigation. That
briefing is continuing.
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On September 13 and October 14, 2000, Exide received subpoenas from the United
States Attorney for the Southern District of Illinois. The subpoenas seek
documents relating primarily to Exide's past business relationship with Sears,
Roebuck and Co. Exide is cooperating fully with this investigation, and is
currently conducting discussions with the government in an effort to bring this
matter to resolution.
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.
(a) None.
(b) None.
(c) On September 29, 2000, the Company issued 4,000,000 shares (the
"Purchase Agreement Shares") of its common stock to Pacific Dunlop
Holdings (USA) Inc. ("PD Holdings") pursuant to a Stock Purchase
Agreement dated as of May 9, 2000. Such shares comprised part of the
consideration for the acquisition by the Company of Pacific Dunlop GNB
Corporation, a wholly-owned subsidiary of PD Holdings, and related
subsidiaries and assets (the "GNB Business").
To finance in part the cash portion of the purchase price for the GNB
Business, the Company entered into an Amended and Restated Credit and
Guarantee Agreement dated as of September 29, 2000 (the "Credit
Agreement"). To facilitate such financing under the Credit Agreement,
the Company issued warrants (the "Warrants") to the participating
lenders under the Credit Agreement to purchase an aggregate of
1,286,000 shares (the "Warrant Shares") of common stock of the Company
at an exercise price of $8.99 per share.
The Purchase Agreement Shares and the Warrants (as well as the Warrant
Shares issuable upon exercise of the Warrants) are exempt from the
registration requirements of the Securities Act of 1933, as amended,
under Section 4(2) of such Act as not involving any public offering.
Item 3. Defaults Upon Senior Securities. None.
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Item 4. Submission of Matters to Vote of Security Holders.
At the Company's annual meeting of stockholders held August 10, 2000, the
stockholders elected seven directors and ratified the appointment of
PricewaterhouseCoopers LLP as independent accountants for the 2001 fiscal
year.
The results of the voting were as follows:
Proposal I: Election of seven directors.
<TABLE>
<CAPTION>
Director For Withheld
-------- --- --------
<S> <C> <C>
Robert A. Lutz 19,164,894 275,274
Francois J. Castaing 19,053,349 386,819
Lynne V. Cheney 19,154,714 285,454
John A. James 19,162,744 277,424
Jody G. Miller 19,156,764 283,404
Heinz C. Prechter 19,167,194 272,974
John E. Robson 19,165,094 275,074
</TABLE>
Proposal II: Ratification of the appointment of PricewaterhouseCoopers LLP
as independent accountants for the 2001 fiscal year.
For Against Withheld
--- ------- --------
19,260,021 117,440 62,707
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Restated By-Laws of the Registrant.
3.2 Amendment dated August 10, 2000, to Rights Agreement dated as of
September 18, 1998 between Exide Corporation and American Stock
Transfer and Trust Company, as Rights Agent.
10.1 Nonqualified Stock Option Agreement for Craig H. Muhlhauser.
10.2 Nonqualified Stock Option Agreement for David G. Enstone.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
On July 10, 2000, the Company filed a report on Form 8-K reporting
under Item 4 a change in Registrant's certifying accountant.
On October 16, 2000, the Company filed a report on Form 8-K reporting
under Item 2 the GNB acquisition.
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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 thereunto duly authorized.
EXIDE CORPORATION
Date: November 15, 2000 By: /s/ Kevin R. Morano
------------------------ ---------------------------
Kevin R. Morano
Executive Vice President
and Chief Financial Officer
28
