Item 1. Business
Unless otherwise indicated references to any "fiscal year" means the year
ended March 31 of that year (e.g., "fiscal 2002" refers to the period beginning
April 1, 2001 and ending March 31, 2002, "fiscal 2001" refers to the period
beginning April 1, 2000 and ending March 31, 2001 and "fiscal 2000" refers to
the period beginning April 1, 1999 and ending March 31, 2000).
On April 15, 2002 ("Petition Date") Exide Technologies (together with its
subsidiaries unless the context requires otherwise, "Exide" or the "Company")
and three of its wholly-owned, U.S. subsidiaries (RBD Liquidation, LLC, Exide
Delaware, LLC and Exide Illinois, Inc.; together with Exide collectively, the
"Debtors") filed voluntary petitions for reorganization under Chapter 11 of the
federal bankruptcy laws ("Bankruptcy Code" or "Chapter 11") in the United
States Bankruptcy Court for the District of Delaware ("Bankruptcy Court") under
case numbers 02-11125 through 02-11128 (jointly administered for procedural
purposes before the Bankruptcy Court under case number 02-11125JCA).
The Debtors are currently operating their business as debtors-in-possession
pursuant to the Bankruptcy Code.
The Company decided to file for reorganization for itself and certain of its
subsidiaries under Chapter 11 as it offered the most efficient alternative to
restructure its balance sheet and access new working capital while continuing
to operate in the ordinary course of business. The Company has a heavy debt
burden, caused largely by a debt-financed acquisition strategy and the
significant costs of integrating those acquisitions. Other factors leading to
the reorganization included the impact of current adverse economic conditions
on the Company's markets, particularly the telecommunications industry, ongoing
competitive pressures, and recent capital market volatility. These factors
contributed to a loss of revenues and resulted in significant operating losses
and negative cash flows, severely impacting the Company's financial condition
and its ability to maintain compliance with debt covenants.
As debtors in possession under Chapter 11, the Debtors are authorized to
continue to operate as an ongoing business, but may not engage in transactions
outside the ordinary course of business without the approval of the Bankruptcy
Court. The Company's operations outside of the U.S. are not included in the
Chapter 11 proceedings. However, in connection with the Chapter 11 filing, the
Company entered into a "Standstill and Subordination Agreement" with its
Pre-Petition Senior Secured Credit Facility Lenders, whereby the lenders have
agreed to forbear collection of principal payments on foreign borrowings under
the pre-petition facility from non-debtor subsidiaries until December 2003,
subject to earlier termination upon the occurrence of certain events. A
description of the pre-petition credit agreement and certain of its conditions
appears in this Report at Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations.
On May 10, 2002 the Company received final Bankruptcy Court approval to
access its entire $250 million debtor-in-possession ("DIP") financing facility
("DIP Credit Facility"). The DIP Credit Facility will be used to supplement
cash flows from operations during the reorganization process including the
payment of post-petition ordinary course trade and other payables, the payment
of certain permitted pre-petition claims, working capital needs, letter of
credit requirements and for other general corporate purposes. A more detailed
description of the DIP Credit Facility appears in this Report at Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Under Section 362 of the Bankruptcy Code, actions to collect pre-petition
indebtedness, as well as most other pending litigation, are stayed. Absent an
order of the Bankruptcy Court, substantially all pre-petition liabilities are
subject to settlement under a plan of reorganization to be approved by the
Bankruptcy Court. Although the Debtors expect to file a reorganization plan
that provides for emergence from bankruptcy as a going concern, there can be no
assurance that a reorganization plan will be proposed by the Debtors or
confirmed by the Bankruptcy Court, or that any such plan will be successfully
Under the Bankruptcy Code, the Debtors may also assume or reject executory
contracts, including lease obligations, subject to the approval of the
Bankruptcy Court and certain other conditions. Parties affected by these
rejections may file claims with the Bankruptcy Court in accordance with the
reorganization process. Due to the timing of the Chapter 11 proceedings, the
Company cannot currently estimate or anticipate what impact the rejection and
subsequent claims of executory contracts may have on the reorganization process.
On June 14, 2002, the Company filed with the Bankruptcy Court schedules and
statements of financial affairs setting forth, among other things, the assets
and liabilities of the Debtors as shown by our books and records on the
Petition Date, subject to the assumptions contained in certain notes filed in
connection therewith. All of the schedules are subject to further amendment or
modification. The Bankruptcy Code provides for a claims reconciliation and
resolution process, although a bar date for filing claims has not yet been
established. As the ultimate number and amount of allowed claims is not
presently known, and because any settlement terms of such allowed claims are
subject to a confirmed plan of reorganization, the ultimate distribution with
respect to allowed claims is not presently ascertainable.
The United States Trustee has appointed an unsecured creditors committee.
The official committee and its legal representatives have a right to be heard
on all matters that come before the Bankruptcy Court.
At this time, it is not possible to predict the effect of the Chapter 11
reorganization process on our business, various creditors and security holders,
or when it may be possible to emerge from Chapter 11. Our future results are
dependent upon our confirming and implementing, on a timely basis, a plan of
reorganization. The Company believes, however, that under any reorganization
plan, the Company's common stock would likely be substantially if not
completely diluted or cancelled as a result of the conversion of debt to equity
or with respect to any other compromise of interests. Further, it is also
likely that the Company's senior notes and convertible subordinated notes will
suffer substantial impairment.
The ultimate recovery, if any, by creditors, security holders and/or common
shareholders will not be determined until confirmation of a plan or plans of
reorganization. No assurance can be given as to what value will be ascribed in
the bankruptcy proceedings to each of these constituencies. Accordingly, Exide
urges that appropriate caution be exercised with respect to existing and future
investments in any of these securities.
The consolidated financial statements contained herein have been prepared on
a going concern basis, which assumes continuity of operations and realization
of assets and satisfaction of liabilities in the ordinary course of business.
The ability of the Company to continue as a going concern is predicated, among
other things, on the confirmation of a reorganization plan, compliance with the
provisions of the DIP Credit Facility, the ability of the Company to generate
the required cash flows from operations and, where necessary, obtaining
financing sources sufficient to satisfy future obligations. As a result of the
Chapter 11 filing, and consideration of various strategic alternatives,
including possible assets sales, the Company expects that any reorganization
plan will likely result in material changes to the carrying amount of assets
and liabilities in the consolidated financial statements.
General Discussion of Business
Exide Technologies is a Delaware corporation organized in 1966 to succeed to
the business of a New Jersey corporation founded in 1888. Our principal
executive offices are located at 210 Carnegie Center, Suite 500, Princeton, NJ
The Company is one of the largest volume producers of lead acid batteries in
the world, with fiscal 2002 net sales of approximately $2.4 billion. Our
European, North American and Pacific Rim operations represented approximately
48%, 47% and 5%, respectively, of our fiscal 2002 net sales. We manufacture and
supply industrial and transportation batteries in North America, Europe, the
Middle East, India, Australia and New Zealand. Our industrial batteries consist
of motive power batteries, such as those for use in material handling
applications and other electric vehicles, and network power batteries used for
telecommunication, industrial and military applications.
Acquisition of GNB
On September 29, 2000, the Company acquired GNB Technologies, Inc. ("GNB"),
a U.S. and Pacific Rim manufacturer of both industrial and transportation
batteries, from Pacific Dunlop Limited. The acquired GNB operations are located
in the U.S., Australia, New Zealand, Canada, Europe, Japan, South Asia, China,
India and the Middle East. The former GNB businesses manufacture industrial
batteries in North America, including those used in both motive and network
power applications under various brands such as Absolyte(R), Marathon(R),
Sprinter(R), Champion(R) and Pacific Chloride(R). The former GNB operations
also manufacture transportation batteries under the Champion(R), Stowaway(R)
and National(R) brands, among others, including private label brands, and is a
supplier to automotive original equipment manufacturers in North America and
the Pacific Rim.
(2) Financial Information about Segments
For fiscal 2002, we were primarily engaged in the manufacture, distribution
and sale of lead acid batteries in three global business segments: Motive
Power, Network Power and Transportation. See Note 21 to the Company's
Consolidated Financial Statements appearing elsewhere herein.
(3) Narrative Description of Business
Our strategic focus is customer energy storage and application needs on a
global basis. We have three primary business segments: Motive Power, Network
Power and Transportation.
Motive Power Segment
Sales of Motive Power batteries represented approximately 20% of our net
sales for fiscal 2002. We believe we have a leading market position in the
motive power segment of the worldwide industrial battery market, based on our
estimate of current market share.
Product performance and customer service are very important in the Motive
Power markets. We work closely with our customers as they develop new products,
designing batteries to meet their needs. While we established our current
market position primarily by acquiring existing manufacturers with established
brand names, we plan to market our products under global brands and establish a
reputation for quality, product technology and service.
Our Motive Power batteries are composed of two-volt cells assembled in
numerous configurations and sizes to provide capacities ranging from 30 Ah to
1500 Ah. We also manufacture and market a range of 6 and 12 volt monobloc
batteries used on smaller material handling vehicles, access equipment and
electrically-powered wheelchairs. Exide offers conventional vented lead acid
technology utilizing tubular positive-plate and flat plate cell design. Exide
also offers a range of lead acid battery technologies to meet a wide spectrum
of customer application requirements. For example, Exide provides monobloc
batteries incorporating gelled electrolyte and copper-stretched metal
technology (CSM) for high performance applications. In addition, we provide
maintenance-free sealed batteries incorporating absorbed glass mat (AGM)
technology under the Champion(R) brand name.
The materials handling industry is the largest market for Motive Power
batteries, including forklifts, electric counter balance trucks, pedestrian
pallet trucks, low level order pickers, turret trucks, tow tractors, reach
trucks and very narrow aisle (VNA) trucks.
Other market segments requiring Motive Power products include:
scrubber/dryer and sweeper machines in the floor cleaning market, scissor
lifts, access platforms and telescopic zooms in the access market, buggies and
carts in the golf market, mobility equipment in the wheelchair market, mining
locomotives, electric road vehicles, electric boats and non-military
In addition to our Motive Power battery products, Exide offers a range of
battery chargers, watering and maintenance equipment and battery transfer
The motive power battery market in Europe is divided into the original
equipment manufacturer ("OEM") market, comprised of the manufacturers of the
electric vehicles described above, and the replacement market, which includes
large users of such electric vehicles as well as original equipment dealer
networks. The majority of our sales are to OEMs. Our major original equipment
motive power customers in Europe include the materials handling operations of
the Linde Group (Germany), Junghreinrich Group (Germany), Atlet (Sweden) and BT
Rolatruc (Sweden). We also sell our Motive Power products to a wide range of
customers in the aftermarket, ranging from large industrial concerns and retail
distributors to small warehouse and manufacturing operations.
In Europe, we provide Motive Power products and services through
company-owned sales and service organizations in each country and utilize
distributors and agents for export of products from Europe to the rest of the
world. In addition, we distribute Motive Power batteries through OEM dealers,
independent distributors and directly to large fleet users.
The European motive power market has developed due to a trend toward
electric (rather than internal combustion) material handling vehicles and from
the growth of warehousing and logistics service providers. This market is
served primarily through OEMs rather than end users. Additionally, with the
advent of the Euro and the attendant greater price transparency, the OEM truck
manufacturers have been able to exert additional competitive pressure by
standardizing prices throughout Europe.
In North America, the Motive Power business is served primarily through
independent lift truck dealers or sold directly to large national accounts or
end users. Our customers include Nacco, Crown, Wal-Mart, Kroger and Ford Motor
The North American product range includes the conventional vented lead acid
technology utilizing the flat plate cell design, the tubular positive-plate
design from our European Motive Power business, and Champion sealed
maintenance-free batteries and chargers.
Motive Power products and services are provided in North America through
company-owned sales and service locations which are augmented by a network of
independent manufacturers' representatives who provide local service on their
The European and North American motive power markets are heavily influenced
by the demand for materials handling equipment. Customer demand for materials
handling equipment has a strong historical correlation to general economic
Network Power Segment
Sales of Network Power batteries represented approximately 17% of our net
sales for fiscal 2002.
Network Power (also known as standby or stationary) batteries are used for
back-up power applications to ensure continuous power supply in case of main
(primary) power failure or outage. Today's examples of where network power
batteries are used to provide backup power include telecommunications,
computers, hospitals, process control, air traffic control, security systems,
utility, railway and military applications.
One of the largest network power markets is telecommunications. Customers
for network power batteries for telecom applications include manufacturers of
switches and other equipment and the system operators. Battery demand for
telecommunications has until recently been fueled by the growth in internet
broadband connections and worldwide deployment of multiple cellular and
wireless mobile communication systems where each repeater system and base
transceiver station may require a set of standby batteries. Other
telecommunications applications include central and local switching systems
(PABX), satellite stations, optical fiber repeating boxes, cable TV
transmission boxes and radio transmission stations. In these applications, the
batteries are usually packaged with a 48V DC power system.
The telecommunications industry and network power battery demand has
experienced a significant downturn during the last year, which the Company does
not expect will reverse in the near term. As a result, during the third quarter
of fiscal 2002 the Company recorded goodwill impairment charges based upon its
assessment of the fair value of the Network Power reporting unit against book
carrying value. Further deterioration in industry performance, particularly in
Europe, could result in additional impairment charges in future periods. See
Item 7, Management's Discussion and Analysis of Financial Condition and Results
Network power batteries also serve as uninterruptible power supplies (UPS)
used in computer installations for banks, airlines and back up servers for the
internet. UPS battery customers consist of system manufacturers and end users.
Performance in this market is impacted by the demand for computer systems.
Our major network power battery customers include:
. telecommunications companies, such as AT&T, China Unicom, Cingular,
Nippon Telegraph and Telephone (NTT), Qwest, Singapore Telecom, Telecom
Italia, Telefonica of Spain and Verizon;
. manufacturers of telecommunications equipment, such as Alcatel, Ericsson,
Marconi, Motorola and Nokia;
. manufacturers and end users of UPS, primarily for mainframe computer
systems, such as MGE and Siemens;
. electrical generating companies; and
. government and military users.
We sell our products directly to these customers and promote our products by
holding seminars, participating in trade shows and distributing technical
Given the importance of service and technical assistance, we generally ship
network power batteries directly to system suppliers and UPS manufacturers who
include the batteries in their original equipment and distribute products to
end users. Batteries are also shipped directly to end users for both systems
and the replacement of aged batteries.
Today we offer a global product line which is being marketed under the
following five brands associated with product type and technology:
. Absolyte(R): Large 2-volt sealed cells, incorporating AGM technology, for long duration (e.g.
telecom) and short duration applications.
. Marathon(R): Multi-cell AGM monobloc batteries for long duration applications.
. Sprinter(R): Multi-cell AGM monobloc batteries for short duration applications.
. Sonnenschein(R): Multi-cell monoblocs and 2-volt cells, incorporating Gel technology, primarily
for long duration applications.
. Classic(TM): Multi-cell monoblocs and 2-volt cells, using traditional flooded construction,
primarily for large installation and long duration applications.
There are two primary Network Power lead acid battery technologies:
valve-regulated (VRLA, or sealed) and vented (flooded). There are also two
types of VRLA technologies--GEL and AGM.
These technologies are described as follows:
VRLA: GEL This technology utilizes a gel electrolyte. Sealed batteries have replaced other types of
network power batteries because they enhance safety, reduce maintenance and can be
used in both vertical and horizontal positions. The Sonnenschein gel technology offers the
advantages of high reliability and long life. The gel product range offers a wide range of
capabilities such as heat resistance, deep discharge resistance, long shelf life and high
VRLA: AGM This technology utilizes an electrolyte immobilized in an absorbent glass mat separator.
This technology is particularly well adapted to shorter back-up time and can offer up to a
20-year design life.
Vented This technology is used in applications requiring high reliability but with the ability to
(Flooded) allow for regular maintenance. The basic construction involves positive flat or tubular
positive plates. Transparent containers and easily accessible internal construction are
features of these batteries that allow end users to check the battery's physical condition.
Exide is also one of the leading suppliers of submarine batteries. Our
customers include the navies of Denmark, France, Germany, Italy, Norway,
Singapore, Spain, Sweden, Turkey, and we are the sole supplier to the U.S. Navy
for submarine batteries.
Transportation batteries include starting, lighting and ignition (SLI)
batteries for cars, trucks, off-road vehicles, agricultural and construction
vehicles, motorcycles, recreational vehicles, boats, and other applications.
Transportation batteries represented approximately 63% of our net sales for
In North America, we are the second largest manufacturer of transportation
batteries. In Europe, we are one of the largest manufacturers of transportation
batteries. The market is divided between sales to OEMs and aftermarket
customers. We market our products under various trademarks including Exide(R),
Champion(R), Stowaway(R), SubZero(R), Trailblazer(R), Willard(R), Tudor(R),
DETA(R), Centra(R), Fulmen(R) and Prestolite(R) and many private label brands
for customers. We also produce and market the Exide Select(R), including the
Exide Select Orbital(R) battery.
Transportation: Original Equipment Manufacturer (OEM) Market
The OEM market consists of the sale of batteries to manufacturers of
automobiles and trucks, buses and off-road agricultural and construction
vehicles. The factors affecting the OEM market are consumer demand for
passenger cars, light trucks and sport utility vehicles; significant
consolidation in the automotive industry; globalization of OEM procurement
activities and competition.
Our major OEM customers in North America include DaimlerChrysler, Ford Motor
Company, Toyota, Kenworth, Peterbilt, John Deere International, Volvo Cars of
North America and Case/New Holland.
Our major OEM customers in Europe are Fiat, Volkswagen Group, the PSA group
(Peugeot S.A./Citroen), Renault/Nissan, BMW and Ford.
We sell aftermarket batteries in North America through automotive parts
retailers and mass merchandisers, car and truck dealers, and wholesale
distributors who supply service stations, repair shops, automotive and
farm-equipment dealers, and small retailers. We also provide transportation
batteries for commercial applications, such as trucks, farm equipment, tractors
and off-road vehicles, as well as batteries for marine, lawn and garden and
Demand for conventional automotive replacement batteries is influenced by
the following principal factors: (1) the number of vehicles in use, (2) average
battery life, (3) the average age of vehicles and their condition, (4) seasonal
weather conditions and (5) general population growth and economic conditions.
The ratio of battery usage to vehicles in use has increased slightly in recent
years, reflecting higher average miles of vehicle usage and an increasing
number of vehicles used in warm climates. Aftermarket demand is more stable
than the original equipment market since it is not affected by the cyclical
nature of new vehicle demand. The replacement market is also larger in general
than the original equipment segment, since automotive batteries tend to require
replacement every three to five years.
We market our aftermarket batteries in North America to a broad range of
retailers and distributors. We are a leading supplier to NAPA, Wal-Mart, Sam's
Club, Kmart, and CSK Inc. We are also a supplier of authorized replacement
batteries for DaimlerChrysler, Mopar, Freightliner and John Deere International.
Our North American aftermarket operations include a company-owned branch
network. This branch network throughout the United States and Canada which
sells and distributes batteries and other products to local auto parts
retailers, service stations, repair shops, fleet operators, battery specialists
and installers. The branches may also deliver batteries to our national account
customers' retail stores and collect used and spent batteries for recycling.
Our primary North American transportation battery products include the
Exide(R) Champion(R) and These batteries include a comprehensive range of vented, maintenance-free lead acid
private label batteries, from a basic battery to a premium battery with enhanced power cold
cranking amps and a 72 month warranty. These batteries are sold under the
Champion(R) and Exide(R) brand name as well as various private labels.
Exide NASCAR Select(R) Our Exide NASCAR Select(R) batteries are officially licensed by NASCAR. Our
and Champion Champion Trailblazer(R) batteries are targeted at light trucks and SUV vehicles. Both
Trailblazer(R) the Champion Trailblazer(R) and the Exide NASCAR Select(R) batteries include a
number of features differentiating them from conventional batteries, including
increased durability, resistance to vibration and battery performance and life.
Exide Select Orbital(R) Through its patented spiral wound technology and state-of-the-art recombinant
design, this battery can be recharged in a fraction of the time needed for conventional
batteries, and has high power output and superior vibration resistance compared with
a conventional lead acid battery.
Batteries used for marine and recreational vehicles include the Stowaway(R)
and Nautilus(R) brands, which employ technology to satisfy the power
requirements of large engines, sophisticated electronics and on-board
accessories. For the marine market, we produce the Exide Select Orbital(R)
Marine, which brings all the advantages of Exide's patented spiral wound
technology to the marine market. The Exide Select Orbital(R) Marine maintains
nearly a full charge during the off-season, and can be quickly recharged. This
battery is also sealed, making it ideal for closed environments (such as inside
a boat hull). The Exide Select Orbital(R) Marine battery is complemented by the
Stowaway(R) Powercycler(R), which was the first sealed, AGM battery introduced
in the marine battery market. The Stowaway(R) Powercycler(R) is a completely
sealed, VRLA battery with AGM technology and prismatic plates that offers
features and benefits similar to the Exide Select Orbital(R). We also produce
the Nautilus(R) Gold Dual Purpose and the Stowaway(R) Dual Purpose, a
combination battery, replacing separate starting and deep cycle batteries in
two-battery marine and recreational vehicle systems, and the Nautilus(R) Mega
Cycle and Stowaway(R) Deep Cycle, a high performance, dual terminal
We sell aftermarket batteries in Europe primarily through battery
wholesalers, OEM dealer networks, hypermarkets, European purchasing centers and
oil companies. Wholesalers and OEM dealers have traditionally represented the
majority of this market, but supermarket chains, replacement-parts stores
(represented by purchasing associations) and hypermarkets have become
increasingly important. Battery wholesalers now sell and distribute batteries
to a network of automotive parts retailers, service stations, independent
retailers, and supermarkets throughout Europe.
Demand for conventional automotive replacement batteries in the European
aftermarket is affected by the same major factors influencing the aftermarket
in North America. In Europe, mass merchandisers have gained market share in
recent years. Buying groups representing smaller battery resellers have grown
and begun to expand. The European aftermarket is less concentrated than in
North America at the present time and we believe Exide is well-positioned to
supply mass merchandisers, buying groups and individual resellers.
We have a leading position in the automotive aftermarket in most European
countries and our customers include ADI, KWIK FIT and many other leading
aftermarket battery distributors. We sell our aftermarket batteries in Europe
under a variety of well-known brand names, including Exide, Fulmen, DETA,
Tudor, SONNAK, and Centra.
In Europe, our product offerings vary by market. We generally offer a basic
model, an upgrade model, a premium model and various niche products in each
market. Exide has five major Company-owned brands in Europe. Exide(R) and
Tudor(R) are promoted as pan-European brands, whereas Deta(R), Centra(TM) and
Fulmen(TM) have strong local awareness levels.
The following describes our product offerings in the United Kingdom and is
representative of our product offerings elsewhere in Europe:
Basic(TM) This is our basic model. It uses traditional lead acid technology, has average power
and cold-cranking capabilities, carries a 12-month warranty and is adequate for
most conventional automotive uses. The same or similar battery is marketed under
private label brand names in France, Germany and Spain, under the Basic name in
Italy and under various other names in other markets.
Classic(TM) This is our upgrade model. It still uses traditional lead acid technology, and has
increased power and cold-cranking capabilities. This battery carries a 24-month
warranty. The same or similar batteries are marketed under the Equipe name in
France, the Classic name in Germany, the Leader name in Italy, the Tudor name in
Spain and under various other names in other markets.
Ultra(TM) This is our premium model. It has a number of added features including higher
power and a 36-month warranty. The same or similar batteries are marketed under
the Formula name in France, the Top Start Plus name in Germany, the Ultra name
in Italy, the Millennium 3 name in Spain and under various other names in other
STR/STE(TM) Our STR/STE batteries use recombination technology to allow a lead acid battery to
be installed in the passenger compartment of an automobile with little or no fluid
loss or acid fumes under normal operating conditions. Our STE technology was
approved for use by BMW and was included in some models beginning with the
2000 model year.
Maxxima(TM) This is the equivalent of the Exide Select Orbital(R) described above. We market this
battery under the Maxxima brand name throughout Europe.
We recognize that product performance and quality are critical to our
success and we have undertaken a company-wide quality improvement effort. In
April 2001, the Company launched its EXCELL (Exide's Customer-focused
Excellence Lean Leadership) program to systematically eliminate waste and
implement the concepts of continuous flow and customer pull throughout the
entire Exide supply chain. The EXCELL initiative is intended to implement lean
production and other quality improvements. The system, now being implemented at
62 Exide facilities worldwide, also incorporates best practices to improve
product quality, workplace safety and regulatory compliance. The best processes
include Kaizen (continuous improvement); mistake proofing; quality control
process charting; total productive maintenance; business process
re-engineering; one piece flow; standard work; six sigma (measure of variance);
quick changover; 5S (everything has a place and everything in its place); and
Our quality effort begins in the design phase with an in depth understanding
of customer and application requirements. Our batteries are designed to the
required performance, industry and customer quality standards, using design
processes, tools and materials to achieve reliability and durability. Our
commitment to quality continues through our manufacturing process. We have
quality audit processes and standards in each of our production facilities. We
have established an employee Lead Quality Continuous Improvement Team, and many
of our plants have established quality-related incentive plans for hourly
employees. Our quality program extends past the point of sale. We offer
warranties on our products, inservice product evaluations, and we conduct
customer satisfaction surveys.
Most of our major production facilities are approved under ISO 9000, QS 9000
or equivalent quality standards. Also, we have obtained ISO 14001 certification
at eight of our manufacturing plants, including TS16949 certification at three
of these facilities. We have received quality certification from Renault, PSA
Group, BMW, VW/Audi and Fiat and Q1 approval from Ford. In addition, several of
our plants are AQAP approved by the military organizations of different
countries. We have received quality certifications from many Network Power
customers such as NTT and Motorola.
Research and Development
We are committed to developing new and technologically advanced products,
services and systems that provide superior performance and value to our
customers. To support this commitment, we focus significant attention on
developing opportunities across our global businesses.
We have focused our global research and development activities into a
central facility in Europe. Scientists and engineers at this facility are
currently focused on projects to enhance the lead acid battery technology for
the benefit of the entire Company.
In addition, we also operate a number of product and process-development
centers around the world. These centers work cooperatively to define and
improve our product design and production processes.Examples of projects
currently underway include continuous grid making processes, battery assembly
automation and productivity and product improvement programs. By leveraging
this network, we have been able to transfer technologies, product and process
knowledge among our various operating facilities, thereby adapting best
practices from around the world for use throughout the Company.
In addition to our in-house efforts, we are forming alliances and
collaborative partnerships to pursue knowledge developments. One example of
this strategy is the collaborative agreement with Siemens VDO Automotive AG
announced on September 24, 2001 to develop energy-management systems for 14-
and 42-volt automotive electrical and electronic architectures for the global
OEM market. Through this partnership, the companies intend to co-develop and
market products and systems designed to optimize electrical-energy management
in vehicles, such as advanced software and state-of-charge/state-of-health
sensors. Other new vehicle technologies creating demand for 42-volt power
include electric power steering, electromechanical brakes and advanced
electrically-controlled heating and air conditioning systems.
The Company has established similar arrangements with Lear Corporation and
Valeo in the Transportation area.
Patents, Trademarks and Licenses
We own or have a license to use various trademarks that are valuable to our
business. At present we own more than 800 trademarks and license the right to
use fewer than 50 trademarks worldwide. While we believe these trademarks and
trade names enhance the brand recognition of our products and are therefore
important to our business, we do not believe any of these individually are
material to our business. An unaffiliated company has rights to use the
Exide(R) mark in approximately 37 foreign countries and Exide Electronics
Group, Inc., an unaffiliated company, is licensed to use the Exide(R) name on
certain devices. These licenses are not, however, material to the conduct of
our business or results of operations.
We have generated a large number of patents in the operation of our business
and currently own all or a partial interest in more than 800 patents worldwide.
We also have more than 1,000 applications for patents pending. Although we
believe our patents and patent applications collectively are important to our
business and that technological innovation is important to our market
competitiveness, currently no patent individually is material to operation of
the business or its financial condition.
At the present time, the Company is not engaged to any significant extent in
commercialization of its technology or brand names.
Manufacturing, Raw Materials and Suppliers
Lead is the primary material by weight used in the manufacture of lead acid
batteries, representing approximately one-fourth of the cost of goods produced.
We obtain substantially all of our North American lead requirements through the
operation of our six secondary lead recycling plants, which reclaim lead by
recycling spent lead acid batteries. In North America, batteries are obtained
for recycling from our customers and through our Company-owned branch networks.
The Company is party to three supply agreements with Daramic, Inc.
("Daramic") expiring in December 2009 for the purchase of separators, a
critical component of battery manufacturing. The agreements restrict the
Company's ability to source separators from other suppliers and provide for
substantial minimum annual purchase commitments. The Company purchases
substantially all of its separator requirements from Daramic and the Company
does not believe there exists a readily available alternative source or sources
of supply for the volume of separators Daramic provides. As a result, any
substantial disruption in supply from Daramic would likely have a material
adverse impact on the Company. In May 2002, Daramic filed a motion in the
Bankruptcy Court to compel the Company to accept or reject the supply
agreements. Following negotiation with Daramic, the Company agreed to pay
approximately $10 million due with respect to the period prior to the Company's
Chapter 11 filing and, subject to Bankruptcy Court approval, to accept the
contracts with certain agreed upon amendments.
Other key raw materials and components in the production of batteries
include lead oxide, acid, plastics and chemicals, which are generally available
from multiple sources. We have not experienced any material stoppage or
disruption in production as a result of the unavailability, or delays in the
availability, of raw materials.
Motive Power Segment
Exide has the largest market share for motive power products on a global
basis. The Hawker Battery Group acquired in 2001 by EnerSys is number two in
Europe. Other competitors in Europe include Fiamm, Hoppecke, BAE and MIDAC.
Exide ranks second to Enersys in market share in North America. In North
America, the other major competitors are C&D Technologies and East Penn. In
Asia, JSB, Panasonic, Yuasa and Hitachi are the major competitors with Yuasa
being the market leader. In countries such as Brazil, China and India, local
manufacturing is required and Exide is currently serving these markets on a
limited basis through export sales.
Quality, reliability, delivery and price are important differentiators in
the motive power market along with technical innovation and responsive service.
Well-known brands are also important and Exide's Chloride Motive Power, Deta,
GNB, Tudor and Sonnenschein are among the leading brands in the world.
Network Power Segment
EnerSys, following the acquisition of Hawker Battery Group in 2001, has the
largest market share on a global basis with Exide ranking second in the world.
Exide ranks second to C&D Technologies in North America and maintains the
leading share in Europe. In Asia, Yuasa has a market leadership position.
Competition in this segment has intensified given the recent slowdown and
decline in the industry demand for batteries.
Quality, reliability, delivery and price are important differentiators in
the network power market, along with technical innovation and responsive
service. Well-known brands are also important and Exide's Absolyte(R),
Sonnenschein(R), Marathon, Sprinter and Classic are among the leading brands in
The Company is implementing a plant rationalization and overhead reduction
program, as well as lean manufacturing and strategic sourcing initiatives, to
better enable it to respond to the changing market conditions.
The North American and European transportation markets are highly
competitive. The manufacturers in these markets compete primarily on price,
quality, technical innovation, service and warranty. Well-recognized brand
names are also important for aftermarket customers who do not purchase private
label batteries. Most sales are made without long-term contracts.
In the North American Transportation aftermarket, we believe Johnson
Controls has the largest market position, followed by Exide. Other principal
competitors in this market are Delphi Automotive Systems and East
Penn. Price competition in this market has been severe in recent years.
Competition is strongest in the mass merchandiser channel where large customers
use their buying power to command lower prices.
Our largest competitors in the North American OEM market are Delphi
Automotive Systems and Johnson Controls. OEMs change battery suppliers less
frequently than aftermarket customers but, because of their size, can influence
market participants to compete on price and other terms.
Exide has the largest market position in Europe in automotive batteries,
both aftermarket and original equipment. Our next largest single competitor in
the automotive markets is Varta, followed by Fiamm and Hoppecke.
The European battery markets, particularly in the automotive OEM and
industrial areas, have undergone severe price competition.
We expect competition to remain intense. We seek to maintain and grow our
market positions and customer base through strong brands, improved product
performance, quality, customer service and cost reduction.
Environmental, Health and Safety Matters
The Company, particularly as a result of its manufacturing, distribution and
recycling 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 monitoring of
employee health. The Company devotes resources to attaining and maintaining
compliance with environmental and occupational health and safety laws and
regulations and does not currently believe environmental, health or safety
compliance issues will have a material adverse effect on the Company's
business, financial condition or results of operations. The Company believes
that it is in substantial compliance with all material environmental, health
and safety requirements.
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. Also, future
findings or changes in estimates could have a material effect on the recorded
reserves and cash flows.
The Company has been advised by the U.S. Environmental Protection Agency or
state agencies that it is a "Potentially Responsible Party" ("PRP") under the
Comprehensive Environmental Response, Compensation and Liability Act or similar
state laws at 90 federally defined Superfund or state equivalent sites
(including 16 former GNB sites). At 61 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 or insignificant in
relation to the total liability of all PRPs that have been identified and are
financially 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 of waste 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 three Superfund
sites. Other than these sites, the Company's allocation exceeds 5% at seven
sites for which the Company's share of liability has not been paid as of March
31, 2002. The current allocation at these seven sites averages approximately
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.
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 international locations including Europe. 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 that
it is in substantial compliance with all material environmental, health and
safety requirements in each country.
The Company expects that its international 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, 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 March 31,
2002 the amount of such reserves on the Company's consolidated balance sheet
were $70.5 million. Of this amount, $56.3 million was included in other
In the United States, the Company has advised each state and federal
authority with whom we have negotiated plans for environmental investigations
or remediation of the Company's Chapter 11 filing as required by those
agreements or applicable rules. In some cases these authorities may require the
Company to undertake certain agreed remedial activities under a modified
schedule, or may seek to negotiate or require modified remedial activities.
Such requests have been received at several sites and are the subjects of
ongoing discussions. At this time no requests or directives have been received
which, individually or in the aggregate, would alter the Company's reserves or
have a material adverse effect on the Company's business, financial condition
or results of operation.
Total worldwide employment was approximately 17,300 at March 31, 2002,
compared to 20,000 at March, 2001, reflecting the impact of the Company's
ongoing restructuring actions and cost reduction efforts.
North America. As of March 31, 2002, we employed approximately 1,700
salaried employees and approximately 4,700 hourly employees in North America.
Approximately 40% of such salaried employees are engaged in sales, service,
marketing and administration and approximately 60% in manufacturing and
engineering. Approximately 23% of our hourly employees are represented by
unions. Relations with the unions are generally good. Contracts covering
approximately 700 of our union employees expire in fiscal 2003, and the
Europe. As of March 31, 2002, we employed approximately 3,900 salaried
employees and approximately 6,400 hourly employees in Europe. Approximately 75%
of such salaried employees are engaged in sales, service, marketing and
administration and approximately 25% in manufacturing and engineering. Our
hourly employees are generally represented by unions. Relations with the unions
are generally good. Contracts covering most of our European union employees
expire on various dates through calendar year 2002.
Our Network Power and Motive Power order backlog at March 31, 2002 was
approximately $72 million and $12 million, respectively. We expect to fill
virtually all of the March 31, 2002 backlog during fiscal 2003. Our
transportation backlog at March 31, 2002 was not significant.
Financial Information About Foreign and Domestic Operations and Export Sales
See Note 21 to the Company's consolidated financial statements appearing