Exide Reports Third Quarter Fiscal 1999 Results
2 February 1999
Exide Reports Third Quarter Fiscal 1999 Results
READING, Pa., Feb. 1 -- Exide Corporation , the
world's leading manufacturer of lead-acid batteries, today reported fiscal
third-quarter results below the anticipated results announced last month.
This deviation is due solely to a legal decision rendered late last week.
Net sales for the third-quarter, which ended December 27, 1998, were
$678,530,000 as compared to $691,715,000 for the same period in fiscal 1998.
Net income for the quarter was $(45,919,000) or $(2.16) basic earnings per
share as compared to $14,714,000 or $0.71 basic earnings per share a year ago.
Of the 1999 quarterly loss, $(1.20) per share, reflects the adverse
consequences of the company's inability to benefit from its U.S. tax losses.
For the fiscal year to date at the close of the third quarter, net sales
were $1,824,198,000 as compared to $1,734,469,000. Year-to-date net income
was $(49,990,000) or $(2.35) basic earnings per share as compared to
$6,665,000 or $0.32 basic earnings per share a year ago.
Third-quarter results reflect a reduction in operating income of
$56.5 million, the majority of which was explained January 19 in a report on
preliminary third-quarter results.
According to Chief Financial Officer James M. Diasio, an appellate court's
decision rendered January 27, 1999, upholding a lower-court's ruling (in 1995)
on a patent-infringement suit, resulted in a $6.1 million charge which
required recognition in the company's third-quarter results.
"Last month, when we reported expected results for the third-quarter in a
range of $(1.75) to $(1.90), we were not expecting this legal charge," he
reported. "On the basis of outside counsel's advice, we anticipated a
reversal of the lower-court's ruling and therefore are very disappointed by
this decision. Without this charge, we would have been within the predicted
earnings range.
"As we said last month, we anticipated a shortfall in our third-quarter
fiscal 1999 results as compared to last year. A significant portion of the
shortfall was due to decisions we have made on business strategy -- a revised
focus on profitable business, even if it means relinquishing some less-
profitable volume sales -- and certain third quarter events."
Some of the more significant charges for the third quarter, as reported
earlier, included:
Facilities closure -- The decisions to close the Frankfort, IN, and
Memphis, TN, facilities were a direct reflection of the new management
philosophy and resulted in a $6.1 million charge. A change in the lead
market, as well as in the company's long-term lead needs, precipitated the
closure of the Memphis smelter. The move away from a volume- and market-share
based structure brought about the decision to abandon the plan for a
centralized refurbishment center at the former Frankfort battery manufacturing
plant.
Russian operations -- The realities of a rapidly changing -- and
deteriorating -- economic situation in Russia resulted in a $6.9 million
charge. This reflects uncollectible receivables and the write off of
unsaleable inventory specified for the Russian market.
Security battery -- A $3.7 million write off of consisting primarily of
inventory and equipment with no alternative use following the decision to end
development of a security battery.
Bad debts -- An additional write off of $3.7 million for receivables
related primarily to customers going through bankruptcies (for which it has
become probable that such amounts would not be collected).
Severance -- A $6.5 million charge related to the separation packages of
24 executives (primarily reflecting packages for the former
Chairman/President/CEO and executive vice president/President of North
American operations). These executives left during the third quarter.
Interest-rate swap agreements -- As discussed in the second-quarter
Form 10-Q, the company expensed an amendment fee of $6 million which was paid
to the counterparty to its interest-rate swap agreements related to its
10-percent Senior Notes.
In addition to the above items, reduced SLI (starting, lighting and
ignition) volume in Europe and North America resulted in a $3.4 million
shortfall in operating earnings when compared to last year's third-quarter
results. Depressed SLI pricing in Europe, primarily the result of reduced
lead prices driving battery prices downward and unfavorable product mix,
caused another $11.2 million reduction in operating earnings from last year's
figures.
A combination of pricing pressure and lower volume resulted in a
$2.7 million reduction in European industrial battery profitability during the
third-quarter of fiscal 1999 when compared to the same quarter in fiscal 1998.
In the United States, increased legal costs of $1.3 million and writeoffs
of retired machinery and equipment of $1.1 million further contributed to the
third-quarter shortfall in operating results from the prior year.
On a positive note, manufacturing efficiencies attained through the
continuing consolidation and rationalization of European operations produced a
$4.8 million improvement in operating income as compared to the third-quarter
of fiscal 1998.
Spearheading the change in the basic operational strategy of the company
is Robert A. Lutz, who joined Exide December 1, 1998 as Chairman, President
and Chief Executive Officer.
"We are going to look at the world battery market, decide which segments
make the most sense for Exide to pursue and then apply our resources
accordingly," explained Lutz. "And we will not sign customers simply to
enhance our volume or position as the number one battery producer.
"This business strategy may -- on a temporary basis -- adversely affect
our bottom line. These may be difficult decisions, but they will be necessary
to provide the solid foundation to weather changes in our industry as well as
the world's economy."
Lessons learned at Chrysler Corporation, where he had been Vice Chairman
and Chief Operating Officer, prepared Lutz for the type of restructuring
needed at Exide.
Exide Corporation is the world's leading manufacturer of automotive and
industrial lead-acid batteries. Sales exceeded $2.2 billion in fiscal year
1998. The company has operations in 19 countries.
Exide has additional interest in related technologies including battery
chargers, accessories, starters and alternators. Further information about
Exide is available at http://www.exideworld.com.
EXIDE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Amounts in thousands, except share and per-share data)
For the Three Months Ended For the Nine Months Ended
December 27, December 28, December 27, December 28
1998 1997 1998 1997
NET SALES $678,530 $691,715 $1,824,198 $1,734,469
COST OF SALES 514,580 502,000 1,359,060 1,272,100
Gross profit 163,950 189,715 465,138 462,369
OPERATING EXPENSES:
Selling, marketing and
advertising 88,819 79,519 247,364 218,238
General and
administrative 54,266 35,352 127,450 98,385
Goodwill
amortization 6,526 3,977 15,374 12,378
149,611 118,848 390,188 329,001
Operating income 14,339 70,867 74,950 133,368
INTEREST EXPENSE, net 29,747 28,918 83,202 86,016
OTHER EXPENSE, net 12,141 (1,210) 18,102 2,467
Income (loss) before
income taxes, minority
interest and
extraordinary loss (27,549) 43,159 (26,354) 44,885
INCOME TAX EXPENSE 18,477 19,714 23,644 21,240
Income (loss) before
minority interest
and extraordinary
loss (46,026) 23,445 (49,998) 23,645
MINORITY INTEREST (107) 395 (309) (114)
Income (loss) before
extraordinary
loss (45,919) 23,050 (49,689) 23,759
EXTRAORDINARY LOSS
RELATED TO EARLY
RETIREMENT OF DEBT,
net of income tax
benefit of $0 for
the nine months ended
December 27, 1998 and
$2,899 for the three
months and $3,667 for
the nine months ended
December 28, 1997 --- (8,336) (301) (17,094)
Net income
(loss) $(45,919) $14,714 $(49,990) $6,665
BASIC EARNINGS
PER SHARE:
Income (loss)
before extraordinary
loss $(2.16) $1.12 $(2.34) $1.15
Extraordinary loss --- (0.41) (0.01) (0.83)
Net income
(loss) $(2.16) $0.71 $(2.35) $0.32
DILUTED EARNINGS
PER SHARE:
Income (loss) before
extraordinary
loss $(2.16) $1.05 $(2.34) $1.10
Extraordinary loss --- (0.38) (0.01) (0.79)
Net income
(loss) $(2.16) $0.67 $(2.35) $0.31
WEIGHTED AVERAGE
SHARES:
Basic 21,250,997 20,593,115 21,235,248 20,585,076
Diluted 21,250,997 21,891,000 21,235,248 21,606,169