EXIDE TECHNOLOGIES
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2006
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-11263
EXIDE TECHNOLOGIES
(Exact Name of Registrant as Specified in Its Charter)
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| Delaware
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23-0552730 |
| (State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number) |
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| 13000 Deerfield Parkway, Building 200 |
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| Alpharetta, Georgia
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30004 |
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(678) 566-9000
(Registrant’s telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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| Common Stock, $.01 par value
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Warrants to subscribe for Common Stock |
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes
¨ No þ
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 þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K þ
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or
a non-accelerated filer. See definition of “accelerated filer and large accelerated filer in Rule
12b-2 of the Exchange Act. (check one):
Large Accelerated Filer o Accelerated Filer þ Non-Accelerated Filer o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The aggregate market value of common stock held by non-affiliates of the Registrant as of September
30, 2005 was $127,000,000
Indicate by check mark whether the Registrant has filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes þ No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of
the latest practicable date:
As of June 23, 2006, 24,551,008 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive proxy statement relating to the registrant’s Annual Meeting of Stockholders to
be held on August 22, 2006, is incorporated by reference in Part III to the extent described
therein.
EXIDE TECHNOLOGIES
TABLE OF CONTENTS
2
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 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, (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 and (e) statements regarding the ability to obtain amendments under the Company’s debt
agreements.
Factors that could cause actual results to differ materially from these forward looking
statements include, but are not limited to, the following general factors such as: (i) the
Company’s ability to implement and fund based on current liquidity business strategies and
restructuring plans, (ii) unseasonable weather (warm winters and cool summers) which adversely
affects demand for automotive and some industrial batteries, (iii) the Company’s substantial debt
and debt service requirements which may restrict the Company’s operational and financial
flexibility, as well as imposing significant interest and financing costs, (iv) the Company’s
ability to comply with the covenants in its debt agreements or obtain waivers of noncompliance, (v)
the litigation proceedings to which the Company is subject, the results of which could have a
material adverse effect on the Company and its business, (vi) the realization of the tax benefits
of the Company’s net operating loss carry forwards, which is dependent upon future taxable income,
(vii) the fact that lead, a major constituent in most of the Company’s products, experiences
significant fluctuations in market price and is a hazardous material that may give rise to costly
environmental and safety claims, (viii) competitiveness of the battery markets in North America and
Europe, (ix) the substantial management time and financial and other resources needed for the
Company’s consolidation and rationalization of acquired entities, (x) risks involved in foreign
operations such as disruption of markets, changes in import and export laws, currency restrictions,
currency exchange rate fluctuations and possible terrorist attacks against U.S. interests, (xi) the
Company’s exposure to fluctuations in interest rates on its variable debt, (xii) the Company’s
ability to maintain and generate liquidity to meet its operating needs, (xiii) general economic
conditions, (xiv) the ability to acquire goods and services and/or fulfill labor needs at budgeted
costs, (xv) the Company’s reliance on a single supplier for its polyethylene battery separators,
(xvi) the Company’s ability to successfully pass along increased material costs to its customers,
(xvii) the Company’s ability to comply with the provisions of Section 404 of the Sarbanes-Oxley Act
of 2002, (xviii) adverse reactions by creditors, vendors, customers, and others to the
going-concern modification to the Company’s Consolidated Financial Statements included in the
Report of Independent Registered Public Accounting Firm in this report, (xix) the loss of one or
more of the Company’s major customers for its industrial or transportation products, and (xx) the
Company’s ability to consummate a rights offering and private placement of stock as noted below,
including obtaining appropriate shareholder approval.
The Company cautions each reader of this Report to carefully consider those factors
hereinabove set forth. 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.
3
EXIDE TECHNOLOGIES
PART I
Item 1. Business
Overview and General Discussion of the Business
Exide Technologies is a Delaware corporation organized in 1966 to succeed to the business
of a New Jersey corporation founded in 1888. Exide’s principal executive offices are located at
13000 Deerfield Parkway, Building 200, Alpharetta, GA 30004.
The Company is one of the largest manufacturers of lead acid batteries in the world, with
fiscal 2006 net sales of approximately $2.8 billion. The Company’s North American and European and
Rest of World (“ROW”) operations represented approximately 42% and 58%, respectively, of fiscal
2006 net sales. Exide manufactures and supplies lead acid batteries for transportation and
industrial applications worldwide.
Unless otherwise indicated, references to any “fiscal year” refer to the year ended March
31 of that year (e.g., “fiscal 2006” refers to the period beginning April 1, 2005 and ending March
31, 2006, “fiscal 2005” refers to the period beginning April 1, 2004 and ending March 31, 2005, and
“fiscal 2004” refers to the period beginning April 1, 2003 and ending March 31, 2004). Unless the
context indicates otherwise, the “Company,” “Exide,” “we” or “us” refers to Exide Technologies and
its subsidiaries.
Narrative Description of Business
The Company is a global leader in stored electrical energy solutions and one of the
world’s largest manufacturers of lead acid batteries used in transportation, motive power, network
power and military applications. The Company reports its financial results through four principal
business segments: Transportation North America, Transportation Europe and ROW, Industrial Energy
North America, and Industrial Energy Europe and ROW. See Note 21 to the Consolidated Financial
Statements for financial information regarding these segments.
Transportation
Transportation batteries include ignition and lighting batteries for cars, trucks,
off-road vehicles, agricultural and construction vehicles, motorcycles, recreational vehicles,
boats and other applications. The market for transportation batteries is divided between sales to
aftermarket customers and original equipment manufacturers (“OEM”s).
The Company is among the leading suppliers of transportation batteries to the aftermarket
and to the OEM market for a variety of applications. Transportation batteries represented 61% of
the Company’s net sales in fiscal 2006. Aftermarket sales represented approximately 78% of net
sales and OEM sales represented 22% of net sales in the Company’s transportation segments. The
Company’s principal batteries sold in the transportation market are primarily represented by the
following brands: Centra, Champion, Champion Trailblazer, DETA, Exide, Exide NASCAR Select, Exide
Select Orbital, Fulmen, Tudor and private labels. The Company also sells batteries for marine and
recreational vehicles, including the following products:
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• Exide Select Orbital
Marine
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brings all the advantages of the
Company’s patented spiral wound
technology to the marine market, and
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); |
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• Nautilus Gold Dual Purpose
Stowaway Dual Purpose
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a combination battery, replacing separate
starting and deep cycle batteries in
two-battery marine and recreational
vehicle systems; |
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• Nautilus Mega Cycle
Stowaway
Deep Cycle
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a high performance, dual terminal battery; |
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• Stowaway Nautilus
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employs technology to satisfy the power
requirements of large engines,
sophisticated electronics and on-board
accessories; and |
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• Stowaway Powercycler
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a completely sealed, valve regulated
(“VRLA”) battery with absorptive glass
mat (“AGM”) technology and prismatic
plates that offers features and benefits
similar to the Exide Select Orbital, and
was the first sealed, AGM battery
introduced into the marine battery
market. |
Most of the Company’s transportation batteries are vented, maintenance-free lead acid
batteries. However, the Exide Select Orbital and Maxxima batteries have a patented spiral wound
technology and state-of-the-art recombinant design. The
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STR/STE batteries use recombination technology to allow a lead acid battery to be installed in
the passenger compartment of a vehicle with substantially reduced fluid loss and acid fumes under
normal operating conditions.
Aftermarket sales are driven by a number of factors including the number of vehicles in
use, average battery life, average age of vehicles, average miles driven, weather conditions and
population growth. Aftermarket demand historically has been less cyclical than OEM demand due to
the three to five-year replacement cycle. Some of the Company’s major aftermarket customers
include Wal-Mart, NAPA, CSK Inc., ADI and GAUI. In addition, the Company is also a supplier of
authorized replacement batteries for major manufacturers, including John Deere, Renault/Nissan,
Ford and PACCAR.
OEM sales are driven in large part by new vehicle build rates, which are driven by
consumer demand for vehicles. The OEM market is characterized by an increasing preference by OEMs
for suppliers with established global production capabilities that can meet their needs as they
expand internationally and increase platform standardization across multiple markets. The Company
supplies batteries for four of the 10 top-selling vehicles in the United States of America (“U.S.”)
and three of the 10 top-selling vehicles in Europe. Select customers include Ford, Fiat, the PSA
group (Peugeot S.A./Citroën), Case/New Holland, BMW, John Deere, Volkswagen and Toyota.
Transportation North America
In North America, the Company sells aftermarket transportation products through various
distribution channels including mass merchandisers, auto parts outlets, wholesale distributors,
battery specialists, and OEM transportation products through dealer networks. The Company’s North
American operations include a network of 67 branches that sell and distribute batteries and other
products to the Company’s distributor channel network, battery specialists, national account
customers’ retail stores, and OEM dealers. In addition, these branches collect spent batteries for
recycling at the Company’s smelters.
The Company’s North American transportation aftermarket battery products include the
following:
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• Champion
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enhanced power cold cranking amps and a 72 month warranty; |
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• Champion Trailblazer
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targeted at light trucks and sport utility vehicles; |
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• Exide
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enhanced power cold cranking amps and a 72 month warranty; |
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• Exide NASCAR Select
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officially licensed by NASCAR; and |
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• Exide Select
Orbital
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can be recharged in less time than is needed for
conventional batteries, and has high power output andsuperior vibration resistance compared with a
conventional lead acid battery. |
Transportation Europe and ROW
The Company sells aftermarket batteries primarily through battery wholesalers, OEM dealer
networks, hypermarkets, service installers, purchasing groups in Europe and oil companies.
Wholesalers and OEM dealers have traditionally represented the majority of this market, but
supermarket chains, replacement-parts stores (represented by purchasing groups) 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.
In Europe, the Company has five major Company-owned brands: Exide and Tudor, promoted as
pan-European brands, and DETA, Centra and Fulmen, which have strong local awareness levels. In the
European market, the Company generally offers transportation batteries in five categories:
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• Basic
Model
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marketed under private label brand names in France,
Germany and Spain, under the Basic name in Italy and
various names in other markets; |
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• Upgrade Model
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marketed under the Classic mark, which carries a
24-month warranty, and marketed under the Equipe name in
France, the Classic name in Germany, the Leader name in
Italy, the Tudor name in Spain and various other names
in other markets; |
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• Premium Model
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marketed under the Formula name in France, the
Millennium 3 name in Spain, the Top Start Plus name in
Germany, the Ultra name in Italy, the Ultra brand in the
United Kingdom and under various other names in other
markets; |
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• STR/STE
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approved for use by BMW and was included in some models
beginning with the 2000 model year; and |
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• Maxxima
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the equivalent of the Exide Select Orbital. |
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Industrial Energy
The Company’s Industrial Energy segments supply both motive power and network power
applications. Industrial Energy batteries represented 39% of the Company’s net sales in fiscal
2006. Motive power sales represented approximately 59% of net sales and Network Power sales
represented approximately 41% of net sales in the Company’s Industrial Energy segments.
The motive power battery market is divided into the OEM market, comprised of the
manufacturers of electric vehicles, and the replacement market, which includes large users of such
electric vehicles as well as original equipment dealer networks. The Company’s sales are split
approximately equally between OEMs and aftermarket.
Motive power batteries are used in the materials handling industry for forklifts and
electric counter balance trucks, pedestrian pallet trucks, low level order pickers, turret trucks,
tow tractors, reach trucks and very narrow aisle (“VNA”) trucks, as well as in other industries,
including machinery in the floor cleaning market, the golf cart market, the powered wheelchair
market, mining locomotives, electric road vehicles, electric boats and non-military submersible
vehicles. The Company also offers a complete range of battery chargers and associated equipment for
the operation and maintenance of battery-powered vehicles. Motive power batteries have useful lives
lasting an average of five years.
The Company’s motive power batteries are composed of 2-volt cells assembled in numerous
configurations and sizes to provide capacities ranging from 30 Ah to 1500 Ah. Battery construction
for the motive power markets ranges from flooded flat plate and tubular to recombinant AGM and gel.
The Company pioneered the development of recombinant valve regulated lead acid batteries in both
AGM and gel constructions. These batteries provide major advantages to users by eliminating the
need to add water or mix the electrolyte in order to physically maintain the batteries, as well as
by providing flexibility in packaging and transport. The Company’s motive power products also
include systems solutions such as intelligent chargers, automatic watering systems, and fleet
management devices to meet a wide spectrum of customer application requirements.
Network power (also known as standby, stationary, or reserve) batteries are used for
back-up power applications to ensure continuous power supply in case of main (primary) power
failure or outage. Network power batteries are used to provide back-up power for use with
telecommunications systems, computers, hospitals, process control, air traffic control, security
systems, utility, railway and military applications. Telecommunications applications include
central and local switching systems, satellite stations, wireless base stations and mobile
switches, optical fiber repeating boxes, cable TV transmission boxes and radio transmission
stations.
The Company’s network power battery products are generally sold to three principal types
of end users, communications/data, industrial and military, and are used for back-up power
applications. Network power batteries are designed to offer service lives ranging from five to
twenty years depending on construction and application.
There are two primary network power lead acid battery technologies: valve-regulated
(“VRLA”, or sealed) and vented (flooded). There are two types of VRLA technologies—AGM and gel.
These technologies are described as follows:
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Vented (flooded):
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This technology is used in applications requiring
high reliability but with the ability to allow for
regular maintenance. The construction involves
positive flat or tubular positive plates.
Transparent containers and accessible internal
construction are features of these batteries that
allow end users to check the battery’s physical
condition. |
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VRLA / AGM:
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This technology utilizes an electrolyte immobilized
in an absorbent glass mat separator. This
technology, offering higher energy density than
gel, is particularly well adapted to high rate
applications and is designed to offer up to a
20-year service life, depending on environment and
application. |
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VRLA gel:
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This technology utilizes a gel electrolyte. VRLA
batteries have replaced other types of network
power batteries because they can enhance safety and
reduce maintenance compared to vented batteries 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 including heat resistance, deep
discharge resistance, long shelf life and high
cyclic performance. |
The Company’s dominant network power battery brands, Absolyte and Sonnenschein, offer
customers the choice of AGM and gel valve regulated battery technologies and deliver among the
highest energy and power densities in their class. Service and technical assistance are important
to the network power business. The Company often ships network power batteries directly to
equipment manufacturers and systems integrators who include the Company’s batteries in their
original equipment and distribute products to end users.
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The Company offers a global product line which is marketed under the following five
brands associated with product type and technology:
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• Absolyte:
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Large 2-volt cells, incorporating AGM technology, for long duration (e.g.
telecommunications) and short duration applications; |
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• Classic:
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Primarily 2-volt and some multi-cell vented (or flooded) products for a wide range of
applications; |
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• Marathon:
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Single- and multi-cell AGM monobloc batteries for long duration applications; |
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• Sonnenschein:
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Multi-cell monoblocs and 2-volt cells, incorporating gel technology; and |
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• Sprinter:
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Multi-cell AGM monobloc batteries for short duration, high discharge rate applications |
The Company’s major network power battery customers for telecommunications services
include China Mobile, Cingular, Deutsche Telecom, Singapore Telecom, Telecom Italia, Telefonica of
Spain, Verizon Wireless and Vodafone. Major telecommunications OEM customers include Alcatel,
Emerson Electric, Ericsson, Motorola, Nortel, Siemens and Tyco. UPS manufacturing and end user
customers include Liebert and MGE. The Company is the sole supplier to the U.S. Navy for submarine
batteries, as well as a number of major naval fleets in Europe. In addition, the Company supplies
batteries for military vehicles (i.e. tanks and personnel carriers) to the German and other armies.
The Company promotes its products through technical seminars, trade shows and technical literature.
Industrial Energy North America
Motive Power
Motive power products are sold primarily to independent lift truck dealers or directly to
national accounts or end users. The Company’s primary motive power customers in North America
include Crown, Ford, NACCO, Toyota and WalMart. Motive power products and services are distributed
in North America by sales and service locations owned by the Company which are augmented by a
network of independent manufacturers’ representatives who provide local service on their own
behalf.
Network Power
Network power products and services are distributed in North America by sales and service
locations owned by the Company which are augmented by a network of independent manufacturers’
representatives who provide local service on their own behalf. The Company’s primary network power
customers in North America include Cingular, Emerson Electric, Nortel, and the U.S. Navy.
Industrial Energy Europe and ROW
Motive Power
The Company distributes motive power products and services in Europe through in-house
sales and service organizations in each country and utilizes distributors and agents for export of
products from Europe to the rest of the world. Motive power products in Europe are also sold to a
wide range of customers in the aftermarket, ranging from large industrial companies and retail
distributors to small warehouse and manufacturing operations. Motive power batteries are also sold
in complete packages, including batteries, chargers and, with a growing number of customers,
on-site service. The Company’s major OEM motive power customers include the Linde Group, the
Jungheinrich Group and Toyota.
Network Power
The Company distributes network power products and services in Europe through in-house
sales and service organizations in each country. In Australia and New Zealand, batteries and
chargers are distributed through in-house sales and service organizations. In Asia, products are
distributed through independent distributors. The Company utilizes distributors, agents, and direct
sales for export of products from Europe and North America to the rest of the world.
Quality
The Company recognizes that product performance and quality are critical to its success.
Both the EXCELL (Exide’s Customer-focused Excellence Lean Leadership) initiative and the Company’s
Quality Management System are important drivers of operational excellence, which results in
improved levels of quality, productivity, and delivery of goods and services to the global
transportation and industrial energy markets.
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EXCELL
The Company implemented EXCELL to systematically reduce and ultimately eliminate waste
and implement the concepts of continuous flow and customer pull throughout the entire Company’s
supply chain. The EXCELL framework follows lean production techniques and process improvements, and
is also designed to prioritize improvement initiatives that drive quality improvement and customer
satisfaction while achieving all business objectives for the Company. The five plateaus of EXCELL
achievement include Copper, Bronze, Silver, Gold and Platinum; the Platinum level indicates the
threshold beyond world-class quality status where a manufacturing location generates virtually zero
waste through its best practices.
Quality Management System (QMS)
The Company’s QMS was developed to streamline and standardize the global quality systems
so that key measurements could be evaluated to drive best practices as it continues to pursue
improved EXCELL certifications across all facilities. The QMS plays a major role as the Company
strives to achieve world-class product quality.
The Company’s quality process begins in the design phase with an in-depth understanding
of customer and application requirements. The Company’s products are designed to the required
performance and industry and customer quality standards using design processes, tools and materials
to achieve reliability and durability. The Company’s commitment to quality continues through the
manufacturing process. The Company has quality audit processes and standards in each of its
production and distribution facilities. The Company’s quality process extends throughout the entire
product lifecycle and operation in service.
Most of the Company’s major production facilities are approved under ISO 9000, QS 9000 or
TS 16949 quality systems standards. The Company has obtained ISO 14001 Environmental Health &
Safety (“EH&S”) certification at eight of its manufacturing plants and also has received quality
certifications and awards from a number of OEM and aftermarket customers.
Research and Development
The Company is committed to developing new and technologically advanced products,
services and systems that provide superior performance and value to customers. To support this
commitment, the Company focuses on developing opportunities across its global markets.
The Company has focused its global research and development activities into one location
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, the Company also operates a number of product and process-development
centers of excellence around the world. These centers work cooperatively to define and improve the
Company’s product design and production processes. By leveraging this network, the Company is able
to transfer technologies, product and process knowledge among its various operating facilities,
thereby adapting best practices from around the world for use throughout the Company.
In addition to in-house efforts, the Company continues to pursue the formation of
potential alliances and collaborative partnerships to enhance system technology development. One
example of this strategy is a collaborative agreement with Siemens VDO Automotive AG to develop
energy-management systems for automotive electrical and electronic architectures for the global OEM
market. In addition, the Company has various development activities targeted at the industrial and
military markets.
Patents, Trademarks and Licenses
The Company owns or has a license to use various trademarks that are valuable to its
business. The Company believes these trademarks and licenses enhance the brand recognition of the
Company’s products. The Company currently owns approximately 300 trademarks and licenses from
others the right to use fewer than 25 trademarks worldwide. For example, the Company licenses the
NASCAR mark from NASCAR, the Exide mark in the United Kingdom and Ireland from Chloride Group Plc.,
and the CHAMPION mark from Federal Mogul Corporation. The Company also acts as licensor under
certain licenses. For example, Exide Electronics Group, Inc., an unaffiliated company, is licensed
to use the EXIDE mark on certain devices and EnerSys, Inc. is licensed to use the EXIDE mark on
industrial battery products in certain countries, subject to the outcome of the litigation
discussed below. The Company’s current license for CHAMPION expires March 31, 2007 and the license
with NASCAR will expire on December 31, 2011.
8
The Company has generated a number of patents in the operation of its business and
currently owns all or a partial interest in approximately 400 patents and applications for patents
pending worldwide. Although the Company believes its patents and patent applications collectively
are important to the Company’s business, and that technological innovation is important to the
Company’s market competitiveness, currently no patent is individually material to the operation of
the business or the Company’s financial condition.
In March 2003, the Company brought legal proceedings in the Bankruptcy Court to reject
certain agreements relating to EnerSys, Inc.’s right to use the “Exide” trademark on certain
industrial battery products in the United States and 80 foreign countries. In April 2006, the Court
granted the Company’s request to reject those agreements. EnerSys has appealed this decision. For
further information regarding this matter, see Note 15 to the Consolidated Financial Statements.
Manufacturing, Raw Materials and Suppliers
Lead is the primary material used in the manufacture of the Company’s lead acid
batteries, representing approximately one third of the cost of goods produced. The Company obtains
substantially all of its North American lead requirements through the operation of six secondary
lead recycling plants, which reclaim lead by recycling spent lead acid batteries. In North America,
spent batteries are obtained for recycling primarily from the Company’s customers, through the
company-owned branch networks and from outside spent-battery collectors. In Europe, lead
requirements of battery manufacturers, including the Company, are principally obtained from third
party suppliers.
The Company uses both polyethylene and AGM battery separators. There are a number of
suppliers from whom the Company purchases AGM separators. Polyethylene separators are purchased
solely from one supplier, with supply agreements expiring in December 2009. The agreements restrict
the Company’s ability to source separators from other suppliers unless there is a technical benefit
that the Company’s sole supplier cannot provide. In addition, the agreements provide for
substantial minimum annual purchase commitments. There is no second source that could readily
provide the volume of polyethylene separators used by the Company. As a result, any major
disruption in supply from the Company’s sole supplier would have a material adverse impact on the
Company.
Other key raw materials and components in the production of batteries include lead oxide,
acid, steel, plastics and chemicals, which are generally available from multiple sources. The
Company has not experienced any material stoppage or disruption in production as a result of
unavailability, or delays in the availability, of raw materials.
Competition
Transportation Segments
The North American and European transportation markets are highly competitive. The
manufacturers in these markets compete 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, the Company believes it has the second
largest market position. Other principal competitors in this market are Johnson Controls and East
Penn. Price competition in this market has been severe in recent years. Competition is strongest in
the auto parts retail and mass merchandiser channels where large customers use their buying power
to negotiate lower prices.
The largest competitor in the North American transportation OEM market is Johnson
Controls. Due to technical and production qualification requirements, OEMs change battery suppliers
less frequently than aftermarket customers but, because of their purchasing size, can influence
market participants to compete on price and other terms.
The Company has the overall largest market position in Europe in transportation
batteries, ranking first in aftermarket sales and second in sales to OEMs. The Company’s next
largest competitor in the transportation markets is Johnson Controls. The European battery markets,
particularly in the transportation OEM market, have experienced severe price competition. In
addition, the strength of the Euro in the Company’s European markets has resulted in competitive
pricing pressures from Asian imports, negatively impacting average selling prices.
Industrial Energy Segments
Motive Power
The Company is one of the major players in the global motive power battery market.
Competitors in Europe include EnerSys, Hoppecke, BAE and MIDAC. The Company believes it ranks
second to EnerSys in market share in North America, where other major competitors include C&D
Technologies and East Penn. In Asia, GS/Yuasa, Shinkobe and EnerSys are the
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major competitors, with GS/Yuasa being the market leader. The Company currently serves markets
in countries such as Brazil, China, and India on a limited basis through export sales.
Quality, product performance, in-service reliability, delivery and price are important
differentiators in the motive power market. Well-known brands are also important and the Company’s
Chloride Motive Power, DETA, GNB, Sonnenschein and Tudor are among the leading brands in the world.
In addition, the Company has developed a range of low maintenance batteries (the Liberator series)
which are combined with a matched range of Exide-regulated or high frequency chargers which work
together to reduce customers’ operating costs.
Network Power
EnerSys has the largest market share for network power batteries on a global basis with
the Company ranking second in the world.
The Company estimates it ranks third to C&D Technologies and EnerSys in North America and
second to EnerSys in Europe. In Asia, Yuasa has a market leadership position which has been further
strengthened following the merger of Yuasa with Japan Storage Battery, another leading Japanese
battery company. Further consolidation in Japan took place with the merger of National Panasonic
and Shinkobe. Competition for network power batteries has intensified given the decline in industry
demand and overcapacity, resulting in aggressive competition in most industry segments. Emerging
Chinese battery manufacturers are increasing market share.
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 the Company’s Absolyte, Classic, Marathon, Sonnenschein and Sprinter are among the
leading brands in the world.
Environmental, Health and Safety Matters
As a result of its manufacturing, distribution and recycling operations, the Company is
subject to numerous federal, state and local environmental, occupational safety and health laws and
regulations, as well as similar laws and regulations in other countries in which the Company
operates (collectively, “EH&S laws”). For a discussion of the legal proceedings relating to
environmental, health and safety matters see Note 15 to the Consolidated Financial Statements.
Employees
Total worldwide employment was approximately 13,982 at March 31, 2006, compared to
approximately 14,268 at March 31, 2005.
North America
As of March 31, 2006, the Company employed approximately 1,432 salaried employees and
approximately 4,311 hourly employees in North America, primarily in the U.S. Approximately 61% of
such salaried employees are engaged in sales, service, marketing and administration and
approximately 39% in manufacturing and engineering. Approximately 20% of the Company’s North
American hourly employees are represented by unions. Relations with the unions are generally good.
Union contracts covering approximately 591of the Company’s domestic employees expire in fiscal
2007, and the remainder thereafter.
Europe and ROW
As of March 31, 2006, the Company employed approximately 3,062 salaried employees and
approximately 5,177 hourly employees outside of North America, primarily in Europe. Approximately
62% of such salaried employees are engaged in sales, service, marketing and administration and
approximately 38% in manufacturing and engineering. The Company’s hourly employees are generally
represented by unions. The Company meets regularly with the European Works Councils. Relations with
the unions are generally good. Contracts covering most of the Company’s union employees generally
expire on various dates through fiscal 2007.
Backlog
The Company’s order backlog at March 31, 2006 was approximately $53.0 million for
Industrial Energy North America and $101.4 million for Industrial Energy Europe and ROW. The
Company expects to fill all of the March 31, 2006 backlog during fiscal 2007, except for $8.5
million forward orders for military phased for delivery through 2008. The Transportation backlog at
March 31, 2006 was not significant.
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Emergence from Chapter 11 Bankruptcy Protection
On April 15, 2002, Exide Technologies, together with certain of its U.S. subsidiaries,
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”). On November 21, 2002, two additional wholly-owned, non-operating
subsidiaries of Exide filed voluntary petitions for reorganization under Chapter 11 of the
Bankruptcy Code in the Bankruptcy Court. All of the cases were jointly administered for procedural
purposes before the Bankruptcy Court under case number 02-11125KJC.
Exide Technologies and such subsidiaries (the “Debtors”) continued to operate their
businesses and manage their properties as debtors-in-possession throughout the course of the
bankruptcy case. The Debtors, along with the Official Committee of Unsecured Creditors, filed a
Joint Plan of Reorganization (the “Plan”) with the Bankruptcy Court on February 27, 2004 and, on
April 21, 2004, the Bankruptcy Court confirmed the Plan. The Debtors declared May 5, 2004 as the
effective date of the Plan, and substantially consummated the transactions provided for in the Plan
on such date (the “Effective Date”).
The following is a summary of certain transactions which became effective on the
Effective Date pursuant to consummation of the Plan. This summary is qualified in its entirety by
the full text of the Plan, as well as technical amendments to the Plan, which were filed as
Exhibits 2.1 and 2.2 to the Report on Form 8-K filed on May 6, 2004.
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Except to the extent otherwise provided in the Plan, all notes, instruments,
certificates, and other documents evidencing (i) the Company’s 10% senior notes due 2005,
(ii) the Company’s 2.9% convertible notes due 2005, (iii) equity interests in the Debtors,
including, but not limited to, all issued, unissued, authorized or outstanding shares or
stock, together with any warrants, options or contract rights to purchase or acquire such
interests at any time, were canceled, and the obligations of the Debtors thereunder or in
any way related thereto were discharged. |
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The Company was authorized to issue (i) 25 million shares of new common stock, par value
$0.01 per share for distribution in accordance with the Plan, and (ii) warrants initially
exercisable for 6.25 million shares of new common stock (the “Warrants”). Pursuant to the
terms of the Plan, the common stock and Warrants are being distributed as follows: |
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Holders of pre-petition Senior Secured Global Credit Facility claims received,
collectively, 22.5 million shares of new common stock; and |
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Holders of general unsecured claims received, collectively, 2.5 million shares of
new common stock and Warrants to purchase 6.25 million shares of new common stock at
$32.11 per share, with approximately 13.4% of such new common stock and Warrants to be
reserved for distribution for disputed claims under the Plan’s claim reconciliation
and allowance procedures. |
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As claims are evaluated and processed, the Company will object to some claims or
portions thereof, and upward adjustments (to the extent stock and Warrants not previously
distributed remain) or downward adjustments to the reserve will be made pending or
following adjudication of such objections. Predictions regarding the allowance and
classification of claims are inherently difficult to make. With respect to environmental
claims in particular, there is inherent difficulty in assessing the Company’s potential
liability due to the large number of other potentially responsible parties. For example, a
demand for the total cleanup costs of a landfill used by many entities may be asserted by
the government using joint and several liability theories. Although the Company believes
that there is a reasonable basis to believe that it will ultimately be responsible for only
its share of these remediation costs, there can be no assurance that the Company will
prevail on these claims. In addition, the scope of remedial costs or other environmental
injuries are highly variable and estimating these costs involves complex legal, scientific
and technical judgments. Many of the claimants who have filed disputed claims,
particularly environmental and personal injury claims produce little or no proof of fault
on which the Company can assess its potential liability and either specify no determinate
amount of damages or provide little or no basis for the alleged damages. In some cases,
the Company is still seeking additional information needed for claims assessment and
information that is unknown to the Company at the current time may significantly affect the
Company’s assessment regarding the adequacy of the reserve amounts in the future. |
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As general unsecured claims have been allowed in the bankruptcy court, the Company has
distributed approximately one share per $383.00 in allowed claim amount and approximately
one Warrant per $153.00 in allowed claim amount. These rates were established based upon
the assumption that the common stock and Warrants allocated to holders of general
unsecured claims on the effective date of the Plan, including the reserve established for
disputed claims, would be fully distributed so that the recovery rates for all allowed
unsecured claims would comply with the Plan without the need for any redistribution or
supplemental issuance of securities. |
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If the amount of general unsecured claims that is eventually allowed exceeds the amount of
claims anticipated in the setting of the reserve, additional common stock and Warrants
will be issued for the excess claim amounts at the same rates as used for the other
general unsecured claims. If this were to occur, additional common stock would also be
issued to the holders of pre-petition secured claims to maintain the ratio of their
distribution in common stock at nine times the amount of common stock distributed for all
unsecured claims. |
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Holders of administrative claims, claims derived from the Company’s $500 million secured
super priority debtor-in-possession credit agreement and priority tax claims were paid in
full in cash pursuant to the terms of the Plan. |
Available Information
The Company maintains a website on the Internet at www.exide.com. The Company makes available
free of charge through its website, by way of a hyperlink to a third-party Securities Exchange
Commission (“SEC”) filing website, its annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports electronically filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934. Such information is available as
soon as reasonably practicable after it is filed with the SEC. The SEC website (www.sec.gov)
contains reports, proxy and other statements, and other information regarding issuers that file
electronically with the SEC. Also, the public may read and copy any materials the Company files
with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington D.C., 20549.
Information on the operation of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. Additionally, the Company’s Code of Ethics may be accessed within the Investor
Relations section of its website. Amendments and waivers of the Code of Ethics will also be
disclosed within four business days on the website. Information found in the Exide website is not
part of this annual report on Form 10-K or any other report filed with the SEC.
Item 1A. Risk Factors
(in thousands, except per share data)
The
Company has experienced significant increases in raw material prices, particularly lead,
and further changes in the prices of raw materials or in energy costs could have a material adverse
impact on the Company.
Lead is the primary material by weight used in the manufacture of batteries, representing
approximately one-third of the Company’s cost of goods sold. Average lead prices quoted on the
London Metal Exchange (“LME”) have risen dramatically, increasing from $920.00 per metric tonne for
fiscal 2005 to $1,041.00 per metric tonne for fiscal 2006. As of
June 23, 2006, lead prices quoted
on the LME were $927.00 per metric tonne. If the Company is unable to increase the prices of its
products proportionate to the increase in raw material costs, the Company’s gross margins will
decline. The Company cannot provide assurance that it will be able to hedge its lead requirements
at reasonable costs or that the Company will be able to pass on these costs to its customers.
Increases in the Company’s prices could also cause customer demand for the Company’s products to be
reduced and net sales to decline. The rising cost of lead requires the Company to make significant
investments in inventory and accounts receivable, which reduces amounts of cash available for other
purposes, including making payments on its notes and other indebtedness. The Company also consumes
significant amounts of steel and other materials in its manufacturing process and incurs energy
costs in connection with manufacturing and shipping of its products. The market prices of these
materials are also subject to fluctuation, which could further reduce the Company’s available cash.
The going concern modification received from the Company’s independent registered public accounting
firm could cause adverse reactions from the Company’s creditors, vendors, customers and others.
Our financial statements for our fiscal year ended March 31, 2006 contain an audit report from
our independent registered public accounting firm PricewaterhouseCoopers LLP that contains a going concern
modification stating that the uncertainty with respect to our
ability to maintain compliance with our financial covenants through fiscal 2007 raises substantial
doubt about our ability to continue as a going concern. This going concern modification was
based on our suffering recurring losses and negative cash flows from
operations and our inability to comply with one or more of the covenants of our senior secured
credit facility during fiscal 2005 and 2006. There is no assurance that we will be able to meet our
fiscal 2007 business plan and be in compliance with our senior secured credit facility through the
period as of March 31, 2007. This going concern modification could create concerns on the part of
our creditors, vendors, customers and others about whether we will be able to fulfill our
contractual obligations and otherwise continue to operate our business, which could result in a
tightening of our liquidity. The going concern modification could also be perceived negatively by
the capital markets, which could adversely affect the prices of our common stock and our notes as
well as our ability to raise capital.
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The Company is subject to a preliminary SEC inquiry.
The Enforcement Division of the SEC has told the Company that it has commenced a preliminary
inquiry into statements the Company made during fiscal year 2006 about its ability to comply with
fiscal 2005 loan covenants and the going concern qualification in the audit report in the Company’s
Annual report on Form 10-K for fiscal 2005, which the Company filed with the SEC in June 2005. If
the preliminary inquiry results in a formal investigation, it could have a material adverse effect
on the Company’s financial position, results of operations and cash flows.
The Company is subject to fluctuations in exchange rates and other risks associated with its
non-U.S. operations which could adversely affect the Company’s results of operations.
The Company has significant manufacturing operations in, and exports to, several countries
outside the U.S. Approximately 58% of the Company’s net sales for fiscal 2006 were generated in
Europe, Asia and Australia with the vast majority generated in Europe in Euros and British Pounds.
Because such a significant portion of the Company’s operations is based overseas, the Company is
exposed to foreign currency risk, resulting in uncertainty as to future assets and liability
values, and results of operations that are denominated in foreign currencies. The Company invoices
foreign sales and service transactions in local currencies, using actual exchange rates during the
period, and translates these revenues and expenses into U.S. dollars at average monthly exchange
rates. Because a significant portion of the Company’s net sales and expenses are denominated in
foreign currencies, the depreciation of these foreign currencies in relation to the U.S. dollar
could adversely affect the Company’s reported net sales and operating margins. The Company
translates its non-U.S. assets and liabilities into U.S. dollars using current rates as of the
balance sheet date. Therefore, foreign currency depreciation against the U.S. dollar would result
in a decrease of the Company’s net investment in foreign subsidiaries.
In addition, foreign currency depreciation, particularly depreciation of the Euro, would make
it more expensive for the Company’s non-U.S. subsidiaries to purchase certain of the Company’s raw
material commodities that are priced globally in U.S. dollars, such as lead, which is quoted on the
LME in U.S. dollars. The Company does not engage in significant hedging of its foreign currency
exposure and cannot assure that it will be able to hedge its foreign currency exposures at a
reasonable cost.
There are other risks inherent in the Company’s non-U.S. operations, including:
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changes in local economic conditions, including disruption of markets; |
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changes in laws and regulations, including changes in import, export, labor and
environmental laws; |
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exposure to possible expropriation or other government actions; and |
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unsettled political conditions and possible terrorist attacks against American interests. |
These and other factors may have a material adverse effect on the Company’s non-U.S.
operations or on its results of operations and financial condition.
The Company’s liquidity is affected by the seasonality of its business. Warm winters and cool
summers adversely affect the Company.
The Company sells a disproportionate share of its automotive aftermarket batteries during the
fall and early winter. Resellers buy automotive batteries during these periods so they will have
sufficient inventory for cold weather periods. In addition, many of the Company’s industrial
battery customers in Europe do not place their battery orders until the end of the calendar year.
This seasonality increases the Company’s working capital requirements and makes it more sensitive
to fluctuations in the availability of liquidity. Unusually cold winters or hot summers may
accelerate battery failure and increase demand for automotive replacement batteries. Mild winters
and cool summers may have the opposite effect. As a result, if the Company’s sales are reduced by
an unusually warm winter or cool summer, it is not possible for the Company to recover these sales
in later periods. Further, if the Company’s sales are adversely affected by the weather, it cannot
make offsetting cost reductions to protect the Company’s liquidity and gross margins in the
short-term because a large portion of the Company’s manufacturing and distribution costs are fixed.
Decreased demand in the industries in which the Company operates may adversely affect its business.
The Company’s financial performance depends, in part, on conditions in the automotive,
material handling and telecommunications industries, which, in turn, are generally dependent on the
U.S. and global economies. As a result,
13
economic and other factors adversely affecting production by OEMs and their customers’
spending could adversely impact the Company’s business. Relatively modest declines in customer
purchases from the Company could have a significant adverse impact on its profitability because the
Company has substantial fixed production costs. If the Company’s OEM and large aftermarket
customers reduce their inventory levels, and reduce their orders, the Company’s performance would
be significantly adversely impacted. In this environment, the Company cannot predict future
production rates or inventory levels or the underlying economic factors. Continued uncertainty and
unexpected fluctuations may have a significant negative impact on the Company’s business.
The remaining portion of the Company’s battery sales are of aftermarket batteries. The factors
influencing demand for automotive replacement batteries include: (1) the number of vehicles in use;
(2) average battery life; (3) the average age of vehicles and their operating environment; (4)
weather conditions; and (5) population growth and overall economic conditions. Any significant
adverse change in any one of these factors may have a significant negative impact on the Company’s
business.
The loss of the Company’s sole supplier of polyethylene battery separators would have a material
adverse effect on the Company’s business.
The Company relies exclusively on a single supplier to fulfill its needs for polyethylene
battery separators—a critical component to many of the Company’s products. There is no second
source that could readily provide the volume of polyethylene separators used by the Company. As a
result, any major disruption in supply from this supplier would have a material adverse impact on
the Company. If the Company is not able to maintain a good relationship with this supplier, or if
for reasons beyond the Company’s control the supplier’s service were disrupted, the Company’s
business may experience a significant negative impact.
Many of the industries in which the Company operates are cyclical.
The Company’s operating results are affected by the general cyclical pattern of the industries
in which its major customer groups operate. Any decline in the demand for new automobiles, light
trucks, and sport utility vehicles could have a material adverse impact on the financial condition
and results of operations of the Company’s Transportation divisions. A weak capital expenditure
environment in the telecommunications, uninterruptible power systems and electric industrial
forklift truck markets could have a material adverse impact on the financial condition and results
of operations of the Company’s Industrial Energy divisions.
The Company is subject to pricing pressure from its larger customers.
The Company faces significant pricing pressures in all of its business segments from its
larger customers. Because of their purchasing size, the Company’s larger customers can influence
market participants to compete on price and other terms. Such customers also use their buying power
to negotiate lower prices. If the Company is not able to offset pricing reductions resulting from
these pressures by improved operating efficiencies and reduced expenditures, those price reductions
may have an adverse impact on the Company’s business.
The Company faces increasing competition and pricing pressure from other companies in its
industries, and if the Company is unable to compete effectively with these competitors, the
Company’s sales and profitability could be adversely affected.
The Company competes with a number of major domestic and international manufacturers and
distributors of lead acid batteries, as well as a large number of smaller, regional competitors.
Due to excess capacity in some sectors of its industry and consolidation among industrial
purchasers, the Company has been subjected to continual and significant pricing pressures. The
North American, European and Asian lead-acid battery markets are highly competitive. The
manufacturers in these markets compete on price, quality, technical innovation, service and
warranty. In addition, the Company is experiencing heightened competitive pricing pressure as Asian
producers, able to employ labor at significantly lower costs than producers in the U.S. and Western
Europe, expand their export capacity and increase their marketing presence in the Company’s major
markets.
If the Company is not able to develop new products or improve upon its existing products on a
timely basis, the Company’s business and financial condition could be adversely affected.
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The Company believes that its future success depends, in part, on the ability to develop, on a
timely basis, new technologically advanced products or improve on the Company’s existing products
in innovative ways that meet or exceed its competitors’ product offerings. Maintaining the
Company’s market position will require continued investment in research and development and sales
and marketing. Industry standards, customer expectations, or other products may emerge that could
render one or more of the Company’s products less desirable or obsolete. The Company may be
unsuccessful in making the technological advances necessary to develop new products or improve our
existing products to maintain its market position. If any of these events occur, it could cause
decreases in sales and have an adverse effect on the Company’s business and financial condition.
The Company may be adversely affected by the instability and uncertainty in the world financial
markets and the global economy, including the effects of turmoil in the Middle East.
Instability in the world financial markets and the global economy, including (and as a result
of) the turmoil in the Middle East, may create uncertainty in the industries in which the Company
operates, and may adversely affect its business. In addition, terrorist activities may cause
unpredictable or unfavorable economic conditions and could have a material adverse impact on the
Company’s operating results and financial condition.
The Company may be unable to successfully implement its business strategy, which could adversely
affect its results of operations and financial condition.
The Company’s ability to achieve its business and financial objectives is subject to a variety
of factors, many of which are beyond the Company’s control. For example, the Company may not be
successful in increasing its manufacturing and distribution efficiency through productivity,
process improvements and cost reduction initiatives. Further, the Company may not be able to
realize the benefits of these improvements and initiatives within the time frames the Company
currently expects. In addition, we may not be successful in increasing the Company’s percentage of
captive arrangements and spent battery collections or in hedging its lead requirements, leaving it
exposed to fluctuations in the price of lead. Additionally, the Company’s implementation of these
strategies could be delayed due to our limited liquidity. Any failure to successfully implement the
Company’s business strategy could adversely affect results of operations and financial condition,
and could further impair the Company’s ability to make certain strategic capital expenditures and
meet its restructuring objectives.
The Company is subject to costly regulation in relation to environmental, health and safety
matters, which could adversely affect its business and results of operations.
In the manufacture of its products throughout the world, the Company manufactures,
distributes, recycles and otherwise uses large amounts of potentially hazardous materials,
especially lead and acid. As a result, the Company is subject to a substantial number of costly
regulations, including limits on employee blood lead levels. In particular, the Company is required
to comply with increasingly stringent requirements of federal, state and local environmental and
occupational safety and health laws and regulations in the U.S. and other countries, including
those governing emissions to air, discharges to water, noise and odor emissions; the generation,
handling, storage, transportation, treatment and disposal of waste materials; and the cleanup of
contaminated properties and human health and safety. Compliance with these laws and regulations
results in ongoing costs. The Company could also incur substantial costs, including cleanup costs,
fines and civil or criminal sanctions, third party property damage or personal injury claims, or
costs to upgrade or replace existing equipment, as a result of violations of or liabilities under
environmental laws or non-compliance with environmental permits required at its facilities. In
addition, many of the Company’s current and former facilities are located on properties with
histories of industrial or commercial operations. Because some environmental laws can impose
liability for the entire cost of cleanup upon any of the current or former owners or operators,
regardless of fault, the Company could become liable for the cost of investigating or remediating
contamination at these properties if contamination requiring such activities is discovered in the
future. The Company may become obligated to pay material remediation-related costs at its Tampa,
Florida facility in the amount of approximately $12,500 to $20,500, at the Columbus, Georgia
facility in the amount of approximately $6,000 to $9,000 and at the Sonalur, Portugal facility in
the amount of $3,500 to $7,000.
The Company cannot be certain that it has been, or will at all times be, in complete
compliance with all environmental requirements, or that the Company will not incur additional
material costs or liabilities in connection with these requirements in excess of amounts it has
reserved. Private parties, including current or former employees, could bring personal injury or
other claims against the Company due to the presence of, or exposure to, hazardous substances used,
stored or disposed of by it, or contained in its products, especially lead. Environmental
requirements are complex and have tended to become more stringent over time. These requirements or
their enforcement may change in the future in a manner that could have a material adverse effect on
the Company’s business, results of operations and financial condition. The Company has
15
made and will continue to make expenditures to comply with environmental requirements. These
requirements, responsibilities and associated expenses and expenditures, if they continue to
increase, could have a material adverse effect on the Company’s business and results of operations.
While the Company’s costs to defend and settle claims arising under environmental laws in the past
have not been material, the Company cannot provide assurance that this will remain so in the
future.
The EPA or state environmental agencies could take the position that the Company has liability
under environmental laws that were not discharged in bankruptcy. To the extent these authorities
are successful in disputing the pre-petition nature of these claims, the Company could be required
to perform remedial work that has not yet been performed for alleged pre-petition contamination,
which would have a material adverse effect on the Company’s financial condition, cash flows or
results of operations.
The EPA or state environmental agencies could take the position that the Company has liability
under environmental laws that were not discharged in bankruptcy. To the extent these authorities
are successful in disputing the pre-petition nature of these claims, the Company could be required
to perform remedial work that has not yet been performed for alleged pre-petition contamination,
which would have a material adverse effect on the Company’s financial condition, cash flows or
results of operations. The Company has previously been advised by the EPA or state agencies that it
is a “Potentially Responsible Party” under the Comprehensive Environmental Response, Compensation
and Liability Act or similar state laws at 97 federally defined Superfund or state equivalent
sites. At 45 of these sites, the Company has paid its share of liability and believes that it is
probable that its liability for most of the remaining sites will be treated as disputed unsecured
claims under the Company’s Joint Plan of Reorganization under the Plan. However, there can be no
assurance that these matters will be discharged. In addition, the EPA, in the course of negotiating
this pre-petition claim, had notified the Company of the possibility of additional clean-up costs
associated with Hamburg, Pennsylvania properties of approximately $35,000. To date, the EPA has not
made a formal claim for this amount or provided any support for this estimate. To the extent the
EPA or other environmental authorities disputed the pre-petition nature of these claims, the
Company would intend to resist any such effort to evade the bankruptcy law’s intended result, and
believes there are substantial legal defenses to be asserted in that case. However, there can be no
assurance that we would be successful in challenging any such actions.
The Company may be adversely affected by legal proceedings to which the Company is, or may become,
a party.
The Company and its subsidiaries are currently, and may in the future become, subject to legal
proceedings which could adversely affect our results of operations, liquidity and financial
condition. See Note 15 to the Consolidated Financial Statements.
The cost of resolving the Company’s pre-petition disputed claims, including legal and other
professional fees involved in settling or litigating these matters, could have a material adverse
effect on its financial condition, cash flows and results of operations.
At March 31, 2006, there are approximately fourteen hundred pre-petition disputed unsecured
claims on file in the bankruptcy case that remain to be resolved through the Plan’s claims
reconciliation and allowance procedures. The Company established a reserve of common stock and
warrants to purchase common stock for issuance to holders of these disputed unsecured claims as the
claims are allowed by the bankruptcy court. Although these claims are generally resolved through
the issuance of common stock and warrants from the reserve rather than the payment of money, the
process of resolving these claims through settlement or litigation requires considerable Company
resources, including expenditures for legal and professional fees and the attention of Company
personnel. These costs could have a material adverse effect on the Company’s financial condition,
cash flows and results of operations. The Company is unable to predict how the recent declines in
its stock price will impact this process given that its common stock is the currency in which these
claims are resolved. On the one hand, lower stock prices may make some plaintiffs less willing to
litigate but, on the other hand, may make some plaintiffs less willing to settle for less than the
full amount of their claims depending on a variety of factors, including the strength of the
plaintiff’s claims and the size of the plaintiff’s anticipated ultimate award.
The Company’s ability to operate its business effectively could be impaired if the Company fails to
attract and retain experienced key personnel.
The Company’s success depends, in part, on the continued contributions and experience of its
senior officers and other key personnel. Certain of the Company’s senior officers are relatively
new. The fact that certain of the Company’s key senior officers
are recent additions to its staff,
and may not possess knowledge of historical operations,
could adversely affect the operation of the Company’s business. Moreover, if in
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the future the Company loses or suffers an extended interruption in the service of one or more
of its other senior officers or key employees, the Company’s financial condition and operating
results may be adversely affected.
Work stoppages or other labor issues at the Company’s facilities or its customers’ or suppliers’
facilities could adversely affect the Company’s operations.
At March 31, 2006, approximately 20% of the Company’s North American and many of its non-U.S.
employees were unionized. It is likely that a significant portion of the Company’s workforce will
remain unionized for the foreseeable future. It is also possible that the portion of the Company’s
workforce that is unionized may increase in the future. Contracts covering approximately 591 of the
Company’s domestic employees will expire in 2007, and the remainder thereafter. In addition,
contracts covering most of the Company’s union employees in Europe and the rest of the world expire
on various dates through fiscal 2007. Although the Company believes that its relations with
employees are generally good, if conflicts develop between the Company and its employees’ unions in
connection with the renegotiation of these contracts or otherwise, work stoppages or other labor
disputes could result. A work stoppage at one or more of the Company’s plants, or a material
increase in its costs due to unionization activities, may have a material adverse effect on the
Company’s business. Work stoppages at the facilities of the Company’s customers or suppliers may
also negatively affect the Company’s business. If any of the Company’s customers experience a
material work stoppage, that customer may halt or limit the purchase of the Company’s products.
This could require the Company to shut down or significantly reduce production at facilities
relating to those products. Moreover, if any of the Company’s suppliers experience a work stoppage,
the Company’s operations could be adversely affected if an alternative source of supply is not
readily available.
The Company’s substantial indebtedness could adversely affect its financial condition.
The Company has a significant amount of indebtedness. As of March 31, 2006, the Company had
total indebtedness, including capital leases, of approximately $701,004 . The Company’s level of
indebtedness could have significant consequences. For example, it could:
| |
• |
|
limit the Company’s ability to borrow money or sell stock to fund its working
capital, capital expenditures, acquisitions and debt service requirements; |
| |
| |
• |
|
substantially increase the Company’s vulnerability to changes in interest rates,
because a substantial portion of its indebtedness will bear interest at floating rates; |
| |
| |
• |
|
limit the Company’s flexibility in planning for, or reacting to, changes in its
business and future business opportunities; |
| |
| |
• |
|
make the Company more vulnerable to a downturn in its business or in the economy; |
| |
| |
• |
|
place the Company at a disadvantage to some of its competitors, who may be less highly leveraged; and |
| |
| |
• |
|
require a substantial portion of the Company’s cash flow from operations to be used
for debt payments, thereby reducing the availability of its cash flow to fund working
capital, capital expenditures, acquisitions and other general corporate purposes. |
One or a combination of these factors could adversely affect the Company’s financial condition.
Subject to restrictions in the indenture governing the Company’s senior secured notes and
convertible notes and its senior secured credit facility, the Company may incur additional
indebtedness, which could increase the risks associated with its already substantial indebtedness.
Restrictive covenants limit the Company’s ability to operate its business and to pursue its
business strategies, and its failure to comply with these covenants could result in an acceleration
of its indebtedness.
The Company’s senior credit facility and the indenture governing its senior secured notes
contain covenants that restrict its ability to finance future operations or capital needs, to
respond to changing business and economic conditions or to engage in other transactions or business
activities that may be important to its growth strategy or otherwise important to the Company. The
credit agreement and the indenture governing the Company’s senior secured notes restrict, among
other things, the Company’s ability and the ability of its subsidiaries to:
17
| |
• |
|
incur additional indebtedness or enter into sale and leaseback transactions; |
| |
| |
• |
|
pay dividends or make distributions on the Company’s capital stock or certain other
restricted payments or investments; |
| |
| |
• |
|
purchase or redeem stock; |
| |
| |
• |
|
issue stock of the Company’s subsidiaries; |
| |
| |
• |
|
make investments and extend credit; |
| |
| |
• |
|
engage in transactions with affiliates; |
| |
| |
• |
|
transfer and sell assets; |
| |
| |
• |
|
effect a consolidation or merger or sell, transfer, lease or otherwise dispose of
all or substantially all of the Company’s assets; and |
| |
| |
• |
|
create liens on the Company’s assets to secure debt. |
In
addition, the Company’s senior credit facility requires the
Company to maintain minimum consolidated earnings before interest, taxes, depreciation, amortization, and restructuring (“Adjusted
EBITDA”) and minimum leverage ratio of consolidated debt to
Adjusted EBITDA, as well as requiring the Company to repay outstanding
borrowings with portions of the proceeds the Company receives from certain sales of property or
assets and specified future debt offerings. The Company’s ability to comply with these provisions
may be affected by events beyond its control, and it may not be able to meet the financial ratios.
Any breach of the covenants in the Company’s senior secured credit agreement or the indenture
governing its senior secured notes could cause a default under the Company’s senior secured credit
agreement and other debt (including the notes), which would restrict the Company’s ability to
borrow under its credit facility, thereby significantly impacting the Company’s liquidity. If
there were an event of default under any of the Company’s debt instruments that was not cured or
waived, the holders of the defaulted debt could cause all amounts outstanding with respect to the
debt instrument to be due and payable immediately. The Company’s assets and cash flow may not be
sufficient to fully repay borrowings under its outstanding debt instruments if accelerated upon an
event of default. If, as or when required, the Company is unable to repay, refinance or
restructure its indebtedness under, or amend the covenants contained in, its senior credit
facility, the lenders under its senior credit facility could institute foreclosure proceedings
against the assets securing borrowings under the senior credit facility.
The Company’s internal control over financial reporting was not effective as of March 31,
2006.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, and the rules and regulations
promulgated thereunder, our management was required to furnish a report on, and our independent
registered public accounting firm attested to, our internal controls over financial reporting in
our annual report on Form 10-K for the year ending March 31, 2006. In connection with the
preparation of this report, our management assessed the effectiveness of our internal control over
financial reporting as of March 31, 2006, and this assessment
identified several material weaknesses
relating to ineffective controls over accounting for inventories and
investments in affiliates, lack of sufficient resources in accounting
and finance, lack of segregation of duties and
ineffective controls over period-end accounting for income taxes. Because of these material
weaknesses, our management concluded that our internal controls over financial reporting were not
effective as of March 31, 2006, based on the criteria in the
Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. In an effort to
remediate the material weaknesses and other deficiencies, we are currently implementing a number of
changes to our internal control including hiring additional accounting personnel to focus
on ongoing remediation initiatives. However, there can be no assurance that such remediation steps will be
successful, that we will not have significant deficiencies or other material weaknesses in the
future or that, when next evaluated, our management will conclude, and our auditors will determine,
that our internal control over financial reporting is effective. Any failure to implement effective
18
internal
controls could harm our operating results or cause us to fail
to meet our reporting obligations. Inadequate internal controls could also
cause investors to lose confidence in our reported financial information, which could have a
negative effect on the trading price of the notes or our common stock, and may require us to incur
additional costs to improve our internal control system.
The Company’s liquidity position remains constrained. If the Company fails to meet
operations objectives and the shortfall is not replaced through other means, the lack of liquidity
would have a material adverse impact on the Company.
The company’s current liquidity position remains constrained. The Company has an
operational plan that would provide adequate liquidity to fund its operations through the remainder
of the fiscal year. The Company has reduced its planned capital expenditures and planned
restructuring activities in order to provide additional liquidity.
If the Company fails to meet its operations objectives, including working capital reductions,
and if such shortfall is not replaced through proceeds from a rights offering or other means, the
lack of liquidity would have a material adverse impact on the Company’s ability to fund its
operations and financial obligations and cause the Company to evaluate a restructuring of its
obligations.
The
Company has entered into a plea agreement with the U.S. Attorney for
the Southern District of Illinois under which it is required to pay
a fine of $27.5 million over five years. If the Company is unable to
post adequate security for this fine by February 2007 and the U.S.
District Court is unwilling to modify the plea agreement, the Company
could be unable to remain in compliance with its senior credit
facility and senior secured notes, which could have a material
adverse effect on its business and financial condition.
In 2001,
the Company reached a plea agreement with the U.S. Attorney for the
Southern District of Illinois (the “U.S. Attorney”)
resolving an investigation into a scheme by former officers and
certain corporate entities involving fraudulent representations and
promises in connection with the distribution, sale and marketing of
automotive batteries between 1994 and 1997. The Company agreed to
pay a fine of $27.5 million over five-years to five years probation and to
cooperate with the U.S. Attorney in its prosecution of the former
officers. The Company filed for bankruptcy in April 2002 and did not
pay any installments of the criminal fine before or during its
bankruptey proceedings, nor did it pay any installments of the
criminal fine after the Company emerged
from bankruptcy in May 2004. In 2002, the U.S. Attorney filed a claim
against the Company as a general unsecured creditor and on May 31,
2006, the District Court approved a Joint Agreement and Proposed Joint
Resolution of Issues Raised in the Government’s Motion Filed on
November 18, 2005 Regarding the Payment of Criminal Fine and modified
our schedule to pay the $27.5 million fine through quarterly payments
over the next five years, ending in 2011. Under the order, the
Company must provide security in a form acceptable to the court and
to the government by February 26, 2007 for its guarantee of any
remaining unpaid portion of the fine, but may petition the court if
it believes its financial viability would be jeopardized by providing
such security. If the Company is not able to provide security in a
form acceptable to the court and to the government by February 26,
2007 and the district court is unwilling to modify the plea agreement,
then the resulting obligation to provide such security could result
in the inability to maintain compliance with the senior credit
facility and senior secured notes,
which could have a material adverse effect on the Company’s
business and financial condition.
Holders of the Company’s common stock are subject to the risk of dilution of their
investment as the result of the issuance of additional shares of common stock and warrants to
purchase common stock to holders of pre-petition claims to the extent the reserve of common
stock and warrants established to satisfy such claims is insufficient.
Pursuant
to the Company’s 2004 Plan of Reorganization (the
“Plan”), the Company has
established a reserve of common
stock and warrants to purchase common stock for issuance to holders of unsecured
pre-petition disputed claims. To the extent this reserve is insufficient to satisfy these
disputed claims, the Company would be required to issue additional shares of common stock and
warrants, which would result in dilution to holders of its common stock.
The
Company agreed pursuant to the Plan to issue 25,000 shares of common stock and warrants
initially exercisable for 6,250 shares of common stock, distributed as follows:
| |
• |
|
holders of pre-petition secured claims were allocated collectively
22,500 shares of common stock; and |
| |
| |
• |
|
holders of general unsecured claims were allocated collectively 2,500
shares of common stock and warrants to purchase 6,250 shares of common stock at
$32.11 per share, and approximately 13.4% of such new common
stock and warrants were initially reserved for distribution for
disputed claims under the Plan’s claims reconciliation
and allowance procedures. |
Under the claims reconciliation and allowance process set forth in the Plan, the Official
Committee of Unsecured Creditors, in consultation with the Company, established a reserve to
provide for a pro rata distribution of common stock and warrants to holders of disputed claims as
they become allowed. As claims are evaluated and processed, the Company will object to some
claims or portions thereof, and upward adjustments (to the extent stock and warrants not
previously distributed remain) or downward adjustments to the reserve will be made pending or
following adjudication of these objections. Predictions regarding the allowance and
classification of claims are inherently difficult to make. With respect to environmental claims
in particular, there is inherent difficulty in assessing the Company’s potential liability due to
the large number of other potentially responsible parties. For example, a demand for the total
cleanup costs of a landfill used by many entities may be asserted by the government using joint
and several liability theories. Although the Company believes that there is a reasonable basis in
law to believe that the Company will ultimately be responsible for only its share of these
remediation costs, there can be no assurance that the Company will prevail on these claims. In
addition, the scope of remedial costs, or other environmental injuries, are highly variable and
estimating these costs involves complex legal, scientific and technical judgments. Many of the
claimants who have filed disputed claims, particularly environmental and personal injury claims,
produce little or no proof of fault on which the Company can assess its potential liability and
either specify no determinate amount of damages or provide little or no basis for the alleged
damages. In some cases the Company is still seeking additional information needed for claims
assessment and information that is unknown to the Company at the current time may significantly
affect its assessment regarding the adequacy of the reserve amounts in the future.
As general unsecured claims have been allowed in the bankruptcy court, the Company has
distributed common stock at a rate of approximately one share per $383.00 in allowed claim amount
and approximately one warrant per $153.00 in allowed claim amount. These rates were established
based upon the assumption that the stock and warrants allocated to non-noteholder general unsecured
claims on the effective date of the Plan, including the reserve established for disputed
claims, would be fully distributed so that the recovery rates for all allowed unsecured claims would
comply with the Plan without the need for any redistribution or supplemental issuance of
securities. If the amount of non-noteholder general unsecured claims that is eventually allowed
exceeds the amount of claims anticipated in the setting of the reserve, additional common stock and
warrants will be issued for the excess claim amounts at the same rates as used for the other
non-noteholder general unsecured claims. If this were to occur, additional common stock would also
be issued to the holders of pre-petition secured claims to maintain the ratio of their distribution
in common stock at nine times the amount of common stock distributed for all unsecured
claims.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The chart below lists the locations of the Company’s principal facilities. All of the
facilities are owned unless otherwise indicated. Most of the Company’s significant U.S. properties
and some of its European properties secure its financing arrangements. For a description of the
financing arrangements, see “Liquidity and Capital Resources” in Item 7- Management’s Discussion
and Analysis of Financial Condition and Results of Operations. The leases for leased facilities
expire at various dates through 2015.
| |
|
|
|
|
|
|
|
|
| |
|
Approximate |
|
|
|
|
| |
|
Square |
|
|
|
|
| Location |
|
Footage |
|
|
|
Use |
North America: |
|
|
|
|
|
|
|
|
Alpharetta, GA
|
|
|
83,600 |
|
|
(leased)
|
|
Executive Offices |
Aurora, IL
|
|
|
43,200 |
|
|
(leased)
|
|
Executive Offices |
Baton Rouge, LA
|
|
|
176,000 |
|
|
|
|
Secondary Lead Smelting |
Bristol, TN
|
|
|
631,000 |
|
|
|
|
Battery Manufacturing and Distribution Center |
Cannon Hollow, MO
|
|
|
137,000 |
|
|
|
|
Secondary Lead Smelting |
Columbus, GA
|
|
|
330,000 |
|
|
|
|
Industrial Battery Manufacturing and Distribution Center |
Florence, MS
|
|
|
113,000 |
|
|
|
|
Battery Manufacturing |
Florence, MS
|
|
|
95,700 |
|
|
(leased)
|
|
Battery Manufacturing |
Fort Erie, Canada
|
|
|
90,000 |
|
|
|
|
Distribution Center |
Fort Smith, AR
|
|
|
224,000 |
|
|
(leased)
|
|
Industrial Battery Manufacturing and Distribution Center |
Frisco, TX
|
|
|
132,000 |
|
|
|
|
Secondary Lead Smelting |
Kansas City, KS
|
|
|
140,000 |
|
|
|
|
Industrial Battery Manufacturing |
Kansas City, KS
|
|
|
93,800 |
|
|
(leased)
|
|
Distribution Center |
Lampeter, PA
|
|
|
82,000 |
|
|
|
|
Battery Plastics Manufacturing |
Manchester, IA
|
|
|
286,000 |
|
|
|
|
Battery Manufacturing Distribution Center |
Muncie, IN
|
|
|
174,000 |
|
|
|
|
Secondary Lead Smelting |
Reading, PA
|
|
|
125,000 |
|
|
|
|
Secondary Lead Smelting and Polypropylene Reprocessing |
Reading, PA
|
|
|
358,000 |
|
|
|
|
Distribution and Formation Center |
Salina, KS
|
|
|
438,000 |
|
|
|
|
Battery Manufacturing and Distribution Center |
Shreveport, LA (a)
|
|
|
239,000 |
|
|
(leased)
|
|
Battery Manufacturing |
Sumner, WA
|
|
|
85,000 |
|
|
(leased)
|
|
Distribution Center |
Vernon, CA
|
|
|
220,000 |
|
|
|
|
Secondary Lead Smelting |
|
|
|
| (a) |
|
In April of 2006, the Company closed the battery manufacturing plant in Shreveport, LA. |
19
| |
|
|
|
|
|
|
|
|
| |
|
Approximate |
|
|
|
|
| |
|
Square |
|
|
|
|
| Location |
|
Footage |
|
|
|
Use |
Europe and ROW: |
|
|
|
|
|
|
|
|
Adelaide, Australia
|
|
|
436,000 |
|
|
|
|
Automotive Battery Manufacturing and Distribution Center |
Sydney, Australia
|
|
|
700,000 |
|
|
|
|
Industrial Battery Manufacturing and Distribution Center |
Florival, Belgium
|
|
|
228,000 |
|
|
|
|
Transportation Distribution Center and Offices |
Bolton, England
|
|
|
274,000 |
|
|
|
|
Industrial Battery Manufacturing |
Manchester, England
|
|
|
9,600 |
|
|
(leased)
|
|
Executive Offices |
Trafford Park, England
|
|
|
40,100 |
|
|
(leased)
|
|
Charger Manufacturing |
Auxerre, France
|
|
|
341,000 |
|
|
|
|
Automotive Battery Manufacturing |
Gennevilliers, France
|
|
|
60,000 |
|
|
(leased)
|
|
Executive Offices |
Lille, France
|
|
|
630,000 |
|
|
|
|
Industrial Battery Manufacturing |
Peronne, France
|
|
|
106,000 |
|
|
|
|
Plastics Manufacturing |
Bad Lauterberg, Germany
|
|
|
495,190 |
|
|
|
|
Manufacturing, Administrative and Warehouse |
Budingen, Germany
|
|
|
233,062 |
|
|
|
|
Industrial Battery Manufacturing, Distribution and Administration |
Vlaardingen, Holland
|
|
|
118,000 |
|
|
|
|
Industrial Distribution Center and Offices |
Avelino, Italy
|
|
|
86,100 |
|
|
|
|
Plastics Manufacturing |
Canonica d’Adda, Italy
|
|
|
193,800 |
|
|
|
|
Plastics Manufacturing |
Fumane di Valipolicella, Italy
|
|
|
66,600 |
|
|
|
|
Automotive Battery Manufacturing |
Romano Di Lombardia, Italy
|
|
|
312,200 |
|
|
(leased)
|
|
Automotive Battery Manufacturing |
Lower Hutt, New Zealand
|
|
|
90,000 |
|
|
|
|
Automotive Battery Manufacturing |
Petone, New Zealand
|
|
|
24,000 |
|
|
|
|
Secondary Lead Smelting |
Poznan, Poland
|
|
|
698,000 |
|
|
|
|
Automotive Battery Manufacturing |
Castanheira do Riatejo, Portugal
|
|
|
533,400 |
|
|
|
|
Industrial Battery Manufacturing |
Azambuja, Portugal
|
|
|
39,700 |
|
|
|
|
Secondary Lead Smelting and Plastics Manufacturing |
Azuqueca de Henares, Spain
|
|
|
209,100 |
|
|
|
|
Automotive Battery Manufacturing |
San Esteban de Gomez, Spain
|
|
|
62,900 |
|
|
|
|
Secondary Lead Smelting |
La Cartuja, Spain
|
|
|
385,000 |
|
|
|
|
Industrial Battery Manufacturing |
Manzanares, Spain
|
|
|
465,000 |
|
|
|
|
Automotive Battery Manufacturing |
Pontypool, Wales
|
|
|
91,000 |
|
|
(leased)
|
|
Distribution Center |
In addition, the Company also leases sales and distribution outlets in North America,
Europe and Asia.
The Company believes that its facilities are in good operating condition, adequately
maintained, and suitable to meet the Company’s present needs.
Item 3. Legal Proceedings
See Note 15 to the Consolidated Financial Statements, which is hereby incorporated herein by
reference.
Item 4. Submission of Matters to a Vote of Security Holders
None.
20
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Data
Since May 6, 2004, the Company’s common stock and warrants have traded on the NASDAQ
National Market under the symbol “XIDE” and “XIDEW”, respectively. The high and low closing bid
prices for the Company’s common stock and warrants are set forth below.
| |
|
|
|
|
|
|
|
|
| |
|
High |
|
|
Low |
|
Common Stock |
|
|
|
|
|
|
|
|
Fiscal 2005: |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
21.50 |
|
|
$ |
18.43 |
|
Second Quarter |
|
$ |
21.25 |
|
|
$ |
14.80 |
|
Third Quarter |
|
$ |
16.10 |
|
|
$ |
10.30 |
|
Fourth Quarter |
|
$ |
16.12 |
|
|
$ |
12.81 |
|
|
|
|
|
|
|
|
|
|
Fiscal 2006: |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
13.34 |
|
|
$ |
4.32 |
|
Second Quarter |
|
$ |
5.53 |
|
|
$ |
4.24 |
|
Third Quarter |
|
$ |
5.11 |
|
|
$ |
3.45 |
|
Fourth Quarter |
|
$ |
4.20 |
|
|
$ |
2.35 |
|
| |
|
|
|
|
|
|
|
|
| |
|
High |
|
|
Low |
|
Warrants |
|
|
|
|
|
|
|
|
Fiscal 2005: |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
5.72 |
|
|
$ |
3.86 |
|
Second Quarter |
|
$ |
4.65 |
|
|
$ |
2.50 |
|
Third Quarter |
|
$ |
3.06 |
|
|
$ |
1.28 |
|
Fourth Quarter |
|
$ |
2.46 |
|
|
$ |
1.69 |
|
|
|
|
|
|
|
|
|
|
Fiscal 2006: |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
1.85 |
|
|
$ |
0.37 |
|
Second Quarter |
|
$ |
0.81 |
|
|
$ |
0.39 |
|
Third Quarter |
|
$ |
0.54 |
|
|
$ |
0.26 |
|
Fourth Quarter |
|
$ |
0.57 |
|
|
$ |
0.22 |
|
Prior to May 6, 2004, the Company’s old common stock was traded on the over-the-counter
market and quoted on the OTC Bulletin Board under the symbol “EXDTQ”. The old common stock was
cancelled, effective May 5, 2004, pursuant to the Plan.
The Company has not declared or paid dividends on its common stock during fiscal years
2006 and 2005. Covenants in the Company’s Credit Agreement restrict the Company’s ability to pay
cash dividends on capital stock and the Company presently does not intend to pay dividends on its
common stock.
As
of June 23, 2006, the Company had 24,551,008 shares of its
common stock and, 4,881,048 of its
warrants outstanding, with 3,610 and 4,912 holders of record, respectively.
Equity Compensation Plan Information
As of March 31, 2006, the Company maintained stock option and incentive plans under which
employees and non-employee directors could be granted options to purchase shares of the Company’s
common stock or awarded shares of common stock. The following table contains information relating
to such plans as of March 31, 2006.
21
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Number of securities |
|
| |
|
|
|
|
|
Weighted-average |
|
|
remaining available for |
|
| |
|
Number of securities to be |
|
|
exercise price of |
|
|
future issuance under |
|
| |
|
issued upon exercise of |
|
|
outstanding |
|
|
equity compensation |
|
| |
|
outstanding options, |
|
|
options, warrants |
|
|
plans (excluding securities |
|
| Plan category |
|
warrants and rights |
|
|
and rights |
|
|
reflected in column (a)) |
|
| |
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity compensation plans approved by
security holders |
|
|
1,320,000 |
|
|
$ |
8.83 |
|
|
|
1,805,000 |
|
Equity compensation plans not approved by
security holders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,320,000 |
|
|
$ |
8.83 |
|
|
|
1,805,000 |
|
|
|
|
|
|
|
|
|
|
|
Of the
total of 3,125,000 shares of common stock available for issuance under stock option and
incentive plans for employees and non-employee directors, no more
than 850,000 shares may be issued as
restricted shares.
Item 6. Selected Financial Data
(in thousands, except per share data)
The following table sets forth selected financial data for the Company. The reader should read
this information in conjunction with the Company’s Consolidated Financial Statements and Notes
thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
that appear elsewhere in this report. See Note 1 to the Consolidated Financial Statements
regarding the Predecessor Company and the Successor Company.
22
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Successor Company |
|
|
Predecessor Company |
|
| |
|
|
|
|
|
Period From |
|
|
Period from |
|
|
|
|
| |
|
Fiscal |
|
|
May 6, 2004 |
|
|
April 1, 2004 |
|
|
|
|
| |
|
Year Ended |
|
|
to |
|
|
to |
|
|
Fiscal Year Ended |
|
| |
|
2006 |
|
|
March 31, 2005 |
|
|
May 5, 2004 |
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Statement of Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
2,819,876 |
|
|
$ |
2,476,259 |
|
|
$ |
214,607 |
|
|
$ |
2,500,493 |
|
|
$ |
2,361,101 |
|
|
$ |
2,428,550 |
|
Gross profit |
|
|
406,831 |
|
|
|
377,502 |
|
|
|
35,470 |
|
|
|
509,325 |
|
|
|
516,541 |
|
|
|
463,919 |
|
Selling, marketing and advertising
expenses |
|
|
271,059 |
|
|
|
251,085 |
|
|
|
24,504 |
|
|
|
264,753 |
|
|
|
261,299 |
|
|
|
290,957 |
|
General and administrative expenses |
|
|
190,993 |
|
|
|
150,871 |
|
|
|
17,940 |
|
|
|
161,271 |
|
|
|
175,177 |
|
|
|
178,842 |
|
Restructuring and impairment |
|
|
21,714 |
|
|
|
42,479 |
|
|
|
602 |
|
|
|
52,708 |
|
|
|
25,658 |
|
|
|
33,122 |
|
Goodwill impairment charge |
|
|
— |
|
|
|
388,524 |
|
|
|
— |
|
|
|
— |
|
|
|
37,000 |
|
|
|
105,000 |
|
Other (income) expense net |
|
|
3,684 |
|
|
|
(56,898 |
) |
|
|
6,222 |
|
|
|
(40,724 |
) |
|
|
(11,035 |
) |
|
|
24,554 |
|
Interest expense, net |
|
|
69,464 |
|
|
|
42,636 |
|
|
|
8,870 |
|
|
|
99,027 |
|
|
|
105,788 |
|
|
|
136,241 |
|
Loss before reorganization items,
income tax, minority interest and
cumulative effect of change in
accounting principle |
|
|
(150,083 |
) |
|
|
(441,195 |
) |
|
|
(22,668 |
) |
|
|
(27,710 |
) |
|
|
(77,346 |
) |
|
|
(304,797 |
) |
Reorganization items, net |
|
|
6,158 |
|
|
|
11,527 |
|
|
|
18,434 |
|
|
|
67,042 |
|
|
|
36,370 |
|
|
|
— |
|
Fresh start accounting |
|
|
— |
|
|
|
— |
|
|
|
(228,371 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Gain on discharge |
|
|
— |
|
|
|
— |
|
|
|
(1,558,839 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Minority interest |
|
|
529 |
|
|
|
(18 |
) |
|
|
26 |
|
|
|
467 |
|
|
|
200 |
|
|
|
211 |
|
Income taxes |
|
|
15,962 |
|
|
|
14,219 |
|
|
|
(2,482 |
) |
|
|
3,271 |
|
|
|
26,969 |
|
|
|
(1,422 |
) |
Income (Loss) before cumulative
effect of change in accounting
principle |
|
|
(172,732 |
) |
|
|
(466,923 |
) |
|
|
1,748,564 |
|
|
|
(98,490 |
) |
|
|
(140,885 |
) |
|
|
(303,586 |
) |
Cumulative effect of change in
accounting principle (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(15,593 |
) |
|
|
— |
|
|
|
(496 |
) |
Net income (loss) |
|
$ |
(172,732 |
) |
|
$ |
(466,923 |
) |
|
$ |
1,748,564 |
|
|
$ |
(114,083 |
) |
|
$ |
(140,885 |
) |
|
$ |
(304,082 |
) |
Basic and diluted net income (loss)
per share |
|
$ |
(6.91 |
) |
|
$ |
(18.68 |
) |
|
$ |
63.86 |
|
|
$ |
(4.17 |
) |
|
$ |
(5.14 |
) |
|
$ |
(11.35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at period end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital (deficit) (2) |
|
$ |
431,570 |
|
|
$ |
(180,172 |
) |
|
$ |
402,076 |
|
|
$ |
(270,394 |
) |
|
$ |
(15,876 |
) |
|
$ |
(951,866 |
) |
Property, plant and equipment, net |
|
|
685,842 |
|
|
|
799,763 |
|
|
|
826,900 |
|
|
|
543,124 |
|
|
|
533,375 |
|
|
|
530,220 |
|
Total assets |
|
|
2,082,909 |
|
|
|
2,290,780 |
|
|
|
2,729,404 |
|
|
|
2,471,808 |
|
|
|
2,372,691 |
|
|
|
1,915,868 |
|
Total debt |
|
|
701,004 |
|
|
|
653,758 |
|
|
|
547,549 |
|
|
|
1,847,656 |
|
|
|
1,804,903 |
|
|
|
1,413,272 |
|
Total stockholders’ equity (deficit) |
|
|
224,739 |
|
|
|
427,259 |
|
|
|
888,391 |
|
|
|
(769,769 |
) |
|
|
(695,369 |
) |
|
|
(555,742 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities (3) |
|
$ |
(44,348 |
) |
|
$ |
(9,691 |
) |
|
$ |
(7,186 |
) |
|
$ |
40,551 |
|
|
$ |
(239,858 |
) |
|
$ |
(6,665 |
) |
Investing activities |
|
|
(32,817 |
) |
|
|
(44,013 |
) |
|
|
(4,352 |
) |
|
|
(38,411 |
) |
|
|
(39,095 |
) |
|
|
(58,462 |
) |
Financing activities |
|
|
34,646 |
|
|
|
68,925 |
|
|
|
35,168 |
|
|
|
(9,667 |
) |
|
|
278,882 |
|
|
|
73,720 |
|
| |
Capital expenditures |
|
|
58,133 |
|
|
|
69,114 |
|
|
|
7,152 |
|
|
|
65,128 |
|
|
|
45,878 |
|
|
|
61,323 |
|
Cash dividends per share |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.04 |
|
|
|
|
| (1) |
|
The cumulative effect of change in accounting principle in
fiscal 2002 resulted from the adoption of
SFAS 133 on April 1, 2001 and in fiscal 2004 resulted from the adoption of SFAS 143 on April 1, 2003. |
| |
| (2) |
|
Working capital (deficit) is calculated as current assets less current liabilities, which
at March 31, 2005 and March 31, 2002 reflects the reclassification of certain long-term debt
as current. At March 31, 2003 and March 31, 2004, working capital (deficit) excludes
liabilities of the Debtors classified as subject to compromise. |
| |
| (3) |
|
Cash used in operating activities in fiscal 2003 includes the repurchase of uncollected
securitized accounts receivable under the terminated U.S. and European securitization programs
of $117,455 and $124,793, respectively. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(in thousands, except per share data)
Important Matters
On June 13, 2006, the Company was advised by its independent registered public accounting
firm, PricewaterhouseCoopers LLP, that its report on the Company’s Consolidated Financial
Statements as of and for the fiscal year ended March 31, 2006 will contain a going-concern
modification.
On June 28, 2006, the Company entered into a Standby Purchase Agreement with
investors who would backstop a rights offering of common stock by the Company to its shareholders
and purchase additional shares of common stock. Such
23
transactions would provide gross proceeds to
the Company of up to $125,000 before expenses. The closing of such transactions is subject to several conditions,
including shareholder approval (which the Company plans to seek at its annual meeting of
shareholders in August 2006), there being no material adverse effect on the Company’s business and
there not being trading suspensions or other adverse developments in the financial markets.
The following discussion and analysis provides information which management believes is
relevant to an assessment and understanding of the Company’s consolidated results of operation and
financial condition. The discussion should be read in conjunction with the Consolidated Financial
Statements and notes thereto contained in this annual report on Form 10-K. In particular, this
discussion should be read in conjunction with Note 1. “Basis of Presentation” which describe the
filing by Exide Technologies and certain of its subsidiaries of voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code on April 15, 2002 and the
financial restructuring associated with the Company’s emergence from Chapter 11, effective May 5,
2004.
After April 15, 2002, the Debtors operated their businesses and managed their properties as
debtors-in-possession throughout the course of the bankruptcy case. The Debtors, along with the
Official Committee of Unsecured Creditors filed the Plan with the Bankruptcy Court on February 27,
2004 and, on April 21, 2004, the Bankruptcy Court confirmed the Plan. As of the Effective Date, the
Debtors substantially consummated the transactions provided for in the Plan. See Item 1.
“Business—Emergence from Chapter 11 Bankruptcy Protection”, which contains a summary of certain
transactions that became effective on the Effective Date.
The Consolidated Financial Statements contained herein have been prepared in accordance
with Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the
Bankruptcy Code” (“SOP 90-7”). Financial statements for periods subsequent to the Company’s
emergence from Chapter 11 are not comparable with those of prior periods.
Some of the statements contained in the following discussion of the Company’s financial
condition and results of operations refer to future expectations or include other “forward-looking”
information. Those statements are subject to known and unknown risks, uncertainties and other
factors that could cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was derived from
numerous assumptions. See “Cautionary Statement for Purpose of the Safe Harbor Provision of the
Private Securities Litigation Reform Act of 1995,” and Item 1A. “Risk Factors” included in Part I
of this report on Form 10-K for risk factors that should be considered when evaluating
forward-looking information detailed below. These factors could cause actual results to differ
materially from the forward looking statements.
Factors Which Affect the Company’s Financial Performance
Lead and other Raw Materials. Lead represents approximately one-third of the Company’s
cost of goods sold. The market price of lead fluctuates. Generally, when lead prices decrease,
customers may seek disproportionate price reductions from the Company, and when lead prices
increase, customers may resist price increases. Both of these situations may cause customer demand
for the Company’s products to be reduced and the Company’s net sales and gross margins to decline.
The average of the lead prices quoted on the London Metal Exchange (“LME”) have increased from
$920.00 per metric tonne for the fiscal year ended March 31, 2005 to $1,041.00 for the fiscal year
ended March 31, 2006. At June 23, 2006, the quoted price on
the LME was $927.00 per metric tonne.
The Company is also experiencing higher costs for other raw materials, including polypropylene. To
the extent that lead prices continue to be volatile, going up or down, and the Company is unable to pass on these or
other higher material costs to its customers, its financial performance is adversely impacted.
Inversely, as lead prices decrease the Company may not be able
to retain the current pricing as customers seek disproportionate
price reductions.
Energy Costs. The Company relies on various sources of energy to support its
manufacturing and distribution process, principally natural gas at its smelters and diesel fuel for
distribution of its products. The Company seeks to recoup these increased energy costs through
surcharges. To the extent the Company is unable to pass on these higher energy costs to its
customers, its financial performance is adversely impacted.
Competition. The global transportation and industrial energy battery markets, are highly
competitive. In recent years, competition has continued to intensify and is impacting the Company’s
ability to pass along increased prices to keep pace with rising production costs. The effects of
this competition have been exacerbated by excess capacity and fluctuating lead prices as well as
low-priced Asian imports impacting our markets.
Exchange Rates. The Company is exposed to foreign currency risk in most European countries,
principally from fluctuations in the Euro and British Pound. The Company is also exposed, although
to a lesser extent, to foreign currency risk in Australia and the Pacific Rim. Movements of
exchange rates against the U.S. dollar can result in variations in the U.S. dollar value of
non-U.S. sales, expenses, assets and liabilities. In some instances, gains in one currency may be
offset by losses in another. Movements in European currencies impacted the Company’s results for
the periods presented herein. For the fiscal year ended March 31, 2006, approximately 58% of the
Company’s net sales were generated in Europe, Asia, and
24
Australia. Further, approximately 61% of
the Company’s aggregate accounts receivable and inventory as of March 31, 2006 were held by its
European subsidiaries.
Markets. The Company is subject to concentrations of customers and sales in a few geographic
locations and is dependent on customers in certain industries, including the automotive,
communications and data and material handling markets. Economic difficulties experienced in these
markets and geographic locations impact the Company’s financial results.
Seasonality and Weather. The Company sells a disproportionate share of its transportation
aftermarket batteries during the fall and early winter (the Company’s third and fourth fiscal
quarters). Retailers buy automotive batteries during these periods so they will have sufficient
inventory for cold weather periods. In addition, many of the Company’s industrial battery customers
in Europe do not place their battery orders until the end of the calendar year. The impact of
seasonality on sales has the effect of increasing the Company’s working capital requirements and
also makes the Company more sensitive to fluctuations in the availability of liquidity.
Unusually cold winters or hot summers may accelerate battery failure and increase demand for
transportation replacement batteries. Mild winters and cool summers may have the opposite effect.
As a result, if the Company’s sales are reduced by an unusually warm winter or cool summer, it is
not possible for the Company to recover these sales in later periods. Further, if the Company’s
sales are adversely affected by the weather, the Company cannot make offsetting cost reductions to
protect its liquidity and gross margins in the short-term because a large portion of the Company’s
manufacturing and distribution costs are fixed.
Interest Rates. The Company is exposed to fluctuations in interest rates on its variable rate
debt.
Fiscal 2006 Highlights and Outlook
The Company’s reported results continued to be impacted in fiscal 2006 by increases in the
price of lead and other commodity costs that are primary components in the manufacture of batteries
and energy costs used in the manufacturing and distribution of the Company’s products.
In the North American market, the Company obtains the vast majority of its lead requirements
from six Company-owned and operated secondary lead recycling plants. These facilities reclaim lead
by recycling spent lead-acid batteries, which are obtained for recycling from the Company’s
customers and outside spent-battery collectors. This helps the Company in North America control the
cost of its principal raw material as compared to purchasing lead at prevailing market prices.
Similar to the rise in lead prices, however, the cost of spent batteries has also increased. For
fiscal 2006, the average cost of spent batteries has increased approximately 42% versus fiscal
2005. Therefore, the higher market price of lead with respect to North American manufacturing
continues to impact results. The Company continues to take selective pricing actions and attempts
to secure higher captive spent battery return rates to help mitigate these risks.
In Europe, the Company’s lead requirements are mainly obtained from third-party suppliers.
Because of the Company’s exposure to lead market prices in Europe, and based on historical price
increases and apparent volatility in lead prices, the Company has implemented several measures to
offset higher lead prices including selective pricing actions, lead price escalators, lead hedging
and long-term lead supply contracts. In addition, the Company has automatic price escalators with
many OEM customers. The Company currently recycles a small portion of its lead requirements in its
European facilities.
The Company expects that these higher lead and other commodity costs, which affect all
business segments, will continue to put pressure on the Company’s financial performance. However,
the selective pricing actions, lead price escalators in some contracts, lead hedging, long-term
lead supply contracts and fuel surcharges are intended to help mitigate these risks. The
implementation of selective pricing actions and price escalators generally lags the rise in market
prices of lead and other commodities. Both price escalators and fuel surcharges are subject to the
risk of customer acceptance.
In addition to managing the impact of higher lead and other commodity costs on the Company’s
results, the key elements of the Company’s underlying business plans and continued strategies are:
(i) Successful execution and completion of the Company’s ongoing restructuring plans, and
organizational realignment of divisional and corporate functions resulting in further headcount
reductions, principally in selling, general and administrative functions globally.
(ii) Actions to improve the Company’s liquidity and operating cash flow through aggressive
working capital reduction plans, the sales of non-strategic assets and businesses, streamlining
cash management processes, implementing plans to minimize the cash costs of the Company’s
restructuring initiatives and closely managing capital expenditures.
25
(iii) Continuing to reduce costs, improve customer service and satisfaction through enhanced
quality and reduced lead times. The Company is continuing to drive these strategies through its
Take Charge initiative, including a limited engagement with the principal consultant for maximum
transferability of skills and knowledge to ensure sustainability, as well as its EXCELL lean supply
chain initiative, improved and focused supplier procurement initiatives across the Company and
reductions in salaried headcount and discretionary spending.
Critical Accounting Policies and Estimates
The Company’s discussion and analysis of its financial condition and results of
operations are based upon the Company’s Consolidated Financial Statements, which have been prepared
in accordance with accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires the Company to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and the related
disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its
estimates based on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies and estimates affect the
preparation of its Consolidated Financial Statements.
Inventory Reserves. The Company adjusts its inventory carrying value to estimated market
value (when below historical cost basis) based upon assumptions of future demand and market
conditions. If actual market conditions are less favorable than those projected by the Company,
additional inventory write-downs may be required.
Valuation of Long-lived Assets. The Company’s long-lived assets include property, plant
and equipment, and identified intangible assets. Long-lived assets (other than indefinite lived
intangible assets) are depreciated and amortized over their estimated useful lives, and are
reviewed for impairment whenever changes in circumstances indicate the carrying value may not be
recoverable. Indefinite-lived intangible assets are reviewed for impairment on both an annual basis
and whenever changes in circumstances indicate that the carrying value may not be recoverable. The
fair value of indefinite-lived intangible assets are based upon the Company’s estimates of future
cash flows and other factors including discount rates to determine the fair value of the respective
assets. An erosion of future business results in any of the Company’s business units could create
impairment in other long-lived assets and require a significant write down in future periods.
Employee Benefit Plans. The Company’s pension plans and postretirement benefit plans are
accounted for using actuarial valuations required by SFAS No. 87, “Employers’ Accounting for
Pensions (“SFAS 87”)” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other
Than Pensions (“SFAS 106”)”. The Company considers accounting for employee benefit plans critical
because management is required to make significant subjective judgments about a number of actuarial
assumptions, including discount rates, compensation growth, long-term return on plan assets,
retirement, turnover, health care cost trend rates and mortality rates. Depending on the
assumptions and estimates used, the pension and postretirement benefit expense could vary within a
range of outcomes and have a material effect on reported results. In addition, the assumptions can
materially affect accumulated benefit obligations and future cash funding. For a detailed
discussion of the Company’s retirement benefits, see Employee Benefit Plans herein and Note 11 to
the Consolidated Financial Statements.
Deferred Taxes. The Company records valuation allowances to reduce its deferred tax
assets to amounts that are more likely than not to be realized. While the Company has considered
future taxable income and ongoing prudent and feasible tax planning strategies in assessing the
need for valuation allowances, if the Company were to determine that it would be able to realize
deferred tax assets in the future in excess of the Company’s net recorded amount, an adjustment to
the net deferred tax asset would increase income in the period that such determination was made.
Likewise, should the Company determine that it would not be able to realize all or part of its net
deferred tax assets in the future, an adjustment to the net deferred tax asset would decrease
income in the period such determination was made. The Company regularly evaluates the need for
valuation allowances against its deferred tax assets, and currently has full valuation allowances
recorded for deferred tax assets in the U.S., the United Kingdom, France, and several other
countries in Europe and ROW.
Revenue Recognition. The Company records sales when revenue is earned. Shipment terms are
generally FOB shipping point and revenue is recognized when product is shipped to the customer. In
limited cases, terms are FOB destination and in these cases, revenue is recognized when product is
delivered to the customer’s delivery site. The Company records sales net of estimated reserves for
warranties, discounts, customer allowances and returns.
Warranty and Return Allowance. For a majority of the Company’s sales, an up-front
“warranty discount” is provided at the time of sale, after which there is no additional warranty
obligation or customer right-of-return. For the remaining sales on which an up-front discount is
not provided, the Company provides for an allowance for product returns and/or allowances.
26
Based
upon its manufacturing re-work process, the Company believes that the majority of its product
returns are not the result of product defects. Most returns are in fact subsequently sold as
seconds at a reduced price. The Company recognizes warranty discounts and the estimated cost of
product returns as a reduction of sales in the period in which the related revenue is recognized.
The product return estimates are based upon historical trends and claims experience, and include
assessment of the anticipated lag between the date of sale and claim/return date.
Environmental Reserves. The Company is subject to numerous environmental laws and
regulations in all the countries in which it operates. In addition, the Company can be held liable
for investigation and remediation of sites impacted by its past operating activities. The Company
maintains reserves for the cost of addressing these liabilities once they are determined to be both
probable and reasonably estimable. These estimates are determined through a combination of methods,
including outside estimates of likely expense and the Company’s historical experience in the
management of these matters.
Because environmental liabilities are not accrued until a liability is determined to be
probable and reasonably estimable and there is a constructive obligation to remediate, 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 result in either an increase or decrease in the reserves and have a significant
impact on the Company’s liquidity and its results of operations.
Purchase Commitments. The Company has three worldwide supply agreements expiring in
December 2009 to purchase its polyethylene battery separators. The supply agreements were entered
into in fiscal 2000 with Daramic, the party that purchased the Company’s battery separators
manufacturing operation, as a condition of the sale of those operations. At the time of the sale,
the agreements contained minimum annual purchase commitments in excess of the Company’s
requirements. Accordingly, the Company established a reserve, and reduced the gain on sale of the
manufacturing operations, for commitments in excess of the Company’s requirements and for the
contractual purchase prices in excess of market. The Company currently has a reserve for the
incremental purchase requirements over the remaining life of the agreement in excess of the
Company’s projected requirements. Whenever there is a significant change in the Company’s unit
volume outlook based on changes to its business plan, this reserve will be adjusted.
Litigation. The Company has legal contingencies that have a high degree of uncertainty.
When a contingency becomes probable and reasonably estimable, a reserve is established. Numerous
lawsuits have been filed against the Company for which the liabilities are not considered probable
and/or reasonably estimable. Consequently, no reserves have been established for these matters. If
future litigation or the resolution of existing matters result in liability to the Company, such
liability could have a significant impact on the Company’s future results and liquidity.
Recently Issued Accounting Standards. See Note 2 to the Consolidated Financial
Statements for a description of new accounting pronouncements and their impact to the Company.
Results of Operations
The Company reports its results as four business segments: Transportation North America,
Transportation Europe and ROW, Industrial Energy North America, and Industrial Energy Europe and
ROW. The following discussions provide a comparison of the Company’s results of operations for
the fiscal year ended March 31, 2006 with the combined results of its operations and those of the
Predecessor Company on a combined basis for the year ended March 31, 2005, and the results of
operations of the Predecessor Company for the fiscal year ended March 31, 2004. The combined
results of operations for the fiscal year ended March 31, 2005 include the Company’s results of
operations for the period May 6, 2004 to March 31, 2005 combined with the results of operations of
the Predecessor Company for the period April 1, 2004 to May 5, 2004. The combined financial
information for the year ended March 31, 2005 is merely additive and does not give pro forma effect
to the transactions provided for in the plan of reorganization or the application of fresh-start
accounting. As a result of the reorganization and adoption of fresh-start accounting, the
Company’s results of operations after May 5, 2005 are not comparable to the results of operations
of the Predecessor Company for periods prior to May 6, 2005. The discussions with respect to the
years ended March 31, 2005 and 2004 are provided for comparative purposes only, but the value of
such comparisons may be limited. The information in this section should be read in conjunction
with the Consolidated Financial Statements and related notes thereto appearing in Item 8. Financial
Statements and Supplementary Data.
27
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
For the fiscal year ended March 31, 2005 |
|
|
|
|
|
| |
|
Successor Company |
|
|
COMBINED |
|
|
Successor Company |
|
|
Predecessor Company |
|
| |
|
For the fiscal |
|
|
For the fiscal |
|
|
For the Period |
|
|
For the Period |
|
|
For the fiscal |
|
| |
|
year ended |
|
|
year ended |
|
|
May 6, 2004 to |
|
|
April 1, 2004 to |
|
|
year ended |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
March 31, 2005 |
|
|
May 5, 2004 |
|
|
March 31, 2004 |
|
NET SALES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
913,317 |
|
|
$ |
847,571 |
|
|
$ |
772,272 |
|
|
$ |
75,299 |
|
|
$ |
817,710 |
|
Europe & ROW |
|
|
810,894 |
|
|
|
823,165 |
|
|
|
764,238 |
|
|
|
58,927 |
|
|
|
760,512 |
|
Industrial Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
274,976 |
|
|
|
223,008 |
|
|
|
203,815 |
|
|
|
19,193 |
|
|
|
210,572 |
|
Europe & ROW |
|
|
820,689 |
|
|
|
797,122 |
|
|
|
735,934 |
|
|
|
61,188 |
|
|
|
711,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
2,819,876 |
|
|
$ |
2,690,866 |
|
|
$ |
2,476,259 |
|
|
$ |
214,607 |
|
|
$ |
2,500,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
97,092 |
|
|
$ |
112,091 |
|
|
$ |
100,970 |
|
|
$ |
11,121 |
|
|
$ |
146,790 |
|
Europe & ROW |
|
|
102,680 |
|
|
|
114,495 |
|
|
|
106,645 |
|
|
|
7,850 |
|
|
|
159,062 |
|
Industrial Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
53,153 |
|
|
|
49,039 |
|
|
|
44,264 |
|
|
|
4,775 |
|
|
|
47,032 |
|
Europe & ROW |
|
|
153,906 |
|
|
|
137,347 |
|
|
|
125,623 |
|
|
|
11,724 |
|
|
|
156,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
406,831 |
|
|
$ |
412,972 |
|
|
$ |
377,502 |
|
|
$ |
35,470 |
|
|
$ |
509,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
103,172 |
|
|
$ |
216,863 |
|
|
$ |
208,155 |
|
|
$ |
8,708 |
|
|
$ |
83,770 |
|
Europe & ROW |
|
|
78,284 |
|
|
|
219,987 |
|
|
|
212,828 |
|
|
|
7,159 |
|
|
|
83,422 |
|
Industrial Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
44,307 |
|
|
|
68,494 |
|
|
|
65,326 |
|
|
|
3,168 |
|
|
|
32,635 |
|
Europe & ROW |
|
|
114,210 |
|
|
|
233,127 |
|
|
|
223,317 |
|
|
|
9,810 |
|
|
|
152,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses |
|
|
216,941 |
|
|
|
138,364 |
|
|
|
109,071 |
|
|
|
29,293 |
|
|
|
185,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
556,914 |
|
|
$ |
876,835 |
|
|
$ |
818,697 |
|
|
$ |
58,138 |
|
|
$ |
537,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE REORGANIZATION ITEMS,
TAXES, MINORITY INTEREST, AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
($ |
6,080 |
) |
|
($ |
104,772 |
) |
|
($ |
107,185 |
) |
|
$ |
2,413 |
|
|
$ |
63,020 |
|
Europe & ROW |
|
|
24,396 |
|
|
|
(105,492 |
) |
|
|
(106,183 |
) |
|
|
691 |
|
|
|
75,640 |
|
Industrial Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
8,846 |
|
|
|
(19,455 |
) |
|
|
(21,062 |
) |
|
|
1,607 |
|
|
|
14,397 |
|
Europe & ROW |
|
|
39,696 |
|
|
|
(95,780 |
) |
|
|
(97,694 |
) |
|
|
1,914 |
|
|
|
4,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses |
|
|
(216,941 |
) |
|
|
(138,364 |
) |
|
|
(109,071 |
) |
|
|
(29,293 |
) |
|
|
(185,206 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
($ |
150,083 |
) |
|
($ |
463,863 |
) |
|
($ |
441,195 |
) |
|
($ |
22,668 |
) |
|
($ |
27,710 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31, 2006 compared with Fiscal Year Ended March 31, 2005
Overview
Net loss for fiscal 2006 was $172,732 versus fiscal 2005 net income of $1,281,641.
Included in fiscal 2006 consolidated net income were reorganization items of $6,158, restructuring
costs of $21,714, and a charge of $23,837 related to the resolution
of a U.S. Attorney matter (see
Note 15 to the Consolidated Financial Statements for further discussion of this matter). In
addition, in Other (income) expense net currency remeasurement gains (losses) of ($11,280) and
($3,703), primarily on U.S. dollar denominated debt in Europe, were recognized in fiscal 2006 and
2005, respectively. A gain (loss) on revaluation of a foreign currency forward contract of $1,081
and ($13,165) was recognized in fiscal 2006 and 2005 respectively. Gains on revaluation of warrants
of $9,125 and $63,112 were recognized in fiscal 2006 and 2005, respectively. Included in fiscal
2005 consolidated net income were a gain on discharge of liabilities subject to compromise of
$1,558,839, a gain on Fresh Start reporting adjustments of $228,371, and a non cash charge of
$388,524 for goodwill impairment.
28
Net Sales
Net sales were $ 2,819,876 for fiscal 2006 versus $2,690,866 in fiscal 2005. Currency
fluctuations (primarily the weakening of the Euro against the U.S. dollar) negatively impacted net
sales in fiscal 2006 by approximately $53,232. Excluding the currency impact, net sales increased
by approximately $182,242 or 7% as a result of higher volumes, particularly in North America, and
higher average selling prices due to lead and other related pricing actions.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the fiscal |
|
|
For the fiscal |
|
|
INCREASE / (DECREASE) |
|
| |
|
year ended |
|
|
year ended |
|
|
|
|
|
|
Currency |
|
|
Non-Currency |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
TOTAL |
|
|
Related |
|
|
Related |
|
Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
913,317 |
|
|
$ |
847,571 |
|
|
$ |
65,746 |
|
|
|
— |
|
|
$ |
65,746 |
|
Europe & ROW |
|
|
810,894 |
|
|
|
823,165 |
|
|
|
(12,271 |
) |
|
|
(27,721 |
) |
|
|
15,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,724,211 |
|
|
|
1,670,736 |
|
|
|
53,475 |
|
|
|
(27,721 |
) |
|
|
81,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
274,976 |
|
|
|
223,008 |
|
|
|
51,968 |
|
|
|
— |
|
|
|
51,968 |
|
Europe & ROW |
|
|
820,689 |
|
|
|
797,122 |
|
|
|
23,567 |
|
|
|
(25,511 |
) |
|
|
49,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,095,665 |
|
|
|
1,020,130 |
|
|
|
75,535 |
|
|
|
(25,511 |
) |
|
|
101,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
2,819,876 |
|
|
$ |
2,690,866 |
|
|
$ |
129,010 |
|
|
|
($53,232 |
) |
|
$ |
182,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation North America net sales were $913,317 for fiscal 2006 versus $847,571 for
fiscal 2005. Third party lead sales revenues for fiscal 2006 were approximately $ 8,600 higher
than fiscal 2005 due to rising lead prices. Net sales for fiscal 2006 were $65,746 or 7.8% higher
than fiscal 2005 due mainly to an increase in aftermarket volumes in the U.S. and Mexico. The
Company also achieved higher average selling prices which, in part, reflected the pass-through of
cost increases from lead, other materials, and energy. Price increases, however, have lagged
rising costs, resulting in an overall net reduction in margins.
Transportation Europe and ROW net sales were $810,894 for fiscal 2006 versus $823,165 for
fiscal 2005. Net sales, before the unfavorable impact of $27,721 in net foreign exchange rate
fluctuations, were higher by 1.8% mainly due to higher OEM and OES sales. This increase was,
however, substantially offset by lower aftermarket sales.
Industrial Energy North America net sales were $274,976 for fiscal 2006 versus $223,008
for fiscal 2005. Net sales were $51,968 or 23.3% higher due to strong volume growth in both the
motive power and network power markets, particularly in telecommunications, and higher average
selling prices related to lead and other pricing actions.
Industrial Energy Europe and ROW net sales were $820,689 for fiscal 2006 versus $797,122
for fiscal 2005. Net sales, before an unfavorable currency impact of $25,511, increased $49,078 or
6.2% due to higher volumes in the material handling application and telecommunication channels, as
well as higher average selling prices related to lead and other pricing actions. This favorability
was, however, partially offset by competitive pricing pressures in both the original equipment and
aftermarket channels.
Gross Profit
Gross profit was $406,831in fiscal 2006 versus $412,972 in fiscal 2005. Gross margin
decreased to 14.4% in fiscal 2006 from 15.3% in fiscal 2005. Currency negatively impacted gross
profit in fiscal 2006 by approximately $8,409. Gross profit in each of the Company’s business
segments was negatively impacted by higher lead costs (average LME prices were $1,041 dollars per
metric tonne in fiscal 2006 versus $920 dollars per metric tonne in fiscal 2005), and were only
partially recovered by higher average selling prices.
29
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the fiscal year ended |
|
|
For the fiscal year ended |
|
|
|
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
INCREASE / (DECREASE) |
|
| |
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Currency |
|
|
Non-Currency |
|
| |
|
TOTAL |
|
|
Net Sales |
|
|
TOTAL |
|
|
Net Sales |
|
|
TOTAL |
|
|
Related |
|
|
Related |
|
Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
97,092 |
|
|
|
10.6 |
% |
|
$ |
112,091 |
|
|
|
13.2 |
% |
|
($ |
14,999 |
) |
|
|
— |
|
|
($ |
14,999 |
) |
Europe & ROW |
|
|
102,680 |
|
|
|
12.7 |
% |
|
|
114,495 |
|
|
|
13.9 |
% |
|
|
(11,815 |
) |
|
|
(3,683 |
) |
|
($ |
8,132 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199,772 |
|
|
|
11.6 |
% |
|
|
226,586 |
|
|
|
13.6 |
% |
|
|
(26,814 |
) |
|
|
(3,683 |
) |
|
($ |
23,131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
53,153 |
|
|
|
19.3 |
% |
|
|
49,039 |
|
|
|
22.0 |
% |
|
|
4,114 |
|
|
|
— |
|
|
$ |
4,114 |
|
Europe & ROW |
|
|
153,906 |
|
|
|
18.8 |
% |
|
|
137,347 |
|
|
|
17.2 |
% |
|
|
16,559 |
|
|
|
(4,726 |
) |
|
$ |
21,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
207,059 |
|
|
|
18.9 |
% |
|
|
186,386 |
|
|
|
18.3 |
% |
|
|
20,673 |
|
|
|
(4,726 |
) |
|
$ |
25,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
406,831 |
|
|
|
14.4 |
% |
|
$ |
412,972 |
|
|
|
15.3 |
% |
|
($ |
6,141 |
) |
|
($ |
8,409 |
) |
|
$ |
2,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation North America gross profit was $97,092 or 10.6% of net sales in fiscal
2006 versus $112,091 or 13.2% of net sales in fiscal 2005. The decrease in gross margin is
primarily due to increases in costs for lead, other materials, and energy. Our U.S. battery
recycling plants were adversely affected by a tight market for spent batteries as well as increases
in the cost of ancillary materials used in the lead conversion process. The effect of higher lead,
other materials and energy costs was only partially recovered by higher average selling prices.
Additionally, a favorable change in the allocation of lead costs between Transportation North
America and Industrial Energy North America partially offset the negative impact of the lead
increases to the segment by approximately $6,275.
Transportation Europe and ROW gross profit was $102,680 or 12.7% of net sales in fiscal
2006 versus $114,495 or 13.9% of net sales in fiscal 2005. Currency negatively impacted gross
profit during fiscal 2006 by approximately $3,683. The decrease in gross margin was primarily due
to lower sales volumes in the Aftermarket channel combined with higher raw material costs,
partially offset by recoveries through pricing actions. Additionally, benefits of increased
efficiencies resulting from the plant closure in Nanterre, France and other rationalization
projects helped to mitigate the decrease in gross margins versus fiscal 2005.
Industrial Energy North America gross profit was $53,153 or 19.3% of net sales in fiscal
2006 versus $49,039 or 22.0% of net sales in fiscal 2005. The increase in gross profit was
primarily due to higher sales volumes, partially offset by higher lead costs and other commodity
costs not fully recovered through price increases and an unfavorable change of approximately $6,275
in the allocation of lead costs between Transportation North America and Industrial Energy North
America.
Industrial Energy Europe and ROW gross profit was $153,906 or 18.8% of net sales in
fiscal 2006 versus $137,347 or 17.2% of net sales in fiscal 2005. Currency negatively impacted
Industrial Energy Europe and ROW gross profit in fiscal 2006 by approximately $4,726. Gross profit
was positively impacted by higher sales volume, higher average selling prices, and the benefits of
headcount and other cost reduction programs, partially offset by higher lead and other commodity
costs.
Expenses
Expenses were $556,914 in fiscal 2006 versus $876,835 in fiscal 2005. Included in
expenses are restructuring charges of $21,714 in fiscal 2006 and $43,081 in fiscal 2005. Also
included in fiscal 2005 expenses is a charge for goodwill impairment of $388,524. Excluding these
items, expenses were $535,200 and $445,230 in fiscal 2006 and fiscal 2005, respectively. Weaker
foreign currencies favorably impacted expenses by approximately $8,040 in fiscal 2006. The change
in expenses was attributable to the following matters:
| |
(i) |
|
fiscal 2006 and 2005 included a gain (loss) on revaluation of foreign currency forward
contract of $1,081and ($13,165) respectively; |
| |
| |
(ii) |
|
interest, net increased $17,958 principally due to higher interest rates and higher
debt levels; |
| |
| |
(iii) |
|
fiscal 2006 and fiscal 2005 expenses included currency remeasurement losses of $11,280
and $3,703, respectively, included in Other (income) expense, net; |
| |
| |
(iv) |
|
fiscal 2006 and 2005 expenses included a gain on revaluation of Warrants of $9,125 and
$63,112, included in Other (income) expense, net; |
| |
| |
(v) |
|
fiscal 2006 and 2005 expenses included a loss on sale of
assets of $8,044 and $7,649,
included in other (income) expense, net; and |
| |
| |
(vi) |
|
fiscal 2006 expenses included $23,837 for settlement of a U.S. Attorney matter, which
was recorded on a discounted basis as payments will occur over a five year period. See
Note 15 to the Consolidated Financial Statements for further discussion of the U.S.
Attorney matter. |
30
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the fiscal |
|
|
For the fiscal |
|
|
INCREASE / (DECREASE) |
|
| |
|
year ended |
|
|
year ended |
|
|
|
|
|
|
Currency |
|
|
Non-Currency |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
TOTAL |
|
|
Related |
|
|
Related |
|
Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
103,172 |
|
|
$ |
216,863 |
|
|
|
($113,691 |
) |
|
|
— |
|
|
($ |
113,691 |
) |
Europe & ROW |
|
|
78,284 |
|
|
|
219,987 |
|
|
|
(141,703 |
) |
|
|
(2,001 |
) |
|
|
(139,702 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181,456 |
|
|
|
436,850 |
|
|
|
(255,394 |
) |
|
|
(2,001 |
) |
|
|
(253,393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
44,307 |
|
|
|
68,494 |
|
|
|
(24,187 |
) |
|
|
— |
|
|
|
(24,187 |
) |
Europe & ROW |
|
|
114,210 |
|
|
|
233,127 |
|
|
|
(118,917 |
) |
|
|
(3,423 |
) |
|
|
(115,494 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,517 |
|
|
|
301,621 |
|
|
|
(143,104 |
) |
|
|
(3,423 |
) |
|
|
(139,681 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
corporate expenses |
|
|
216,941 |
|
|
|
138,364 |
|
|
|
78,577 |
|
|
|
(2,616 |
) |
|
|
81,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
556,914 |
|
|
$ |
876,835 |
|
|
|
($319,921 |
) |
|
|
($8,040 |
) |
|
($ |
311,881 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation North America expenses were $103,172 in fiscal 2006 versus $216,863 in
fiscal 2005. Expenses in fiscal 2005 were $94,802 before a goodwill impairment charge of $122,061.
The increase in expenses before goodwill impairment was due mainly to higher branch operating
costs, including diesel fuel.
Transportation Europe and ROW expenses were $78,284 in fiscal 2006 versus $219,987 in fiscal
2005. Currency favorably impacted expenses in fiscal 2006 by approximately $2,001. Expenses in
fiscal 2005 were $107,739 before a goodwill impairment charge of $112,248. The decrease in
expenses before goodwill impairment was primarily due to lower selling and marketing costs, lower
headcount, and a general reduction in other administrative expenses.
Industrial Energy North America expenses were $44,307 in fiscal 2006 versus $68,494 in fiscal
2005. Expenses in fiscal 2005 were $31,110 before a goodwill impairment charge of $37,384. The
increase in expenses before goodwill impairment was primarily due to restructuring costs of $10,100
associated with the closure of the Kankakee facility and increased variable selling costs resulting
from a significant increase in net sales.
Industrial Energy Europe and ROW expenses were $114,210 in fiscal 2006 versus $233,127 in
fiscal 2005. Currency favorably impacted expenses in fiscal 2006 by approximately $3,423. Expenses
in fiscal 2005 were $116,296 before a goodwill impairment charge of $116,831. The decrease in
expenses before goodwill impairment was primarily due to lower selling, marketing, advertising,
general and administrative expenses achieved through targeted cost reduction programs, partially
offset by higher restructuring costs.
Unallocated expenses, net, which include shared service and corporate expenses, interest
expense, currency remeasurement losses (gains), and gain on revaluation of Warrants, were $216,941
in fiscal 2006 versus $138,364 in fiscal 2005. Expenses for fiscal 2006 and 2005 included a gain
(loss) on revaluation of foreign currency forward contract of $1,081 and ($13,165) respectively.
Expenses for fiscal 2006 and 2005 expenses included gains on revaluation of Warrants of $9,125 and
$63,112, respectively. Expenses for fiscal 2006 and 2005 included currency remeasurement losses of
$11,280 and $3,703, respectively. Currency favorably impacted unallocated expenses in fiscal 2006
by approximately $2,616. Corporate expenses in fiscal 2006 and 2005
were $146,403 and $133,102,
respectively. The increase was primarily due to $23,837 for the U.S. Attorney matter recorded in
fiscal 2006 discussed above, partially offset by lower general and administrative cost resulting
from the Company’s continued restructuring efforts. Interest expense, net was $69,464 in fiscal
2006 versus $51,506 in fiscal 2005. The increase is principally due to higher outstanding debt and
higher interest rates on the Company’s credit facility.
Income (loss) before reorganization items, income taxes, minority interest and cumulative
effect of change in accounting principle
Income (loss) before reorganization items, income taxes, minority interest and cumulative
effect of change in accounting principle was ($150,083) or (5.3 %) of net sales in fiscal 2006
versus ($463,863) or (17.2%) of net sales in fiscal 2005 due to the items discussed above. Fiscal
2005 included a goodwill impairment charge of $388,524.
31
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the fiscal year ended |
|
|
For the fiscal year ended |
|
|
|
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
|
|
| |
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
INCREASE / |
|
| |
|
TOTAL |
|
|
Net Sales |
|
|
TOTAL |
|
|
Net Sales |
|
|
(DECREASE) |
|
Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
($ |
6,080 |
) |
|
|
(0.7 |
%) |
|
($ |
104,772 |
) |
|
|
(12.4 |
%) |
|
$ |
98,692 |
|
Europe & ROW |
|
|
24,396 |
|
|
|
3.0 |
% |
|
|
(105,492 |
) |
|
|
(12.8 |
%) |
|
|
129,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,316 |
|
|
|
1.1 |
% |
|
|
(210,264 |
) |
|
|
(12.6 |
%) |
|
|
228,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
8,846 |
|
|
|
3.2 |
% |
|
|
(19,455 |
) |
|
|
(8.7 |
%) |
|
|
28,301 |
|
Europe & ROW |
|
|
39,696 |
|
|
|
4.8 |
% |
|
|
(95,780 |
) |
|
|
(12.0 |
%) |
|
|
135,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,542 |
|
|
|
4.4 |
% |
|
|
(115,235 |
) |
|
|
(11.3 |
%) |
|
|
163,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
(216,941 |
) |
|
|
n/a |
|
|
|
(138,364 |
) |
|
|
n/a |
|
|
|
(78,577 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
($ |
150,083 |
) |
|
|
(5.3 |
%) |
|
($ |
463,863 |
) |
|
|
(17.2 |
%) |
|
$ |
313,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
North America income (loss) before reorganization items, income taxes, minority
interest and cumulative effect of change in accounting principle was ($6,080) or (0.7%) of net
sales in fiscal 2006 versus ($104,772), or (12.4%) of net sales in fiscal 2005, due to the items
discussed above. Fiscal 2005 included a goodwill impairment charge of $122,061.
Transportation Europe and ROW income (loss) before reorganization items, income taxes,
minority interest and cumulative effect of change in accounting principle was $24,396, or 3.0% of
net sales in fiscal 2006 versus ($105,492), or (12.8%) of net sales in fiscal 2005, due to the
items discussed above. Fiscal 2005 included a goodwill impairment charge of $112,248.
Industrial Energy North America income (loss) before reorganization items, income taxes,
minority interest and cumulative effect of change in accounting principle was $8,846 or 3.2% of net
sales in fiscal 2006 versus ($19,455), or (8.7%) of net sales in fiscal 2005, due to the items
discussed above. Fiscal 2005 included a goodwill impairment charge of $37,384.
Industrial Energy Europe and ROW income (loss) before reorganization items, income taxes,
minority interest and cumulative effect of change in accounting principle was $39,696, or 4.8% of
net sales in fiscal 2006 versus ($95,780), or (12.0%) of net sales in fiscal 2005, due to the items
discussed above. Fiscal 2005 included a goodwill impairment charge of $116,831.
Reorganization Items
Reorganization items represent amounts the Company incurred as a result of the Chapter 11
filing and are presented separately in the Consolidated Statements of Operations. Reorganization
items for fiscal 2006 and 2005 were $6,158 and $29,961, respectively. These items include
professional fees including financial and legal services, success fees payable to the Company’s
advisors related to Chapter 11 bankruptcy emergence, employee retention costs for key members of
management, income from refund of preference payments made to suppliers prior to the bankruptcy
filing, income associated with rejection of certain executory contracts, costs associated with
directors and officers liability insurance coverage for the Predecessor Company, and interest
income earned as a result of having assumed excess cash balances due to the Chapter 11 filing. See
Note 6 to the Consolidated Financial Statements.
Gain on Discharge of Liabilities Subject to Compromise
For fiscal 2005, the Company recognized a $1,558,839 gain on discharge of liabilities
subject to compromise and recapitalization as a result of transactions contemplated by the Plan.
Fresh Start reporting Adjustments
For fiscal 2005 as a result of the Company’s adoption of Fresh Start reporting, upon
consummation of the Plan on the Effective Date, the Company recorded certain adjustments to assets
and liabilities to reflect their fair values. The Fresh Start adjustments resulted in a gain of
$228,371.
Income Taxes
In fiscal 2006, an income tax provision of $15,962 was recorded on pre-tax income (loss)
of ($156,241). In fiscal 2005, an income tax provision of $11,737 was recorded on pre-tax income
(loss) of $1,293,386. The effective tax rate was 10.2%
32
and 0.9% in fiscal 2006 and 2005, respectively. The effective tax rate for fiscal 2006 and 2005 was impacted by the generation of
income in tax-paying jurisdictions, principally certain countries in Europe, Australia and Canada,
with limited or no offset on a consolidated basis as a result of recognition of valuation
allowances on tax benefits generated from current period losses in the U.S., the United Kingdom and
France. The effective tax rate for fiscal 2006 was impacted by the recognition of $78,334 of
valuation allowances on current year tax benefits generated primarily in the U.S., United Kingdom,
France, and Italy. The effective tax rate for fiscal 2006 was also impacted by the recognition of
$5,897 in valuation allowances on tax benefits generated from prior year losses and certain
deductible temporary differences in Spain based on the Company’s assessment that it is more likely
than not that the related tax benefits will now not be realized. The effective tax rate for fiscal
2005 was impacted by the gain on discharge of liabilities subject to compromise of $1,558,839,
which is exempt from tax in the U.S., the non-taxable gain on Fresh Start reporting adjustments of
$228,371 and the non-deductibility of the $388,524 goodwill impairment charge. The effective tax
rate in fiscal 2005 was also impacted by the recognition of $41,400 primarily in valuation
allowances on tax benefits generated from prior year losses and certain deductible temporary
differences in France and Italy based on the Company’s assessment that it is more likely than not
that the related tax benefits will now not be realized.
Fiscal Year Ended March 31, 2005 compared with Fiscal Year Ended March 31, 2004
Overview
Net income for fiscal 2005 was $1,281,641 versus fiscal 2004 net loss of $114,083.
Included in fiscal 2005 consolidated net income were reorganization items of $29,961, restructuring
costs of $43,081, a non-cash charge of $388,524 for goodwill impairment, an income tax charge of
$11,737 primarily resulting from a change in valuation allowances, gain on discharge of liabilities
subject to compromise of $1,558,839, gain on Warrants of $63,112 and gain on Fresh Start reporting
adjustments of $228,371. Included in fiscal 2004 consolidated net loss were reorganization items in
connection with the bankruptcy of $67,042, restructuring costs of $52,708 and a charge of $15,593
for the cumulative effect of a change in accounting principle. In addition, net currency
remeasurement (losses) gains of ($3,703) and $43,846, primarily on U.S. dollar denominated debt in
Europe, have been recognized in Other (income) expense, net in fiscal 2005 and fiscal 2004,
respectively and a loss on revaluation of a foreign currency forward contract of $13,165 was
recognized in Other (income) expense, net in fiscal 2005.
Net Sales
Net sales were $2,690,866 for fiscal 2005 versus $2,500,493 in fiscal 2004. Currency
positively impacted net sales in fiscal 2005 by approximately $104,000. Net sales were also higher
as a result of lead related and other pricing actions.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the fiscal |
|
|
For the fiscal |
|
|
INCREASE / (DECREASE) |
|
| |
|
year ended |
|
|
year ended |
|
|
|
|
|
|
Currency |
|
|
Non-Currency |
|
| |
|
March 31, 2005 |
|
|
March 31, 2004 |
|
|
TOTAL |
|
|
Related |
|
|
Related |
|
Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
847,571 |
|
|
$ |
817,710 |
|
|
$ |
29,861 |
|
|
|
— |
|
|
$ |
29,861 |
|
Europe & ROW |
|
|
823,165 |
|
|
|
760,512 |
|
|
|
62,653 |
|
|
|
54,000 |
|
|
|
8,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,670,736 |
|
|
|
1,578,222 |
|
|
|
92,514 |
|
|
|
54,000 |
|
|
|
38,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
223,008 |
|
|
|
210,572 |
|
|
|
12,436 |
|
|
|
— |
|
|
|
12,436 |
|
Europe & ROW |
|
|
797,122 |
|
|
|
711,699 |
|
|
|
85,423 |
|
|
|
50,000 |
|
|
|
35,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,020,130 |
|
|
|
922,271 |
|
|
|
97,859 |
|
|
|
50,000 |
|
|
|
47,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
2,690,866 |
|
|
$ |
2,500,493 |
|
|
$ |
190,373 |
|
|
$ |
104,000 |
|
|
$ |
86,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation North America net sales were $847,571 for fiscal 2005 versus $817,710 for
fiscal 2004. Third party lead sales revenues for fiscal 2005 were $19,415 higher than fiscal 2004
due to rising lead prices. Transportation North America net sales also increased due to slightly
higher unit volumes, principally in the original equipment channel and higher average selling
prices from lead related pricing actions.
Transportation Europe and ROW net sales were $823,165 for fiscal 2005 versus $760,512 for
fiscal 2004. Currency positively impacted Transportation net sales in fiscal 2005 by approximately
$54,000. European selling prices for fiscal 2005 were higher than fiscal 2004, primarily from the
effect of lead-related pricing adjustments, partially offset by the impact of lower sales volumes
in both the original equipment and aftermarket channels.
33
Industrial Energy North America net sales were $223,008 for fiscal 2005 versus $210,572
for fiscal 2004. The increase was primarily due to higher material handling application volumes,
lead related pricing actions and the recognition of $2,950 previously deferred income on a customer
agreement under which the Company fulfilled its obligations in fiscal 2005.
Industrial Energy Europe and ROW net sales were $797,122 for fiscal 2005 versus $711,699
for fiscal 2004. Currency positively impacted Industrial Energy Europe and ROW net sales in fiscal
2005 by approximately $50,000. Higher material handling application volumes and higher average
selling prices due to lead related pricing actions were partially offset by lower telecommunication
market volumes and competitive pricing pressures within both the original equipment and aftermarket
channels.
Gross Profit
Gross profit was $412,972 in fiscal 2005 versus $509,325 in fiscal 2004. Gross margin
decreased to 15.3% in fiscal 2005 from 20.4% in fiscal 2004. Currency positively impacted gross
profit in fiscal 2005 by approximately $22,000. Gross profit in each of the Company’s business
segments was negatively impacted by higher lead costs (average LME prices were $920 dollars per
metric tonne in fiscal 2005 versus $611 dollars per metric tonne in fiscal 2004), only partially
being recovered by higher average selling prices.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the fiscal year ended |
|
|
For the fiscal year ended |
|
|
|
|
|
|
|
|
| |
|
March 31, 2005 |
|
|
March 31, 2004 |
|
|
INCREASE / (DECREASE) |
|
| |
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Currency |
|
|
Non-Currency |
|
| |
|
TOTAL |
|
|
Net Sales |
|
|
TOTAL |
|
|
Net Sales |
|
|
TOTAL |
|
|
Related |
|
|
Related |
|
Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
112,091 |
|
|
|
13.2 |
% |
|
$ |
146,790 |
|
|
|
18.0 |
% |
|
($ |
34,699 |
) |
|
|
— |
|
|
($ |
34,699 |
) |
Europe & ROW |
|
|
114,495 |
|
|
|
13.9 |
% |
|
|
159,062 |
|
|
|
20.9 |
% |
|
|
(44,567 |
) |
|
|
11,000 |
|
|
|
(55,567 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226,586 |
|
|
|
13.6 |
% |
|
|
305,852 |
|
|
|
19.4 |
% |
|
|
(79,266 |
) |
|
|
11,000 |
|
|
|
(90,266 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
49,039 |
|
|
|
22.0 |
% |
|
|
47,032 |
|
|
|
22.3 |
% |
|
|
2,007 |
|
|
|
— |
|
|
|
2,007 |
|
Europe & ROW |
|
|
137,347 |
|
|
|
17.2 |
% |
|
|
156,441 |
|
|
|
22.0 |
% |
|
|
(19,094 |
) |
|
|
11,000 |
|
|
|
(30,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,386 |
|
|
|
18.3 |
% |
|
|
203,473 |
|
|
|
22.1 |
% |
|
|
(17,087 |
) |
|
|
11,000 |
|
|
|
(28,087 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
412,972 |
|
|
|
15.3 |
% |
|
$ |
509,325 |
|
|
|
20.4 |
% |
|
($ |
96,353 |
) |
|
$ |
22,000 |
|
|
($ |
118,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation North America gross profit was $112,091 or 13.2% of net sales in fiscal
2005 versus $146,790 or 18.0% of net sales in fiscal 2004. The effect of higher lead costs (only
partially recovered by higher average selling prices), higher depreciation due to Fresh Start
reporting, and the unfavorable effects of products sales mix were partially offset by the impact of
slightly higher sales volumes and higher third party lead sales due to increased lead prices.
Transportation Europe and ROW gross profit was $114,495 or 13.9% of net sales in fiscal
2005 versus $159,062 or 20.9% of net sales in fiscal 2004. Currency positively impacted
Transportation Europe and ROW
gross profit in fiscal 2005 by approximately $11,000. The decrease was primarily due to lower
sales volumes, higher lead costs (only partially recovered through higher selling prices) and
higher depreciation due to Fresh Start reporting.
Industrial Energy North America gross profit was $49,039 or 22.0% of net sales in fiscal
2005 versus $47,032 or 22.3% of net sales in fiscal 2004. Gross profit was higher primarily due to
higher sales volumes, previously deferred income on a customer agreement under which the Company
fulfilled its obligations in the third quarter of fiscal 2005 and the impact of headcount and cost
reduction programs, partially offset by higher lead costs not recovered through price increases and
higher cost of goods sold and depreciation due to Fresh Start reporting.
Industrial Energy Europe and ROW gross profit was $137,347 or 17.2% of net sales in
fiscal 2005 versus $156,441 or 22.0% of net sales in fiscal 2004. Currency positively impacted
Industrial Energy Europe and ROW gross profit in fiscal 2005 by approximately $11,000. Gross profit
was negatively impacted by competitive pricing pressures, higher lead costs not recovered through
price increases, and higher depreciation due to Fresh Start reporting, partially offset by the
impact of higher sales volume and headcount and cost reduction programs, including the full year
benefit of plant closures in Italy and Germany.
Expenses
Expenses were $876,835 in fiscal 2005 versus $537,035 in fiscal 2004. Included in
expenses are restructuring charges of $43,081 in fiscal 2005 and $52,708 in fiscal 2004. Also
included in fiscal 2005 expenses is a charge for goodwill impairment of $388,524. Excluding these
items, expenses were $445,230 and $484,327 in fiscal 2005 and fiscal 2004,
34
respectively. Stronger
foreign currencies unfavorably impacted expenses by approximately $24,500 in fiscal 2005. The
change in expenses was impacted by the following matters:
| |
(i) |
|
fiscal 2005 selling, marketing and advertising costs and general and administration
costs were favorably impacted by the Company’s cost-reduction programs, primarily through
headcount reductions; |
| |
| |
(ii) |
|
fiscal 2004 expenses include a $3,175 gain on the sale of the Company’s European
non-lead battery assets and a $9,309 loss on the sale of receivables under the Company’s
prior securitization facility, included in Other (income) expense, net; |
| |
| |
(iii) |
|
interest, net decreased by $47,521 principally due to the debt discharged under the
Company’s Plan of Reorganization; |
| |
| |
(iv) |
|
fiscal 2005 and fiscal 2004 expenses included currency remeasurement (losses) gains
of ($3,703) and $43,846, respectively, included in Other (income) expense, net; |
| |
| |
(v) |
|
fiscal 2005 expenses included a loss on revaluation of a foreign currency forward
contract of $13,165, included in Other (income) expense, net; |
| |
| |
(vi) |
|
fiscal 2005 expenses included a gain on revaluation of Warrants of $63,112 included
in Other (income) expense, net; and |
| |
| |
(vii) |
|
fiscal 2005 expenses included recognition of $10,807 of insurance recoveries and the
resulting gain from the involuntary conversion of assets related to the interruption of
business due to a fire at an Industrial Energy Europe and ROW manufacturing facility,
included in Other (income) expense, net. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the fiscal |
|
|
For the fiscal |
|
|
INCREASE / (DECREASE) |
|
| |
|
year ended |
|
|
year ended |
|
|
|
|
|
|
Currency |
|
|
Non-Currency |
|
| |
|
March 31, 2005 |
|
|
March 31, 2004 |
|
|
TOTAL |
|
|
Related |
|
|
Related |
|
Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
216,863 |
|
|
$ |
83,770 |
|
|
$ |
133,093 |
|
|
|
— |
|
|
$ |
133,093 |
|
Europe & ROW |
|
|
219,987 |
|
|
|
83,422 |
|
|
|
136,565 |
|
|
|
6,000 |
|
|
|
130,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
436,850 |
|
|
|
167,192 |
|
|
|
269,658 |
|
|
|
6,000 |
|
|
|
263,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
68,494 |
|
|
|
32,635 |
|
|
|
35,859 |
|
|
|
— |
|
|
|
35,859 |
|
Europe & ROW |
|
|
233,127 |
|
|
|
152,002 |
|
|
|
81,125 |
|
|
|
10,700 |
|
|
|
70,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
301,621 |
|
|
|
184,637 |
|
|
|
116,984 |
|
|
|
10,700 |
|
|
|
106,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
corporate expenses |
|
|
138,364 |
|
|
|
185,206 |
|
|
|
(46,842 |
) |
|
|
7,800 |
|
|
|
(54,642 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
876,835 |
|
|
$ |
537,035 |
|
|
$ |
339,800 |
|
|
$ |
24,500 |
|
|
$ |
315,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation North America expenses were $216,863 in fiscal 2005 versus $83,770 in
fiscal 2004. The increase in expenses was primarily due to a goodwill impairment charge of
$122,061, increased fuel costs and higher branch operating costs.
Transportation Europe and ROW expenses were $219,987 in fiscal 2005 versus $83,422 in
fiscal 2004. Currency unfavorably impacted expenses in fiscal 2005 by approximately $6,000. The
increase in expenses was primarily due to a goodwill impairment charge of $112,248, increased
restructuring costs associated with the announced closure of the Nanterre, France facility and
headcount reduction programs and higher fuel and distribution costs.
Industrial Energy North America expenses were $68,494 in fiscal 2005 versus $32,635 in
fiscal 2004. The increase in expenses was primarily due to a goodwill impairment charge of $37,384,
partially offset by the effects of cost-reduction programs, primarily through headcount reductions.
Industrial Energy Europe and ROW expenses were $233,127 in fiscal 2005 versus $152,002 in
fiscal 2004. Currency unfavorably impacted expenses in fiscal 2005 by approximately $10,700. The
increase in expenses was primarily due to a goodwill impairment charge of $116,831, partially
offset by the effects of cost-reduction programs, primarily through headcount reductions, and lower
restructuring costs and the recognition of $10,807 insurance recoveries and the resulting gain from
the involuntary conversion of assets related to the interruption of business due to a fire at one
of the Company’s manufacturing facilities, included in Other (income) expense, net. Fiscal 2004
expenses included a $3,175 gain on the sale of the Company’s European non-lead battery assets.
Unallocated expenses, net, which include shared service and corporate expenses, interest
expense, currency remeasurement losses (gains), losses on sales of receivables and gain on
revaluation of Warrants, were $138,364 in fiscal 2005 versus $185,206 in fiscal 2004. Fiscal 2005
expenses included a loss on revaluation of a foreign currency forward
35
contract of $13,165 and a
gain on revaluation of Warrants of $63,112. Expenses for fiscal 2005 and fiscal 2004 included
currency remeasurement (losses) gains of ($3,703) and $43,846, respectively. Currency unfavorably
impacted unallocated expenses in fiscal 2005 by approximately $7,800. Corporate expenses in fiscal
2005 and fiscal 2004 were $133,102 and $118,765, respectively. The increase was primarily due to
costs associated with Sarbanes Oxley implementation and corporate severance costs, partially offset
by the favorable impact of the Company’s cost reduction programs, primarily through headcount
reductions. Interest expense, net was $51,506 in fiscal 2005 versus $99,027 in fiscal 2004. The
decrease is principally due to the debt discharged under the Company’s Plan of Reorganization.
Income (loss) before reorganization items, income taxes, minority interest and cumulative
effect of change in accounting principle
Income (loss) before reorganization items, income taxes, minority interest and cumulative
effect of change in accounting principle was ($463,863) or (17.2%) of net sales in fiscal 2005
versus ($27,710), or (1.1%) of net sales in fiscal 2004 due to the items discussed above. Fiscal
2005 included a goodwill impairment charge of $388,524.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the fiscal year ended |
|
|
For the fiscal year ended |
|
|
|
|
| |
|
March 31, 2005 |
|
|
March 31, 2004 |
|
|
|
|
| |
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
|
INCREASE / |
|
| |
|
TOTAL |
|
|
Net Sales |
|
|
TOTAL |
|
|
Net Sales |
|
|
(DECREASE) |
|
Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
($ |
104,772 |
) |
|
|
(12.4 |
%) |
|
$ |
63,020 |
|
|
|
7.7 |
% |
|
($ |
167,792 |
) |
Europe & ROW |
|
|
(105,492 |
) |
|
|
(12.8 |
%) |
|
|
75,640 |
|
|
|
9.9 |
% |
|
|
(181,132 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(210,264 |
) |
|
|
(12.6 |
%) |
|
|
138,660 |
|
|
|
8.8 |
% |
|
|
(348,924 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
(19,455 |
) |
|
|
(8.7 |
%) |
|
|
14,397 |
|
|
|
6.8 |
% |
|
|
(33,852 |
) |
Europe & ROW |
|
|
(95,780 |
) |
|
|
(12.0 |
%) |
|
|
4,439 |
|
|
|
0.6 |
% |
|
|
(100,219 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(115,235 |
) |
|
|
(11.3 |
%) |
|
|
18,836 |
|
|
|
2.0 |
% |
|
|
(134,071 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
(138,364 |
) |
|
|
n/a |
|
|
|
(185,206 |
) |
|
|
n/a |
|
|
|
46,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
($ |
463,863 |
) |
|
|
(17.2 |
%) |
|
($ |
27,710 |
) |
|
|
(1.1 |
%) |
|
($ |
436,153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation North America income (loss) before reorganization items, income taxes,
minority interest and cumulative effect of change in accounting principle was ($104,772), or
(12.4%) of net sales in fiscal 2005 versus $63,020, or 7.7% of net sales in fiscal 2004, due to the
items discussed above. Fiscal 2005 included a goodwill impairment charge of $122,061.
Transportation Europe and ROW income (loss) before reorganization items, income taxes,
minority interest and cumulative effect of change in accounting principle was ($105,492), or
(12.8%) of net sales in fiscal 2005 versus $75,640, or 9.9% of net sales in fiscal 2004, due to the
items discussed above. Fiscal 2005 included a goodwill impairment charge of $112,248.
Industrial Energy North America income (loss) before reorganization items, income taxes,
minority interest and cumulative effect of change in accounting principle was ($19,455), or (8.7%)
of net sales in fiscal 2005 versus $14,397, or 6.8% of net sales in fiscal 2004, due to the items
discussed above. Fiscal 2005 included a goodwill impairment charge of $37,384.
Industrial Energy Europe and ROW income (loss) before reorganization items, income taxes,
minority interest and cumulative effect of change in accounting principle was ($95,780), or (12.0%)
of net sales in fiscal 2005 versus $4,439, or 0.6% of net sales in fiscal 2004, due to the items
discussed above. Fiscal 2005 included a goodwill impairment charge of $116,831.
Reorganization Items
Reorganization items for fiscal 2005 and fiscal 2004 were $29,961 and $67,042,
respectively. These items included professional fees including financial and legal services,
success fees payable to the Company’s advisors related to Chapter 11 bankruptcy emergence, employee
retention costs for key members of management, income from refund of preference payments made to
suppliers prior to the bankruptcy filing, income associated with rejection of certain executory
contracts, costs associated with directors and officers liability insurance coverage for the
Predecessor Company and interest income earned as a result of having assumed excess cash balances
due to the Chapter 11 filing.
36
Gain on discharge of liabilities subject to compromise
For fiscal 2005, the Company recognized a $1,558,839 gain on discharge of liabilities
subject to compromise and recapitalization as a result of transactions contemplated by the Plan.
Fresh Start reporting adjustments
For fiscal year 2005 as a result of the Company’s adoption of Fresh Start reporting, upon
consummation of the Plan on the Effective Date, the Company recorded certain adjustments to assets
and liabilities to reflect their fair values. The Fresh Start adjustments resulted in a gain of
$228,371.
Income Taxes
In fiscal 2005, an income tax provision of $11,737 was recorded on pre-tax income of
$1,293,386. In fiscal 2004, an income tax provision of $3,271 was recorded on a pretax loss of
$94,752. The effective tax rate was 0.9% and 3.5% in fiscal 2005 and fiscal 2004, respectively.
The effective tax rate for fiscal 2005 and fiscal 2004 was impacted by the generation of income in
tax-paying jurisdictions, principally Europe, Australia and Canada, with limited or no offset on a
consolidated basis as a result of recognition of valuation allowances on tax benefits generated
from current period losses in the U.S., the United Kingdom and France. The effective tax rate for
fiscal 2005 was impacted by the gain on discharge of liabilities subject to compromise of
$1,558,839, which is exempt from tax in the United States, the non-taxable gain on Fresh Start
reporting adjustments of $228,371 and the non-deductibility of the $388,524 goodwill impairment
charge. The effective tax rate for fiscal 2005 was also impacted by the recognition of $41,400 for
valuation allowances on tax benefits generated from prior year losses and certain deductible
temporary differences in France and Italy based on the Company’s assessment that it is more likely
than not that the related tax benefits will now not be realized. The effective tax rate for
fiscal 2004 was impacted by the $3,175 gain on the sale of the Company’s European non-lead battery
assets, which was a non-taxable transaction.
Liquidity and Capital Resources
As of March 31, 2006, the Company had cash and cash equivalents of $32,161 and
availability under the Revolving Loan Facility of $29,669 as compared to cash and cash equivalents
of $76,696 and availability under
the Revolving Loan Facility of $68,814 at March 31, 2005. On
June 23, 2006, total liquidity was
approximately $55,600, consisting of availability under the revolving
term loan facility of $15,700 and an estimated $39,900 in cash and cash equivalents. It should be noted that cash and cash
equivalents fluctuate substantially on a daily basis due in part to the timing of account
receivable collections, and are subject to the monthly reconciliation process
of the Company’s numerous global accounts.
As
of June 16, 2006, the Company believes, based upon its financial forecast and plans that it
will comply with the Credit Agreement covenants for at least the period through March 31, 2007.
The Company has suffered recurring losses and negative cash flows from operations. Additionally,
given the Company’s past financial performance in comparison to its budgets and forecasts, there is
no assurance the Company will be able to meet these budgets and forecasts and be in compliance with
one or more of its debt covenants of its Senior Secured Credit Facility through March 31, 2007.
These uncertainties with respect to the Company’s past performance in comparison to its budgets and
forecasts and its ability to maintain compliance with its financial covenants throughout fiscal
2006 resulted in the Company’s receiving a going concern modification to the audit opinion for
fiscal 2006. Failure to comply with the Credit Agreement covenants, without waiver, would result
in a default under the Credit Agreement.
The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Should the Company be in default, it is not permitted to
borrow under the Credit Agreement, which would have a very negative effect on liquidity. Although
the Company has been able to obtain waivers of prior defaults, there can be no assurance that it
can do so in the future or, if it can, what the cost and terms of obtaining such waivers would be.
Future defaults would, if not waived, allow the Credit Agreement lenders to accelerate the loans
and declare all amounts due and payable. Any such acceleration would also result in a default under
the Indentures for the Company’s notes and their potential acceleration.
Generally, the Company’s principal sources of liquidity are cash from operations, borrowings
under the Credit Agreement, and proceeds from any asset sales which are not used to repay Credit
Agreement debt. The Credit Agreement requires that the proceeds from asset sales be used for the
pay down of Term Loans, except for specific exceptions which permit the Company to retain $30,000
from specified non-core asset sales and 50% of the proceeds of the sale of other specified assets
with an estimated value of $100,000.
The
Company’s current liquidity position at June 16, 2006 of $55,600 remains constrained. The
Company has an operational plan that would provide adequate liquidity to fund its operations
through the remainder of the fiscal year. The Company has reduced its planned capital expenditures
and planned restructuring activities in order to provide additional
37
liquidity. On June 28, 2006,
the Company entered into a Standby Purchase Agreement with investors who would backstop a rights
offering of common stock by the Company to its shareholders and purchase additional shares of
common stock. Such transactions would provide gross proceeds to the
Company of up to $125,000 before expenses. The
closing of such transactions is subject to several conditions, including shareholder approval
(which the Company plans to seek at its annual meeting of shareholders in August 2006), there being
no material adverse effect on the Company’s business and there not being trading suspensions or
other adverse developments in the financial markets.
If the Company fails to meet its operations objectives, including working capital reductions,
and if such shortfall is not replaced through proceeds from a rights offering or other means, the
lack of liquidity would have a material adverse impact on the Company’s ability to fund its
operations and financial obligations and cause the Company to evaluate a restructuring of its
obligations.
On May 5, 2004, the Company entered into a $600,000 Senior Secured Credit Agreement which
included a $500,000 Multi-Currency Term Loan Facility and a $100,000 Multi-Currency Revolving Loan
Facility including a letter of credit sub-facility of up to $40,000. The Credit Agreement is the
Company’s most important source of liquidity outside of its cash flows from operations. The
Revolving Loan Facility matures on May 5, 2009 and the Term Loan Facility matures on May 5, 2010.
As part of an amendment effective February 1, 2006, the requirement to make periodic principal
repayments was eliminated from the Term Loan Facility. The Term Loan Facility and Revolving Loan
Facility bear interest at LIBOR plus 6.25% per annum. Credit Agreement borrowings are guaranteed
by substantially all of the subsidiaries of the Company and are collateralized by substantially all
of the assets of the Company and the subsidiary guarantors.
The Credit Agreement requires the Company to comply with financial covenants, including a
minimum Adjusted EBITDA covenant for
the relevant periods. The Credit Agreement provides for different required covenant amounts and
ratios for different periods. The Credit Agreement also contains other customary covenants,
including reporting covenants and covenants that restrict the Company’s ability to incur
indebtedness, create or incur liens, sell or dispose of assets, make investments, pay dividends,
change the nature of the Company’s business or enter into related party transactions.
On February 1, 2006, the Company obtained amendments to the Credit Agreement which provided
$46,250 of additional borrowings, eliminated scheduled amortization of principal payments during
the term of the facility, eliminated most financial covenants, relaxed the covenant related to
Adjusted EBITDA, modified covenants for the maximum capital expenditures and leverage ratios for
permitted acquisitions, expanded the amount of non-core asset sale proceeds to be retained by the
Company, and enhanced existing call protection for the lenders as well as extended such call
protection to include outstanding amounts of the Company’s revolving loan facility.
On March 15, 2006, the Company obtained further amendments to the Credit Agreement, which
relaxed the covenant related to Adjusted EBITDA, eliminated the “going concern” covenant for fiscal
2006, increased call protection for the lenders in the event the Company refinances the Credit
Agreement, increased the applicable margin for the outstanding loans, and provided for the Company
to pay certain fees for a financial advisor for the lenders.
In March 2005, the Company issued $290,000 in aggregate principal amount of 10.5% Senior
Secured Notes due 2013. Interest of $15,225 is payable semi-annually on March 15 and September 15.
The 10.5% Senior Secured Notes are redeemable at the option of the Company, in whole or in part, on
or after March 15, 2009, initially at 105.25% of the principal amount, plus accrued interest,
declining to 100% of the principal amount, plus accrued interest on or after March 15, 2011. The
10.5% Senior Secured Notes are redeemable at the option of the Company, in whole or in part,
subject to payment of a make whole premium, at any time prior to March 15, 2009. In addition, until
May 15, 2008, up to 35% of the 10.5% Senior Secured Notes are redeemable at the option of the
Company, using the net proceeds of one or more qualified equity offerings. In the event of a change
of control or the sale of certain assets, the Company may be required to offer to purchase the
10.5% Senior Secured Notes from the note holders. Those notes are secured by a junior priority lien
on the assets of the U.S. parent company, including the stock of its subsidiaries. The Indenture
for these notes contains financial covenants which limit the ability of the Company and its
subsidiaries to among other things incur debt, grant liens, pay dividends, invest in
non-subsidiaries, engage in related party transactions and sell assets. Under the Indenture,
proceeds from asset sales (to the extent in excess of a $5,000 threshold) must be applied to offer
to repurchase notes to the extent such proceeds exceed $20,000 in the aggregate and are not applied
within 365 days to retire Credit Agreement borrowings or the Company’s pension contribution
obligations that are secured by a first priority lien on the Company’s assets or to make
investments or capital expenditures. Under a registration rights agreement, the Company was
required to file a registration statement with the SEC within 180 days of the March 15, 2005
issuance of the notes. To date, the Company has not yet filed the registration statement and is
subject to certain liquidated damages until such time as the registration statement is filed.
Until such time as the registration
38
statement is filed, the Company is required to pay interest on
the principal amount of the outstanding notes at an additional rate of 0.25% per annum for each
ninety day period thereafter, subject to a maximum of 1.0% per annum in the aggregate.
Also, in March 2005, the Company issued Floating Rate Convertible Senior Subordinated Notes
due September 18, 2013, with an aggregate principal amount of $60,000. These notes bear interest at
a per annum rate equal to the 3-month LIBOR, adjusted quarterly, minus a spread of 1.5%. The
interest rate at March 31, 2006 was 3.41%. Interest is payable quarterly. The notes are convertible
into the Company’s common stock at a conversion rate of 57.5705 shares per one thousand dollars
principal amount at maturity, subject to adjustments for any common stock splits, dividends on the
common stock, tender and exchange offers by the Company for the common stock and third party tender
offers, and in the case of a change in control in which 10% or more of the consideration for the
common stock is cash or non-traded securities, the conversion rate increases, depending on the
value offered and timing of the transaction, to as much as 70.2247 shares per one thousand dollars
principal amount.
At March 31, 2006, the Company had outstanding letters of credit with a face value of $43,785
and surety bonds with a face value of $30,089. The majority of the letters of credit and surety
bonds have been issued as collateral or financial assurance with respect to certain liabilities the
Company has recorded, including but not limited to environmental remediation obligations and
self-insured workers compensation reserves. Failure of the Company to satisfy its obligations with
respect to the primary obligations secured by the letters of credit or surety bonds could entitle
the beneficiary of the related letter of credit or surety bond to demand payments pursuant to such
instruments. The letters of credit generally have terms up to one year. The Company expects limited
availability of new surety bonds from traditional sources, which could impact the Company’s
liquidity needs in future periods. Pursuant to authorization from the Bankruptcy Court, the Company
reached agreement with the surety to maintain its current surety bonds through July 31, 2006.
Collateral held by the surety in the form of letters of credit at March 31, 2006, pursuant to the
terms of the agreement, was $30,089.
At March 31, 2006, the Company was in compliance with covenants
contained in the Credit Agreement and Indenture agreements that cover the Senior Secured Notes and
Floating Rate Convertible Senior Subordinated Notes.
Risks and uncertainties could cause the Company’s performance to differ from management’s
estimates. As discussed above under “Factors Which Affect the Company’s Financial Performance –
Seasonality and Weather,” the Company’s business is
seasonal. During late summer and fall (second and third quarters), the Company builds inventory in anticipation of increased sales in the winter
months. This inventory build increases the Company’s working capital needs. During these quarters,
because working capital needs are already high, unexpected costs or increases in costs beyond
predicted levels would place a strain on the Company’s liquidity and impact its ability to comply
with its financial covenants.
Sources Of Cash
The Company’s liquidity requirements have been met historically through cash provided by
operations, borrowed funds and the proceeds of sales of accounts receivable and sale-leaseback
transactions. Additional cash has been generated in recent years from the sale of non-core
businesses and assets.
The Company generated $25,316 and $27,901 in cash from the sale of non-core businesses
and other assets in fiscal 2006 and fiscal 2005, respectively. Other asset sales principally relate
to the sale of surplus land and buildings. During fiscal 2006, $10,852 of cash generated from the
sale of these assets was used to reduce debt balances.
Cash flows provided by financing activities were $34,646 and $104,093 in fiscal 2006 and
fiscal 2005, respectively. Cash flows provided by financing activities in fiscal 2006 relate
primarily to additional borrowings under the Senior Secured Credit Facility as well as additional
short-term borrowings, partially offset by repayments under these arrangements, and related debt
financing costs. For fiscal 2005, cash flows provided by financing
activities related primarily to the issuance of $350,000 in notes
and borrowings under the Credit Agreement, partially offset by
financing costs for the borrowings and the pay off and termination of
the DIP facilities.
Total debt at March 31, 2006 was $701,004, as compared to $653,758 at March 31, 2005. See
Note 10 to the Consolidated Financial Statements for the composition of such debt.
Going forward, the Company’s principal sources of liquidity will be cash from operations,
the Credit Agreement, and proceeds from any asset sales. The Credit Agreement requires that the
proceeds from asset sales are mandatorily required to be applied to the pay down of Term Loans,
except for specific exceptions contained in the Credit Agreement as amended, which permit the
Company to retain $30,000 of proceeds from the sale of specified non-core assets. The Credit
Agreement includes identified assets with an estimated value of approximately $100,000, which if
disposed, 50% of the net proceeds would be retained by the Company.
39
Uses Of Cash
The Company’s liquidity needs arise primarily from the funding of working capital needs,
obligations on indebtedness and capital expenditures. Because of the seasonality of the Company’s
business, more cash has been typically generated in the third and fourth fiscal quarters than the
first and second fiscal quarters. Greatest cash demands from operations have historically occurred
during the months of June through October.
Cash flows used in operating activities were $44,348 in fiscal 2006 and $16,877 in fiscal
2005. Comparative cash flows were negatively impacted by higher net cash used in operating
activities before working capital changes, increased working capital used as a result of higher
inventory carrying costs and prepayment required for lead (mainly in Europe) and $48,071 of
restructuring costs paid during the period.
The Company anticipates that it will have ongoing liquidity needs to support its
operational restructuring programs during fiscal 2007 and fiscal 2008, including payment of
remaining accrued restructuring costs of approximately $9,798 as of March 31, 2006. The Company’s
ability to successfully implement these restructuring strategies on a timely basis may be impacted
by its access to sources of liquidity. For further discussion see Note 16 to the Consolidated
Financial Statements.
Prior to and during the Company’s Chapter 11 proceeding, the Company experienced a
tightening of trade credit availability and terms. The Company has not obtained any significant
improvement in trade credit terms since its emergence.
Capital expenditures were $58,133 and $76,266 in fiscal 2006 and fiscal 2005,
respectively.
As of March 31, 2006, the Company had five outstanding foreign currency forward contracts
totaling $2,812 with varying maturities of October 6, 2006, November 20, 2006, December 19, 2006,
January 8, 2007 and January 29, 2007. At March 31, 2005, the Company had one foreign currency
forward contract outstanding, which was settled on May 9, 2005, requiring a cash payment of
$12,084.
Employee Benefit Plans
Description
The Company has a noncontributory defined benefit pension plan covering substantially all
hourly and salaried employees in the U.S. Most plan formulas covering hourly employees provide
pension benefits of stated amounts for each year of credited service, while a few provide benefits
based on final average pay. Salaried employees in the U.S. are covered by a cash balance formula
providing pay credits as a percentage of salary up to qualified limits and interest credits on the
account balances.
On March 31, 2006, Exide announced that it would be freezing the benefit accruals for all
non-union employees in their U.S. plan effective May 15, 2006. Due to the timing of this
announcement and the accounting rules, the partial plan freeze did not have an impact on the net
periodic pension cost, the footnote liabilities or the balance sheet net amount recognized for the
fiscal year ending March 31, 2006. The freeze is reflected in the Company’s projections of future
contributions and will be recognized in the following year’s expense.
Europe and ROW subsidiaries of the Company sponsor several defined benefit plans that cover
substantially all employees who are not covered by statutory plans. For defined benefit plans,
charges to expense are based upon costs computed by independent actuaries. In most cases, the
defined benefit plans are not funded.
The Company provides certain retiree health care and life insurance benefits for a
limited number of employees. The Company accrues the estimated cost of providing post-retirement
benefits during the employees’ applicable years of service.
Assets funded under both the North American and European defined benefit plans consist
primarily of equity and fixed income securities. At March 31, 2006, the fair market value of assets
for the Company’s defined benefit plans was $326,480 compared to $295,298 at March 31, 2005.
Accounting And Significant Assumptions
The Company accounts for pension benefits using the accrual method set forth in SFAS 87.
The accrual method of accounting for pensions involves the use of actuarial assumptions concerning
future events that impact estimates of the amount and timing of benefit obligations and future
benefit payments.
40
The Company’s adoption of Fresh Start reporting in accordance with SOP 90-7 upon
emergence from bankruptcy on the Effective Date had a significant impact on the Company’s net
amount recognized for pension benefits. All previously unrecognized net actuarial losses,
transition obligation and prior service cost were recognized as of the Effective Date.
Significant assumptions used in calculating the Company’s pension benefit obligations and
related expense are the discount rate, rate of compensation increase and the expected long-term
rate of return on plan assets. The Company establishes these underlying assumptions in consultation
with its actuaries. Depending on the assumptions used, pension obligations and related expense
could vary within a range of outcomes and have a material effect on reported results, benefit
obligations and cash funding requirements.
The discount rates used by the Company for determining benefit obligations are generally
based on high quality corporate bonds. The assumed rates of compensation increases reflect
estimates of the projected change in compensation levels based on future expectations, general
price levels, productivity and historical experience, among other factors. In evaluating the
expected long term rate of return on plan assets, the Company considers the allocation of assets
and the expected return on various asset classes in the context of the long-term nature of pension
obligations.
At March 31, 2006, the Company has slightly lowered the discount rates used to value its
pension benefit obligations to reflect the decline in yields on high quality corporate bonds, and
increased the rate of compensation increase to reflect current inflationary expectations. The
aggregate effect of these changes increased the present value of projected benefit obligations as
of March 31, 2006 and had the effect of increasing pension expense in fiscal 2006. However, this
was outweighed by other factors such as updated demographic data, therefore the present value of
projected benefit obligations as of March 31, 2006 and the pension expense for fiscal 2006 actually
reduced as compared to their 2005 equivalents. Pension expense for the Company’s defined benefit
pension and other post-retirement benefit plans was $23,893 in fiscal 2006 compared to $26,058 in
fiscal 2005.
A one-percentage point change in the weighted average expected return on plan assets for
defined benefit plans would change net periodic benefit cost by approximately $2,900 in fiscal
2006. A one-percentage point increase in the weighted
average discount rate would decrease net periodic benefit cost for defined benefit plans by
approximately $2,400 in fiscal 2006. A one-percentage point decrease in the weighted average
discount rate would increase net periodic benefit cost for defined benefit plans by approximately
$4,200 in fiscal 2006.
As of March 31, 2006, unrecognized actuarial losses for the Company’s defined benefit
pension and other post-retirement benefit plans were $17,186,
compared to $23,507 at March 31,
2005. As described above, all previously unrecognized actuarial losses were recognized on adoption
of Fresh Start reporting. The unrecognized actuarial losses at March 31, 2006 principally reflect
the reduction in discount rates since the Effective Date. SFAS 87 provides for delayed recognition
of such actuarial losses, whereby these losses, to the extent they exceed 10% of the greater of the
projected benefit obligation or the market related value of plan assets are amortized as a
component of pension expense over a period that approximates the average remaining service period
of active employees.
Minimum Pension Obligations
To the extent that the fair market value of pension plan assets of an individual plan is
less than the accumulated benefit obligation for such plan, SFAS 87 may require recognition of an
additional minimum pension liability, and in such circumstances a reduction in stockholders’ equity
or establishment of an intangible asset. The Company has recognized additional minimum pension
liabilities of $32,250 and $25,909 as of March 31, 2006 and March 31, 2005, respectively, resulting
in charges in accumulated other comprehensive loss included in stockholders’ equity (deficit) and
as of March 31, 2006, establishment of an intangible asset of $258. As of the Effective Date, there
was no additional minimum pension liability as the Company recognized all previously unrecognized
actuarial losses, in accordance with Fresh Start reporting requirements.
Plan Funding Requirements
Cash contributions to the Company’s pension plans are generally made in accordance with
minimum regulatory requirements. Because of the downturn experienced in global equity markets and
ongoing benefit payments, the Company’s U.S. plans are currently significantly under-funded. Based
on current assumptions and regulatory requirements, the Company’s minimum future cash contribution
requirements for its U.S. plans are expected to remain relatively high for the next few fiscal
years. On November 17, 2004, the Company received written notification of a tentative determination
from the Internal Revenue Service (“IRS”) granting a temporary waiver of its minimum funding
requirements for its U.S. plans for calendar years 2003 and 2004, amounting to approximately
$50,000, net, under Section 412(d) of the Internal Revenue Code, subject to providing a lien
satisfactory to the Pension Benefit Guaranty Corporation (“PBGC”). In accordance with the senior
41
credit facility and upon the agreement of the administrative agent, on June 10, 2005, the Company
reached agreement with the PBGC on a second priority lien on domestic personal property, including
stock of its U.S. and direct foreign subsidiaries to secure the unfunded liability. The temporary
waiver provides for deferral of the Company’s minimum contributions for those years to be paid over
a subsequent five-year period through 2010.
Based upon the temporary waiver and sensitivity to varying economic scenarios, the Company
expects its cumulative minimum future cash contributions to its U.S. pension plans will total
approximately $115,000 to $165,000 from fiscal 2007 to fiscal 2011, including $46,700 in fiscal
2007. These projections also assume that the provisions of the Pension Funding Equity Act of 2004
are extended for the 2006 plan year and funding reform legislation similar to the bills currently
before Congress is passed and takes effect for the 2007 plan year.
The Company expects that cumulative contributions to its non U.S. pension plans will total
approximately $84,000 from fiscal 2007 to fiscal 2011, including $16,054 in fiscal 2007. In
addition, the Company expects that cumulative contributions to its other post-retirement benefit
plans will total approximately $13,000 from fiscal 2007 to fiscal 2011, including $2,842 in fiscal
2007.
Financial Instruments and Market Risk
From time to time, the Company uses forward contracts to economically hedge certain
currency exposures and certain lead purchasing requirements. The forward contracts are entered into
for periods consistent with related underlying exposures and do not constitute positions
independent of those exposures. The Company does not apply hedge accounting to such commodity
contracts as prescribed by SFAS 133. The Company expects that it may increase the use of financial
instruments, including fixed and variable rate debt as well as swaps, forward and option contracts
to finance its operations and to hedge interest rate, currency and certain lead purchasing
requirements in the future. The swap, forward, and option contracts would be entered into for
periods consistent with related underlying exposures and would not constitute positions independent
of those exposures. The Company has not, and does not intend to enter into contracts for
speculative purposes nor be a party to any leveraged instruments.
The Company’s ability to utilize financial instruments may be restricted because of
tightening, and/or elimination of credit availability with counter-parties. If the Company is
unable to utilize such instruments, the Company may be exposed to greater risk with respect to its
ability to manage exposures to fluctuations in foreign currencies, interest rates, and lead prices.
Accounts Receivable Factoring Arrangements
In the ordinary course of business, the Company utilizes accounts receivable factoring
arrangements in countries where programs of this type are typical. Under these arrangements, the
Company may sell certain of its trade accounts receivable to financial institutions. The
arrangements in virtually all cases do not contain recourse provisions against the Company for its
customers’ failure to pay. The Company sold approximately
$40,954 of foreign currency
trade accounts receivable as of March 31, 2006. Changes in the level of receivables sold from year
to year are included in the change in accounts receivable within cash
flow from operations in the Consolidated Statement of Cash Flows.
Contractual Obligations and Commercial Commitments
The Company’s contractual obligations and commercial commitments at March 31, 2006 are
summarized by fiscal year in which the payments are due in the following table:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 and |
|
|
|
|
| |
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
beyond |
|
|
Total |
|
10.5% Senior
Secured Notes |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
290,000 |
|
|
$ |
290,000 |
|
Floating Rate
Convertible Senior
Subordinated Notes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
60,000 |
|
|
|
60,000 |
|
Senior Secured
Credit Facility |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
26,545 |
|
|
|
289,732 |
|
|
|
— |
|
|
|
316,277 |
|
Interest on
long-term debt (a) |
|
|
62,173 |
|
|
|
63,848 |
|
|
|
65,523 |
|
|
|
64,342 |
|
|
|
38,972 |
|
|
|
68,755 |
|
|
|
363,613 |
|
Short term
borrowings |
|
|
11,375 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11,375 |
|
Capital leases (b) |
|
|
4,237 |
|
|
|
3,972 |
|
|
|
3,178 |
|
|
|
4,561 |
|
|
|
1,600 |
|
|
|
6,275 |
|
|
|
23,823 |
|
Operating leases |
|
|
27,695 |
|
|
|
18,434 |
|
|
|
11,343 |
|
|
|
6,656 |
|
|
|
4,461 |
|
|
|
16,899 |
|
|
|
85,488 |
|
Purchase
Obligations (c ) |
|
|
38,073 |
|
|
|
37,406 |
|
|
|
35,690 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
111,169 |
|
Other non-current
liabilities (d) |
|
|
— |
|
|
|
14,014 |
|
|
|
13,332 |
|
|
|
12,510 |
|
|
|
10,803 |
|
|
|
47,412 |
|
|
|
98,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual
cash obligations |
|
$ |
143,553 |
|
|
$ |
137,674 |
|
|
$ |
129,066 |
|
|
$ |
114,614 |
|
|
$ |
345,568 |
|
|
$ |
489,341 |
|
|
$ |
1,359,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
Reflects the Company’s scheduled interest payments and assumes an interest rate of
10.58% on the Senior Secured Credit Facility and 3.41% on the Floating Rate Convertible Senior
Subordinated Notes. |
42
|
|
|
| (b) |
|
Capital leases reflect future minimum lease payments including imputed interest charges. |
| |
| (c) |
|
Reflects the Company’s projected annual minimum purchase commitment, including penalties
under the supply agreements entered into as a result of the sale of the Company’s separator
business; amounts may vary based on actual purchases. See Note 19 to the Consolidated
Financial Statements. |
| |
| (d) |
|
Other non-current liabilities include amounts on the Consolidated Balance Sheet as of March
31, 2006 (payment amounts that have been discounted are reflected as such on the table above).
These amounts do not include the supply agreement penalty, which is reflected in purchase
obligations. See footnote (c) above. |
| |
| (e) |
|
Pension and other post-retirement benefit obligations are not included in the table above.
The Company expects its cumulative minimum future cash contributions to its U.S. pension plans
will total approximately $115,000 to $165,000 from fiscal 2007 to fiscal 2011, including
$46,700 in fiscal 2007. These projections also assume that the provisions of the Pension
Funding Equity Act of 2004 are extended for the 2006 plan year and funding reform legislation
similar to the bills currently before Congress is passed and takes effect for the 2007 plan
year. The Company expects that cumulative contributions to its non U.S. pension plans will
total approximately $84,000 from fiscal 2007 to fiscal 2011, including $16,054 in fiscal 2007.
In addition, the Company expects that cumulative contributions to its other post retirement
benefit plans will total approximately $13,000 from fiscal 2007 to fiscal 2011, including
$2,842 in fiscal 2007. For further discussion on these liabilities please see Note 11 to the
Consolidated Financial Statements. |
At March 31, 2006 the Company had outstanding letters of credit of $43,785 and surety
bonds of $30,089.
Certain of the Company’s European subsidiaries have bank guarantees outstanding, which
have been issued as collateral or financial assurance in connection with environmental obligations,
income tax claims and customer contract requirements.
At March 31, 2006, bank guarantees with a face value of $16,849 were outstanding.
Trading Activities
The Company does not have any trading activity that involves non-exchange traded
contracts accounted for at fair value.
Related Parties
None
Future Environmental Developments
As a result of its multinational manufacturing, distribution and recycling operations,
the Company is subject to numerous federal, state and local environmental, occupational safety and
health laws and regulations, as well as similar laws and regulations in other countries in which
the Company operates. For a discussion of the legal proceedings relating to environmental matters,
see Note 15 to the Consolidated Financial Statements.
Other
None
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
The Company is exposed to market risks from changes in foreign currency exchange rates,
certain commodity prices and interest rates. The Company does not enter into contracts without an
intent to mitigate a particular risk, nor is it a party to any leveraged instruments. A discussion
of the Company’s accounting policies for derivative instruments is provided in Notes 2 and 5 to the
Consolidated Financial Statements.
Foreign Currency Exchange Rate Risk
The Company is exposed to foreign currency risk related to uncertainties to which future
earnings or assets and liability values are exposed due to operating cash flows and various
financial instruments that are denominated in foreign currencies.
43
More specifically, the Company is
exposed to foreign currency risk in most European countries, principally Germany, France, the
United Kingdom, Spain and Italy. It is also exposed, although to a lesser extent, to foreign
currency risk in Australia and
the Pacific Rim. Movements of exchange rates against the U.S. dollar can result in variations
in the U.S. dollar value of non-U.S. sales. In some instances, gains in one currency may be offset
by losses in another.
Commodity Price Risk
Lead is the primary material used in the manufacture of batteries, representing
approximately one-third of the Company’s cost of goods sold. The market price of lead fluctuates.
Generally, when lead prices decrease, customers may seek disproportionate price reductions from the
Company, and when lead prices increase, customers may resist price increases.
Interest Rate Risk
The Company is exposed to interest rate risk on its variable rate long-term debt. The
Company has on occasion entered into certain interest rate swap agreements to hedge exposure to
interest costs associated with long-term debt. Interest rate swaps involve the exchange of floating
rate interest payments to effectively convert floating rate debt into fixed rate debt. No such
swaps were outstanding at March 31, 2006.
The following table presents the expected outstanding debt balances and related interest
rates, excluding capital lease obligations and lines of credit, under the terms of the Company’s
borrowing arrangements in effect at March 31, 2006.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the fiscal year(s) ended March 31: |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 and |
|
| |
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
beyond |
|
| |
|
(US equivalents) |
|
10.5% Senior Secured Notes |
|
$ |
290,000 |
|
|
$ |
290,000 |
|
|
$ |
290,000 |
|
|
$ |
290,000 |
|
|
$ |
290,000 |
|
|
$ |
290,000 |
|
Fixed Interest Rate |
|
|
10.50 |
% |
|
|
10.50 |
% |
|
|
10.50 |
% |
|
|
10.50 |
% |
|
|
10.50 |
% |
|
|
10.50 |
% |
Floating Rate Convertible Senior Subordinated Notes |
|
$ |
60,000 |
|
|
$ |
60,000 |
|
|
$ |
60,000 |
|
|
$ |
60,000 |
|
|
$ |
60,000 |
|
|
$ |
60,000 |
|
Variable Interest Rate (a) |
|
|
3.41 |
% |
|
|
3.41 |
% |
|
|
3.41 |
% |
|
|
3.41 |
% |
|
|
3.41 |
% |
|
|
3.41 |
% |
Senior Secured Credit Facility |
|
$ |
316,277 |
|
|
$ |
316,277 |
|
|
$ |
316,277 |
|
|
$ |
289,732 |
|
|
|
— |
|
|
|
— |
|
Variable Interest Rate (a) |
|
|
10.58 |
% |
|
|
10.58 |
% |
|
|
10.58 |
% |
|
|
10.58 |
% |
|
|
— |
|
|
|
— |
|
|
|
|
| (a) |
|
Variable components of interest rates based upon market rates at March 31, 2006. See Note 10
to the Consolidated Financial Statements for further discussion of debt instruments. |
Item 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements and Schedule at page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains “disclosure controls and procedures,” as such term is defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), that are
designed to ensure that information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is recorded, processed, summarized, and reported within the
time periods specified in Securities and Exchange Commission rules and forms, and that such
information is accumulated and communicated to our management, including our chief executive
officer and chief financial officer, as appropriate, to allow timely decisions regarding required
disclosure.
As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of senior management, including the
chief executive officer and the chief financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and
15d-15(b). Based upon, and as of the date of this evaluation, the chief executive officer and the
chief financial officer concluded that our disclosure controls and procedures were not effective,
because of the material weaknesses discussed below. In light of the material weaknesses described
below, we performed additional analysis and other post-closing procedures to ensure our
consolidated financial statements are prepared in accordance with generally accepted accounting
principles. Accordingly, management believes that the financial statements included in this report
fairly present in all material respects our financial condition, results of operations and cash
flows for the periods presented.
44
The certifications of our principal executive officer and principal financial officer
required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 are attached as exhibits
to this Annual Report on Form 10-K. The disclosures set forth in this Item 9A contain information
concerning the evaluation of our disclosure controls and procedures, internal control over
financial reporting and changes in internal control over financial reporting referred to in those
certifications. Those certifications should be read in conjunction with this Item 9A for a more
complete understanding of the matters covered by the certifications.
Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f)
and 15d-15(f). Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has completed its evaluation of the effectiveness of the Company’s internal
control over financial reporting as of March 31, 2006 using the criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
A material weakness is a control deficiency, or combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of the financial statements
will not be prevented or detected. We identified the following material weaknesses in the
Company’s internal control over financial reporting as of March 31, 2006:
1. Lack of sufficient resources in our accounting and finance organization. The Company did not
maintain a sufficient complement of personnel to maintain an appropriate accounting and financial
reporting organizational structure to support the activities of the Company. Specifically, the
Company did not maintain sufficient personnel with an appropriate level of accounting knowledge, experience
and training in the selection and application of generally accepted accounting principles
commensurate with the
Company’s financial reporting requirements. This material weakness contributed to the material
weaknesses 2 through 5 below.
2. Accounting for inventories. The Company did not maintain effective controls over the
completeness, accuracy and valuation of certain inventories. Specifically, the Company did not
maintain effective controls over: (i) consigned-out inventory quantities, (ii) the cost of lead
content used in the Company’s operations in Spain, (iii) inventory variances in the Company’s
operations in both the United States and the United Kingdom, and (iv) the lower of cost or market
adjustments in accordance with generally accepted accounting principles. These control
deficiencies resulted in audit adjustments to inventory and cost of sales in the Company’s fiscal
2006 annual consolidated financial statements. Additionally, these control deficiencies, in the
aggregate, could result in a misstatement of inventory and cost of sales that would result in a
material misstatement to the Company’s annual or interim consolidated financial statements that
would not be prevented or detected.
3. Accounting for investments in affiliates. The Company did not maintain effective controls over
accounting for investments in affiliates. Specifically, the company did not have effective
controls over the completeness and accuracy over the accounting for its equity-method investees in
accordance with generally accepted accounting principles. This control deficiency resulted in
audit adjustments to the Company’s fiscal 2006 consolidated financial statements. Additionally,
this control deficiency could result in a misstatement of investments in affiliates and related
income statement accounts that would result in a material misstatement to the Company’s annual or
interim consolidated financial statements that would not be prevented or detected.
4. Accounting for income taxes. The Company did not maintain effective controls over accounting
for income taxes. Specifically, the Company’s processes, procedures and controls related to the
preparation and review of the quarterly and annual tax provisions were not effective to ensure that
the tax provision and related deferred tax asset and liability accounts were accurate, recorded in
the proper period and determined in accordance with generally accepted accounting principles. In
addition, the Company did not adequately monitor the effect of changes-in-control to ensure the
completeness and accuracy of net operating loss carry-forwards for income tax purposes in the
United States. This control deficiency resulted in audit adjustments to the Company’s fiscal 2006
consolidated financial statements. Additionally, this control deficiency could result in a
misstatement of the tax provision and deferred tax asset and liability balances that would result
in a material misstatement to the Company’s annual or interim consolidated financial statements
that would not be prevented or detected.
5. Segregation of duties. The Company did not maintain effective segregation of
duties. Specifically, in connection with the lack of sufficient accounting and finance resources
described in material weakness 1 above, certain financial accounting and reporting personnel had
incompatible duties that permitted creation, review, and processing of financial data without
independent review and authorization affecting payroll, inventory, purchasing, payables, cost of
sales, revenue and accounts receivable. This control deficiency could result in a misstatement of
the Company’s accounts and disclosures that would result in a material misstatement to the
Company’s interim or annual consolidated financial statements that would not be prevented or
detected.
Because of the material weaknesses described above, management has concluded that the
Company’s internal control over financial reporting was not effective as of March 31, 2006, based
on the criteria established in Internal Control—Integrated Framework issued by the COSO.
Management’s assessment of the effectiveness of the Company’s internal control over
financial reporting as of March 31, 2006 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which is included herein.
45
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting
during the quarter ended March 31, 2006 that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting. Our management has discussed the
material weaknesses described above and other deficiencies with our audit committee. In an effort
to remediate
the identified material weaknesses and other deficiencies, we continue to implement a number
of changes to our internal control over financial reporting including the following:
| |
• |
|
In June 2006, a new chief internal auditor was
hired. The new chief internal auditor reports to our
Audit Committee and has been charged with the
responsibility of improving the overall effectiveness
of the internal audit function; |
| |
| |
• |
|
Several corporate level accounting and finance
review practices have been implemented to improve
oversight into regional accounting issues, including
more adequate global review of balance sheet accounts
requiring judgment and estimates; |
| |
| |
• |
|
Hiring additional accounting personnel
to focus on our ongoing remediation
initiatives and compliance efforts; |
| |
| |
• |
|
Ensuring our inventory controls operate as designed; |
| |
| |
• |
|
Ensuring our controls over investments in affiliates operate as designed; |
| |
| |
• |
|
Engaging expert resources to assist with worldwide tax planning and compliance; and |
| |
| |
• |
|
Re-allocating and/or relocating duties of
accounting and finance personnel to enhance segregation
of duties. |
While the Company believes that the remedial actions will result in remediating the
material weaknesses in our internal control over financial reporting, the exact timing of when the
conditions will be remediated is dependent upon future events, which may or may not occur.
Item 9B. Other Information
None.
46
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning the Board of Directors of the Company, the members of the
Company’s Audit Committee, the Company’s Audit Committee financial expert and the Company’s Code of
Ethics is incorporated by reference to the Company’s Proxy Statement for the Annual Meeting of
Stockholders currently scheduled to be held on August 22, 2006 (the “Proxy Statement”).
Executive Officers of the Registrant
Gordon A. Ulsh (60) President, Chief Executive Officer and member of the Board of
Directors. Mr. Ulsh was appointed in to his current position in April 2005. From 2001 until March
2005, Mr. Ulsh was Chairman, President and CEO of Texas-based FleetPride Inc., the nation’s largest
independent aftermarket distributor of heavy-duty truck parts. Prior to joining FleetPride in 2001,
Mr. Ulsh worked with Ripplewood Equity Partners, providing analysis of automotive industry segments
for investment opportunities. Earlier, he served as President and Chief Operating Officer of
Federal-Mogul Corporation in 1999 and as head of its Worldwide Aftermarket Division in 1998. Prior
to Federal-Mogul, he held a number of leadership positions with Cooper Industries, including
Executive Vice President of its automotive products segment. Mr. Ulsh joined Cooper’s Wagner
Lighting business unit in 1984 as Vice President of Operations, following 16 years in manufacturing
and engineering management at Ford Motor Company.
Mitchell S. Bregman (52) President, Industrial Energy Americas. Mr. Bregman joined Exide
in September 2000 in connection with the Company’s acquisition of GNB. He has served in his current
role since March 2003 and prior to that was President Global Network Power. Mr. Bregman joined GNB
in 1979. He served for 12 years as a Vice President with various responsibilities with GNB
Industrial Power and nine years with GNB’s Transportation Division.
Neil S. Bright (59) President, Industrial Energy Europe. Mr. Bright has served in his
current capacity since April 2000 and prior to that beginning in April 1998 was Executive Vice
President, Sales and Marketing for transportation and industrial batteries for Exide Europe. Prior
to that he was Executive Vice President of Exide Holding Europe S.A. with responsibility for the
industrial battery division in Europe.
Francis M. Corby Jr. (62) Executive Vice President and Chief Financial Officer. Mr.
Corby joined the Company in March 2006. Mr. Corby most recently served as Senior Vice President
and Chief Financial Officer at GST Automotive Leather from 2004 to 2005. Mr. Corby served as
Executive Vice President and Chief Financial Officer at Guide Corporation from 2001 through 2004.
Mr. Corby served as Executive Vice President at Frederick & Company from 2000 through 2001. From
1986 to 1999, Mr. Corby was the Chief Financial Officer at Harnischfeger Industries, Inc., most
recently with the title of Executive Vice President for Finance and Administration.
Phillip A. Damaska (51) Senior Vice President and Corporate Controller. Mr.
Damaska joined the Company in January 2005 as Vice President, Finance, was appointed Vice President
and Corporate Controller in September, 2005 and was named Senior Vice President and Corporate
Controller in March 2006. Prior to joining the Company, Mr. Damaska served in numerous capacities
with Freudenberg-NOK from 1996 through 2004, most recently as President of Corteco, an automotive
and industrial seal supplier that is part of the partnership’s global group of companies.
Barbara A. Hatcher (51) Executive Vice President and General Counsel.
Ms. Hatcher was appointed Executive Vice President and General Counsel in May 2006. Ms. Hatcher
has been serving as Deputy General Counsel since April 2004 and as Group Counsel since she joined
Exide in 2000 through the Company’s acquisition of GNB Technologies Inc., where she had served as
Vice President and General Counsel.
George S. Jones, Jr. (53) Executive Vice President—Human Resources and Communications.
Mr. Jones joined the Company in July 2005. From 1974 to 2004, Mr. Jones served in several
executive positions at Cooper Industries, most recently as Vice President—Operations at the
Lighting Division from 1997 to 2004.
Edward J. O’Leary (50) President, Transportation Americas since June 6, 2005. Prior to joining
the Company, Mr. O’Leary served as President—The Americas at Oetiker Inc. From 2002 to 2004, Mr.
O’Leary served in a consulting capacity with Jag Management Consultants. Mr. O’Leary served as
Chief Executive Officer of iStarSystems from 2000 to 2002, and served as Vice President Sales and
Distribution—The Americas at Federal-Mogul Corp. from 1998 to 1999.
Rodolphe Reverchon (47) President, Transportation Europe. Mr. Reverchon joined the
Company in 2003 as Vice President—Operations Europe. From 1996 to 2003, Mr. Reverchon served in a
number of capacities at Bosch Chassis & Systems as European Manufacturing Director, Plant Manager
and Manufacturing Quality Manager Europe.
47
Section 16(a) Beneficial Ownership Reporting Compliance
Information concerning compliance with Section 16(a) of the Securities Exchange Act of
1934 is incorporated by reference to the Proxy Statement.
Director Independence
The information required by this item is incorporated by reference to the Proxy
Statement.
Audit Committee Financial Expert
The information required by this item is incorporated by reference to the Proxy
Statement.
Code of Ethics
The information required by this item is incorporated by reference to the Proxy
Statement.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to the Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the Proxy
Statement.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated by reference to the Proxy
Statement.
Item 15. Exhibits and Financial Statement Schedules
| |
(a) |
|
Index to Financial Statements |
See Index to Consolidated Financial Statements and Schedule at page F-1.
| |
(b) |
|
Exhibits Required by Item 601 of Regulation S-K |
See Index to Exhibits.
| |
(c) |
|
Financial Statement Schedules |
See Index to Consolidated Financial Statements and Schedule at page F-1.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on June 28, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
Exide
Technologies |
|
|
|
|
|
|
|
By:
|
|
/s/ FRANCIS M. CORBY JR. |
|
|
|
|
|
|
|
|
|
Francis M. Corby Jr. |
|
|
|
|
Executive Vice President and |
|
|
|
|
Chief Financial Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities stated, in
each case, on June 28, 2006.
| |
|
|
|
|
|
|
|
|
By:
|
|
/s/ GORDON A. ULSH
|
|
|
|
By:
|
|
/s/ DAVID S. FERGUSON |
|
|
|
|
|
|
|
|
|
|
|
Gordon A. Ulsh,
|
|
|
|
|
|
David S. Ferguson, |
|
|
President and Chief Executive Officer
|
|
|
|
|
|
Director |
|
|
(principal executive officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ FRANCIS M. CORBY JR.
|
|
|
|
By:
|
|
/s/ PHILLIP M. MARTINEAU |
|
|
|
|
|
|
|
|
|
|
|
Francis M. Corby Jr.,
|
|
|
|
|
|
Phillip M. Martineau, |
|
|
Executive Vice President
and
Chief Financial Officer
|
|
|
|
|
|
Director |
|
|
(principal financial officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ PHILLIP A. DAMASKA
|
|
|
|
By:
|
|
/s/ JOHN P. REILLY |
|
|
|
|
|
|
|
|
|
|
|
Phillip A. Damaska
|
|
|
|
|
|
John P. Reilly, |
|
|
Senior Vice President and Corporate Controller
|
|
|
|
|
|
Chairman of the Board of Directors |
|
|
(principal accounting officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ MICHAEL R. D’APPOLONIA
|
|
|
|
By:
|
|
/s/ MICHAEL P. RESSNER |
|
|
|
|
|
|
|
|
|
|
|
Michael R. D’Appolonia,
|
|
|
|
|
|
Michael P. Ressner, |
|
|
Director
|
|
|
|
|
|
Director |
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ MARK C. DEMETREE
|
|
|
|
By:
|
|
/s/ CARROLL R. WETZEL |
|
|
|
|
|
|
|
|
|
|
|
Mark C. Demetree,
|
|
|
|
|
|
Carroll R. Wetzel, |
|
|
Director
|
|
|
|
|
|
Director |
49
INDEX TO EXHIBITS
| |
|
|
|
|
| |
2.1 |
|
|
Joint Plan of Reorganization of the Official Committee of Unsecured
Creditors and the Debtors, dated March 11, 2004, incorporated by
reference to the Company’s Current Report on Form 8-K filed on May
6, 2004. |
| |
|
|
|
|
| |
2.2 |
|
|
Amended Technical Amendment to Joint Plan of Reorganization of the
Official Committee of Unsecured Creditors and the Debtors, dated
April 21, 2004, incorporated by reference to Exhibit 2.2 of the
Company’s Current Report on Form 8-K, dated May 6, 2004. |
| |
|
|
|
|
| |
2.3 |
|
|
Order confirming the Joint Plan of Reorganization of the Official
Committee of Unsecured Creditors and the Debtors entered April 21,
2004, incorporated by reference to Exhibit 2.3 of the Company’s
Current Report on Form 8-K, dated May 6, 2004. |
| |
|
|
|
|
| |
3.1 |
|
|
Amended and Restated Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 1 of the Company’s Form 8-A
dated May 6, 2004. |
| |
|
|
|
|
| |
*3.2 |
|
|
Amended and Restated Bylaws of the Company, effective April 28, 2005. |
| |
|
|
|
|
| |
*3.3 |
|
|
Amendments to Amended and Restated Certificate of Incorporation of
the Company. |
| |
|
|
|
|
| |
4.1 |
|
|
Credit and Guarantee Agreement dated as of May 5, 2004 by and among
the Company, Exide Global Holding Netherlands C.V., the Lenders from
time to time partly thereto, Credit Suisse First Boston and Fleet
Securities Inc., Syndication Agents, Deutsche Bank AG New York
Branch, as Administration Agent, Credit Suisse First Boston, as Book
Running Manager, and Deutshe Bank Securities Inc, as Sole Lead
Arranger and Book Running Manager, incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K dated May
7, 2004. |
| |
|
|
|
|
| |
4.2 |
|
|
Warrant Agreement dated as of May 5, 2004 by and between the Company
and American Stock Transfer Trust Company, incorporated by reference
to Exhibit 3 to the Company’s on Form 8-A dated May 6, 2004. |
| |
|
|
|
|
| |
4.3 |
|
|
First Amendment and Waiver to Credit Agreement, dated as of November
10, 2004, among the Company, Exide Global Holding Netherlands C.V.,
a limited partnership organized under the laws of The Netherlands,
the Lenders from time to time party hereto and Deutsche Bank AG New
York Branch, as Administrative Agent, incorporated by reference to
the Company’s Report on Form 10-Q dated November 15, 2004. |
| |
|
|
|
|
| |
4.4 |
|
|
Second Amendment and Waiver to Credit Agreement, dated as of
February 14, 2005, among the Company, Exide Global Holding
Netherlands C.V., a limited partnership organized under the laws of
the Netherlands, the Lenders from time to time party hereto and
Deutsche Bank AG New York Branch, as Administrative Agent,
incorporated by reference to the Company’s Report on Form 10-Q dated
February 14, 2005. |
| |
|
|
|
|
| |
4.5 |
|
|
Third Amendment and Waiver to Credit Agreement, dated as of February
24, 2005, among the Company, Exide Global Holding Netherlands C.V.,
a limited partnership organized under the laws of the Netherlands,
the Lenders from time to time party hereto and Deutsche Bank AG New
York Branch, as Administrative Agent, incorporated by reference to
the Company’s Report on Form 8-K dated February 28, 2005. |
| |
|
|
|
|
| |
4.6 |
|
|
Indenture dated as of March 18, 2005 by and between the Company and
SunTrust Bank relating to the 10 1/2 % Senior Secured Notes due 2013,
incorporated by reference to Exhibit 10.1 to the Company’s Report on
Form 8-K dated March 24, 2005. |
| |
| |
4.7 |
|
|
Indenture dated as of March 18, 2005 by and between the Company and
SunTrust Bank relating to the Floating Rate Convertible Senior
Subordinated Notes due 2013, incorporated by reference to Exhibit
10.2 to the Company’s Report on Form 8-K dated March 24, 2005. |
| |
|
|
|
|
| |
4.8 |
|
|
Fourth Amendment and Waiver to Credit Agreement, dated as of June
13, 2005, among the Company, Exide Global Holding Netherlands C.V.,
a limited partnership organized under the laws of the Netherlands,
the Lenders from time to time party hereto and Deutsche Bank AG New
York Branch, as Administrative Agent, incorporated by reference to
Exhibit 99.1 to the Company’s Report on Form 8-K dated June 15,
2005. |
| |
|
|
|
|
| |
4.9 |
|
|
Copy of Intercreditor Agreement dated as of March 18, 2005
reflecting changes from First Amendment to Intercreditor Agreement
dated as of June 10, 2005 among the Company, the administrative
agent under the senior credit facility, the trustee for the
Company’s two series of notes and the Pension Benefit Guaranty
Corporation, incorporated by reference to Exhibit 99.4 to the
Company’s Report on Form 8-K dated June 15, 2005. |
| |
|
|
|
|
| |
4.10 |
|
|
Fifth Amendment and Waiver to Credit Agreement, dated as of
June 29, 2005, among the Company, Exide Global Holding Netherlands
C.V., a limited partnership organized under the laws of the
Netherlands, the Lenders from time to time party hereto and Deutsche
Bank AG New York Branch, as Administrative Agent, incorporated by
reference to Exhibit 99.2 to the Company’s Report on Form 8-K dated
June 30, 2005. |
| |
|
|
|
|
| |
4.11 |
|
|
Sixth Amendment and Waiver to Credit Agreement, dated as of
January 25, 2006, among the Company, Exide |
50
| |
|
|
|
|
| |
|
|
|
Global Holding
Netherlands C.V., a limited partnership organized under the laws of
the Netherlands, the Lenders from time to time party hereto and
Deutsche Bank AG New York Branch, as Administrative Agent,
incorporated by reference to Exhibit 99.1 to the Company’s Report on
Form 8-K dated February 1, 2006. |
| |
|
|
|
|
| |
4.12 |
|
|
Seventh Amendment and Waiver to Credit Agreement, dated as
of March 10, 2006, among the Company, Exide Global Holding
Netherlands C.V., a limited partnership organized under the laws of
the Netherlands, the Lenders from time to time party hereto and
Deutsche Bank AG New York Branch, as Administrative Agent,
incorporated by reference to Exhibit 10.1 to the Company’s Report on
Form 8-K dated March 15, 2006. |
| |
|
|
|
|
| |
4.13 |
|
|
Security Agreement between the Company and the Pension Benefit
Guaranty Corporation dated as of June 10, 2005, incorporated by
reference to Exhibit 99.2 to the Company’s Report on Form 8-K dated
June 15, 2005. |
| |
|
|
|
|
| |
4.14 |
|
|
Pledge Agreement between the Company and the Pension Benefit
Guaranty Corporation dated as of June 10, 2005, incorporated by
reference to Exhibit 99.3 to the Company’s Report on Form 8-K dated
June 15, 2005. |
| |
|
|
|
|
| |
†10.19 |
|
|
Corporate Incentive Plan, incorporated by reference to Exhibit 10.20
to the Company’s Annual Report on Form 10-K for the fiscal year
ended March 31, 2002. |
| |
|
|
|
|
| |
10.21 |
|
|
North American Supply Agreement dated December 15, 1999 between
Daramic, Inc. and the Company (certain confidential portions have
been omitted and filed separately with the SEC pursuant to a request
for confidential treatment), incorporated by reference to Exhibit
10.22 to the Company’s Annual Report on Form 10-K for the fiscal
year ended March 31, 2002. |
| |
|
|
|
|
| |
10.22 |
|
|
Automotive and Industrial Supply Contract dated July 31, 2001
between Daramic, Inc. and the Company (certain confidential portions
have been omitted and filed separately with the SEC pursuant to a
request for confidential treatment), incorporated by reference to
Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the
fiscal year ended March 31, 2002. |
| |
|
|
|
|
| |
10.23 |
|
|
Golf Cart Separator Supply Contract dated July 31, 2001 between
Daramic, Inc. and the Company (certain confidential portions have
been omitted and filed separately with the SEC pursuant to a request
for confidential treatment), incorporated by reference to Exhibit
10.24 to the Company’s Annual Report on Form 10-K for the fiscal
year ended March 31, 2002. |
| |
|
|
|
|
| |
10.24 |
|
|
Amendment to Supply Contracts dated July 31, 2001 between Daramic,
Inc. and the Company (certain confidential portions have been
omitted and filed separately with the SEC pursuant to a request for
confidential treatment), incorporated by reference to Exhibit 10.25
to the Company’s Annual Report on Form 10-K for the fiscal year
ended March 31, 2002. |
| |
|
|
|
|
| |
10.25 |
|
|
Amendment No. 2 to Supply Contracts dated July 11, 2002 between
Daramic, Inc. and the Company (certain confidential portions have
been omitted and filed separately with the SEC pursuant to a request
for confidential treatment), incorporated by reference to Exhibit
10.26 to the Company’s Annual Report on Form 10-K for the fiscal
year ended March 31, 2002. |
| |
|
|
|
|
| |
†10.26 |
|
|
Exide Technologies et al. Debtors Income Protection Plan, incorporated by reference
to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year
ended March 31, 2002. |
| |
|
|
|
|
| |
†10.27 |
|
|
Exide Technologies’ 2004 Stock Incentive Plan, incorporated by reference to Exhibit
10.1 to the Company’s Report on Form 8-K dated October 19, 2005. |
| |
|
|
|
|
| |
†10.28 |
|
|
Employment Agreement, dated as of March 2, 2005, by and between the Company and
Gordon A. Ulsh, incorporated by reference to Exhibit 10.1 to the Company’s Report on
Form 8-K dated October 12, 2004. |
| |
|
|
|
|
| |
10.29 |
|
|
Employment Agreement, dated as of February 16, 2006, by and between the Company and
Francis M. Corby, Jr., incorporated by reference to Exhibit 10.1 to the Company’s
Report on Form 8-K dated February 16, 2006. |
| |
|
|
|
|
| |
10.30 |
|
|
Form of Indemnity Agreement, dated February 27, 2006, incorporated by reference to
Exhibit 10.1 to the Company’s Report on Form 8-K dated March 2, 2006. |
| |
|
|
|
|
| |
10.31 |
|
|
Registration Rights Agreement dated as of March 18, 2005 by and between the Company
and Deutsche Bank Securities Inc., Credit Suisse First Boston LLC, Banc of America
Securities LLC and UBS Securities LLC relating to the 10
1 / 2 % Senior Secured Notes due 2013, incorporated by reference
to Exhibit 10.3 to the Company’s Report on Form 8-K dated March 24, 2005. |
| |
|
|
|
|
| |
10.32 |
|
|
Registration Rights Agreement dated as of March 18, 2005 by and
between the Company and Deutsche Bank Securities Inc. and Credit
Suisse First Boston LLC relating to the Floating Rate Convertible
Senior Subordinated Notes due 2013, incorporated by reference to
Exhibit 10.4 to the Company’s Report on Form 8-K dated March 24,
2005. |
| |
|
|
|
|
| |
*14.1 |
|
|
Amended Code of Ethics and Business Conduct, effective March 28, 2006 |
| |
|
|
|
|
| |
*21 |
|
|
Subsidiaries of the Company. |
| |
|
|
|
|
| |
*23.1 |
|
|
Consent of Independent Registered Public Accounting Firm |
51
| |
|
|
|
|
| |
*31.1 |
|
|
Certification of Gordon A. Ulsh, President and Chief Executive
Officer, pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
| |
|
|
|
|
| |
*31.2 |
|
|
Certification of Francis M. Corby, Jr., Executive Vice President and
Chief Financial Officer, pursuant to Section 302 of Sarbanes-Oxley
Act of 2002 |
| |
|
|
|
|
| |
*32.1 |
|
|
Certifications pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
|
|
|
| * |
|
Filed with this Report. |
| |
| † |
|
Management contract or compensatory plan or arrangement. |
52
EXIDE TECHNOLOGIES AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
| |
|
|
|
|
|
|
|
F-2 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
F-7 |
|
|
|
|
F-8 |
|
|
|
|
F-9 |
|
FINANCIAL STATEMENT SCHEDULE: |
|
|
|
|
II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES |
|
|
F-40 |
|
All other schedules are omitted because they are not applicable, not required, or the
information required to be set forth therein is included in the Consolidated Financial Statements
or in the Notes thereto.
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Exide Technologies
We have completed integrated audits of Exide Technologies’ 2006 and 2005 consolidated
financial statements and of its internal control over financial reporting as of March 31, 2006 in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Our
opinions, based on our audits, are presented below.
Consolidated financial statements and financial statement schedule
In our opinion, the accompanying consolidated balance sheet and the related consolidated
statements of operations, stockholders’ equity and cash flows present fairly, in all material
respects, the financial position of Exide Technologies and its subsidiaries (Successor Company) at
March 31, 2006 and 2005, and the results of their operations and cash flows for the year ended
March 31, 2006 and for the period from May 6, 2004 to March 31, 2005 in conformity with accounting
principles generally accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the accompanying index, for the year ended March 31, 2006
and for the period May 6, 2004 to March 31, 2005 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these financial statements
and financial statement schedule based on our audits. We conducted our audits of these statements
in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit of financial
statements includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the consolidated financial
statements, the Company has suffered recurring losses and negative cash flows from operations.
Additionally, given the Company’s past financial performance in comparison to its budgets and
forecasts there is no assurance the Company will be able to meet these budgets and forecasts and be
in compliance through
March 31, 2007 with one or more of the debt covenants of its Senior Secured Credit Facility. These issues raise substantial doubt about its ability to continue as a going
concern. Management plans in regard to these matters are described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 1 to the consolidated financial statements, on April 15, 2002, Exide
Technologies, together with certain of its U.S. subsidiaries (Debtors), filed voluntary petitions
for reorganization under Chapter 11 of the federal bankruptcy laws in the United States Court for
the District of Delaware. The Debtors’ Joint Plan of Reorganization was confirmed by the Bankruptcy
Court on April 21, 2004 and the Debtors declared May 5, 2004 as the effective date of the Plan as
the transactions provided for in the Plan had been substantially consummated on such date.
Confirmation of the plan resulted in the discharge of substantially all claims against the Company
that arose before April 15, 2002 and terminated all rights and interests of equity security holders
as provided for in the plan. In connection with its emergence from bankruptcy, the Company adopted
Fresh Start reporting as of May 5, 2004.
Internal control over financial reporting
Also, we have audited management’s assessment, included in Management’s Report on
Internal Control Over Financial Reporting appearing under Item 9A, that Exide Technologies did not
maintain effective internal control over financial reporting as of March 31, 2006, as the Company
did not maintain (i) sufficient resources in the accounting and finance function, (ii) effective
controls over accounting for inventories, (iii) effective controls over accounting for investments
in affiliates, (iv) effective controls over accounting for income taxes and (v) segregation of
duties, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management
is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is
to express opinions on management’s assessment and on the effectiveness of the Company’s internal
control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. An audit of
internal control over financial reporting includes obtaining an understanding of internal control
over financial reporting, evaluating management’s assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinions.
F-2
A company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The following material weaknesses have been
identified and included in management’s assessment as of March 31, 2006.
1. Lack of sufficient resources in our accounting and finance organization. The Company did
not maintain a sufficient complement of personnel to maintain an appropriate accounting and
financial reporting organizational structure to support the activities of the Company.
Specifically, the Company did not maintain personnel with an appropriate level of accounting
knowledge, experience and training in the selection and application of generally accepted
accounting principles commensurate with the Company’s financial reporting requirements. This
material weakness contributed to the material weaknesses in 2 through 5 below.
2. Accounting for inventories. The Company did not maintain effective controls over the
completeness, accuracy and valuation of certain inventories. Specifically, the Company did not
maintain effective controls over: (i) consigned inventory quantities, (ii) the cost of lead
content used in the Company’s
operations in Spain, (iii) inventory variances in the Company’s operations in both the United
States and the United Kingdom, and (iv) the lower of cost or market adjustments in accordance with
generally accepted accounting principles. These control deficiencies resulted in audit adjustments
to the Company’s fiscal 2006 annual consolidated financial statements. Additionally, these
control deficiencies, in the aggregate, could result in a misstatement of inventory and cost of
sales that would result in a material misstatement to the Company’s annual or interim consolidated
financial statements that would not be prevented or detected.
3. Accounting for investments in affiliates. The Company did not maintain effective controls over
accounting for investments in affiliates. Specifically, the company did not have effective
controls over the completeness and accuracy over the accounting for its equity-method investees in
accordance with generally accepted accounting principles. This control deficiency resulted in
audit adjustments to the Company’s fiscal 2006 consolidated financial statements. Additionally,
this control deficiency could result in a misstatement of investments in affiliates and related
income statement accounts that would result in a material misstatement to the Company’s annual or
interim consolidated financial statements that would not be prevented or detected.
4. Accounting for income taxes. The Company did not maintain effective controls over accounting
for income taxes. Specifically, the Company’s processes, procedures and controls related to the
preparation and review of the quarterly and annual tax provisions were not effective to ensure that
the tax provision and related deferred tax asset and liability accounts were accurate, recorded in
the proper period and determined in accordance with generally accepted accounting principles. In
addition, the Company did not adequately monitor the effect of changes-in-control to ensure the
completeness and accuracy of net operating loss carry-forwards for income tax purposes in the
United States. This control deficiency resulted in audit adjustments to the Company’s fiscal 2006
consolidated financial statements. Additionally, this control deficiency could result in a
misstatement of the tax provision and deferred tax asset and liability balances that would result
in a material misstatement to the Company’s annual or interim consolidated financial statements
that would not be prevented or detected.
5. Segregation of duties. The Company did not maintain effective segregation of duties. Specifically, in connection with the lack of sufficient accounting and finance resources
described in material weakness 1 above, certain financial accounting and reporting personnel had
incompatible duties that permitted creation, review, and processing of financial data without
independent review and authorization affecting payroll, inventory, purchasing, payables, cost of
sales, revenue and accounts receivable. This control deficiency could result in a misstatement of
the Company’s accounts and disclosures that would result in a material misstatement to the
Company’s interim or annual consolidated financial statements that would not be prevented or
detected.
These material weaknesses were considered in determining the nature, timing, and extent of audit
tests applied in our audit of the 2006 consolidated financial statements, and our opinion regarding
the effectiveness of the Company’s internal control over financial reporting does not affect our
opinion on those consolidated financial statements.
In our opinion, management’s assessment that Exide Technologies did not maintain
effective internal control over financial reporting as of March 31, 2006, is fairly stated, in all
material respects, based on criteria established in Internal Control—Integrated Framework issued by
the COSO. Also, in our opinion, because of the effect of the material weaknesses described above on
the achievement of the objectives of the control criteria, Exide Technologies has not maintained
effective internal control over financial reporting as of March 31, 2006, based on criteria
established in Internal Control—Integrated Framework issued by the COSO.
PricewaterhouseCoopers LLP
Atlanta, Georgia
June 28, 2006
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Exide Technologies
In our opinion, the accompanying consolidated statements of operations, stockholders’
equity (deficit) and cash flows present fairly, in all material respects, the results of operations
and cash flows of Exide Technologies and its subsidiaries (Predecessor Company) for the period from
April 1, 2004 to May 5, 2004 and for the year ended March 31, 2004 in conformity with
accounting principles generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the accompanying index for the period from
April 1, 2004 to May 5, 2004 and for the year ended March 31, 2004 presents fairly,
in all material respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and financial statement
schedule are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 4 to the consolidated financial statements, on April 1, 2003, the
Company adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations.
As discussed in Note 1 to the consolidated financial statements, on April 15, 2002, Exide
Technologies, together with certain of its U.S. subsidiaries (Debtors), filed voluntary petitions
for reorganization under Chapter 11 of the federal bankruptcy laws in the United States Court for
the District of Delaware. The Debtors’ Joint Plan of Reorganization was confirmed by the Bankruptcy
Court on April 21, 2004 and the Debtors declared May 5,
2004 as the effective date of the Plan. The transactions provided for
in the Plan had been substantially consummated on such date. In
connection with its emergence from bankruptcy, the Company adopted Fresh Start reporting as of May
5, 2004.
PricewaterhouseCoopers LLP
Atlanta, Georgia
June 28, 2005
F-4
EXIDE TECHNOLOGIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Successor Company |
|
|
Predecessor Company |
|
| |
|
|
|
|
|
For the Period |
|
|
For the Period |
|
|
|
|
| |
|
For the fiscal |
|
|
May 6, 2004 |
|
|
April 1, 2004 |
|
|
For the fiscal |
|
| |
|
year ended |
|
|
to |
|
|
to |
|
|
year ended |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
May 5, 2004 |
|
|
March 31, 2004 |
|
NET SALES |
|
$ |
2,819,876 |
|
|
$ |
2,476,259 |
|
|
$ |
214,607 |
|
|
$ |
2,500,493 |
|
COST OF SALES |
|
|
2,413,045 |
|
|
|
2,098,757 |
|
|
|
179,137 |
|
|
|
1,991,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
406,831 |
|
|
|
377,502 |
|
|
|
35,470 |
|
|
|
509,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, marketing and advertising |
|
|
271,059 |
|
|
|
251,085 |
|
|
|
24,504 |
|
|
|
264,753 |
|
General and administrative |
|
|
190,993 |
|
|
|
150,871 |
|
|
|
17,940 |
|
|
|
161,271 |
|
Restructuring and impairment |
|
|
21,714 |
|
|
|
42,479 |
|
|
|
602 |
|
|
|
52,708 |
|
Goodwill impairment charge |
|
|
— |
|
|
|
388,524 |
|
|
|
— |
|
|
|
— |
|
Other (income) expense, net |
|
|
3,684 |
|
|
|
(56,898 |
) |
|
|
6,222 |
|
|
|
(40,724 |
) |
Interest expense, net |
|
|
69,464 |
|
|
|
42,636 |
|
|
|
8,870 |
|
|
|
99,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
556,914 |
|
|
|
818,697 |
|
|
|
58,138 |
|
|
|
537,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before reorganization items, income taxes, minority interest and
cumulative effect of change in accounting principle |
|
|
(150,083 |
) |
|
|
(441,195 |
) |
|
|
(22,668 |
) |
|
|
(27,710 |
) |
REORGANIZATION ITEMS, NET |
|
|
6,158 |
|
|
|
11,527 |
|
|
|
18,434 |
|
|
|
67,042 |
|
FRESH START ACCOUNTING ADJUSTMENTS, NET |
|
|
— |
|
|
|
— |
|
|
|
(228,371 |
) |
|
|
— |
|
GAIN ON DISCHARGE OF LIABILITIES SUBJECT TO COMPROMISE |
|
|
— |
|
|
|
— |
|
|
|
(1,558,839 |
) |
|
|
— |
|
INCOME TAX PROVISION (BENEFIT) |
|
|
15,962 |
|
|
|
14,219 |
|
|
|
(2,482 |
) |
|
|
3,271 |
|
MINORITY INTEREST |
|
|
529 |
|
|
|
(18 |
) |
|
|
26 |
|
|
|
467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of change in accounting principle |
|
|
(172,732 |
) |
|
|
(466,923 |
) |
|
|
1,748,564 |
|
|
|
(98,490 |
) |
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(15,593 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(172,732 |
) |
|
$ |
(466,923 |
) |
|
$ |
1,748,564 |
|
|
$ |
(114,083 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER SHARE, BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted |
|
$ |
(6.91 |
) |
|
$ |
(18.68 |
) |
|
$ |
63.86 |
|
|
$ |
(3.60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(0.57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted |
|
$ |
(6.91 |
) |
|
$ |
(18.68 |
) |
|
$ |
63.86 |
|
|
$ |
(4.17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
27,383 |
|
|
|
27,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
F-5
EXIDE TECHNOLOGIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per-share data)
| |
|
|
|
|
|
|
|
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
32,161 |
|
|
$ |
76,696 |
|
Restricted cash |
|
|
561 |
|
|
|
1,323 |
|
Receivables, net of allowance for doubtful accounts of $21,637 and $22,471 |
|
|
617,677 |
|
|
|
687,715 |
|
Inventories |
|
|
414,943 |
|
|
|
397,689 |
|
Prepaid expenses and other |
|
|
30,243 |
|
|
|
21,275 |
|
Deferred financing costs, net |
|
|
3,169 |
|
|
|
1,725 |
|
Deferred income taxes |
|
|
11,066 |
|
|
|
4,305 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,109,820 |
|
|
|
1,190,728 |
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
685,842 |
|
|
|
799,763 |
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
Other intangibles, net |
|
|
186,820 |
|
|
|
192,854 |
|
Investments in affiliates |
|
|
4,783 |
|
|
|
9,010 |
|
Deferred financing costs, net |
|
|
15,196 |
|
|
|
12,784 |
|
Deferred income taxes |
|
|
56,358 |
|
|
|
55,896 |
|
Other |
|
|
24,090 |
|
|
|
29,745 |
|
|
|
|
|
|
|
|
|
|
|
287,247 |
|
|
|
300,289 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,082,909 |
|
|
$ |
2,290,780 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Short-term borrowings |
|
$ |
11,375 |
|
|
$ |
1,595 |
|
Current maturities of long-term debt |
|
|
5,643 |
|
|
|
632,116 |
|
Accounts payable |
|
|
360,538 |
|
|
|
340,480 |
|
Accrued expenses |
|
|
298,631 |
|
|
|
385,521 |
|
Warrants liability |
|
|
2,063 |
|
|
|
11,188 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
678,250 |
|
|
|
1,370,900 |
|
Long-term debt |
|
|
683,986 |
|
|
|
20,047 |
|
Noncurrent retirement obligations |
|
|
333,248 |
|
|
|
329,628 |
|
Deferred income tax liability |
|
|
33,590 |
|
|
|
24,178 |
|
Other noncurrent liabilities |
|
|
116,430 |
|
|
|
106,004 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,845,504 |
|
|
|
1,850,757 |
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
— |
|
|
|
— |
|
Minority interest |
|
|
12,666 |
|
|
|
12,764 |
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 61,500 shares authorized, 24,546 and 24,407 shares
issued and outstanding at March 31, 2006 and March 31, 2005 |
|
|
245 |
|
|
|
234 |
|
Preferred stock, $0.01 par value, 1,000 shares authorized, 0 shares issued and
outstanding at March 31, 2006 and March 31, 2005 |
|
|
— |
|
|
|
— |
|
Additional paid-in capital |
|
|
888,647 |
|
|
|
888,157 |
|
Accumulated deficit |
|
|
(639,655 |
) |
|
|
(466,923 |
) |
Accumulated other comprehensive income (loss) |
|
|
(24,498 |
) |
|
|
5,791 |
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
224,739 |
|
|
|
427,259 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
2,082,909 |
|
|
$ |
2,290,780 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
F-6
EXIDE TECHNOLOGIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Notes |
|
|
|
|
|
|
Minimum |
|
|
|
|
|
|
|
| |
|
|
|
|
|
Additional |
|
|
Receivable- |
|
|
|
|
|
|
Pension |
|
|
Cummulative |
|
|
|
|
| |
|
Common |
|
|
Paid-in |
|
|
Stock |
|
|
Accumulated |
|
|
Liability, |
|
|
Transalation |
|
|
Comprehensive |
|
| |
|
Stock |
|
|
Capital |
|
|
Award Plan |
|
|
Deficit |
|
|
Net of Tax |
|
|
Adjustment |
|
|
Income (Loss) |
|
Balance at March 31,
2003 (Predecessor
Company) |
|
$ |
274 |
|
|
$ |
570,589 |
|
|
$ |
(665 |
) |
|
$ |
(932,004 |
) |
|
$ |
(137,507 |
) |
|
$ |
(196,056 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for fiscal 2004 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(114,083 |
) |
|
|
— |
|
|
|
— |
|
|
$ |
(114,083 |
) |
Minimum pension
liability adjustment,
net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(18,391 |
) |
|
|
— |
|
|
|
(18,391 |
) |
Translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
58,074 |
|
|
|
58,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
(74,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2004
(Predecessor Company) |
|
$ |
274 |
|
|
$ |
570,589 |
|
|
$ |
(665 |
) |
|
$ |
(1,046,087 |
) |
|
$ |
(155,898 |
) |
|
$ |
(137,982 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the
period April 1, 2004 to
May 5, 2004 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,748,564 |
|
|
|
— |
|
|
|
— |
|
|
$ |
1,748,564 |
|
Translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,591 |
) |
|
|
(7,591 |
) |
Cancellation of
Predecessor Company
common stock |
|
$ |
(274 |
) |
|
$ |
(570,589 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Fresh Start elimination
of equity account
balances |
|
|
— |
|
|
|
— |
|
|
|
665 |
|
|
|
(702,477 |
) |
|
|
155,898 |
|
|
|
145,573 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
1,740,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 5, 2004
(Predecessor Company) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Successor
Company common stock |
|
|
234 |
|
|
|
888,157 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 5, 2004
(Successor Company) |
|
$ |
234 |
|
|
$ |
888,157 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
May 6, 2004 to March 31,2005 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(466,923 |
) |
|
|
— |
|
|
|
— |
|
|
$ |
(466,923 |
) |
Minimum pension
liability adjustment,
net of tax of $1,559 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(24,350 |
) |
|
|
— |
|
|
|
(24,350 |
) |
Translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,141 |
|
|
|
30,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
(461,132 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2005
(Successor Company) |
|
$ |
234 |
|
|
$ |
888,157 |
|
|
$ |
— |
|
|
$ |
(466,923 |
) |
|
$ |
(24,350 |
) |
|
$ |
30,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the fiscal
year ended March 31,2006 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(172,732 |
) |
|
|
— |
|
|
|
— |
|
|
$ |
(172,732 |
) |
Minimum pension
liability adjustment,
net of tax of $315 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,026 |
) |
|
|
— |
|
|
|
(6,026 |
) |
Translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(24,263 |
) |
|
|
(24,263 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
(203,021 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issuance |
|
|
11 |
|
|
|
(11 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Restricted stock issanuce |
|
|
— |
|
|
|
501 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
March 31, 2006
(Successor Company) |
|
$ |
245 |
|
|
$ |
888,647 |
|
|
$ |
— |
|
|
$ |
(639,655 |
) |
|
$ |
(30,376 |
) |
|
$ |
5,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these statements.
F-7
EXIDE TECHNOLOGIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Successor Company |
|
|
Predecessor Company |
|
| |
|
|
|
|
|
For the Period |
|
|
For the Period |
|
|
|
|
| |
|
For the fiscal |
|
|
May 6, 2004 |
|
|
April 1, 2004 |
|
|
For the fiscal |
|
| |
|
year ended |
|
|
to |
|
|
to |
|
|
year ended |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
May 5, 2004 |
|
|
March 31, 2004 |
|
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(172,732 |
) |
|
$ |
(466,923 |
) |
|
$ |
1,748,564 |
|
|
$ |
(114,083 |
) |
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
122,429 |
|
|
|
108,752 |
|
|
|
7,848 |
|
|
|
97,816 |
|
Cumulative effect of change in accounting principle |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15,593 |
|
Gain on discharge of liabilities subject to compromise |
|
|
— |
|
|
|
— |
|
|
|
(1,558,839 |
) |
|
|
— |
|
Fresh start accounting adjustments, net |
|
|
— |
|
|
|
— |
|
|
|
(228,371 |
) |
|
|
— |
|
Unrealized gain on Warrants |
|
|
(9,125 |
) |
|
|
(63,112 |
) |
|
|
— |
|
|
|
— |
|
Net loss (gain) on asset sales |
|
|
8,044 |
|
|
|
7,649 |
|
|
|
— |
|
|
|
(9,700 |
) |
Gain on insurance recoveries |
|
|
(4,791 |
) |
|
|
(13,645 |
) |
|
|
— |
|
|
|
— |
|
Deferred income taxes |
|
|
(36 |
) |
|
|
6,551 |
|
|
|
(3,179 |
) |
|
|
(7,343 |
) |
Provision for doubtful accounts |
|
|
4,116 |
|
|
|
1,973 |
|
|
|
473 |
|
|
|
5,140 |
|
Non-cash provision for restructuring |
|
|
1,280 |
|
|
|
4,000 |
|
|
|
18 |
|
|
|
217 |
|
Reorganization items, net |
|
|
6,158 |
|
|
|
11,527 |
|
|
|
18,434 |
|
|
|
67,042 |
|
Goodwill impairment charge |
|
|
— |
|
|
|
388,524 |
|
|
|
— |
|
|
|
— |
|
Insurance proceeds |
|
|
11,144 |
|
|
|
7,290 |
|
|
|
— |
|
|
|
— |
|
Minority interest |
|
|
529 |
|
|
|
(18 |
) |
|
|
26 |
|
|
|
467 |
|
Amortization of deferred financing costs |
|
|
2,048 |
|
|
|
— |
|
|
|
1,251 |
|
|
|
18,537 |
|
Changes in assets and liabilities excluding effects of Fresh
Start accounting and acquisitions and divestitures— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
34,022 |
|
|
|
(31,777 |
) |
|
|
45,924 |
|
|
|
32,486 |
|
Inventories |
|
|
(34,703 |
) |
|
|
38,826 |
|
|
|
(10,873 |
) |
|
|
12,451 |
|
Prepaid expenses and other |
|
|
(8,997 |
) |
|
|
(108 |
) |
|
|
286 |
|
|
|
(13,151 |
) |
Payables |
|
|
33,958 |
|
|
|
41,120 |
|
|
|
(20,967 |
) |
|
|
13,077 |
|
Accrued expenses |
|
|
(68,907 |
) |
|
|
(32,932 |
) |
|
|
(20,564 |
) |
|
|
(3,250 |
) |
Noncurrent liabilities |
|
|
27,500 |
|
|
|
(4,454 |
) |
|
|
(294 |
) |
|
|
(18,401 |
) |
Other, net |
|
|
3,715 |
|
|
|
(12,934 |
) |
|
|
13,077 |
|
|
|
(56,347 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(44,348 |
) |
|
|
(9,691 |
) |
|
|
(7,186 |
) |
|
|
40,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(58,133 |
) |
|
|
(69,114 |
) |
|
|
(7,152 |
) |
|
|
(65,128 |
) |
Proceeds from sales of assets |
|
|
25,316 |
|
|
|
25,101 |
|
|
|
2,800 |
|
|
|
26,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(32,817 |
) |
|
|
(44,013 |
) |
|
|
(4,352 |
) |
|
|
(38,411 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in short-term borrowings |
|
|
10,347 |
|
|
|
(11,588 |
) |
|
|
2,425 |
|
|
|
(107 |
) |
Repayments under 9.125% Senior Notes (Deutschemark
denominated) |
|
|
— |
|
|
|
— |
|
|
|
(110,082 |
) |
|
|
— |
|
Borrowings under DIP Credit Facility |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
836,834 |
|
Repayments under DIP Credit Facility |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,005,598 |
) |
Borrowings under Replacement DIP Credit Facility |
|
|
— |
|
|
|
— |
|
|
|
121,258 |
|
|
|
510,106 |
|
Repayments under Replacement DIP Credit Facility |
|
|
— |
|
|
|
— |
|
|
|
(452,875 |
) |
|
|
(178,488 |
) |
Borrowings under Senior Secured Credit Facility |
|
|
46,250 |
|
|
|
— |
|
|
|
500,000 |
|
|
|
— |
|
Repayments under Senior Secured Credit Facility |
|
|
(17,224 |
) |
|
|
(250,000 |
) |
|
|
— |
|
|
|
— |
|
Borrowings under Senior Secured Notes |
|
|
— |
|
|
|
290,000 |
|
|
|
— |
|
|
|
— |
|
Borrowings under Convertible Senior Subordinated Notes |
|
|
— |
|
|
|
60,000 |
|
|
|
— |
|
|
|
— |
|
European asset securitization |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(160,221 |
) |
Currency Swap |
|
|
(12,084 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Increase/Decrease in other debt |
|
|
15,667 |
|
|
|
(5,967 |
) |
|
|
(2,412 |
) |
|
|
(6,152 |
) |
Financing costs and other |
|
|
(8,310 |
) |
|
|
(13,520 |
) |
|
|
(23,146 |
) |
|
|
(6,041 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
34,646 |
|
|
|
68,925 |
|
|
|
35,168 |
|
|
|
(9,667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
(2,016 |
) |
|
|
1,879 |
|
|
|
(1,447 |
) |
|
|
5,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) In Cash and Cash Equivalents |
|
|
(44,535 |
) |
|
|
17,100 |
|
|
|
22,183 |
|
|
|
(2,353 |
) |
Cash and Cash Equivalents, Beginning of Period |
|
|
76,696 |
|
|
|
59,596 |
|
|
|
37,413 |
|
|
|
39,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period |
|
$ |
32,161 |
|
|
$ |
76,696 |
|
|
$ |
59,596 |
|
|
$ |
37,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures Of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
54,923 |
|
|
$ |
32,991 |
|
|
$ |
13,765 |
|
|
$ |
56,628 |
|
Income taxes (net of refunds) |
|
$ |
10,568 |
|
|
$ |
10,580 |
|
|
$ |
1,139 |
|
|
$ |
14,355 |
|
The accompanying notes are an integral part of these statements.
F-8
EXIDE TECHNOLOGIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
(In thousands, except per-share and headcount data)
(1) BASIS OF PRESENTATION
The Consolidated Financial Statements include the accounts of Exide Technologies
(referred together with its subsidiaries, unless the context requires otherwise, as “Exide” or the
“Company”) and all of its majority-owned subsidiaries.
On April 15, 2002, the “Petition Date”, Exide Technologies, together with certain of its U.S.
subsidiaries, 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”). On November 21, 2002, two additional wholly owned,
non-operating subsidiaries of Exide filed voluntary petitions for reorganization under Chapter 11
in the Bankruptcy Court. All of the cases were jointly administered for procedural purposes before
the Bankruptcy Court under case number 02-11125KJC.
Exide Technologies and such subsidiaries (the “Debtors”) continued to operate their businesses
and manage their properties as debtors-in-possession throughout the course of the bankruptcy case.
The Debtors, along with the Official Committee of Unsecured Creditors, filed a Joint Plan of
Reorganization (the “Plan”) with the Bankruptcy Court on February 27, 2004 and, on April 21, 2004,
the Bankruptcy Court confirmed the Plan. The Debtors declared May 5, 2004 as the effective date of
the Plan, and substantially consummated the transactions provided for in the Plan on such date (the
“Effective Date”). For accounting purposes the Company also recognized the emergence as of May 5,
2004, as this was the date upon which the material conditions related to emergence, most
significantly the finalization of the Company’s exit financing, were resolved.
The emergence from Chapter 11 resulted in a new reporting entity (the “Successor Company”) and
adoption of Fresh Start reporting and reporting in accordance with Statement of Position 90-7 (“SOP
90-7”), “Financial Reporting by Entities in Reorganization under the Bankruptcy Code.” Fresh Start
reporting required the Company to allocate the reorganization value to its assets based upon their
estimated fair values in accordance with Statement of Financial Accounting Standards (“SFAS”) No.
141, “Business Combinations” (“SFAS 141”). In connection with the development of the plan of
reorganization the Company was primarily responsible for the valuation and directed its financial
advisors to prepare a valuation analysis of its business. Management considered a number of
factors, including valuations or appraisals, when estimating the fair values of the Company’s
assets and liabilities. Each liability existing at the Plan confirmation date, other than deferred
taxes, was stated at present values of amounts to be paid determined at appropriate current
interest rates. Adoption of Fresh Start reporting has resulted in material adjustments to the
historical carrying value of the Company’s assets and liabilities.
These Consolidated Financial Statements 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 upon, among other things, compliance with the provisions of the covenants of its current
borrowing arrangements, the ability to generate cash flows from operations and, where necessary,
obtaining financing sources sufficient to satisfy the Company’s future obligations, as well as
certain contingencies described in Note 15. On February 1, 2006, the Company obtained amendments
to its Senior Secured Credit Facility (the “Credit Agreement”) which, provided $46,250 of
additional borrowings, eliminated scheduled amortization of principal payments during the term of
the facility, eliminated most financial covenants, relaxed the covenant related to minimum earnings
before interest, taxes, depreciation, amortization and restructuring (“Adjusted EBITDA”), modified
covenants for the maximum capital expenditures and leverage ratios for permitted acquisitions,
expanded the amount of non-core asset sale proceeds to be retained by the Company and enhanced
existing call protection for the lenders as well as extended such call protection to include
outstanding amounts under the Company’s revolving loan facility.
On March 15, 2006, the Company obtained further amendments to the Credit Agreement, which
relaxed the covenant related to Adjusted EBITDA, eliminated the “going concern” covenant for fiscal
year 2006, increased call protection for the lenders in the event the Company refinances the senior
credit facility, increased the applicable margin for the outstanding loans and an agreement to pay
certain fees for a financial advisor for the lenders.
As of June 14, 2006, the Company believes, based upon its financial forecast and plans that it
will comply with the Credit Agreement covenants for at least the period through March 31, 2007.
The Company has suffered recurring losses and negative cash flows from operations. Additionally,
given the Company’s past financial performance in comparison to its
F-9
budgets and forecasts, there is no assurance the Company will be able to meet these budgets
and forecasts and be in compliance with one or more of its debt covenants of its Senior Secured
Credit Facility through March 31, 2007. These uncertainties with respect to the Company’s past
performance in comparison to its budgets and forcasts, and its ability to maintain compliance with
its financial covenants throughout fiscal 2006 resulted in the Company’s receiving a going concern
modification to the audit opinion for fiscal 2006. Failure to comply with the Credit Agreement
covenants, without waiver, would result in a default under the Credit
Agreement. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty. Should the Company
be in default, it is not permitted to borrow under the Credit Agreement, which would have a very
negative effect on liquidity. Although the Company has been able to obtain waivers of prior
defaults, there can be no assurance that it can do so in the future or, if it can, what the cost
and terms of obtaining such waivers would be. Future defaults would, if not waived, allow the
Credit Agreement lenders to accelerate the loans and declare all amounts due and payable. Any such
acceleration would also result in a default under the Indentures for the Company’s notes and their
potential acceleration.
Generally, the Company’s principal sources of liquidity are cash from operations, borrowings
under the Credit Agreement, and proceeds from any asset sales which are not used to repay Credit
Agreement debt. The Credit Agreement requires that the proceeds from asset sales be used for the
pay down of Term Loans, except for specific exceptions which permit the Company to retain $30,000
from specified non-core asset sales and 50% of the proceeds of the sale of other specified assets
with an estimated value of $100,000.
The
Company’s current liquidity position at June 16, 2006 of $55,600 remains constrained. The
Company has an operational plan that would provide adequate liquidity to fund its operations
through the remainder of the fiscal year. The Company has reduced its planned capital expenditures
and has reduced planned restructuring activities in order to provide
additional liquidity. On June 28, 2006,
the Company entered into a Standby Purchase Agreement with investors who would backstop a rights
offering of common stock by the Company to its shareholders and purchase additional shares of
common stock. Such transactions would provide gross proceeds to the
Company of up to $125,000 before expenses. The
closing of such transactions is subject to several conditions, including shareholder approval
(which the Company plans to seek at its annual meeting of shareholders in August 2006), there being
no material adverse effect on the Company’s business and there not being trading suspensions or
other adverse developments in the financial markets. Subsequent to
this transaction the Company will have more common stock issued and
as a result this transaction will have a dilutive affect.
If the Company fails to meet its operations objectives, including working capital reductions,
and if such shortfall is not replaced through proceeds from a rights offering or other means, the lack of liquidity
would have a material adverse impact on the Company’s ability to fund its operations and financial
obligations and cause the Company to evaluate a restructuring of its obligations.
The accompanying Consolidated Financial Statements of the Company prior to emergence from
Chapter 11 (the “Predecessor Company”) have also been prepared in accordance with SOP 90-7.
Revenues, expenses, realized gains and losses and provision for losses resulting from the
reorganization are reported separately as Reorganization items, net in the consolidated statements
of operations.
Since the Company’s emergence from bankruptcy resulted in a new reporting entity as of the
Effective Date, the Consolidated Financial Statements for periods subsequent to May 5, 2004 are not
comparable with those of prior periods. All financial information as of and for periods prior to
May 5, 2004 is presented as pertaining to the Predecessor Company, while all financial information
after that date is presented as pertaining to the Successor Company. The Consolidated Statements
of Operations reflect the results of the reorganization and Fresh Start adjustments in accordance
with SOP 90-7 in the period April 1, 2004 to May 5, 2004 as Predecessor Company information.
In
the fourth quarter of fiscal year 2006, the Company’s results
were impacted by certain adjustments to correct prior period errors
that were identified in connection with the year-end reporting
process. These adjustments included write-offs related to consignment
inventory and adjustments to properly state certain ending accrual
balances. In addition, adjustments were also identified and recorded
to reduce an investment in affiliate to the correct equity income
balance, write down a value added tax (“VAT”) receivable in
Spain to net realizable value, properly discount a non-interest
bearing note and push down entries to the appropriate consolidating
entity. The Company also identified and recorded adjustments to
deferred taxes to correct errors identified during the year-end
income tax reporting process. A full valuation allowance was also
recorded on the deferred tax assets in Spain due to the entity’s
historical and expected future losses. The net impact of these
adjustments would have been a decrease of fourth quarter net loss by
$540 for items that should have been recorded in prior periods. After
evaluating these adjustments, the Company concluded that they did not
have a material impact on any quarters in fiscal year 2006 or prior
periods.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Exide Technologies and all
of it’s majority owned subsidiaries in which the Company exercises control (collectively the
“Company”). Investments in affiliates of less than a 20% interest are accounted for by the cost
method. Investments in 20% to 50% owned companies are accounted for by the equity method. The
Company’s equity in the net income (loss) of these companies is not material. All significant
intercompany transactions have been eliminated.
Nature of Operations
The Company is one of the largest manufacturers and marketers of lead acid batteries in
the world. The Company manufactures industrial and automotive batteries in North America, Europe,
the Middle East, India, Australia and New Zealand. The Company’s industrial batteries consist of
motive power batteries, such as those used in forklift trucks and other
F-10
electronic vehicles, and network power batteries used for back-up power applications, such as
those used for telecommunication systems. The Company markets its automotive batteries to a broad
range of retailers and distributors of replacement batteries and automotive original equipment
manufacturers.
The Company currently has four business segments, Transportation North America,
Transportation Europe and ROW, Industrial Energy North America, Industrial Energy Europe and ROW.
For a discussion of the Company’s segments, see Note 21.
Major Customers and Concentration of Credit
The Company has a number of major end-user, retail and original equipment manufacturer
customers, both in North America and Europe. No single customer accounted for more than 10% of
consolidated net sales during any of the fiscal years presented. The Company does not believe a
material part of its business is dependent upon a single customer, the loss of which would have a
material long-term impact on the business of the Company. However, the loss of one or more of the
Company’s largest customers would most likely have a negative short-term impact on the Company’s
results of operations.
Foreign Currency Translation
The functional currencies of the Company’s foreign subsidiaries are primarily the
respective local currency. Assets and liabilities of the Company’s foreign subsidiaries and
affiliates are translated into U.S. dollars at the year-end exchange rate, and revenues and
expenses are translated at average monthly exchange rates. Translation gains and losses are
recorded as a component of accumulated other comprehensive income (loss) within stockholders’
equity. Foreign currency gains and losses from certain intercompany transactions meeting the
permanently advanced criteria of SFAS No. 52 “Foreign Currency Translation” are also recorded as a
component of accumulated other comprehensive income (loss). All other foreign currency gains and
losses are included in other (income) expense, net. The Company recognized net foreign currency
(gains) losses of $11,280, $ (2,580), $6,283, and ($43,846), in fiscal 2006, the period May 6, 2004
to March 31, 2005, the period April 1, 2004 to May 5, 2004, and fiscal 2004, respectively.
Cash Equivalents
Cash equivalents consist of highly liquid instruments with maturities at the time of
acquisition of three months or less. Cash equivalents are stated at cost, which approximates fair
value, because of the short-term maturity of these instruments.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated probable losses
resulting from the inability of the Company’s customers to make required payments. The Company
continues to assess the adequacy of the reserves for doubtful accounts based on the financial
condition of the Company’s customers and other external factors that may impact collectibility. The
majority of the Company’s accounts receivable are due from trade customers. Credit is extended
based on an evaluation of the Company’s customers’ financial condition and generally, collateral is
not required. Payment terms vary and accounts receivable are stated in the Consolidated Financial
Statements at amounts due from customers net of an allowance for doubtful accounts. Accounts
outstanding longer than the payment terms are considered past due. The Company considers a number
of factors in determining the allowance for doubtful accounts, including the length of time trade
accounts receivable are past due, the customers’ current ability to pay their obligations to the
Company, the Company’s previous loss history, and the condition of the general economy and the
industry as a whole. The Company writes off accounts receivable when they become uncollectible.
Inventories
Inventories, which consist of material, labor and overhead, are stated at the lower of
cost or market using the first-in, first-out (“FIFO”) method. The Company writes down its inventory
to estimated market value (when below historical cost) based on assumptions of future demand and
market conditions.
Property, Plant and Equipment
Property, plant and equipment at March 31 consists of:
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
Land |
|
$ |
72,709 |
|
|
$ |
85,283 |
|
Buildings and improvements |
|
|
232,512 |
|
|
|
264,036 |
|
Machinery and equipment |
|
|
555,565 |
|
|
|
514,109 |
|
F-11
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
Construction in progress |
|
|
34,166 |
|
|
|
35,470 |
|
|
|
|
|
|
|
|
|
|
|
894,952 |
|
|
|
898,898 |
|
Less—Accumulated depreciation |
|
|
209,110 |
|
|
|
99,135 |
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
685,842 |
|
|
$ |
799,763 |
|
|
|
|
|
|
|
|
Depreciation is provided on a straight-line basis over the estimated useful lives of the
assets. The range of original estimated useful lives is: buildings and improvements, 25-40 years;
machinery and equipment, 3-14 years.
Cost and accumulated depreciation for property retired or disposed of are removed from
the accounts, and any gain or loss on disposal is credited or charged to earnings. Expenditures for
maintenance and repairs are charged to expense as incurred. Additions, improvements and major
renewals are capitalized. Depreciation expense was $109,975, $99,135, $7,728, and $96,358, for
fiscal 2006, the period May 6, 2004 to March 31, 2005, the period April 1, 2004 to May 5, 2004, and
fiscal 2004, respectively.
Capitalized Software Costs
The Company capitalizes the cost of computer software acquired or developed for internal
use, in accordance with SOP 98-1 “Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use.” The capitalized costs are amortized over the estimated useful life of
the software, ranging from 3 to 5 years, on a straight-line basis.
Deferred Financing Costs
Deferred financing costs are amortized to interest expense over the life of the related
debt.
Valuation of Long-Lived Assets
The Company’s long-lived assets include property, plant and equipment, and identified
intangible assets. Long-lived assets (other than indefinite lived intangible assets) are
depreciated and amortized over their estimated useful lives, and are reviewed for impairment
whenever changes in circumstances indicate the carrying value may not be recoverable.
Indefinite-lived intangible assets, which consist of trademarks and tradenames, are reviewed for
impairment on both an annual basis and whenever changes in circumstances indicate the carrying
value may not be recoverable. If these assets or their related assumptions change in the future,
the Company may be required to record impairment charges.
Hedging Activities
The Company’s ability to utilize financial instruments as hedges was significantly
restricted due to the Chapter 11 filing.
In accordance with SFAS 133, “Accounting for Derivative Instruments and Hedging
Activities”, as amended and interpreted, the Company reports all derivative financial instruments
on the balance sheet at their fair values. For derivative instruments designated as cash flow
hedges, the effective portion of any hedge is reported in Accumulated Other Comprehensive Income
(Loss) until it is cleared to earnings during the same period in which the hedged item affects
earnings. The ineffective portion of all hedges is recognized in current period earnings. The
Company uses no derivative instruments designated as fair value hedges. In the Consolidated
Statement of Cash Flows, the Company reports the cash flows resulting from its hedging activities
in the same category as the related item that is being hedged.
The Company enters into foreign exchange rate agreements to hedge exposure to the
currency fluctuation of certain transactions denominated in a currency other than the applicable
local currency.
The Company has also entered into certain lead forward purchase and put option agreements
to economically hedge the cost of externally purchased lead.
Counterparties to foreign exchange and commodity and option agreements are major
financial institutions. The Company believes the risk of incurring losses related to credit risk is
remote.
Warranty and Return Allowance
For a majority of the Company’s sales, an up-front “warranty discount” is provided at the
time of sale, after which there is no additional warranty obligation or customer right-of-return.
For the remaining sales on which an up-front discount is not provided, the Company provides for an
allowance for product returns and/or allowances. Based upon its manufacturing re-work process, the
Company believes that the majority of its product returns are not the result of product defects.
Many returns are in fact subsequently sold as seconds at a reduced price. The Company recognizes
warranty discounts and the estimated cost of product returns as a reduction of sales in the period
in which the related revenue is recognized. The product return
F-12
estimates are based on historical trends and claims experience, and include assessment of the
anticipated lag between the date of sale and claim/return date.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS 109 “Accounting for
Income Taxes”, which requires the use of the liability method in accounting for deferred taxes. If
it is more likely than not that some portion, or all, of a deferred tax asset will not be realized,
a valuation allowance is recognized.
Revenue Recognition
The Company records sales when revenue is earned. Shipment terms are generally FOB
shipping point and revenue is recognized when product is shipped to the customer. In limited cases,
terms are FOB destination and in these cases, revenue is recognized when product is delivered to
the customer’s delivery site.
Accounting for Shipping and Handling Costs
The Company records shipping and handling costs incurred in cost of sales and records
shipping and handling costs billed to customers in net sales.
Advertising
The Company expenses advertising costs as incurred.
Stock Options
As provided for in SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”)
the Company utilizes the intrinsic value method of expense recognition under APB Opinion No. 25.
Accordingly, no compensation cost has been recognized for the stock option plans as the fair market
value at date of grant was less than or equal to the exercise price. Had compensation expense for
the stock option plans been determined consistently with the provisions of SFAS 123, the Company’s
net income (loss) and net income (loss) per share would have been the pro forma amounts indicated
below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal |
|
|
Period from |
|
|
Period from |
|
|
Fiscal |
|
| |
|
Year Ended |
|
|
May 6, 2004 to |
|
|
April 1, 2004 to |
|
|
Year Ended |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
May 5, 2004 |
|
|
March 31, 2004 |
|
Net income (loss) as reported: |
|
$ |
(172,732 |
) |
|
$ |
(466,923 |
) |
|
$ |
1,748,564 |
|
|
$ |
(114,083 |
) |
Less: total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects |
|
|
(1,041 |
) |
|
|
— |
|
|
|
(86 |
) |
|
|
(587 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss) |
|
$ |
(173,773 |
) |
|
$ |
(466,923 |
) |
|
$ |
1,748,478 |
|
|
$ |
(114,670 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income
(loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
(6.91 |
) |
|
$ |
(18.68 |
) |
|
$ |
63.86 |
|
|
$ |
(4.17 |
) |
Pro forma |
|
$ |
(6.95 |
) |
|
$ |
(18.68 |
) |
|
$ |
63.85 |
|
|
$ |
(4.19 |
) |
The fair value of each option grant was estimated on the date of grant using the Black-Scholes
option pricing model with the following range of assumptions:
| |
|
|
|
|
Volatility |
|
|
75.0 |
% |
Risk-free interest rate |
|
4.1% to 4.7 |
% |
Expected life in years |
|
|
10.0 |
|
Dividend yield |
|
|
0.0 |
% |
Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average number of common
shares outstanding for the period, while diluted net income (loss) per share is computed assuming
conversion of all dilutive securities. Shares which are contingently issuable under the Plan have
been included as outstanding common shares for purposes of calculating net loss per share for the
fiscal year ended March 31, 2006 and the period May 6, 2004 to March 31, 2005. Options to purchase
3,925,000 shares of common stock and warrants to purchase 1,286,000 shares of common stock were
outstanding during the period April 1, 2004 to May 5, 2004. These common stock equivalents were not
included in the computation of diluted earnings per share for the period April 1, 2004 to May 5,
2004 because the exercise prices of the options and warrants were greater than the average market
price of the common shares and they would have had an anti-dilutive effect. These options and
warrants were cancelled upon emergence from bankruptcy. For fiscal year ended March 31, 2004 and
2006 and the period
F-13
from May 6, 2004 to March 31, 2005 the Company incurred net losses, therefore, dilutive common
stock equivalents were not used in the calculation of loss per share as they would have an
anti-dilutive effect.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting
principles (“GAAP”) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Recently Issued Accounting Standards
In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”
(“SFAS 123R”). SFAS 123R requires that a public entity measure the cost of equity based service
awards based on the grant date fair value of the award (with limited exceptions) and that cost will
be recognized over the period during which an employee is required to provide service in exchange
for the award or the requisite service period. SFAS 123R is effective as of the beginning of the
first annual reporting period that begins after June 15, 2005. The Company will adopt SFAS 123R
effective April 1, 2006. The Company expects the adoption of SFAS 123R will not have a material
impact on its financial position or results of operations.
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an Amendment of ARB No.
43, Chapter 4” (“SFAS 151”). The standard requires that abnormal amounts of idle capacity and
spoilage costs within inventory should be excluded from the cost of inventory and expensed when
incurred. The provisions of SFAS 151 are applicable to inventory costs incurred during fiscal years
beginning after June 15, 2005. The Company will adopt SFAS 151 effective April 1, 2006. The Company
expects the adoption of SFAS 151 will not have a material impact on its financial position or
results of operations.
In December 2004, the FASB issued Staff Position No. FAS 109-1, “Application of FASB Statement
No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities
Provided by the American Jobs Creation Act of 2004” (“FAS 109-1”), and Staff Position No. FAS
109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004” (“FAS 109-2”). These staff positions provide accounting
guidance on how companies should account for the effects of the American Jobs Creation Act of 2004
(“AJCA”) that was signed into law on October 22, 2004. FAS 109-1 states that the tax relief
(special tax deduction for domestic manufacturing) from this legislation should be accounted for as
a “special deduction” instead of a tax rate reduction. FAS 109-2 gives a company additional time to
evaluate the effects of the legislation on any plan for reinvestment or repatriation of foreign
earnings for purposes of applying SFAS No. 109. FAS 109-1 and FAS 109-2 will not have a material
impact on the Company’s financial position or results of operations.
(3) WARRANTS
In connection with the consummation of the Plan, the Company issued Warrants entitling the
holders to purchase up to 6,250 shares of new common stock at an exercise price of $32.11 per share
(the number of Warrants issuable being subject to adjustments allowed for by the claims
reconciliation and allowance process set forth in the Plan.) The Company has accounted for the
Warrants in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-19 “Accounting for
Derivative Financial Instruments Indexed to and Potentially Settled in a Company’s Own Stock”
(“EITF 00-19”) and SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity” (“SFAS 150”). Because the Warrant Agreement provides for a cash
settlement upon a change in control under certain specified conditions, the Warrants have been
accounted for and classified as a liability in the Consolidated Balance Sheets.
Upon the adoption of Fresh Start reporting, on the Effective Date, May 5, 2004, the Warrants
were ascribed a fair value of approximately $74,300, reflecting the underlying enterprise value of
the Company underlying the Plan. The fair value of the Warrants was determined using a Black
Scholes Model with an assumed volatility of 40%, a risk free rate of 3%, fair value of common
shares and exercise price of $32.11 and a dividend yield of 0%. As no active market existed when
the Warrants were initially valued, the Company believed a Black Scholes Model, which is widely
accepted in valuing warrants and call options, was the appropriate valuation model to use as no
active market existed for the warrants at the date of emergence. Subsequent to the Company’s
emergence from bankruptcy, the Warrants began to trade on the NASDAQ National Market under the
ticker “XIDEW.” Subsequent to the Warrants becoming actively traded, the Warrants were measured
using market prices as quoted market prices are the best indicator of fair value.
The Warrants are exercisable through May 5, 2011. The exercise price, the number of shares
purchasable upon the exercise of each Warrant and the number of Warrants outstanding are subject to
adjustment from time to time upon
F-14
occurrence of certain events described in the Warrant Agreement. In accordance with EITF 00-19
and SFAS 150, the Warrants have been marked-to-market based upon quoted market prices. This
mark-to-market resulted in recognition of unrealized gain of $9,125 and $63,112 for fiscal 2006 and
the period May 6, 2004 to March 31, 2005, which is reported in Other (income) expense, net in the
Consolidated Statements of Operations. Future results of operations may be subject to volatility
from changes in the market value of such Warrants.
(4) ASSET RETIREMENT OBLIGATIONS
Effective April 1, 2003, the Company adopted SFAS No. 143, “Accounting for Asset Retirement
Obligations” (“SFAS 143”). The provisions of SFAS 143 address financial accounting and reporting
requirements for obligations associated with the retirement of tangible long-lived assets. This
statement requires companies to record an asset and related liability for the cost associated with
the retirements. The adoption of SFAS 143 resulted in a charge, which is reflected in the
Consolidated Statements of Operations as a cumulative effect of change in accounting principle, of
$15,593, or $0.57 per share for the fiscal year ended March 31, 2004. The charge results primarily
from certain commitments made in accordance with permit requirements for its North American lead
recycling and hazardous waste facilities. The Company is obligated under these permits to undertake
agreed-upon remediation and decommissioning activities in the event of a facility closure. The
recorded asset retirement obligations are based upon estimated investigation, remediation and
decommissioning costs.
In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset
Retirement Obligations, an interpretation of SFAS 143.” (“FIN 47”). This Interpretation clarifies
that the term conditional asset retirement obligation refers to a legal obligation to perform an
asset retirement activity in which the timing and/or method of settlement are conditional on a
future event that may or may not be within the control of the entity. The obligation to perform the
asset retirement activity is unconditional even though uncertainty exists about the timing and/or
method of settlement. Accordingly, an entity is required to recognize a liability for the fair
value of a conditional asset retirement obligation if the fair value of the liability can be
reasonably estimated. This Interpretation also clarifies when an entity would have sufficient
information to reasonably estimate the fair value of an asset retirement obligation. The Company’s
adoption of FIN 47, which was effective March 31, 2006, did not have a material effect on its
consolidated financial position, results of operations or cash flows.
(5) ACCOUNTING FOR DERIVATIVES
The Company accounts for derivative instruments and hedging activities in accordance with SFAS
133 “Accounting for Derivative Instruments and Hedging Activities”, as amended by SFAS 138,
“Accounting for Certain Derivative Instruments and Certain Hedging Activities” and SFAS 149,
“Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, (collectively, “SFAS
133”). SFAS 133 establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS 133 requires that all derivatives be recognized as either assets or
liabilities at fair value. The Company does not enter into derivative contracts for trading
purposes. Derivatives are used only to hedge the volatility arising from movements in a portion of
the cost of lead purchases as well as hedging certain interest rates and foreign currency exchange
rates. Changes in the fair value of cash flow hedges for which the hedged item affects earnings
immediately (foreign currency transaction hedges and interest rate hedges), ineffective portions of
changes in the fair value of cash flow hedges and fair value changes on certain derivatives that,
despite being utilized to effectively manage the above mentioned activities, do not qualify for
hedge accounting, are recognized in earnings immediately. The change in fair value of cash flow
hedges for which the hedged item affects earnings immediately, related to hedge ineffectiveness and
of derivatives not qualifying for hedge accounting, and for the
fiscal year ended March 31, 2006
resulted in a net gain of $7,390, of which a gain of $1,081 was recognized in other (income)
expense and a gain of $6,309 was recognized in cost of sales. For the period May 6, 2004 to March
31, 2005 the net loss was $7,128, of which a loss of $13,165 was recognized in other (income)
expense and a gain of $6,037 was recognized in cost of sales.
At March 31, 2006, a net liability of $2,812 was recorded for
outstanding derivative contracts.
(6) REORGANIZATION ITEMS
Reorganization items represent amounts the Company incurred as a result of the Chapter 11
process and are presented separately in the consolidated statements of operations. The following
have been incurred:
F-15
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the fiscal |
|
|
For the period |
|
|
For the period |
|
|
For the fiscal |
|
| |
|
year ended |
|
|
May 6, 2004 to |
|
|
April 1, 2004 to |
|
|
year ended |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
May 5, 2004 |
|
|
March 31, 2004 |
|
Professional fees |
|
$ |
4,051 |
|
|
$ |
9,817 |
|
|
$ |
18,515 |
|
|
$ |
64,441 |
|
Employee costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,169 |
|
Preference Payments |
|
|
— |
|
|
|
(788 |
) |
|
|
— |
|
|
|
— |
|
Interest income |
|
|
— |
|
|
|
— |
|
|
|
(81 |
) |
|
|
(1,171 |
) |
Income from rejected contract |
|
|
— |
|
|
|
(600 |
) |
|
|
— |
|
|
|
— |
|
Other |
|
|
2,107 |
|
|
|
3,098 |
|
|
|
— |
|
|
|
1,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reorganization items, net |
|
|
6,158 |
|
|
|
11,527 |
|
|
|
18,434 |
|
|
|
67,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on settlement of liabilities subject to compromise and
recapitalization |
|
|
— |
|
|
|
— |
|
|
|
(1,558,839 |
) |
|
|
— |
|
Fresh Start accounting adjustments |
|
|
— |
|
|
|
— |
|
|
|
(228,371 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on reorganization items |
|
$ |
6,158 |
|
|
$ |
11,527 |
|
|
($ |
1,768,776 |
) |
|
$ |
67,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for reorganization items during fiscal 2006, the period May 6, 2004 to March 31,
2005, the period April 1, 2004 to May 5, 2005 and fiscal 2004 was $11,626, $41,320, $6,074, and
$46,914, respectively.
The following paragraphs provide additional information relating to the above reorganization
items:
Professional fees
Professional fees include financial, legal and valuation services directly associated with the
reorganization process, including fees incurred related to asset sales, success fees payable to the
Company’s advisors related to emergence from Chapter 11 and fees for the ongoing claims
reconciliation process. Professional fees for the period April 1, 2004 to May 5, 2004 include
success fees of $12,466 payable to the Company’s advisors upon emergence from Chapter 11.
Employee costs
The Company implemented a Bankruptcy Court-approved retention plan that provided cash
incentives to key members of the Company’s management team. The retention plan was a
milestone-based plan established to encourage employees to continue their employment through the
reorganization process.
Preference Payments
In the period May 6, 2004 to March 31, 2005, the Company received refunds related to payments
made to suppliers prior to the bankruptcy filing.
Income from rejected contract
In connection with the bankruptcy, the Company recorded $600 upon rejection of a contract
providing retirement benefits to a former employee.
Interest income
Interest income represents interest income earned by the Debtors as a result of assumed excess
cash balances due to the Chapter 11 filing.
Other
Other reorganization costs for fiscal year 2004 primarily represents the net write-off of
deposits and cash collateral associated with certain leases rejected under the Bankruptcy Code.
During fiscal 2006 and the period May 6, 2004 to March 31, 2005, the Company recognized annual
expenses of approximately $2,000 related to Predecessor Company directors and officer’s liability
insurance coverage.
F-16
(7) ACCOUNTING FOR INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
The Company completed its most recent annual impairment assessment of intangible assets (as
required under SFAS 142) effective March 31, 2006, utilizing its updated five-year business plan as
the basis for development of cash flows and an estimate of fair values. As a result of the
comparison of the book carrying values of its reporting units against these estimated fair values,
no adjustment of carrying values was deemed necessary.
Intangible assets consist of:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Trademarks and |
|
|
Trademarks and |
|
|
|
|
|
|
|
|
|
|
| |
|
Tradenames (not |
|
|
Tradenames (subject to |
|
|
Customer |
|
|
|
|
|
|
|
| |
|
subject to amortization) |
|
|
amortization) |
|
|
relationships |
|
|
Technology |
|
|
Total |
|
As of March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount |
|
$ |
56,331 |
|
|
$ |
12,813 |
|
|
$ |
105,968 |
|
|
$ |
23,781 |
|
|
$ |
198,893 |
|
Accumulated Amortization |
|
|
— |
|
|
|
(928 |
) |
|
|
(4,029 |
) |
|
|
(1,082 |
) |
|
|
(6,039 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
$ |
56,331 |
|
|
$ |
11,885 |
|
|
$ |
101,939 |
|
|
$ |
22,699 |
|
|
$ |
192,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount |
|
$ |
56,331 |
|
|
$ |
12,813 |
|
|
$ |
106,594 |
|
|
$ |
23,781 |
|
|
$ |
199,519 |
|
Accumulated Amortization |
|
|
— |
|
|
|
(1,939 |
) |
|
|
(8,499 |
) |
|
|
(2,261 |
) |
|
|
(12,699 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
$ |
56,331 |
|
|
$ |
10,874 |
|
|
$ |
98,095 |
|
|
$ |
21,520 |
|
|
$ |
186,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate annual amortization expense was $6,660, $6,039, and $1,120 for the fiscal year ended
March 31, 2006, the period May 6, 2004 to March 31, 2005, and the fiscal year ended March 31, 2004,
respectively, and is expected to amount to approximately $6,600 for each of the next five fiscal
years.
Goodwill
The Company’s emergence from bankruptcy on May 6, 2004 resulted in a new reporting entity (the
“Successor Company”) and adoption of Fresh Start reporting and reporting in accordance with SOP
90-7. Fresh Start reporting required the Company to allocate the reorganization value to its
assets based upon their estimated fair values in accordance with SFAS No. 141.
The fair values of the assets as determined by Fresh Start reporting were based on estimates
of future cash flows. The estimated enterprise value of the Company of $1,500,000 which served as
the basis for the Plan approved by the Bankruptcy Court, was used to determine the reorganization
value, which was estimated at $2,729,404. The portion of reorganization value which could not be
attributed to specific tangible or identified intangible assets was $399,388. The determination of
fair values of assets and liabilities is subject to significant estimation and assumptions. The
enterprise value that served as the basis for determining the reorganization value was calculated
using the discounted cash flow method. The cash flows, taken from the Company’s Plan of
Reorganization, were projected over five years, utilizing discount rates of 9% to 11%,
respectively, for the transportation and industrial businesses in order to reflect the inherent
risks of each business. The enterprise value was based on an assumed tax rate of 0% in the U.S. in
years 1 through 3 (in consideration of the Company’s NOL tax position), and 38% in the remaining
years. For Europe and ROW, a tax rate of 25% was assumed for all periods reflected.
The Company completed its annual impairment assessment of goodwill effective December 31,
2004, utilizing its five-year business plan as the basis for development of discounted cash flows
and an estimate of fair values. The Company’s impairment assessment also considered the market
value of the Company’s securities as of December 31, 2004. As a result of the comparison of the
book carrying values of its reporting units, including goodwill, against these estimated fair
values, the Company determined that goodwill was fully impaired and a write-down of the entire
$399,388 balance of goodwill was recorded in the third quarter of fiscal 2005. During
the fourth quarter of fiscal 2005, the Company revised its estimate of deferred income tax
liabilities recognized on the step-up of fixed assets and intangible assets in Fresh Start
reporting. This resulted in a reduction in deferred tax liabilities of $10,864. A corresponding
amount was recognized in the statement of operations as a reduction of the goodwill impairment
charge previously recognized, resulting in a net goodwill impairment charge for the period from May
6, 2004 to March 31, 2005 of $388,524.
(8) INVENTORIES
Inventories, valued using the first-in, first-out (“FIFO”) method, consist of:
F-17
| |
|
|
|
|
|
|
|
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
Raw materials |
|
$ |
64,248 |
|
|
$ |
62,552 |
|
Work-in-process |
|
|
79,923 |
|
|
|
76,097 |
|
Finished goods |
|
|
270,772 |
|
|
|
259,040 |
|
|
|
|
|
|
|
|
|
|
$ |
414,943 |
|
|
$ |
397,689 |
|
|
|
|
|
|
|
|
(9) OTHER ASSETS
Other assets consist of:
| |
|
|
|
|
|
|
|
|
| |
|
Fiscal |
|
|
Fiscal |
|
| |
|
Year ended |
|
|
Year ended |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
Deposits |
|
$ |
10,317 |
|
|
$ |
10,211 |
|
Capitalized software, net |
|
|
6,524 |
|
|
|
10,390 |
|
Loan to affiliate |
|
|
3,563 |
|
|
|
4,930 |
|
Other |
|
|
3,686 |
|
|
|
4,214 |
|
|
|
|
|
|
|
|
|
|
$ |
24,090 |
|
|
$ |
29,745 |
|
|
|
|
|
|
|
|
Deposits above principally represent amounts drawn and held by the
beneficiaries as cash collateral for those parties’ contingent
obligations with respect to certain environmental matters, workers
compensation insurance and operating lease commitments.
(10) DEBT
At March 31, 2006 and 2005, short-term borrowings of $11,375 and $1,595, respectively,
consisted of various operating lines of credit and working capital facilities maintained by certain
of the Company’s non-U.S. subsidiaries. Certain of these borrowings are collateralized by
receivables, inventories and/or property. These borrowing facilities, which are typically for
one-year renewable terms, generally bear interest at current local market rates plus up to one
percent per annum. The weighted average interest rate on short-term borrowings was approximately
3.6% and 11.1% at March 31, 2006 and 2005, respectively
Total long-term debt at March 31, 2006 comprised the following:
| |
|
|
|
|
| |
|
March 31, 2006 |
|
Senior Secured Credit Facility |
|
$ |
316,277 |
|
10.5% Senior Secured Notes due 2013 |
|
|
290,000 |
|
Floating Rate Convertible Senior Subordinated Notes due 2013 |
|
|
60,000 |
|
Other, including capital lease obligations and other loans
at interest rates generally ranging up to 11.0% due in
installments through 2015(1) |
|
|
23,352 |
|
|
|
|
|
Total |
|
|
689,629 |
|
Less—current maturities |
|
|
5,643 |
|
|
|
|
|
|
|
$ |
683,986 |
|
|
|
|
|
Total debt at March 31, 2006 was $701,004.
Total long-term debt at March 31, 2005 comprised the following:
| |
|
|
|
|
| |
|
March 31, 2005 |
|
Senior Secured Credit Facility |
|
$ |
266,470 |
|
10.5% Senior Secured Notes due 2013 |
|
|
290,000 |
|
Floating Rate Convertible Senior Subordinated Notes due 2013 |
|
|
60,000 |
|
Other, including capital lease obligations and other loans
at interest rates generally ranging up to 11.0% due in
installments through 2015(1) |
|
|
35,693 |
|
|
|
|
|
Total |
|
|
652,163 |
|
Less—current maturities(2) |
|
|
632,116 |
|
|
|
|
|
|
|
$ |
20,047 |
|
|
|
|
|
Total debt at March 31, 2005 was $653,758.
F-18
|
|
|
| (1) |
|
Includes various operating lines of credit and working capital facilities maintained by
certain of the Company’s non-U.S. subsidiaries. |
| |
| (2) |
|
The Company had reclassified its borrowings under the Credit Agreement, the 10.5% Senior
Secured Notes and the Floating Rate Convertible Senior Subordinated Notes as current as a
result of the default under the Credit Agreement. The default was cured in the first quarter
of fiscal 2006. |
On May 5, 2004, the Company entered into a $600,000 Senior Secured Credit Agreement (the
“Credit Agreement”) which included a $500,000 Multi-Currency Term Loan Facility and a $100,000
Multi-Currency Revolving Loan Facility including a letter of credit sub-facility of up to $40,000.
The Credit Agreement is the Company’s most important source of liquidity outside of its cash from operations. The Revolving Loan Facility matures on May 5, 2009, while the Term Loan Facility
matures on May 5, 2010. The Term Loan Facility and the Revolving Loan Facility bear interest at
LIBOR plus 6.25% per annum. Credit Agreement borrowings are guaranteed by substantially all of the
subsidiaries of the Company and are collateralized by substantially all of the assets of the
Company and the subsidiary guarantors. Availability under the Revolving Loan Facility was $29,669
as of March 31, 2006. At March 31, 2006 and 2005, weighted average interest on the Credit
Agreement was 10.58% and 7.06%, respectively.
The Credit Agreement requires the Company to comply with financial covenants, including a
minimum consolidated earnings before interest, taxes, depreciation, amortization and restructuring
(“Adjusted EBITDA”) covenant and a leverage ratio of consolidated debt to adjusted EBITDA for the
relevant periods. The Credit Agreement also contains other customary covenants, including
reporting covenants and covenants that restrict the Company’s ability to incur indebtedness, create
or incur liens, sell or dispose of assets, make investments, pay dividends, change the nature of
the Company’s business or enter into related party transactions.
On February 1, 2006, the Company obtained amendments to the Credit Agreement which, provided
$46,250 of additional borrowings, eliminated scheduled amortization of principal payments during
the term of the facility, eliminated most financial covenants, relaxed the covenant related to
Adjusted EBITDA modified covenants for the maximum capital expenditures and leverage ratios for
permitted acquisitions, expanded the amount of non-core asset sale proceeds to be retained by the
Company and enhanced existing call protection for the lenders as well as extended such call
protection to include outstanding amounts of the Company’s revolving loan facility.
On March 15, 2006, the Company obtained further amendments to the Credit Agreement, which
relaxed the covenant related to Adjusted EBITDA, eliminated the “going concern” covenant for fiscal
year 2006, increased call protection for the lenders in the event the Company refinances the senior
credit facility, increased the applicable margin for the outstanding loans and an agreement to pay
certain fees for a financial advisor for the lenders.
In March 2005, the Company issued $290,000 in aggregate principal amount of 10.5% Senior
Secured Notes due 2013. Interest of $15,225 is payable semi-annually on March 15 and September 15.
The 10.5% Senior Secured Notes are redeemable at the option of the Company, in whole or in part, on
or after March 15, 2009, initially at 105.25% of the principal amount, plus accrued interest,
declining to 100% of the principal amount, plus accrued interest on or after March 15, 2011. The
10.5% Senior Secured Notes are redeemable at the option of the Company, in whole or in part,
subject to payment of a make whole premium, at any time prior to March 15, 2009. In addition, until
May 15, 2008, up to 35% of the 10.5% Senior Secured Notes are redeemable at the option of the
Company, using the net proceeds of one or more qualified equity offerings. In the event of a change
of control or the sale of certain assets, the Company may be required to offer to purchase the
10.5% Senior Secured Notes from the note holders. Those notes are secured by a junior priority lien
on the assets of the U.S. parent company, including the stock of its subsidiaries. The indenture
for these notes contains financial covenants which limit the ability of the Company and its
subsidiaries to among other things incur debt, grant liens, pay dividends, invest in
non-subsidiaries, engage in related party transactions and sell assets.
Also, in March 2005, the Company issued Floating Rate Convertible Senior Subordinated Notes
due September 18, 2013, with an aggregate principal amount of $60,000. These notes bear interest at
a per annum rate equal to the 3-month LIBOR, adjusted quarterly, minus a spread of 1.5%. The
weighted average interest on these notes was 3.41% and 1.53% at March 31, 2006 and 2005,
respectively. Interest is payable quarterly. The notes are convertible into the Company’s common
stock at a conversion rate of 57.5705 shares per one thousand dollars principal amount at maturity,
subject to adjustments for any common stock splits, dividends on the common stock, tender and
exchange offers by the Company for the common stock and third party tender offers, and in the case
of a change in control in which 10% or more of the consideration for the common stock is cash or
non-traded securities, the conversion rate increases, depending on the value offered and timing of
the transaction, to as much as 70.2247 shares per one thousand dollars principal amount.
F-19
At March 31, 2006, the Company was in compliance with covenants
contained in the Credit Agreement and Indenture agreements that cover the Senior Secured Notes and
Floating Rate Convertible Senior Subordinated Notes.
The Company’s variable rate debt at March 31, 2006 and 2005 was $387,652 and $328,064,
respectively, none of which was hedged.
Annual principal payments required under long-term debt obligations at March 31, 2006 are as
follows:
| |
|
|
|
|
| Fiscal Year |
|
Amount |
|
2007 |
|
$ |
— |
|
2008 |
|
|
— |
|
2009 |
|
|
— |
|
2010 |
|
|
26,545 |
|
2011 |
|
|
289,732 |
|
2012 and beyond |
|
|
350,000 |
|
|
|
|
|
|
|
$ |
666,277 |
|
|
|
|
|
|
|
|
| (11) |
|
EMPLOYEE BENEFIT PLANS AND POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS |
The Company has a noncontributory defined benefit pension plan covering substantially all
hourly and salaried employees in the U.S. Most plan formulas covering hourly employees provide
pension benefits of stated amounts for each year of credited service, while a few provide benefits
based on final average pay. Salaried employees in the U.S. are covered by a cash balance formula
providing pay credits as a percentage of salary up to qualified limits and interest credits on the
account balances.
On March 31, 2006, Exide announced that it would be freezing the benefit accruals for all
non-union employees in their U.S. plan effective May 15, 2006. Due to the timing of this
announcement and the accounting rules, the partial plan freeze did not have an impact on the net
periodic pension cost, the footnote liabilities or the balance sheet net amount recognized for the
fiscal year ending March 31, 2006. The freeze is reflected in the Company’s projections of future
contributions and will be recognized in the following year’s expense.
Europe and ROW subsidiaries of the Company sponsor several defined benefit plans that cover
substantially all employees who are not covered by statutory plans. For defined benefit plans,
charges to expense are based upon costs computed by independent actuaries. In most cases, the
defined benefit plans are not funded.
The Company also has some defined contribution plans in North America, Europe and ROW with
related expense of $7,030, $5,267, $482, and $5,325 for fiscal 2006, the period May 6, 2004 to
March 31, 2005, the period April 1, 2004 to May 5, 2005, and fiscal 2004, respectively.
The Company provides certain health care and life insurance benefits for a limited number of
retirees. The Company accrues the estimated cost of providing post-retirement benefits during the
employees’ applicable years of service.
F-20
The following tables set forth the plans’ funded status and the amounts recognized in the
Company’s Consolidated Financial Statements at March 31, 2006 and 2005:
Pension Benefits:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal |
|
|
Period From |
|
|
Period From |
|
| |
|
Year Ended |
|
|
May 6, 2004 to |
|
|
April 1, 2004 to |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
May 5, 2004 |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of period |
|
$ |
650,318 |
|
|
$ |
605,638 |
|
|
$ |
614,129 |
|
Service cost |
|
|
10,638 |
|
|
|
9,596 |
|
|
|
856 |
|
Interest cost |
|
|
32,552 |
|
|
|
31,586 |
|
|
|
2,798 |
|
Actuarial loss (gain) |
|
|
2,408 |
|
|
|
24,913 |
|
|
|
63 |
|
Plan participants’ contributions |
|
|
1,218 |
|
|
|
1,210 |
|
|
|
106 |
|
Benefits paid |
|
|
(30,003 |
) |
|
|
(28,177 |
) |
|
|
(2,477 |
) |
Plan amendments |
|
|
259 |
|
|
|
— |
|
|
|
— |
|
Currency translation |
|
|
(22,699 |
) |
|
|
22,934 |
|
|
|
(9,808 |
) |
Settlements and other |
|
|
(6,461 |
) |
|
|
(17,382 |
) |
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period |
|
|
638,230 |
|
|
|
650,318 |
|
|
|
605,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period |
|
|
295,298 |
|
|
|
284,804 |
|
|
|
283,967 |
|
Actual return on plan assets |
|
|
36,136 |
|
|
|
24,258 |
|
|
|
4,394 |
|
Employer contributions |
|
|
41,082 |
|
|
|
21,442 |
|
|
|
3,245 |
|
Plan participants’ contributions |
|
|
1,218 |
|
|
|
1,210 |
|
|
|
106 |
|
Benefits paid |
|
|
(30,003 |
) |
|
|
(28,177 |
) |
|
|
(2,477 |
) |
Currency translation |
|
|
(10,129 |
) |
|
|
8,255 |
|
|
|
(4,431 |
) |
Settlements and other |
|
|
(7,122 |
) |
|
|
(16,494 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period |
|
|
326,480 |
|
|
|
295,298 |
|
|
|
284,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of funded status: |
|
|
|
|
|
|
|
|
|
|
|
|
Funded status |
|
|
(311,750 |
) |
|
|
(355,020 |
) |
|
|
(320,834 |
) |
Prior service cost |
|
|
258 |
|
|
|
— |
|
|
|
— |
|
Actuarial loss (gain) |
|
|
11,654 |
|
|
|
24,290 |
|
|
|
— |
|
Contributions after measurement date |
|
|
7,908 |
|
|
|
1,264 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
|
(291,930 |
) |
|
|
(329,466 |
) |
|
|
(320,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in Statement of Financial Position: |
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit cost |
|
|
332 |
|
|
|
86 |
|
|
|
— |
|
Accrued benefit cost |
|
|
(324,770 |
) |
|
|
(355,461 |
) |
|
|
(320,834 |
) |
Intangible asset |
|
|
258 |
|
|
|
— |
|
|
|
— |
|
Accumulated other comprehensive (income) loss |
|
|
32,250 |
|
|
|
25,909 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(291,930 |
) |
|
$ |
(329,466 |
) |
|
$ |
(320,834 |
) |
|
|
|
|
|
|
|
|
|
|
F-21
Other Post-Retirement Benefits:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal |
|
|
Period From |
|
|
Period From |
|
| |
|
Year Ended |
|
|
May 6, 2004 to |
|
|
April 1, 2004 to |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
May 5, 2004 |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of period |
|
$ |
24,684 |
|
|
$ |
26,962 |
|
|
$ |
29,099 |
|
Service cost |
|
|
101 |
|
|
|
82 |
|
|
|
6 |
|
Interest cost |
|
|
1,573 |
|
|
|
1,222 |
|
|
|
147 |
|
Actuarial loss (gain) |
|
|
6,509 |
|
|
|
(1,475 |
) |
|
|
(1,922 |
) |
Plan participants’ contributions |
|
|
195 |
|
|
|
199 |
|
|
|
19 |
|
Benefits paid |
|
|
(3,023 |
) |
|
|
(2,865 |
) |
|
|
(235 |
) |
Currency translation |
|
|
109 |
|
|
|
559 |
|
|
|
(152 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period |
|
|
30,148 |
|
|
|
24,684 |
|
|
|
26,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Employer contributions |
|
|
2,828 |
|
|
|
2,666 |
|
|
|
216 |
|
Plan participants’ contributions |
|
|
195 |
|
|
|
199 |
|
|
|
19 |
|
Benefits paid |
|
|
(3,023 |
) |
|
|
(2,865 |
) |
|
|
(235 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of funded status: |
|
|
|
|
|
|
|
|
|
|
|
|
Funded status |
|
|
(30,148 |
) |
|
|
(24,684 |
) |
|
|
(26,962 |
) |
Actuarial loss (gain) |
|
|
5,532 |
|
|
|
(783 |
) |
|
|
— |
|
Contributions after measurement date |
|
|
505 |
|
|
|
577 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
|
(24,111 |
) |
|
|
(24,890 |
) |
|
|
(26,962 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in statement of financial position: |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost |
|
|
(24,111 |
) |
|
|
(24,890 |
) |
|
|
(26,962 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(24,111 |
) |
|
$ |
(24,890 |
) |
|
$ |
(26,962 |
) |
|
|
|
|
|
|
|
|
|
|
Disclosure Assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension |
|
Other Post-Retirement |
| |
|
Benefits |
|
Benefits |
| |
|
March 31, 2006 |
|
March 31, 2005 |
|
March 31, 2006 |
|
March 31, 2005 |
Weighted-average assumptions as of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.2 |
% |
|
|
5.3 |
% |
|
|
5.4 |
% |
|
|
5.4 |
% |
Rate of compensation increase |
|
|
3.7 |
% |
|
|
3.1 |
% |
|
|
n/a |
|
|
|
n/a |
|
| |
Expense Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension |
|
Other Post-Retirement |
| |
|
Benefits |
|
Benefits |
| |
|
FY 2007 Expense |
|
FY 2006 Expense |
|
FY 2007 Expense |
|
FY 2006 Expense |
Weighted-average assumptions for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.2 |
% |
|
|
5.3 |
% |
|
|
5.4 |
% |
|
|
5.4 |
% |
Expected return on plan assets |
|
|
6.9 |
% |
|
|
7.3 |
% |
|
|
n/a |
|
|
|
n/a |
|
Rate of compensation increase |
|
|
3.7 |
% |
|
|
3.6 |
% |
|
|
n/a |
|
|
|
n/a |
|
For fiscal year 2006 expense, the Company assumed an expected weighted average return on plan
assets of 7.3%. In developing this rate assumption, the Company evaluated input from third party
pension plan asset managers, including their review of asset class return expectations and
long-term inflation assumptions.
For other post-retirement benefit measurement purposes, a 9.7% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 2006 and 2005. The rate was assumed
to decrease gradually to 5.0% over seven and eight years for 2006 and 2005, respectively, and
remain at that level thereafter.
F-22
The following tables set forth the plans’ expense recognized in the Company’s Consolidated
Financial Statements:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Pension Benefits |
|
| |
|
|
|
|
|
Period From |
|
|
Period From |
|
|
|
|
| |
|
Fiscal Year Ended |
|
|
May 6, 2004 to |
|
|
April 1, 2004 to |
|
|
Fiscal Year Ended |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
May 05, 2004 |
|
|
March 31, 2004 |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
10,638 |
|
|
$ |
9,596 |
|
|
$ |
856 |
|
|
$ |
10,131 |
|
Interest cost |
|
|
32,552 |
|
|
|
31,586 |
|
|
|
2,798 |
|
|
|
32,336 |
|
Expected return on plan assets |
|
|
(21,179 |
) |
|
|
(19,406 |
) |
|
|
(1,640 |
) |
|
|
(17,932 |
) |
Amortization of: Transition obligation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
Prior service cost |
|
|
— |
|
|
|
— |
|
|
|
4 |
|
|
|
35 |
|
Actuarial loss |
|
|
— |
|
|
|
— |
|
|
|
836 |
|
|
|
10,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (a) |
|
$ |
22,011 |
|
|
$ |
21,776 |
|
|
$ |
2,854 |
|
|
$ |
34,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
Excludes the impact of settlement net losses (gains) of $622, $156 and ($1,437) in fiscal
2006, in the period from May 6, 2004 to March 31, 2005 and fiscal 2004, respectively, and
curtailment net losses (gains) of ($829), ($646), and ($2,744) in fiscal 2006, in the period
from May 6, 2004 to March 31, 2005 and fiscal 2004, respectively. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Other Post-Retirement Benefits |
|
| |
|
|
|
|
|
Period From |
|
|
Period From |
|
|
|
|
| |
|
Fiscal Year Ended |
|
|
May 6, 2004 to |
|
|
April 1, 2004 to |
|
|
Fiscal Year Ended |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
May 05, 2004 |
|
|
March 31, 2004 |
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
101 |
|
|
$ |
82 |
|
|
$ |
6 |
|
|
$ |
69 |
|
Interest cost |
|
|
1,573 |
|
|
|
1,222 |
|
|
|
147 |
|
|
|
1,773 |
|
Amortization of: Transition obligation |
|
|
— |
|
|
|
— |
|
|
|
3 |
|
|
|
23 |
|
Prior service cost |
|
|
— |
|
|
|
— |
|
|
|
(52 |
) |
|
|
(629 |
) |
Actuarial loss |
|
|
208 |
|
|
|
— |
|
|
|
20 |
|
|
|
229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
1,882 |
|
|
$ |
1,304 |
|
|
$ |
124 |
|
|
$ |
1,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The measurement dates for the Company’s U.S. Pension and Other Post-Retirement benefit plans
were December 31, 2005 and December 31, 2004 for the fiscal years ending March 31, 2006 and March
31, 2005, respectively. The measurement dates equaled the fiscal year ends for the non-U.S. plans.
The projected benefit obligation, accumulated benefit obligation, and fair value of plan
assets for the pension plans with accumulated benefit obligations in excess of plan assets were
$488,604, $479,970 and $189,782, respectively, as of March 31, 2006 and $641,855, $604,880, and
$286,434 respectively, as of March 31, 2005.
The accumulated benefit obligation for the Company’s pension plans was $603,331 as of March
31, 2006. Expected future benefit payments are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Other Post- |
|
Other Post- |
| |
|
|
|
|
|
Retirement |
|
Retirement |
| |
|
Pension |
|
Gross Expected |
|
Expected Medicare |
| Fiscal Year |
|
Benefits |
|
Benefit Payment |
|
Subsidy Payments |
2007 |
|
$ |
30,155 |
|
|
$ |
3,012 |
|
|
$ |
170 |
|
2008 |
|
|
30,370 |
|
|
|
2,964 |
|
|
|
190 |
|
2009 |
|
|
31,949 |
|
|
|
2,731 |
|
|
|
200 |
|
2010 |
|
|
32,604 |
|
|
|
2,604 |
|
|
|
210 |
|
2011 |
|
|
33,175 |
|
|
|
2,597 |
|
|
|
210 |
|
2012 to 2016 |
|
|
188,054 |
|
|
|
12,611 |
|
|
|
1,090 |
|
F-23
The asset allocation for the Company’s pension plans at March 31, 2006, and the long term
target allocation, by asset category, are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Target |
|
|
| |
|
Allocation |
|
Percentage of Plan Assets at Year End |
Asset Category |
|
2007 |
|
2006 |
|
2005 |
Equity securities |
|
|
|
68 |
% |
|
|
71 |
% |
|
69 |
% |
Fixed income securities |
|
|
|
30 |
% |
|
|
26 |
% |
|
28 |
% |
Real estate and other |
|
|
|
— |
|
|
|
1 |
% |
|
2 |
% |
Cash |
|
|
|
2 |
% |
|
|
2 |
% |
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
100 |
% |
|
|
100 |
% |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company invests in a diversified portfolio of investments consisting almost entirely of
equity and fixed income securities. The equity portfolio includes direct and indirect interests in
both U.S. and global equity securities, both in developed and emerging market companies. The fixed
income portfolio is primarily U.S. and global high-quality bond funds.
The estimated fiscal 2007 pension plan contributions are $62,754 and other post-retirement
contributions are $2,842. If the provisions of the Pension Funding Equity Act of 2004 are not
extended to the 2006 plan year, the estimated fiscal 2007 pension plan contributions would be
$72,254.
Cash contributions to the Company’s pension plans are generally made in accordance with
minimum regulatory requirements. Because of the downturn experienced in global equity markets and
ongoing benefit payments, the Company’s U.S. plans are currently significantly under-funded. Based
on current assumptions and regulatory requirements, the Company’s minimum future cash contribution
requirements for its U.S. plans are expected to remain relatively high for the next few fiscal
years. On November 17, 2004, the Company received written notification of a tentative determination
from the Internal Revenue Service (“IRS”) granting a temporary waiver of its minimum funding
requirements for its U.S. plans for calendar years 2003 and 2004, amounting to approximately
$50,000, net, under Section 412(d) of the Internal Revenue Code, subject to providing a lien
satisfactory to the Pension Benefit Guaranty Corporation (“PBGC”). In accordance with the senior
credit facility and upon the agreement of the administrative agent, on June 10, 2005, the Company
reached agreement with the PBGC on a second priority lien on domestic personal property, including
stock of its U.S. and direct foreign subsidiaries to secure the unfunded liability. The temporary
waiver provides for deferral of the Company’s minimum contributions for those years to be paid over
a subsequent five-year period through 2010.
Based upon the temporary waiver and sensitivity to varying economic scenarios, the Company
expects its cumulative minimum future cash contributions to its U.S. pension plans will total
approximately $115,000 to $165,000 from fiscal 2007 to fiscal 2011, including $46,700 in fiscal
2007. These projections also assume that the provisions of the Pension Funding Equity Act of 2004
are extended for the 2006 plan year and funding reform legislation similar to the bills currently
before Congress is passed and takes effect for the 2007 plan year.
The Company expects that cumulative contributions to its non U.S. pension plans will total
approximately $84,000 from fiscal 2007 to fiscal 2011, including $16,054 in fiscal 2007. In
addition, the Company expects that cumulative contributions to its other post-retirement benefit
plans will total approximately $13,000 from fiscal 2007 to fiscal 2011, including $2,842 in fiscal
2007.
Assumed health care cost trend rates have a significant effect on the amounts reported for
other post-retirement benefits. A one-percentage-point change in assumed health care cost trend
rates would have the following effects:
| |
|
|
|
|
|
|
|
|
| |
|
One Percentage- |
|
|
One Percentage- |
|
| |
|
Point Increase |
|
|
Point Decrease |
|
Effect on total of service and interest cost components |
|
$ |
179 |
|
|
($ |
149 |
) |
Effect on the postretirement benefit obligation |
|
$ |
2,830 |
|
|
($ |
2,435 |
) |
Several plans had under-funded accrued benefit obligations that exceeded their accrued benefit
liabilities at March 31, 2006 and 2005. Additional minimum liabilities of $32,508 and $25,909 were
established at March 31, 2006 and 2005, respectively, to increase the accrued benefit liabilities
to the values of the under-funded accrued benefit obligations.
The
F-24
additional minimum liability at March 31, 2006 was partially offset by an intangible asset of
$258. The intangible relates to unrecognized prior service cost in France.
(12) STOCK BASED COMPENSATION PLANS
On August 30, 2005, the stockholders approved the 2004 Stock Incentive Plan (the “2004 Plan”)
to provide incentives and awards to employees and directors of the Company as well as certain
consultants. Under the 2004 Plan, all employees are eligible to receive awards. The 2004 Plan
permits the granting of stock options, restricted shares and performance awards. The maximum number
of shares that the Company may issue is 3,125 for all awards, but not more than 850 shares as
restricted shares.
During the fiscal year ended March 31, 2006 and the period from May 6, 2004 to March 31, 2005,
525 and 105 shares of restricted stock, respectively, were approved to be granted to certain
eligible employees. The restricted stock awards were approved by the Compensation
Committee of the Company’s Board of Directors.
Under the terms of the 2004 Plan, stock options are generally subject to a three-year vesting
schedule and shares of restricted stock are generally subject to a five-year vesting schedule. The
vesting schedules are subject to certain change in control provisions, including full vesting if an
employee is terminated within 12 months of a change in control. The per share exercise price for
the stock options was calculated based on a 10-day trailing average closing price of the Company’s
common stock as listed on the NASDAQ National Market immediately prior to the award date.
Also, pursuant to the 2004 Plan and as part of their annual compensation, each non-employee
member of the Company’s Board of Directors received stock options and restricted stock, each valued
at $20. These awards are 100% vested as of the grant date. The per share exercise price for the
stock options and the restricted stock price were calculated based on a 10-day trailing average
closing price of the Company’s common stock as listed on the NASDAQ National Market immediately
prior to the grant date. Stock option activity for the fiscal years ended March 31, 2006, 2005,
and 2004 is summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
The 2004 Plan |
|
Predecessor Company Plan |
| |
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Weighted Average |
|
| |
|
Stock Options |
|
|
Exercise Price |
|
|
Stock Options |
|
|
Exercise Price |
|
Shares under option: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2003 |
|
|
— |
|
|
|
— |
|
|
|
4,250 |
|
|
$ |
10.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
— |
|
|
|
— |
|
|
|
(325 |
) |
|
$ |
11.09 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2004 |
|
|
— |
|
|
|
— |
|
|
|
3,925 |
|
|
$ |
10.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
521 |
|
|
$ |
15.73 |
|
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
(35 |
) |
|
$ |
15.82 |
|
|
|
— |
|
|
|
— |
|
Cancelled |
|
|
— |
|
|
|
— |
|
|
|
(3,925 |
) |
|
$ |
10.63 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2005 |
|
|
486 |
|
|
$ |
15.72 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,059 |
|
|
$ |
6.63 |
|
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
(225 |
) |
|
$ |
13.39 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2006: |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
Total: |
|
|
1,320 |
|
|
$ |
8.83 |
|
|
|
|
|
|
|
|
|
By Exercise Price Range: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.89 - $5.00 |
|
|
753 |
|
|
$ |
4.49 |
|
|
|
|
|
|
|
|
|
$12.87 - $15.82 |
|
|
567 |
|
|
$ |
14.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2004 |
|
|
— |
|
|
|
— |
|
|
|
3,292 |
|
|
$ |
10.47 |
|
Exercisable at March 31, 2005 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Exercisable at March 31, 2006 |
|
|
114 |
|
|
$ |
15.67 |
|
|
|
— |
|
|
|
— |
|
All stock options outstanding at March 31, 2006 have a remaining contractual life of approximately
9 to 12 years.
F-25
(13) INCOME TAXES
The provision for income taxes includes federal, state and foreign taxes currently payable and
those deferred because of net operating losses and temporary differences between the financial
statement and tax bases of assets and liabilities. The components of the provision for income taxes
for the fiscal year ended March 31, 2006, the period May 6, 2004 to March 31, 2005, the period
April 1, 2004 to May 5, 2004, and fiscal year ended March 31, 2004 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Period |
|
|
|
|
|
|
|
| |
|
|
|
|
|
From |
|
|
Period From |
|
|
|
|
| |
|
Year Ended |
|
|
May 6, 2004 to |
|
|
April 1, 2004 to |
|
|
Year Ended March |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
May 5, 2004 |
|
|
31, 2004 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
637 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
State |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Foreign |
|
|
15,361 |
|
|
|
7,668 |
|
|
|
697 |
|
|
|
10,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,998 |
|
|
|
7,668 |
|
|
|
697 |
|
|
|
10,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
State |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Foreign |
|
|
(36 |
) |
|
|
6,551 |
|
|
|
(3,179 |
) |
|
|
(7,343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36 |
) |
|
|
6,551 |
|
|
|
(3,179 |
) |
|
|
(7,343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision (benefit) |
|
|
15,962 |
|
|
$ |
14,219 |
|
|
$ |
(2,482 |
) |
|
$ |
3,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Major differences between the federal statutory rate and the effective tax rate are as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Period |
|
|
|
|
|
|
|
| |
|
|
|
|
|
From |
|
|
Period From |
|
|
|
|
| |
|
Year Ended |
|
|
May 6, 2004 to |
|
|
April 1, 2004 to |
|
|
Year Ended March |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
May 5, 2004 |
|
|
31, 2004 |
|
Federal statutory rate |
|
|
(35.0 |
)% |
|
|
(35.0 |
)% |
|
|
(35.0 |
)% |
|
|
(35.0 |
)% |
Loss on Liquidation |
|
|
2.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
I/C Debt Forgiveness |
|
|
(20.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Thin Cap Disallowance |
|
|
2.5 |
|
|
|
— |
|
|
|
2.1 |
|
|
|
— |
|
Nondeductible goodwill impairment/amortization |
|
|
— |
|
|
|
30.1 |
|
|
|
— |
|
|
|
— |
|
Fresh start accounting adjustments |
|
|
— |
|
|
|
— |
|
|
|
4.6 |
|
|
|
— |
|
Discharge of liabilities subject to compromise |
|
|
— |
|
|
|
— |
|
|
|
31.2 |
|
|
|
— |
|
Tax losses not benefited |
|
|
— |
|
|
|
(9.9 |
) |
|
|
0.2 |
|
|
|
41.7 |
|
Increase (decrease) in valuation allowances |
|
|
61.4 |
|
|
|
9.2 |
|
|
|
— |
|
|
|
(10.1 |
) |
Revaluation of Warrants |
|
|
(2.0 |
) |
|
|
(4.9 |
) |
|
|
— |
|
|
|
— |
|
Rate differences on foreign subsidiaries |
|
|
(3.7 |
) |
|
|
7.1 |
|
|
|
(0.2 |
) |
|
|
3.3 |
|
Intercompany stock sales |
|
|
— |
|
|
|
3.2 |
|
|
|
— |
|
|
|
(2.8 |
) |
Other, net |
|
|
4.2 |
|
|
|
3.3 |
|
|
|
(2.8 |
) |
|
|
6.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
10.2 |
% |
|
|
3.1 |
% |
|
|
0.1 |
% |
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the significant components of the Company’s deferred tax assets and
liabilities as of March 31, 2006 and 2005:
| |
|
|
|
|
|
|
|
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Operating loss and tax credit carry-forwards |
|
$ |
298,312 |
|
|
$ |
496,022 |
|
Compensation reserves |
|
|
80,659 |
|
|
|
78,134 |
|
Environmental reserves |
|
|
12,797 |
|
|
|
24,058 |
|
Warranty |
|
|
11,434 |
|
|
|
12,311 |
|
Asset and other realization reserves |
|
|
— |
|
|
|
4,795 |
|
F-26
| |
|
|
|
|
|
|
|
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
Purchase commitments |
|
|
7,160 |
|
|
|
10,817 |
|
Other |
|
|
32,412 |
|
|
|
65,617 |
|
Valuation allowance |
|
|
(300,718 |
) |
|
|
(597,500 |
) |
|
|
|
|
|
|
|
|
|
|
142,056 |
|
|
|
94,254 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
(46,849 |
) |
|
|
(31,169 |
) |
Intangible assets |
|
|
(61,373 |
) |
|
|
(27,062 |
) |
|
|
|
|
|
|
|
|
|
|
(108,222 |
) |
|
|
(58,231 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
33,834 |
|
|
$ |
36,023 |
|
|
|
|
|
|
|
|
The net deferred income tax asset is classified in the consolidated balance sheet as follows:
| |
|
|
|
|
|
|
|
|
| |
|
March 31, |
|
|
March 31, |
|
| |
|
2006 |
|
|
2005 |
|
Current asset |
|
$ |
11,066 |
|
|
$ |
4,305 |
|
Noncurrent asset |
|
|
56,358 |
|
|
|
55,896 |
|
Noncurrent liability |
|
|
(33,590 |
) |
|
|
(24,178 |
) |
|
|
|
|
|
|
|
|
|
$ |
33,834 |
|
|
$ |
36,023 |
|
|
|
|
|
|
|
|
As of March 31, 2006 the Company has net operating loss carry-forwards (“NOLs”) for U.S. and state
income tax purposes of approximately $465,000. This amount reflects a reduction of $398,000
required by Sec 108 of the Internal Revenue Code (“IRC”) when the Company emerged from bankruptcy
under Chapter 11 of the U.S. bankruptcy laws. These loss carry-forwards will expire in years 2022
through 2026. The Company has determined that a Sec. 382 ownership change occurred during the
fiscal year ending March 31, 2006. IRC Sec. 382 places annual limits on the amount of the
Company’s U.S. NOLs that may be used to offset future taxable income. The Company estimates the
annual Sec. 382 limitation to be approximately $6,000. The U.S. NOLs available to the Company,
given the limitation provisions of IRC Sec 382, are estimated to be $182,000 . Due to the
complexity of Sec. 382, the Company is performing an ongoing analysis of IRC Sec. 382, which may
result in revisions to the NOLs available and the related full valuation allowance currently
provided on the NOLs. (see discussion below).
At March 31, 2006, certain of the Company’s foreign subsidiaries have net operating loss
carry-forwards for income tax purposes of approximately $742,747, of which approximately $102,336
expire in years 2006 through 2019. The remaining losses are available for carry-forward
indefinitely.
A full valuation allowance has been provided on Exide Technologies (the US parent company) and
all of its U.S. subsidiaries. Additionally, valuation allowances have been recognized in certain
foreign tax jurisdictions, to reduce the deferred tax assets for net operating loss carry-forwards
and temporary differences for which it is more likely than not that the related tax benefits will
not be realized. In other jurisdictions, the Company’s net deferred tax assets include net
operating loss carry-forwards and temporary differences which management believes are realizable
through a combination of forecasted future taxable income and anticipated tax planning strategies.
The Company has implemented certain tax planning strategies in prior years to utilize a portion of
such deferred tax assets. Failure to achieve forecasted future taxable income might affect the
ultimate realization of any remaining deferred tax assets.
As of March 31, 2006, the Company had not provided for withholding or U.S. Federal income
taxes on current year undistributed earnings of certain other foreign subsidiaries since such
earnings are expected to be reinvested indefinitely or be substantially offset by available foreign
tax credits and operating loss carry forwards. As of March 31, 2006, the Company had
approximately $205,000 of undistributed earnings in its foreign subsidiaries.
(14) ENVIRONMENTAL MATTERS
As a result of its multinational manufacturing, distribution and recycling operations, the
Company is subject to numerous federal, state and local environmental, occupational safety and
health laws and regulations, as well as similar laws and regulations in other countries in which
the Company operates. For a discussion of environmental matters, see Note 15 to the Consolidated
Financial Statements.
F-27
(15) COMMITMENTS AND CONTINGENCIES
Claims Reconciliation
Holders of general unsecured claims will receive collectively 2,500 shares of new common stock
and Warrants to purchase 6,250 shares of new common stock at $32.11 per share, and approximately
13.4% of such new common stock and Warrants were initially reserved for distribution for disputed
claims under the Plan’s claims reconciliation and allowance procedures. The Official Committee of
Unsecured Creditors, in consultation with the Company, established such reserve to provide for a
pro rata distribution of new common stock and Warrants to holders of disputed claims as they become
allowed. As claims are evaluated and processed, the Company will object to some claims or portions
thereof, and upward adjustments (to the extent stock and Warrants not previously distributed
remain) or downward adjustments to the reserve will be made pending or following adjudication of
such objections. Predictions regarding the allowance and classification of claims are inherently
difficult to make. With respect to environmental claims in particular, there is inherent
difficulty in assessing the Company’s potential liability due to the large number of other
potentially responsible parties. For example, a demand for the total cleanup costs of a landfill
used by many entities may be asserted by the government using joint and several liability theories.
Although the Company believes that there is a reasonable basis to believe that it will ultimately
be responsible for only its share of these remediation costs, there can be no assurance that the
Company will prevail on these claims. In addition, the scope of remedial costs, or other
environmental injuries, are highly variable and estimating these costs involves complex legal,
scientific and technical judgments. Many of the claimants who have filed disputed claims,
particularly environmental and personal injury claims produce little or no proof of fault on which
the Company can assess its potential liability and either specify no determinate amount of damages
or provide little or no basis for the alleged damages. In some cases, the Company is still seeking
additional information needed for claims assessment and information that is unknown to the Company
at the current time may significantly affect the Company’s assessment regarding the adequacy of the
reserve amounts in the future.
As general unsecured claims have been allowed in the bankruptcy court, the Company has
distributed approximately one share per $383.00 in allowed claim amount and approximately one
Warrant per $153.00 in allowed claim amount. These rates were established based upon the
assumption that the common stock and Warrants allocated to holders of general unsecured claims on
the effective date of the Plan, including the reserve established for disputed claims, would be
fully distributed so that the recovery rates for all allowed unsecured claims would comply with the
Plan without the need for any redistribution or supplemental issuance of securities. If the amount
of general unsecured claims that is eventually allowed exceeds the amount of claims anticipated in
the setting of the reserve, additional common stock and Warrants will be issued for the excess
claim amounts at the same rates as used for the other general unsecured claims. If this were to
occur, additional common stock would also be issued to the holders of pre-petition secured claims
to maintain the ratio of their distribution in common stock at nine times the amount of common
stock distributed for all unsecured claims.
On April 20, 2006, the Company made its eighth distribution of new common stock and Warrants.
Historical Federal Plea Agreement
In 2001, the Company reached a plea agreement with the U.S. Attorney for the Southern District
of Illinois resolving an investigation into a scheme by former officers and certain corporate
entities involving fraudulent representations and promises in connection with the distribution,
sale and marketing of automotive batteries between 1994 and 1997. The Company agreed to pay a fine
of $27,500 over five years, to five-years probation and to cooperate with the U.S. Attorney in its
prosecution of the former officers. The Company was sentenced pursuant to the terms of the plea
agreement in February 2002. Generally, failure to comply with the provisions of the plea
agreement, including the obligation to pay the fine, would permit the U.S. Government to reopen the
case against the Company.
On April 15, 2002, the Company filed for protection under Chapter 11 of the Bankruptcy Code.
Later in 2002, the United States Attorney’s Office for the Southern District of Illinois filed a
claim as a general unsecured creditor of the Company’s subsidiary, Exide Illinois, Inc. for
$27,900. The Company did not pay any installments of the criminal fine before or during its
bankruptcy proceedings, nor did it pay any installments of the criminal fine after the Company
emerged from bankruptcy in May 2004. As previously reported, if the U.S. Government were to assert
that the obligation to pay the fine was not discharged under the Plan of Reorganization, the
Company could be required to pay it.
In December 2004, the U.S. Attorney’s Office requested additional information regarding
whether the Company adequately disclosed its financial condition at the time the plea agreement and
the associated fine were approved by the U.S. District Court. The Company supplied correspondence
and other materials responsive to this request.
F-28
On November 18, 2005 the U.S. Attorney’s Office filed a motion in the District Court for a
hearing to make inquiry of the Company’s failure to comply with the Court’s judgment and terms of
probation, principally through failure to pay the fine, and a motion to show cause why the Company
should not be held in contempt. In its motion, the U.S. Attorney’s Office asserts that Exide
Illinois is in default from its nonpayment of the criminal fine and is in violation of the terms of
probation. The U.S. Attorney also asserted that bankruptcy does not discharge criminal fines, and
that the Company did not adequately disclose its financial condition at the time the plea agreement
and associated fines were approved by the District Court.
On May 31, 2006, the District Court approved a Joint Agreement and Proposed Joint Resolution
of Issues Raised in the Government’s Motion Filed on November 18, 2005 Regarding the Payment of
Criminal Fine. The District Court entered an order consistent with the Joint Agreement and
Proposed Joint Resolution, and modified the Company’s schedule to pay the $27,500 fine through
quarterly payments over the next five years, ending in 2011.
Under the order, Exide Technologies must provide security in a form acceptable to the court
and to the government by February 26, 2007 for its guarantee of any remaining unpaid portion of the
fine, but may petition the court prior thereto if the Company believes its financial viability
would be jeopardized by providing such security. The court’s order reflects that the Company is
not obligated to pay interest on outstanding amounts of unpaid fine if the Company is current on
all installment payments, and allows for penalties and interest to be imposed if the Company does
not comply with the modified fine payment schedule.
Pre-Petition Litigation Settlements
The Company previously disclosed in its most recent Report on Form 10-K for fiscal 2005
tentative settlements with various plaintiffs who alleged personal injury and/or property damage
from the release of hazardous materials used in the battery manufacturing process prior to the
Company’s filing for Chapter 11 bankruptcy protection. The Company has finalized a settlement of
these claims, as well as claims they could have asserted against third parties who may have had
claims of indemnification against the Company on a pre-petition or post-petition basis. The claims
will be paid in new common stock and Warrants to be paid out of the reserve established under the
claims reconciliation process. The terms of the settlement are still subject to approval of
appropriate state courts.
Private Party Lawsuits and other Legal Proceedings
On March 14, 2003, the Company served notices to reject certain executory contracts with
EnerSys, including a 1991 Trademark and Trade Name License Agreement (the “Trademark License”),
pursuant to which the Company had licensed to EnerSys use of the “Exide” trademark on certain
industrial battery products in the United States and 80 foreign countries. EnerSys objected to the
rejection of certain of the executory contracts, including the Trademark License, and the
Bankruptcy Court conducted a hearing on the Company’s rejection request. On April 3, 2006, the
Court granted the Company’s request to reject the contracts. EnerSys has filed a notice of appeal.
Unless the appeal is successful, EnerSys will likely lose all rights to use the “Exide” trademark
over time and the Company will have greater flexibility in its ability to use that mark for
industrial battery products. Because the Bankruptcy Court authorized rejection of the Trademark
License, as with other executory contracts at issue, EnerSys will have a pre-petition general
unsecured claim relating to the alleged damages arising therefrom. The Company reserves the
ability to consider payment in cash of some portion of any settlement or ultimate award on Enersys’
claim of alleged rejection damages.
In July 2001, Pacific Dunlop Holdings (US), Inc. (“PDH”) and several of its foreign affiliates
under the various agreements through which Exide and its affiliates acquired GNB, filed a complaint
in the Circuit Court for Cook County, Illinois alleging breach of contract, unjust enrichment and
conversion against Exide and three of its foreign affiliates. The plaintiffs maintain they are
entitled to approximately $17,000 in cash assets acquired by the defendants through their
acquisition of GNB. In December 2001, the Court denied the defendants’ motion to dismiss the
complaint, without prejudice to re-filing the same motion after discovery proceeds. The defendants
filed an answer and counterclaim. On July 8, 2002, the Court authorized discovery to proceed as to
all parties except Exide. In August 2002, the case was removed to the U.S. Bankruptcy Court for the
Northern District of Illinois and in October 2002, the parties presented oral arguments, in the
case of PDH, to remand the case to Illinois state court and, in the case of Exide, to transfer the
case to the U.S. Bankruptcy Court for the District of Delaware. On February 4, 2003, the U.S.
Bankruptcy Court for the Northern District of Illinois transferred the case to the U.S. Bankruptcy
Court in Delaware. On November 19, 2003, the Bankruptcy Court denied PDH’s motion to abstain or
remand the case and issued an opinion holding that the Bankruptcy Court had jurisdiction over PDH’s
claims and that liability, if any, would lie solely against Exide Technologies and not against any
of its foreign affiliates. PDH subsequently filed a motion to reconsider, and on June 16, 2005, the
Bankruptcy Court denied PDH’s motion to reconsider. PDH has appealed the Bankruptcy court’s
decisions to the U.S. District Court for the District of Delaware. That court, pursuant to a
Standing Order requiring mandatory mediation of all appeals from the Bankruptcy Court, scheduled a
mediation in Wilmington, Delaware which took place on November 3, 2005. The appeal will proceed
and remains pending. In December 2001, PDH filed a separate action in the Circuit Court for Cook
County, Illinois seeking recovery of approximately
F-29
$3,100 for amounts allegedly owed by Exide under various agreements between the parties. The
claim arises from letters of credit and other security allegedly provided by PDH for GNB’s
performance of certain of GNB’s obligations to third parties that PDH claims Exide was obligated to
replace. Exide’s answer contested the amounts claimed by PDH and Exide filed a counterclaim.
Although this action has been consolidated with the Cook County suit concerning GNB’s cash assets,
the claims relating to this action have been transferred to the U.S. Bankruptcy Court for the
District of Delaware and are currently subject to a stay injunction by that court. The Company
plans to vigorously defend itself and pursue its counterclaims.
From 1957 to 1982, CEAC, the Company’s principal French subsidiary, operated a plant using
crocidolite asbestos fibers in the formation of battery cases, which, once formed, encapsulated the
fibers. Approximately 1,500 employees worked in the plant over the period. Since 1982, the French
governmental agency responsible for worker illness claims received 56 employee claims alleging
asbestos-related illnesses. For some of those claims, CEAC is obligated to and has indemnified the
agency in accordance with French law for approximately $260 and $378 in calendar 2003 and 2004,
respectively. In addition, CEAC has been adjudged liable to indemnify the agency for approximately
$200 and $107 during the same periods to date for the dependents of four such claimants. The
Company was not required to indemnify or make any payments in calendar year 2005. Although the
Company cannot predict the number or size of any future claims, the Company does not believe
resolution of the current or any future claims, individually or in the aggregate, will have a
material adverse effect on the Company’s financial condition, cash flows or results of operations.
The Company’s Shanghai, China subsidiary, Exide Technologies (Shanghai) Company Limited
(“Exide Shanghai”), has been the subject of an investigation by the Anti-Smuggling Bureau of the
Shanghai Customs Administration (“Anti-Smuggling Bureau”). A report was submitted by the
Anti-Smuggling Bureau to the Shanghai Municipal People’s Public Prosecutor’s Office, First Division
(“Prosecutor’s Office”). The Prosecutor’s Office rejected the report, and with regard to two
supplemental investigatory reports, the Company understands that in both instances no criminal
prosecution was recommended against Exide Shanghai, its officers, directors and employees.
In April 2003, the Company sold its Torrejon, Spain nickel-cadmium plant. The Company has
learned that the Torrejon courts are conducting an investigation of three petitions submitted to
determine whether criminal charges should be filed for alleged injuries and endangerment of
workers’ health at the former Torrejon plant. The petitions contain criminal allegations against
current and former employees but only allegations of civil liability against the Company. The
investigations have been consolidated into one court. The Company has retained counsel in the event
that any charges ultimately are filed.
Between 1996 and 2002, one of the Company’s Spanish subsidiaries negotiated dual-scale
salaries under collective bargaining agreements for workers at numerous facilities. Several claims
challenging the dual-scale salary system have been brought in various Spanish courts covering
multiple jurisdictions. To date, the Company has lost its challenges in only one jurisdiction, and
prevailed in other jurisdictions. The Company continues to litigate these matters in the one
jurisdiction and does not currently anticipate any material adverse affect on the Company’s
financial condition, cash flows or results of operations.
In June 2005, the Company received notice that two former stockholders, Aviva Partners LLC and
Robert Jarman, had separately filed purported class action lawsuits against the Company and certain
of its current and former officers alleging violations of certain federal securities laws. The
cases were filed in the United States District Court for the District of New Jersey purportedly on
behalf of those who purchased the Company’s stock between November 16, 2004 and May 17, 2005. The
complaints allege that the named officers violated Sections 10(b) and 20(a) of the Securities
Exchange Act and SEC Rule 10b-5 in connection with certain allegedly false and misleading public
statements made during this period by the Company and its officers. The complaints did not specify
an amount of damages sought. The Company denies the allegations in the complaints and intends to
vigorously pursue its defense.
On August 29, 2005, District Judge Mary L. Cooper consolidated the Aviva Partners and Jarman
cases under the Aviva Partners v. Exide Technologies, Inc. caption, lead docket number 05-3098
(MLC). On March 24, 2006 District Judge Cooper appointed the Alaska Hotel & Restaurant Employees
Pension Trust Fund and Lakeway Capital Management Co-Lead Plaintiffs for the putative class of
former Exide stockholders and appointed the law firms of Lerach Coughlin Stoja Geller Rudman &
Robbins LLP and Schatz & Nobel, P.C. as Co-Lead Counsel for the putative class. On May 8, 2006
Co-Lead Plaintiffs filed their consolidated amended complaint in which they reiterated the claims
described above but purported to state a claim on behalf of those who purchased the Company’s stock
between May 5, 2004 and May 17, 2005. Defendants intend to move to dismiss all claims against them
on or before June 22, 2006. Discovery is currently stayed pursuant to the discovery-stay
provisions of the Private Securities Litigation Reform Act of 1995.
F-30
On October 6, 2005, Murray Capital Management, Inc., filed suit against the Company, certain
of its current and former officers and Deutsche Bank Securities, Inc. The case was filed in the
U.S. District Court for the Southern District of New York under the caption Murray Capital
Management, Inc. v. Exide Technologies, et al., docket number 05 Civ. 8570 (AKH), and alleges that
the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act and SEC Rule 10b-5,
among other related state laws, in connection with certain allegedly false and misleading public
statements made by the Company and its officers. While Murray’s claims are largely duplicative of
those set out in the Aviva and Jarman complaints, Murray also claims that false and misleading
statements were made in connection with the Company’s March 2005 issuance of convertible notes and
concurrent issuance of senior notes. The complaint does not specify the amount of damages sought
in the suit. All Defendants have moved to dismiss the Murray Capital complaint in its entirety and
the parties await a ruling on Defendants’ motions to dismiss. Discovery in the case has not yet
begun and Defendants believe it will be stayed throughout the pendency of their motions to dismiss
pursuant to the discovery-stay provisions of the Private Securities Litigation Reform Act of 1995.
The Company denies the allegations in the complaint and intends to vigorously pursue its defense.
In October 2005, Deutsche Bank Securities Inc. made formal written demand that the Company
indemnify it in connection with the Murray litigation pursuant to the purchase agreement for the
Senior Secured Notes and the Floating Rate Convertible Senior Subordinated Notes. The Company has
accepted its indemnification obligations from Deutsche Bank.
The Company has been informed by the Enforcement Division of the Securities and Exchange
Commission (the “SEC”) that it has commenced a preliminary inquiry into statements the Company made
earlier this year regarding its ability to comply with fiscal 2005 loan covenants and the going
concern modification in the audit report in the Company’s annual report on Form 10-K for fiscal
2005. The SEC noted that the inquiry should not be construed as an indication by the SEC or its
staff that any violations of law have occurred. The Company intends to fully cooperate with the
inquiry and continues to do so.
The Company’s Norwegian subsidiary, Exide Sonnak AS, has received notice of claims for
property damage in the approximate amount of $5,300 allegedly as the result of a warehouse fire
occurring on or about July 8, 2005 in Trondheim, Norway due to an alleged malfunctioning battery
charger allegedly manufactured by the Company. The Company and its counsel are evaluating those
claims.
Environmental Matters
As a result of its manufacturing, distribution and recycling operations, the Company is
subject to numerous federal, state and local environmental, occupational safety and health laws and
regulations, including limits on employee blood lead levels, as well as similar laws and
regulations in other countries in which the Company operates (collectively, “EH&S laws”).
The Company is exposed to liabilities under such EH&S laws arising from its past handling,
release, storage and disposal of hazardous substances and hazardous wastes. The Company previously
has been advised by the U.S. Environmental Protection Agency (“EPA”) or state agencies that it is a
“Potentially Responsible Party” under the Comprehensive Environmental Response, Compensation and
Liability Act (“CERCLA”) or similar state laws at 96 federally defined Superfund or state
equivalent sites. At 44 of these sites, the Company has paid its share of liability. While the
Company believes it is probable its liability for most of the remaining sites will be treated as
disputed unsecured claims under the Plan, there can be no assurance these matters will be
discharged. If the Company’s liability is not discharged at one or more sites, the government may
be able to file claims for additional response costs in the future, or to order the Company to
perform remedial work at such sites. In addition, the EPA, in the course of negotiating this
pre-petition claim, had notified the Company of the possibility of additional clean-up costs
associated with Hamburg, Pennsylvania properties of approximately $35,000, as described in more
detail below. To date the EPA has not made a formal claim for this amount or provided any support
for this estimate. To the extent the EPA or other environmental authorities dispute the
pre-petition nature of these claims, the Company would intend to resist any such effort to evade
the bankruptcy law’s intended result, and believes there are substantial legal defenses to be
asserted in that case. However, there can be no assurance that the Company would be successful in
challenging any such actions.
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 applicable EH&S laws with varying degrees of involvement by appropriate legal
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 various courts or with certain environmental regulatory agencies with
respect to these currently or formerly owned or operating locations. While the ultimate outcome of
the foregoing environmental matters is uncertain, after consultation with legal counsel, the
Company does not believe the resolution of these matters, individually or in the aggregate, will
have a material adverse effect on the Company’s financial condition, cash flows or results of
operations.
F-31
On September 6, 2005, the U.S. Court of Appeals for the Third Circuit issued an opinion in
U.S. v. General Battery/Exide (No. 03-3515) affirming the district court’s holding that the Company
is liable, as a matter of federal common law of successor liability, for lead contamination at
certain sites in the vicinity of Hamburg, Pennsylvania. This case involves several of the
pre-petition environmental claims of the federal government for which the Company, as part of its
Chapter 11 proceeding, had established a reserve of common stock and Warrants. The current amount
of the government claims for these sites is approximately $14,000. In October 2004, the EPA, in
the course of negotiating a comprehensive settlement of all its environmental claims against the
Company, had notified the Company of the possibility of additional clean-up costs associated with
other Hamburg, Pennsylvania properties of approximately $35,000. To date the EPA has not made a
formal claim for this amount or provided any support for this estimate.
As unsecured claims are allowed in the Bankruptcy Court, the Company is required to distribute
common stock and Warrants to the holders of such claims. To the extent the government is able to
prove the Company is responsible for the alleged contamination at the other Hamburg, Pennsylvania
properties and substantiate its estimated $35,000 of additional clean-up costs, and if the Company
is unsuccessful in challenging the Third Circuit’s decision above, these claims would ultimately
result in an inadequate reserve of common stock and Warrants to the extent not offset by the
reconciliation of all other claims for lower amounts than the aggregate reserve. The Company would
still retain the right to perform and pay for such cleanup activities, which would preserve the
existing reserved common stock and Warrants discussed in this Note 15. It is the Company’s position
that it is not liable for the contamination of this area, and that any liability it may have
derives from pre-petition events which would be administered as a general, unsecured claim, and
consequently no provisions have been recorded in connection therewith.
The Company has established reserves for on-site and off-site environmental remediation costs
where such costs are probable and reasonably estimable and believes that such reserves are
adequate. As of March 31, 2006 and 2005, the amount of such reserves on the Company’s consolidated
balance sheet was approximately $36,650 and $39,742, respectively. 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 is conducting an investigation and risk assessment of lead exposure near its
Reading smelter from past facility emissions and non-Company sources such as lead paint. This is
being done under a Consent Order with the USEPA. The Company has previously removed soil from
properties with the highest soil lead content, and is in negotiations and proceedings with USEPA to
resolve differences regarding the need for, and extent of, further actions by the Company.
Alternatives have been reviewed and appropriate reserve estimates made. At this time the Company
cannot determine from available information whether additional cleanup will occur and, if so, the
extent of any cleanup and costs that may finally be incurred.
The sites that currently have the largest reserves include the following:
Tampa, Florida
The Tampa site is a former secondary lead smelter, lead oxide production facility, and sheet
lead-rolling mill that operated from 1943 to 1989. Under a RCRA Part B Closure Permit and a Consent
Decree with the State of Florida, Exide is required to investigate and remediate certain historic
environmental impacts to the site. Cost estimates for remediation (closure and post-closure) range
from $12,500 to $20,500 depending on final State of Florida requirements. The remediation
activities are expected to occur over the course of several years.
Columbus, Georgia
The Columbus site is a former secondary lead smelter that was mothballed in 1999, which is
part of a larger facility that includes an operating lead acid battery manufacturing facility.
Groundwater remediation activities began in 1988. Costs for supplemental investigations,
remediation and site closure are currently estimated from $6,000 to $9,000.
Azambuja (SONALUR) Portugal
The Azambuja (SONALUR) facility is an active secondary lead smelter. Materials from past
operations present at the site are stored in above-ground concrete containment vessels and in
underground storage deposits. The Company finalized the
F-32
process of obtaining site characterization data to evaluate remediation alternatives agreeable
to local authorities. Costs for remediation are currently estimated at $3,500 to $7,000.
Guarantees
At March 31, 2006, the Company had outstanding letters of credit with a face value of $43,785
and surety bonds with a face value of $30,089. The majority of the letters of credit and surety
bonds have been issued as collateral or financial assurance with respect to certain liabilities the
Company has recorded, including but not limited to environmental remediation obligations and
self-insured workers compensation reserves. Failure of the Company to satisfy its obligations with
respect to the primary obligations secured by the letters of credit or surety bonds could entitle
the beneficiary of the related letter of credit or surety bond to demand payments pursuant to such
instruments. The letters of credit generally have terms up to one year. The Company expects limited
availability of new surety bonds from traditional sources, which could impact the Company’s
liquidity needs in future periods. Pursuant to authorization from the Bankruptcy Court, the Company
reached an agreement with the surety to maintain its current surety bonds through July 31, 2006.
Collateral held by the surety in the form of letters of credit at March 31, 2006, pursuant to the
terms of the agreement, was $30,089.
Certain of the Company’s European subsidiaries have bank guarantees outstanding, which have
been issued as collateral or financial assurance in connection with environmental obligations,
income tax claims and customer contract requirements. At March 31, 2006, bank guarantees with a
face value of $16,849 were outstanding.
Warranty and Return Allowance
For a majority of the Company’s sales, an up-front “warranty discount” is provided at the time
of sale, after which there is no additional warranty obligation or customer right-of-return. For
the remaining sales on which an up-front discount is not provided, the Company provides for an
allowance for product returns and/or allowances. Based upon its manufacturing re-work process, the
Company believes that the majority of its product returns are not the result of product defects.
Many returns are in fact subsequently sold as seconds at a reduced price. The Company recognizes
warranty discounts and the estimated cost of product returns as a reduction of sales in the period
in which the related revenue is recognized. The product return estimates are based upon historical
trends and claims experience, and include assessment of the anticipated lag between the date of
sale and claim/return date.
A reconciliation of changes in the Company’s consolidated warranty and return liability
follows:
| |
|
|
|
|
Balance at March 31, 2005 |
|
$ |
49,030 |
|
Accrual for warranties and returns provided during the period |
|
|
48,473 |
|
Settlements made (in cash or credit) during the period |
|
|
(50,543 |
) |
Currency translation |
|
|
(1,342 |
) |
|
|
|
|
| |
Balance at March 31, 2006 |
|
$ |
45,618 |
|
|
|
|
|
Leases
Future minimum lease payments under operating and capital leases that have initial or
remaining noncancelable lease terms in excess of one year at March 31, 2006, are:
| |
|
|
|
|
|
|
|
|
| Fiscal
Year |
|
Operating |
|
|
Capital |
|
2007 |
|
$ |
27,695 |
|
|
$ |
4,237 |
|
2008 |
|
|
18,434 |
|
|
|
3,972 |
|
2009 |
|
|
11,343 |
|
|
|
3,178 |
|
2010 |
|
|
6,656 |
|
|
|
4,561 |
|
2011 |
|
|
4,461 |
|
|
|
1,600 |
|
Thereafter |
|
|
16,899 |
|
|
|
6,275 |
|
|
|
|
|
|
|
|
|
Total minimum payments |
|
$ |
85,488 |
|
|
|
23,823 |
|
|
|
|
|
|
|
|
|
Less—Interest on capital leases |
|
|
|
|
|
|
3,947 |
|
|
|
|
|
|
|
|
|
Total principal payable on capital leases (included in Long-term debt) |
|
|
|
|
|
$ |
19,876 |
|
|
|
|
|
|
|
|
|
Rent expense amounted to $58,016, $51,074, $5,488, and $62,143 for the fiscal year ended
March 31, 2006, the period May 6, 2004 to March 31, 2005, the period April 1, 2004 to May 5, 2004
and the fiscal year ended March 31, 2004, respectively.
F-33
The Company has various purchase commitments for materials, supplies and other items
incident to the ordinary course of business. See Note 19 for discussion of the battery separator
agreement entered into as part of the Company’s sale of these operations.
(16) RESTRUCTURING
During fiscal 2006, the Company has continued to implement operational changes to streamline
and rationalize its structure in an effort to simplify the organization and eliminate redundant
and/or unnecessary costs. As part of these restructuring programs, the nature of the positions
eliminated range from plant employees and clerical workers to operational and sales management.
During the year ended March 31, 2006, the Company recognized restructuring and impairment
charges of $21,714, representing $14,392 for severance and $7,322 for related closure costs. These
charges resulted from actions completed during fiscal 2006, which related to consolidation efforts
in the Industrial Energy Europe and ROW segment, closure costs for the Company’s Casalnuovo, Italy
industrial facility, corporate severance, headcount reductions in the Transportation Europe and ROW
segment, the closure of the Lawrenceville, New Jersey office and fiscal 2006 North America
headcount reductions in corporate and in the Transportation North America and Industrial Energy
North America segments. Approximately 476 positions have been eliminated in connection with the
fiscal 2006 restructuring activities. The following is a summary of restructuring reserve movements
from March 31, 2003 through March 31, 2006:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Severance |
|
|
Closure Costs |
|
|
Total |
|
Balance, March 31, 2003 |
|
$ |
19,360 |
|
|
$ |
13,524 |
|
|
$ |
32,884 |
|
Charges, Fiscal 2004 |
|
|
43,519 |
|
|
|
8,972 |
|
|
|
52,491 |
|
Payments and Currency Changes |
|
|
(25,185 |
) |
|
|
(5,716 |
) |
|
|
(30,901 |
) |
Reclassification |
|
|
(8,120 |
) |
|
|
(3,855 |
) |
|
|
(11,975 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2004 |
|
|
29,574 |
|
|
|
12,925 |
|
|
|
42,499 |
|
Charges, April 1, 2004 to May 5, 2004 |
|
|
190 |
|
|
|
394 |
|
|
|
584 |
|
Payments and currency translation |
|
|
(4,900 |
) |
|
|
(1,556 |
) |
|
|
(6,456 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at May 5, 2004 |
|
|
24,864 |
|
|
|
11,763 |
|
|
|
36,627 |
|
Charges, May 6, 2004 to March 31, 2005 |
|
|
32,066 |
|
|
|
6,413 |
|
|
|
38,479 |
|
Payments and currency translation |
|
|
(31,071 |
) |
|
|
(9,039 |
) |
|
|
(40,110 |
) |
Reclassification |
|
|
1,159 |
|
|
|
— |
|
|
|
1,159 |
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2005 |
|
|
27,018 |
|
|
|
9,137 |
|
|
|
36,155 |
|
Charges, Fiscal 2006 |
|
|
14,392 |
|
|
|
7,322 |
|
|
|
21,714 |
|
Payments and Currency Translation |
|
|
(34,637 |
) |
|
|
(13,434 |
) |
|
|
(48,071 |
) |
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2006 |
|
$ |
6,773 |
|
|
$ |
3,025 |
|
|
$ |
9,798 |
|
|
|
|
|
|
|
|
|
|
|
Remaining expenditures principally represent a) severance and related benefits payable per
employee agreements over periods up to three years and/or regulatory requirements; b) lease
commitments for certain closed facilities, branches and offices, as well as leases for excess and
permanently idle equipment payable in accordance with contractual terms, over periods up to five
years; and c) certain other closure costs including dismantlement and costs associated with removal
obligations incurred in connection with the exit of facilities.
The following tables provide additional detail of specific restructuring actions taken during
each of the fiscal periods covered in the table above:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Severance |
|
Closure |
|
|
| Fiscal 2006 |
|
Costs |
|
Costs |
|
Totals |
| |
|
|
|
|
|
|
U.S. Headcount Reductions (including Corporate) |
|
$ |
1,930 |
|
|
$ |
216 |
|
|
$ |
2,146 |
|
Closure of Nanterre, France |
|
|
234 |
|
|
|
2,711 |
|
|
|
2,945 |
|
Closure of Transportation North America Facilities |
|
|
1,228 |
|
|
|
1,570 |
|
|
|
2,798 |
|
Closure of Casalnuovo, Italy |
|
|
2,004 |
|
|
|
2,670 |
|
|
|
4,674 |
|
Headcount Reductions (Transportation Europe and ROW) |
|
|
2,953 |
|
|
|
317 |
|
|
|
3,270 |
|
European Headcount Reductions (including Corporate) |
|
|
3,135 |
|
|
|
— |
|
|
|
3,135 |
|
Headcount Reductions and Closure Costs (Industrial
Energy Europe and ROW) |
|
|
2,908 |
|
|
|
(162 |
) |
|
|
2,746 |
|
| |
|
|
|
|
|
|
|
|
|
Total Charge in the Statement of Operations |
|
$ |
14,392 |
|
|
$ |
7,322 |
|
|
$ |
21,714 |
|
| |
| |
|
|
|
|
|
|
|
|
|
F-34
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Severance |
|
|
Closure |
|
|
|
|
| Period May 6, 2004 to March 31, 2005 |
|
Costs |
|
|
Costs |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
U.S. Headcount Reductions (including Corporate) |
|
$ |
3,200 |
|
|
$ |
— |
|
|
$ |
3,200 |
|
Closure of Nanterre, France |
|
|
15,475 |
|
|
|
1,518 |
|
|
|
16,993 |
|
Closure of Weiden, Germany |
|
|
323 |
|
|
|
606 |
|
|
|
929 |
|
Closure of Transportation North America Facilities |
|
|
3,000 |
|
|
|
494 |
|
|
|
3,494 |
|
Closure of Casalnuovo, Italy |
|
|
529 |
|
|
|
2,696 |
|
|
|
3,225 |
|
Headcount Reductions (Transportation Europe and ROW) |
|
|
6,011 |
|
|
|
1,034 |
|
|
|
7,045 |
|
European Headcount Reductions (including Corporate) |
|
|
1,356 |
|
|
|
112 |
|
|
|
1,468 |
|
Headcount Reductions and Closure Costs (Industrial
Energy Europe and ROW) |
|
|
2,172 |
|
|
|
(47 |
) |
|
|
2,125 |
|
|
|
|
|
|
|
|
|
|
|
Total Charge in the Statement of Operations |
|
$ |
32,066 |
|
|
$ |
6,413 |
|
|
$ |
38,479 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Severance |
|
|
Closure |
|
|
|
|
| Period April 1, 2004 to May 5, 2004 |
|
Costs |
|
|
Costs |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Closure of Transportation North America Facilities |
|
$ |
— |
|
|
$ |
65 |
|
|
$ |
65 |
|
Closure of Casalnuovo, Italy |
|
|
— |
|
|
|
143 |
|
|
|
143 |
|
Headcount Reductions (Transportation Europe and ROW) |
|
|
152 |
|
|
|
180 |
|
|
|
332 |
|
European Headcount Reductions (including Corporate) |
|
|
12 |
|
|
|
— |
|
|
|
12 |
|
Headcount Reductions and Closure Costs (Industrial
Energy Europe and ROW) |
|
|
26 |
|
|
|
6 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
Total Charge in the Statement of Operations |
|
$ |
190 |
|
|
$ |
394 |
|
|
$ |
584 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Severance |
|
|
Closure |
|
|
|
|
| Fiscal 2004 |
|
Costs |
|
|
Costs |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
U.S. Headcount Reductions (including Corporate) |
|
$ |
600 |
|
|
$ |
— |
|
|
$ |
600 |
|
Closure of Weiden, Germany |
|
|
11,189 |
|
|
|
2,862 |
|
|
|
14,051 |
|
Closure of Transportation North America Facilities |
|
|
411 |
|
|
|
1,570 |
|
|
|
1,981 |
|
Closure of Casalnuovo, Italy |
|
|
7,361 |
|
|
|
708 |
|
|
|
8,069 |
|
Headcount Reductions (Transportation Europe and ROW) |
|
|
6,934 |
|
|
|
1,173 |
|
|
|
8,107 |
|
European Headcount Reductions (including Corporate) |
|
|
3,121 |
|
|
|
164 |
|
|
|
3,285 |
|
Headcount Reductions and Closure Costs (Industrial
Energy Europe and ROW) |
|
|
13,903 |
|
|
|
2,495 |
|
|
|
16,398 |
|
|
|
|
|
|
|
|
|
|
|
Total Charge in the Statement of Operations |
|
$ |
43,519 |
|
|
$ |
8,972 |
|
|
$ |
52,491 |
|
|
|
|
|
|
|
|
|
|
|
(17) INTEREST EXPENSE, NET
Interest income of $1,013, $2,026, $21, and $1,129 is included in interest expense, net for
the fiscal year ended March 31, 2006, the period May 6, 2004 to March 31, 2005, the period April 1,
2004 to May 5, 2005 and the fiscal year end March 31, 2004, respectively. Interest income earned as
a result of assumed excess cash balances due to the Chapter 11 filing was recorded in
Reorganization items, net in the Consolidated Statements of Operations for the period April 1, 2004
to May 5, 2004. See Note 6.
As of the Petition Date, the Company ceased accruing interest on certain unsecured
pre-petition debt classified as Liabilities subject to compromise in the Consolidated Balance
Sheets in accordance with SOP 90-7. Interest was accrued on certain pre-petition debt to the extent
that the Company believed it was probable of being deemed an allowed claim by the Bankruptcy Court.
Interest at the stated contractual amount on pre-petition debt that was not charged to results of
operations for the period April 1, 2004 to May 5, 2004 was approximately $3,339.
(18) OTHER (INCOME) EXPENSE, NET
F-35
Other (income) expense, net consist of:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Period |
|
|
|
|
|
|
|
| |
|
|
|
|
|
From |
|
|
Period From |
|
|
|
|
| |
|
Year Ended |
|
|
May 6, 2004 to |
|
|
April 1, 2004 to |
|
|
Year Ended |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
May 5, 2004 |
|
|
March 31, 2004 |
|
Net loss on sales of accounts receivable |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
11,260 |
|
Net (gain) loss on asset sales |
|
|
8,044 |
|
|
|
7,649 |
|
|
|
— |
|
|
|
(9,700 |
) |
Equity income |
|
|
(1,881 |
) |
|
|
(2,160 |
) |
|
|
(164 |
) |
|
|
(2,089 |
) |
Currency (gain) loss |
|
|
11,280 |
|
|
|
(2,580 |
) |
|
|
6,283 |
|
|
|
(43,846 |
) |
(Gain) loss on revaluation of foreign
currency forward contract |
|
|
(1,081 |
) |
|
|
13,165 |
|
|
|
— |
|
|
|
— |
|
Gain on revaluation of Warrants |
|
|
(9,125 |
) |
|
|
(63,112 |
) |
|
|
— |
|
|
|
— |
|
Other (a) |
|
|
(3,553 |
) |
|
|
(9,860 |
) |
|
|
103 |
|
|
|
3,651 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,684 |
|
|
$ |
(56,898 |
) |
|
$ |
6,222 |
|
|
$ |
(40,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
On September 24, 2004, the Company experienced a fire at one of its facilities in Europe.
While damage to the facility was contained, the Company has experienced disruption to certain of
its business operations and activities while the Company restored production capacity and diverted
production to alternative sites. During fiscal 2005, the Company
recognized $13,645 of insurance
recoveries; $10,807 included above in other and $2,838 in cost of sales. This represents partial
reimbursement for both business interruption and replacement of property damaged by the fire. In
fiscal 2006, the Company recognized the remaining $4,791(included in Other above) of total
insurance recoveries of $18,436 related to this incident. |
(19) PURCHASE COMMITMENTS
The Company’s primary purchase obligation relates to an arrangement with its sole supplier of
polyethylene battery separators. The Company sold its separator manufacturing operations in fiscal
2000 for approximately $47,000, including $26,100 in cash proceeds, to an unrelated party, Daramic,
Inc. (“Daramic” or the “Buyer”). In connection with the sale, the Company entered into a ten-year
supply agreement with Daramic that includes minimum annual purchase commitments and penalty
payments if such minimum annual purchase commitments are not met. The agreement also required
adjustment for the minimum annual purchase commitments if the Company acquired any customers of
Daramic during the term of the agreement. The Company recorded a gain on this sale of $9,500 and
established a liability for estimated purchase commitment shortfall penalties of $8,500 based on
anticipated future purchases from Daramic.
As a result of acquiring GNB, which was a customer of Daramic, the Company renegotiated the
supply agreement. Under the renegotiated terms and based on the Company’s estimates of its
purchases from the Buyer given the Company’s plan to integrate GNB, the Company recorded a charge
of $29,000 to cost of sales in fiscal 2001.
Based on development of its five-year business plan, in fiscal 2002, the Company revised its
unit volume outlook. This revision increased its expected liability related to purchase commitment
shortfall penalties to a total of $53,400 for the then remaining eight years of this supply
agreement. This resulted in recognition of an additional charge to cost of sales of $15,500 in
fiscal 2002. At March 31, 2006, the remaining estimated liability was $18,359.
The Company uses both polyethylene and absorbed glass microfibre (“AGM”) separators. There are
a number of suppliers from whom the Company purchases AGM separators. Polyethylene separators are
purchased solely from Daramic, with supply agreements expiring in December 2009. The agreements
restrict the Company’s ability to source separators from other suppliers unless there is a
technical benefit that Daramic cannot provide. In addition, the agreements provide for substantial
minimum annual purchase commitments. There is no second source that could readily provide the
volume of polyethylene separators used by the Company. As a result, any major disruption in supply
from Daramic would have an adverse impact on the Company
(20) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by the Company using
available market information and appropriate methodologies; however, considerable judgment is
required in interpreting market data to develop these estimates. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company could realize in a
current market exchange. Certain of these financial instruments are with major financial
institutions and expose the Company to market and credit risks and may at times be concentrated
with certain counterparties
F-36
or groups of counterparties. The creditworthiness of counterparties is continually reviewed,
and full performance is anticipated.
The methods and assumptions used to estimate the fair value of each class of financial
instruments are set forth below:
| |
• |
|
Cash and cash equivalents, accounts receivable and accounts payable—the carrying amounts of
these items are a reasonable estimate of their fair values. |
| |
| |
• |
|
Long-term receivables—the carrying amounts of these items are a reasonable estimate of their
fair value. |
| |
| |
• |
|
Short-term borrowings—Borrowings under miscellaneous line of credit arrangements have
variable rates that reflect currently available terms and conditions for similar debt. The
carrying amount of these line of credit arrangements is a reasonable estimate of its fair
value. |
| |
| |
• |
|
Long-term debt—Borrowings by foreign subsidiaries have variable rates that reflect currently
available terms and conditions for similar debt. |
The carrying values and estimated fair values of these obligations are as follows at March 31,
2006 and 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
March 31, 2006 |
|
March 31, 2005 |
| |
|
|
|
|
|
Estimated Fair |
|
|
|
|
|
Estimated Fair |
| |
|
Carrying Value |
|
Value |
|
Carrying Value |
|
Value |
Senior Secured Credit Facility |
|
|
$316,277 |
|
|
$319,440 |
|
|
$266,470 |
|
|
$264,700 |
Senior Secured Notes due 2013 |
|
|
290,000 |
|
|
218,950 |
|
|
290,000 |
|
|
276,950 |
Convertible Senior Subordinated Notes due 2013 |
|
|
60,000 |
|
|
30,000 |
|
|
60,000 |
|
|
55,044 |
At March 31, 2006, the Company had a liability of $2,812 representing the estimated fair value
of various outstanding foreign currency forward contracts. At March 31, 2005, the Company
recognized an asset of $2,656 representing the estimated fair value of outstanding lead forward
contracts.
(21) SEGMENT INFORMATION
The Company reports its results in four business segments Transportation North America,
Transportation Europe and ROW, Industrial Energy North America and Industrial Energy Europe and
ROW. The Company will continue to evaluate its reporting segments pending future organizational
changes that may take place.
The Company is a global producer and recycler of lead-acid batteries. The Company’s four
business segments provide a comprehensive range of stored electrical energy products and services
for transportation and industrial applications.
Transportation markets include original-equipment and aftermarket automotive, heavy-duty
truck, agricultural and marine applications, and new technologies for hybrid vehicles and 42-volt
automotive applications. Industrial markets include batteries for telecommunications systems,
fuel-cell load leveling, electric utilities, railroads, uninterruptible power supply (UPS), lift
trucks, mining and other commercial vehicles.
The Company’s four reportable segments are determined based upon the nature of the markets
served and the geographic regions in which they operate. The Company’s chief decision-maker
monitors and manages the financial performance of these four business groups. Costs of shared
services and other corporate costs are not allocated or charged to the business groups.
Certain asset information required to be disclosed is not reflected below as it is not
allocated by segment nor utilized by management in the Company’s operations.
F-37
Selected financial information concerning the Company’s reportable segments is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal 2006 |
| |
|
Transportation |
|
Industrial |
|
|
|
|
| |
|
|
|
|
|
Europe |
|
|
|
|
|
Europe |
|
|
|
|
| |
|
North |
|
and |
|
North |
|
and |
|
Other |
|
|
| |
|
America |
|
ROW |
|
America |
|
ROW |
|
(a) |
|
Consolidated |
Net sales |
|
$ |
913,317 |
|
|
$ |
810,894 |
|
|
$ |
274,976 |
|
|
$ |
820,689 |
|
|
|
— |
|
|
$ |
2,819,876 |
|
Gross profit (b) |
|
|
97,092 |
|
|
|
102,680 |
|
|
|
53,153 |
|
|
|
153,906 |
|
|
|
|
|
|
|
406,831 |
|
Income (loss) before
reorganization items, income
taxes, minority interest and
cumulative effect of change in
accounting principle (b) |
|
|
(6,080 |
) |
|
|
24,396 |
|
|
|
8,846 |
|
|
|
39,696 |
|
|
|
(216,941 |
) |
|
|
(150,083 |
) |
Depreciation and amortization |
|
|
29,720 |
|
|
|
31,567 |
|
|
|
10,869 |
|
|
|
33,107 |
|
|
|
17,166 |
|
|
|
122,429 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Period May 6, 2004 to March 31, 2005 |
| |
|
Transportation |
|
Industrial |
|
|
|
|
| |
|
|
|
|
|
Europe |
|
|
|
|
|
Europe |
|
|
|
|
| |
|
North |
|
and |
|
North |
|
and |
|
Other |
|
|
| |
|
America |
|
ROW |
|
America |
|
ROW |
|
(a) |
|
Consolidated |
Net sales |
|
$ |
772,272 |
|
|
$ |
764,238 |
|
|
$ |
203,815 |
|
|
$ |
735,934 |
|
|
|
— |
|
|
$ |
2,476,259 |
|
Gross profit |
|
|
100,970 |
|
|
|
106,645 |
|
|
|
44,264 |
|
|
|
125,623 |
|
|
|
— |
|
|
|
377,502 |
|
Income (loss) before
reorganization items, income
taxes, minority interest and
cumulative effect of change
in accounting principle |
|
|
(107,185 |
) |
|
|
(106,183 |
) |
|
|
(21,062 |
) |
|
|
(97,694 |
) |
|
|
(109,071 |
) |
|
|
(441,195 |
) |
Depreciation and
amortization |
|
|
24,634 |
|
|
|
30,469 |
|
|
|
9,576 |
|
|
|
31,335 |
|
|
|
12,738 |
|
|
|
108,752 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Period April 1, 2004 to May 5, 2004 |
| |
|
Transportation |
|
Industrial |
|
|
|
|
| |
|
|
|
|
|
Europe |
|
|
|
|
|
Europe |
|
|
|
|
| |
|
North |
|
and |
|
North |
|
and |
|
Other |
|
|
| |
|
America |
|
ROW |
|
America |
|
ROW |
|
(a) |
|
Consolidated |
Net sales |
|
$ |
75,299 |
|
|
$ |
58,927 |
|
|
$ |
19,193 |
|
|
$ |
61,188 |
|
|
|
— |
|
|
$ |
214,607 |
|
Gross profit |
|
|
11,121 |
|
|
|
7,850 |
|
|
|
4,775 |
|
|
|
11,724 |
|
|
|
— |
|
|
|
35,470 |
|
Income (loss) before
reorganization items, income
taxes, minority interest and
cumulative effect of change
in accounting principle |
|
|
2,413 |
|
|
|
691 |
|
|
|
1,607 |
|
|
|
1,914 |
|
|
|
(29,293 |
) |
|
|
(22,668 |
) |
Depreciation and
amortization |
|
|
1,904 |
|
|
|
1,817 |
|
|
|
1,052 |
|
|
|
2,223 |
|
|
|
852 |
|
|
|
7,848 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal 2004 |
| |
|
Transportation |
|
Industrial |
|
|
|
|
| |
|
|
|
|
|
Europe |
|
|
|
|
|
Europe |
|
|
|
|
| |
|
North |
|
and |
|
North |
|
and |
|
Other |
|
|
| |
|
America |
|
ROW |
|
America |
|
ROW |
|
(a) |
|
Consolidated |
Net sales |
|
$ |
817,710 |
|
|
$ |
760,512 |
|
|
$ |
210,572 |
|
|
$ |
711,699 |
|
|
|
— |
|
|
$ |
2,500,493 |
|
Gross profit |
|
|
146,790 |
|
|
|
159,062 |
|
|
|
47,032 |
|
|
|
156,441 |
|
|
|
— |
|
|
|
509,325 |
|
Income (loss) before
reorganization items, income
taxes, minority interest and
cumulative effect of change
in accounting principle |
|
|
63,020 |
|
|
|
75,640 |
|
|
|
14,397 |
|
|
|
4,439 |
|
|
|
(185,206 |
) |
|
|
(27,710 |
) |
Depreciation and
amortization |
|
|
23,794 |
|
|
|
24,438 |
|
|
|
12,568 |
|
|
|
26,786 |
|
|
|
10,230 |
|
|
|
97,816 |
|
|
|
|
| (a) |
|
Other includes shared services and corporate expenses, interest expense, net, currency
remeasurement loss (gain) and losses on sales of accounts receivable. |
| |
| (b) |
|
For fiscal 2006, gross profit and income (loss) before reorganization items, income taxes and
minority interest and cumulative effect of change in accounting principle for Transportation
North America and Industrial Energy North America reflect a change in the allocation of lead
costs between the two segments as compared to the prior period. |
F-38
The amounts for Industrial Energy North America would have been higher and Transportation North
America lower by $6,275 if the allocation change had not been made.
Geographic information is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Revenues from External Customers |
|
| |
|
|
|
|
|
Period From |
|
|
Period From |
|
|
|
|
| |
|
Year Ended |
|
|
May 6, 2004 to |
|
|
April 1, 2004 to |
|
|
Year Ended |
|
| |
|
March 31, 2006 |
|
|
March 31, 2005 |
|
|
May 5, 2004 |
|
|
March 31, 2004 |
|
United States |
|
$ |
1,103,453 |
|
|
$ |
907,813 |
|
|
$ |
88,950 |
|
|
$ |
956,596 |
|
France |
|
|
204,839 |
|
|
|
197,195 |
|
|
|
14,644 |
|
|
|
213,235 |
|
Germany |
|
|
348,435 |
|
|
|
329,147 |
|
|
|
25,143 |
|
|
|
327,014 |
|
UK |
|
|
153,396 |
|
|
|
139,500 |
|
|
|
12,097 |
|
|
|
158,069 |
|
Italy |
|
|
170,305 |
|
|
|
170,463 |
|
|
|
11,375 |
|
|
|
180,001 |
|
Spain |
|
|
228,225 |
|
|
|
213,957 |
|
|
|
16,954 |
|
|
|
195,574 |
|
Other |
|
|
611,223 |
|
|
|
518,184 |
|
|
|
45,444 |
|
|
|
470,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,819,876 |
|
|
$ |
2,476,259 |
|
|
$ |
214,607 |
|
|
$ |
2,500,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
Long-Lived Assets |
| |
|
2006 |
|
|
2005 |
|
United States |
|
$ |
267,356 |
|
|
$ |
300,666 |
|
France |
|
|
65,529 |
|
|
|
76,192 |
|
Germany |
|
|
77,189 |
|
|
|
91,233 |
|
UK |
|
|
37,637 |
|
|
|
44,266 |
|
Portugal |
|
|
42,346 |
|
|
|
49,735 |
|
Italy |
|
|
54,165 |
|
|
|
65,135 |
|
Spain |
|
|
89,705 |
|
|
|
111,008 |
|
Other |
|
|
51,915 |
|
|
|
61,528 |
|
|
|
|
|
|
|
|
Total |
|
$ |
685,842 |
|
|
$ |
799,763 |
|
|
|
|
|
|
|
|
(22) SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following is a summary of the Company’s quarterly consolidated results of operations for
fiscal years 2006 and 2005:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
| |
|
First |
|
Second |
|
Third |
|
Fourth |
Net sales |
|
$ |
669,332 |
|
|
$ |
686,485 |
|
|
$ |
733,442 |
|
|
$ |
730,617 |
|
Gross profit |
|
|
102,216 |
|
|
|
103,898 |
|
|
|
118,833 |
|
|
|
81,884 |
|
Net loss |
|
$ |
(35,709 |
) |
|
$ |
(33,023 |
) |
|
$ |
(27,658 |
) |
|
$ |
(76,342 |
) |
Basic and diluted loss per share |
|
$ |
(1.43 |
) |
|
$ |
(1.32 |
) |
|
$ |
(1.11 |
) |
|
$ |
(3.05 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2005 |
| |
|
Period From |
|
Period From |
|
|
|
|
|
|
| |
|
April 1, 2004 to |
|
May 6, 2004 to |
|
|
|
|
|
|
| |
|
May 5, 2004 (a) |
|
June 30, 2004 |
|
Second |
|
Third (b) |
|
Fourth (c) |
Net sales |
|
$ |
214,607 |
|
|
$ |
397,928 |
|
|
$ |
637,599 |
|
|
$ |
727,902 |
|
|
$ |
712,830 |
|
Gross profit |
|
|
35,470 |
|
|
|
64,799 |
|
|
|
95,012 |
|
|
|
125,751 |
|
|
|
91,940 |
|
Net income (loss) |
|
$ |
1,748,564 |
|
|
$ |
33,627 |
|
|
$ |
(17,101 |
) |
|
$ |
(439,040 |
) |
|
$ |
(44,409 |
) |
Basic and diluted income (loss) per share |
|
$ |
63.86 |
|
|
$ |
1.35 |
|
|
$ |
(0.68 |
) |
|
$ |
(17.56 |
) |
|
$ |
(1.78 |
) |
|
|
|
| (a) |
|
Includes gain on discharge of liabilities subject to compromise of $1,558,839 and Fresh
Start reporting adjustments of $228,371 |
| |
| (b) |
|
Includes the Company’s goodwill impairment charge of $399,388. |
| |
| (c) |
|
Includes an adjustment to the goodwill impairment charge of $10,864. |
(23) Subsequent
Events
On June 28, 2006,
the Company entered into a Standby Purchase Agreement with investors who would backstop a rights
offering of common stock by the Company to its shareholders and purchase additional shares of
common stock. Such transactions would provide gross proceeds to the
Company of up to $125,000 before expenses. The
closing of such transactions is subject to several conditions, including shareholder approval
(which the Company plans to seek at its annual meeting of shareholders in August 2006), there being
no material adverse effect on the Company’s business and there not being trading suspensions or
other adverse developments in the financial markets. Subsequent to
this transaction the Company will have more common stock issued and
as a result this transaction will have a dilutive affect.
F-39
EXIDE TECHNOLOGIES AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Schedule II
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at |
|
|
Additions |
|
|
Deductions/ |
|
|
|
|
|
|
Balance |
|
| |
|
Beginning |
|
|
Charged to |
|
|
Charge- |
|
|
|
|
|
|
at end |
|
| |
|
of period |
|
|
Expense |
|
|
offs |
|
|
Other (1) |
|
|
of period |
|
| |
|
(Amounts in thousands) |
|
Allowance for Doubtful Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2004 |
|
$ |
35,666 |
|
|
|
5,140 |
|
|
|
(19,031 |
) |
|
|
2,658 |
|
|
$ |
24,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period April 1, 2004 to May 5, 2004 |
|
$ |
24,433 |
|
|
|
473 |
|
|
|
(189 |
) |
|
|
(516 |
) |
|
$ |
24,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period May 6, 2004 to March 31, 2005 |
|
$ |
24,201 |
|
|
|
1,973 |
|
|
|
(4,041 |
) |
|
|
338 |
|
|
$ |
22,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2006 |
|
$ |
22,471 |
|
|
|
4,116 |
|
|
|
(3,378 |
) |
|
|
(1,572 |
) |
|
$ |
21,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Allowance on Deferred Tax Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2004 |
|
$ |
495,111 |
|
|
|
37,556 |
|
|
|
(9,540 |
) |
|
|
14,032 |
|
|
$ |
537,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period April 1, 2004 to May 5, 2004 |
|
$ |
537,159 |
|
|
|
15,547 |
|
|
|
(4,096 |
) |
|
|
(2,700 |
) |
|
$ |
545,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period May 6, 2004 to March 31, 2005 |
|
$ |
545,910 |
|
|
|
90,515 |
|
|
|
(45,058 |
) |
|
|
6,133 |
|
|
$ |
597,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2006 |
|
$ |
597,500 |
|
|
$ |
48,905 |
|
|
$ |
(339,642 |
) |
|
$ |
(6,045 |
) |
|
$ |
300,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Primarily the impact of currency changes as well as the acquisitions and divestitures of
certain businesses. |
F-40