Exide Technologies Business Report FY2006
Business Highlights
in thousand dollars | FY2006 (ended March 31, 2006) |
(★)Combined
results for FY2005 (ended March 31, 2005) |
Rate of change (%) | Factors |
Overall | ||||
Sales | 2,819,876 | 2,690,866 | 4.8% | See note 1) below |
Operating profit before reorganization items, income taxes | (150,083) | (463,863) | 67.6% | See note 2) below |
Sales of Transportation | ||||
Transportation North America | 913,317 | 847,571 | 7.8% |
See note 3) below |
Transportation European and ROW | 810,894 | 823,165 | (1.5)% | See note 4) below |
(★)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.
Factors
1)-
Net sales were $ 2,820 million for fiscal 2006 versus $2,691 million 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 million. Excluding the currency impact, net sales
increased by approximately $182 million 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.
2)-Income (loss) before reorganization items, income taxes and
minority interest was ($150 million)) or (5.3 %) of net sales in fiscal
2006 versus ($464 million) or (17.2%) of net sales in fiscal 2005.
Fiscal 2005 included a goodwill impairment charge of $389 million. Also
Included in expenses are restructuring charges of $21.7 million in
fiscal 2006 and $43.1 million in fiscal 2005.
-Gross profit was $407 million in fiscal 2006 versus $413 million in
fiscal 2005. Currency negatively impacted gross profit in fiscal 2006 by
approximately $8.4 million. 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.
(*)Note: 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.
3)-Transportation North America net sales were $913 million for fiscal
2006 versus $848 million for fiscal 2005. Net sales for fiscal 2006 were
$65.7 million 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.
4)-Transportation Europe and ROW net sales were $810,9 million for
fiscal 2006 versus $823,2 million for fiscal 2005. Net sales, before the
unfavorable impact of $27,7 million 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.
Restructuring plan
-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 $21.7 million representing $14.4
million for severance and $7.3 million 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, 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.
Outlook
-The Company expects that the 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.
(iii) Continuing to reduce costs, improve
customer service and satisfaction through enhanced quality and reduced
lead times.
R&D
-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 its 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.
Patent, Trademarks and Licenses
-The Company currently owns approximately 300 trademarks and licenses from others the right to use fewer than 25 trademarks worldwide.
-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.