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Exide Technologies' Chapter 11 Affidavit

Exide Technologies' Chapter 11 Affidavit

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Published by DealBook
The affidavit from Exide Technologies explaining why the car battery maker filed for Chapter 11 protection.
The affidavit from Exide Technologies explaining why the car battery maker filed for Chapter 11 protection.

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Categories:Types, Business/Law
Published by: DealBook on Jun 10, 2013
Copyright:Attribution Non-commercial

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06/10/2013

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Exide’s earnings and liquidity position ultimately making this chapter 11 filing a necessary step

for Exide to de-lever its balance sheet and implement an operational restructuring plan with the

tools available to it under the Bankruptcy Code. These forces have included:

Rising production costs resulting in compressed margins. The cost of lead
currently represents approximately 46% of the Debtor’s cost of goods sold. The
Debtor has generally managed this key cost driver through its recycling facilities.
However, higher spent-battery costs and lead-related price increases have put
pressure on the Debtor’s margins—exacerbated further by the shutdown of the
Debtor’s Vernon facility, discussed below. Suppliers of raw materials have subjected
Exide to pricing premiums, and Exide has been unable to pass along higher
production costs to customers.

Intense competition. In recent years, competition in the battery industry has
intensified, especially in the auto parts retail and mass merchandise channels where
large customers are able to use their buying power to negotiate lower prices and
longer payment terms, or move business elsewhere if their demands are not met. In
this regard, one of Exide’s then major customers, Wal-Mart Stores Inc., designated
Johnson Controls—Exide’s principal competitor—its sole-source supplier of
transportation batteries and stopped carrying Exide’s transportation products. This
switch resulted in Exide’s loss of approximately $160 million in annual revenue.
More significantly, in addition to the revenue lost from Wal-Mart sales, Exide also
lost an important and reliable source of battery cores under a captive-core
arrangement with Wal-Mart.

Case 13-11482 Doc 3 Filed 06/10/13 Page 10 of 73

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Exposure to European Market. With significant operations in Europe accounting
for approximately 51.2% of the Company’s worldwide revenue, Exide has been
negatively impacted by the recent economic downturn that has persisted in Europe.

Constrained Liquidity. In the midst of market and competitive challenges, the
Company recently has experienced additional pressure on its liquidity. Downgrades
by credit-ratings agencies, discussed below, resulted in less favorable credit terms
with the Company’s trade creditors and limited the Company’s ability to receive new
financing outside the context of chapter 11. Constrained liquidity also has limited
Exide’s ability to invest in its businesses, primarily in North America, causing the
Company to be at a competitive disadvantage relative to bigger, better-capitalized
competitors.

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