Exide Technologies (XIDE)

(11) ACCOUNTING FOR GOODWILL AND INTANGIBLES

Effective April 1, 2001, the Company adopted SFAS No. 141 “Business Combinations” (“SFAS 141”) and SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 141 also specifies the criteria applicable to intangible assets acquired in a purchase method business combination to be recognized and reported apart from goodwill. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment, at least annually. SFAS 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and be reviewed for impairment.

The Company completed its most recent annual impairment assessment of goodwill effective December 31, 2004, utilizing its updated 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.

Summarized goodwill activity is as follows:

The amounts of goodwill, net allocated to the Predecessor Company’s Transportation, Motive Power and Network Power segments was approximately $307,000, $221,000 and $0, respectively, at March 31, 2004. Above is based on the Predecessor Company’s existing segments in fiscal years 2004 and 2003. For a discussion of the Successor Company’s segments, see Note 27.

During the first quarter of fiscal 2003, the Predecessor Company experienced deterioration in the performance of its then existing European Network Power business. In accordance with the provisions of SFAS 142, the goodwill associated with the Network Power business was reviewed for impairment due to the fact that circumstances indicated the carrying value may not be recoverable. As a result, the Predecessor Company recognized a goodwill impairment charge in fiscal 2003 of $37,000.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At March 31, 2005, net intangible assets of the Successor Company included trademarks and tradenames of $56,331 which are not subject to amortization, trademarks and tradenames which are subject to amortization of $11,885, customer relationships which are subject to amortization of $101,938, as well as technology subject to amortization of $22,700. The gross amount of identified intangibles at March 31, 2005 was $198,893 and the related accumulated amortization was $6,039. Amortization expense was $6,039 for the period May 6, 2004 to March 31, 2005. Annual amortization expense for each of the next five years is expected to be $6,600. Net intangible assets of the Predecessor Company included trademarks of $38,600 at March 31, 2004, which were not subject to amortization as well as technology of $7,840 which was being amortized over its useful life of 10 years. The technology gross carrying amount was $10,900 and the related accumulated amortization was $3,060 at March 31, 2004.

(10) ACCOUNTING FOR GOODWILL AND INTANGIBLES

Effective April 1, 2001, the Company adopted SFAS No. 141 “Business Combinations” (“SFAS 141”) and SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 141 also specifies the criteria applicable to intangible assets acquired in a purchase method business combination to be recognized and reported apart from goodwill. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment, at least annually. SFAS 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and be reviewed for impairment.

During the first quarter of fiscal 2003, the Company experienced deterioration in the performance of its European Network Power business. In accordance with the provisions of SFAS 142, the goodwill associated with the Network Power business was reviewed for impairment due to the fact that circumstances indicated the carrying value may not be recoverable. As a result, the Company recognized a goodwill impairment charge in the first quarter of fiscal 2003 of $37,000. This amount is in addition to the $105,000 goodwill impairment recorded in the third quarter of fiscal 2002 within the Network Power segment. The impairment charge was determined based upon a comparison of the book carrying value of this reporting segment, including goodwill, against its fair value, estimated using a discounted cash flow model. After giving effect to the first quarter fiscal 2003 impairment charge, all goodwill of the Network Power segment has been written off. Above is based on the Company’s existing segments in fiscal years 2004, 2003 and 2002. For a discussion of the Company’s segments, see Note 27.

The Company completed its annual impairment assessment of goodwill effective December 31, 2003, utilizing its most recently updated five-year business plan as the basis for development of discounted cash flows and an estimate of fair values. As a result of the comparison of the book carrying values of its reporting

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

segments, including goodwill, against these estimated fair values, the Company determined that no goodwill impairment charges were required. As a result of the Company’s reorganization plan, there will be material changes to the carrying amount of assets and liabilities, including goodwill, in the Consolidated Financial Statements. See Note 4.

Summarized goodwill activity for fiscal 2004 and 2003 is as follows:

The amounts of goodwill, net allocated to the Company’s Transportation, Motive Power and Network Power segments are approximately $307,000, $221,000 and $0, respectively, at March 31, 2004 and $270,000, $194,000 and $0, respectively, at March 31, 2003. Above is based on the Company’s existing segments in fiscal years 2004, 2003 and 2002. For a discussion of the Company’s segments, see Note 27.

Net intangible assets include trademarks of $38,600 at March 31, 2004 and March 31, 2003 which are not subject to amortization as well as technology of $7,840 which is amortized over its useful life of 10 years. The technology gross carrying amount was $10,900 at March 31, 2004 and March 31, 2003 and the related accumulated amortization was $3,060 and $1,940 at March 31, 2004 and March 31, 2003, respectively.

(10) ACCOUNTING FOR GOODWILL AND INTANGIBLES

Effective April 1, 2001, the Company adopted SFAS 141 and SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 141 also specifies the criteria applicable to intangible assets acquired in a purchase method business combination to be recognized and reported apart from goodwill.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment, at least annually. SFAS 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and be reviewed for impairment.

Under the provisions of Fresh Start reporting, goodwill of the Predecessor Company was eliminated as of the Effective Date. The Company allocated reorganization value to the Company’s assets based upon their estimated fair values in accordance with SFAS 141. The estimated fair value of the Company’s identifiable intangible assets was based upon the work of independent appraisers as well as internal valuation estimates of future cash flows discounted at appropriate current rates. Identified intangible assets included tradenames and trademarks, customer relationships and technology. Identified intangible assets with finite lives are being amortized under the straight-line method over their applicable estimated useful lives, estimated to be between ten and forty years. The excess of reorganization value over the fair value of identified tangible and intangible net assets was allocated to Goodwill of the Successor Company.

The Company completed its most recent annual impairment assessment of goodwill effective December 31, 2004, utilizing its updated 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 on a preliminary basis that goodwill was fully impaired and a write-down of the entire $399,388 balance of goodwill was required. The Company will complete its analysis and update its preliminary estimate during the fourth quarter.

Summarized goodwill activity is as follows:

At December 31, 2004 net intangible assets of the Successor Company included trademarks and tradenames of $56,331 which are not subject to amortization, trademarks and tradenames which are subject to amortization of $12,138, customer relationships which are subject to amortization of $103,037, as well as technology subject to amortization of $22,995. The gross amount of identified intangibles at December 31, 2004 was $198,893 and the related accumulated amortization was $4,392. Amortization expense was $1,647 and $4,392 for the three months ended December 31, 2004 and for the period May 6, 2004 to December 31, 2004, respectively. Annual amortization expense for each of the next five years is expected to be $6,600.