This excerpt taken from the XIDE 10-K filed Jun 4, 2009.
The Company has experienced significant fluctuations in raw material prices, particularly lead, and further changes in the prices of raw materials or in energy costs could have a material adverse effect on the Companys business, financial condition, cash flows, or result of operations.
Lead is the primary material used in the manufacture of batteries, representing approximately 42.0% of the Companys cost of goods sold. Average lead prices quoted on the London Metal Exchange (LME) have fluctuated dramatically, from $2,856 per metric ton for fiscal 2008 to $1,654 per metric ton for fiscal 2009. As of May 29, 2009, lead prices quoted on the LME were $1,530 per metric ton. If the Company is unable to maintain or increase the prices of its products proportionate to the decrease or increase in raw material costs, the Companys 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 onto its customers. Fluctuations in the Companys prices could also cause customer demand for the Companys products to be reduced and net sales to decline. Rising lead costs require 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 polypropylene, 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 impact the Companys available cash.
The Companys restructuring activities, designed to address the worsening global economy and excess capacity caused by reduced demand, may not realize the efficiencies anticipated and could result in additional unanticipated costs, which could have a material adverse effect on the Companys business, financial condition, cash flows or results of operations.
The Company is undertaking restructuring activities in the context of the project to close its Auxerre, France transportation manufacturing facility to address excess capacity created, in part, by worsening economic conditions and reduction in demand for original equipment transportation batteries. The restructuring plans may involve higher costs or a longer timetable than the Company currently anticipates, mainly due to the timing and execution of some plans and programs subject to local labor law requirements, and consultation with appropriate work councils. The Company also expects the restructuring plans to result in substantial costs related to severance and other employee-related costs, and these costs may not result in improvements in future financial performance. The restructuring plans may also subject the Company to litigation risks and expenses. The Company may also undertake additional restructuring to address excess capacity elsewhere in its global operations as a result of current economic conditions. If the Company is unable to realize the benefits of these restructuring activities or appropriately structure our business to meet market conditions, the restructuring activities could have a material adverse effect on the Companys financial condition, cash flows or results of operations. See Note 12 to the Consolidated Financial Statements.