This excerpt taken from the XIDE 10-Q filed Feb 14, 2005.
Factors Which Affect the Companys Financial Performance
Lead. Lead is the primary material by weight used in the manufacture of batteries, currently representing approximately one-third of the Companys 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 which may cause customer demand for our products to be reduced and our revenues and gross margins to decline. Since March 31, 2003, lead prices quoted on the London Metal Exchange (LME) have increased from $457 per metric tonne to over $990 per metric tonne at December 31, 2004, a change of over 100%. At March 31, 2004, lead prices were $829 per metric tonne. To the extent the Company is unable to pass on these higher material costs to its customers, the Companys financial performance and outlook would be adversely impacted.
Competition. The global transportation and industrial energy battery markets, particularly in North America and Europe, are highly competitive. In recent years, competition has continued to intensify and the Company continues to come under increasing pressure for price reductions. This competition has been exacerbated by excess capacity and increasing lead prices as well as low-priced Asian imports impacting the Companys 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. In some instances, gains in one currency may be offset by losses in another. Movements in European currencies impacted the Companys results for the periods presented herein. For the nine months ended December 31, 2004, approximately 54% of the Companys net sales were generated in Europe. Further, approximately 69% of the Companys aggregate accounts receivable and inventory as of December 31, 2004 were denominated in European currencies.
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, telecommunications and material handling markets. Economic difficulties experienced in these markets and geographic locations have and continue to impact the Companys financial results.
Weather. Unusually cold winters or hot summers accelerate automotive battery failure and increase demand for automotive replacement batteries.
Interest rates. The Company is exposed to fluctuations in interest rates on its variable rate debt.